Telecom regulators need to assess costs along with benefits when ...

goods and as costless,” PFF Pres. Ray Gifford said. The speakers cited a PFF study released earlier this month (CD Oct 16 p11) saying wireless telephone users could be charged more than $16 billion per year in fees that were intended to pay for federal regulatory mandates, such as local number portability (LNP), number pooling, Enhanced 911 (E911) and CALEA. “The agencies that are responsible for these regulations should be doing a decent job of estimating benefits as well as costs before they promulgate these regulations, which they are not doing,” said PFF Senior Fellow Thomas Lenard. He said the increase in costs associated with LNP would be $1.60 per customer per month and would total more than $12 billion over 5 years: “The question is whether the benefits are larger than costs.” The speakers agreed it wasn’t clear whether LNP would drive prices down as a result of increased competition. “It may lower the cost of switching, but depending on how much [consumers] are going to be charged for porting their numbers, it’s not obvious if it would lower the price,” Lenard said. There is “already a tremendous amount of competition” in the wireless industry “even without number portability,” with churn having reached above 30% and prices dropping 20% per year, Lenard said. He said it was unclear what would happen after the number portability went into effect Nov. 24 “because the market will adjust in various ways.” He said while costs of switching could go down, “carriers may change the terms of contract” to offset the losses. Gifford said it also was important to consider how LNP would affect market penetration. The PFF had estimated that fees based on regulatory mandates would price 8 million subscribers out of the wireless market, with 5 million due to LNP. “There is a lot of welfare lost,” Lenard said: “Several million people are being priced out of the wireless market -- that’s a substantial cost that needs to be laid against any benefits.” PFF Senior Fellow Randy May also expressed concern that the number of states and municipalities entering the telecom market as service providers rose 54% in less than 3 years: “Six years after the 1996 Act, we would want to see the trend going the other way.” However, he said the federal govt. shouldn’t prohibit state or local govt. provision of communications networks: “I think that states themselves should have that authority as a matter of policy.” He said there were “some situations in some places, which are rare,” when govts. should be able to get in the business: “Those places are likely to be more remote where there aren’t services being provided by a private sector. In those rare cases, it makes sense… for the government provision. But that’s really an exception.” On the Triennial Review Order, Gifford said it was “just a precursor of a series of federalism fights that we are going to have down the road because these are all issues where it is clear that the states line up differently than the feds.” For example, he said, states and the federal govt. had to resolve how state and local taxes would be applied to voice- over-Internet Protocol: “There are a host of issues that are going to have to be worked out between the states and the federal government, and the Triennial Review is just a first in the series where you are going to have this continuing tension between the states and the federal consensus.”