The Role of Competition in Stimulating Telecom Investment
Kevin A. Hassett, Laurence Kotlikoff | AEI Online
October 02, 2002

  • Download

Abstract

After booming in the second half of the 1990s, the telecom industry has fallen on hard times. Hundreds of large and small telecom firms that attempted to compete with the incumbent local exchange carriers (ILECs) have gone broke. Others are close to that fate. The ILECs blame this outcome on the CLECs (competing exchange carriers). The CLECs blame it on the ILECs. While the two sides and their supporters have been arguing, a ray of light has started to shine at the end of the industry's tunnel. The market share of new entrants has finally begun to increase sharply.

Is that increase a temporary phenomenon or a sign that markets are evolving as economic theory would predict? As demonstrated in this paper, strengthening competition in the telecom sector is the key to restoring telecom investment. Doing so has ramifications that range far beyond that particular sector. About two-thirds of our economy’s growth is driven by innovations in information technology.[2] Telecom plays an essential role in information acquisition and dissemination and accounts for the lion’s share of IT investment and innovation. A vibrant telecom sector is thus vital to the short and long-term success of the economy.

This paper reaches its pro-competitive conclusions after considering the empirical evidence, reviewing basic lessons about monopoly behavior, and exploring a more realistic model of the industry and telecom policy. The empirical evidence connecting competition to telecom investment is striking. During 1996-2000, over a third of gross investment was done by the CLECs even though their revenue was only one fifteenth that of the ILECs.3 In 2000, at the peak of the investment boom, CLECs invested $25 billion, which almost matched the $27 billion of gross ILEC investment.

Click here to view the full paper as an Adobe Acrobat PDF.

Kevin A. Hassett is a resident scholar at AEI. Laurence J. Kotlikoff is chairman of the Department of Economics at Boston University and a research associate at the National Bureau of Economic Research.

  • Download
Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Kevin A.
Hassett
  • Before joining AEI, Mr. Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at the Graduate School of Business of Columbia University, as well as a policy consultant to the Treasury Department during the George H. W. Bush and Clinton administrations. He served as an economic adviser to the George W. Bush 2004 presidential campaign, chief economic adviser to Senator John McCain during the 2000 presidential primaries, senior economic adviser to the McCain 2008 presidential campaign, and economic adviser to the Mitt Romney 2012 presidential campaign.   Mr. Hassett is a columnist for National Review.

  • Phone: 202-862-7157
    Email: khassett@aei.org

  • Assistant Info

    Name: Emma Bennett
    Phone: 202-862-5862
    Email: emma.bennett@aei.org
Show More | See Full Profile

What's new on AEI

image Unleash the private sector
image The difference it will make
image How the R&D tax credit is like duct tape
image From Beijing to Jerusalem
close

Join the AEI Media List

AEI's press office frequently sends press advisories highlighting the availability of scholars to discuss particular news topics, as well as recent AEI products (such as studies, articles, and testimonies). Please enter your contact information below to be added to our media list.
JOIN MEDIA LIST
AEI on Facebook
Events Calendar
  • 20
    MON
  • 21
    TUE
  • 22
    WED
  • 23
    THU
  • 24
    FRI
Tuesday, May 21, 2013 | 5:00 p.m. – 6:30 p.m.
Free beer: Liberating libations from ‘Bootleggers and Baptists’

Join us for a discussion of the history and future of federal and state alcohol regulation and competition, followed by a reception with beer, wine, and spirits.

VIEW EVENT DETAILS
Wednesday, May 22, 2013 | 5:00 p.m. – 6:30 p.m.
NCLB sanctions: Tests taken, lessons learned

Join education scholars and practitioners for a discussion about the latest NCLB research and its implications for future education policy.

VIEW EVENT DETAILS
Thursday, May 23, 2013 | 12:00 p.m. – 1:30 p.m.
Competing visions of the common good: Rethinking help for the poor

What shared commitments do we have as citizens and neighbors to care for one another? How can a proper ordering of America’s political economy enable the most people to have the best life? At this event, Rep. Frank Wolf (R-VA), a longtime champion of human rights causes, and AEI President Arthur Brooks will join Wallis in addressing these and other questions.

VIEW EVENT DETAILS
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.