Barriers to Investment

The agenda for the conference grew out of the perception that imperfections in the 1996 Act and other telecommunications policies, along with serious and even crippling problems with the regulatory process, have stifled efficient investment in the industry. Participants agreed with Dale Hatfield, who, at the time of the conference, was CEO of the consulting firm Hatfield associates, when he emphasized that simply increasing capital inflow or reaching some arbitrary absolute level of investment is not the goal. The idea is to encourage economically efficient investment, based on rational expectations for the evolution of a competitive market. Increased investment motivated by incorrect prices, for example, would hardly be desirable. On the other hand, if regulated prices or enduring artificial barriers to entry distort investment decisions, that most certainly is a matter for concern. Participants generally agreed that policy at federal, state, and local levels is having such effects. Some of the hindrances to efficient investment in some or all telecommunications market sectors mentioned are listed below. This is a list of contentions-most of the items would not be considered significant impediments by at least some participants.

• Carrier certification requirements that are costly, cumbersome, and time-consuming;
• Uncertainty over whether state or federal regulators' jurisdiction applies;
• Difficulty of obtaining access to rights-of-way, buildings, and antenna sites;
• Uncertain regulatory status of the Internet;
• For incumbent local exchange carriers (ILECs), requirement of total-element long-run incremental cost (TELRIC) pricing, unbundling of service elements, and uncertainty over ability to recover embedded costs;
• Inefficient, regulation-set prices for ILECs at the retail level;
• Universal service obligations that could require ILECs to deploy any new service ubiquitously;
• Regulatory processes that create uncertainty and delay and use up resources in "gaming the process" that might otherwise be invested in telecommunications itself;
• Use of telecommunications, especially by local governments, as a source of tax revenues, and specifically, the imposition of rents or taxes by local governments that are unrelated to costs of using or maintaining rights-of-way;
• Regulatory commissions' lack of a clearly defined mission in a changed and rapidly changing environment;
• The frequent need to deal with multiple, sometimes conflicting, regulatory and judicial jurisdictions; and
• Difficulties in enforcing policies that are meant to encourage equitable interconnection agreements between ILECs and competitive local exchange carriers (CLECs).

Admittedly, this enumeration reads something like a laundry list of company complaints about regulation in general. Perhaps the implication is that most of the frustrations that industry representatives cite can diminish firms' incentives to invest, enter, and compete. The issues and potential solutions that generated the most interest and discussion were:

• Regulatory process reform;
• Regulatory treatment of ILECs' entry into new areas outside of local exchange service;
• Regulation of wholesale and retail prices charged by ILECs, specifically, enforcement and potential phaseout of TELRIC pricing and unbundling requirements, and restructuring of retail rates;
• The nature, legitimacy, and proper level of taxes and rents on telecommunications that are imposed by local governments; and
• The potential for and desirability of public investment in telecommunications infrastructure.

Send comments or questions to tricia.kelly@aspeninst.org