The Public's Network?

5 Pages Posted: 1 Jun 2004

See all articles by George S. Ford

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: May 13, 2004


On April 8, 2004, the Heritage Foundation released a Backgrounder entitled Are U.S. Telecom Networks Public Property? by James Gattuso and Norbert Michel. There, the authors claim that the current telephone network was paid for by the shareholders of the incumbent Bell monopolists, and not by captive ratepayers who bore the downside risks of network construction over the past century, primarily as a result of the government's use of franchised monopoly and price regulation in local telecoms (i.e., guaranteed rates of return funded by consumers).

To support this position, Gattuso and Michel utilize a financial model that relies primarily on an analysis of the amount of cash the Bell companies used to increase property, plant, and equipment (PP&E).

However, the author finds that Gattuso and Michel's financial analysis is replete with analytical errors and data problems. After correcting these errors, Gattuso and Michel's conceptual framework implies that ratepayers bore the downside risk for the construction of 96% of the current Bell Company local exchange network. Thus, the author argues that ratepayers have a sizeable claim regarding the policy outcomes of efforts to promote competition to the incumbent Bell monopolists' wireline networks.

Keywords: Telecommunications, Competition, Unbundling, Entry, 1996 Act, property rights

JEL Classification: K23, L10, L50, L96, O33, 038

Suggested Citation

Ford, George S., The Public's Network? (May 13, 2004). Available at SSRN: or

George S. Ford (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

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