Can Regulation Actually Help Special Access Outcomes?

The Federal Communications Commission recently has been looking at regulation of special access prices, as always with a view to promoting competition. But economists at the Phoenix Center for Advanced Legal & Economic Public Policy Studies say in a paper that if the Commission continues to adhere to a geographic market that is “location specific,” which is consistent also with the position of those calling for renewed regulation of the services, then price regulation reduces economic welfare in all instances.

In other words, regulation cannot actually improve outcomes for the economy as a whole, even if it benefits buyers of wholesale special access from the underlying carriers selling that access. 


The basic problem is that in local markets, both sellers and buyers effectively are monopolists. The effect of regulation in such settings is mostly to transfer profits from seller to buyer, but every $1 of transfer costs more than $1 to society, so price regulation of special access services in location-specific markets unambiguously reduces welfare.


Obviously, the question of market definition will be critical in determining the path forward on regulating special access services; in fact, far more critical than the extent of competition, the Phoenix Center argues.