Competition in the Telecommunications Industry * 07/16/96 Competition in the Telecommunications Industry Gregory L. Rosston Stanford Institute for Economic Policy Research grosston@stanford.edu *

Outline of Talk History Overview of Telecom Act Implementation * 07/16/96 Outline of Talk History Overview of Telecom Act Implementation what were we thinking? Competition how it is affected by all of this. If there is time, so may be a bit rushed. *

Why Do We Care About Competition? * 07/16/96 Why Do We Care About Competition? Long Distance $50 Billion (net of access) Local $100 billion Internet $10 billion (and growing!) Inefficiencies and innovation 1. Big numbers. 2. Important Sector of the Economy alone 3. Key input into lots of other industries and changing the way we do business. E-Loan 4. *

Simplified Version of the Network * 07/16/96 Simplified Version of the Network IXC POPs End Office End Office CPE CPE *

Network of Networks Nirvana * 07/16/96 Network of Networks Nirvana Unbiased technology choice Unbiased service choices Meeting consumer demand Interconnection is the key *

Triple Play Facilities-based Unbundled elements Resale * 07/16/96 Triple Play Facilities-based Depends on customer, area Local Exchange Unbundled elements 40% discount Platform approach Resale Immediate 15-25% discount *

Telecom Act Nirvana Universal Service Access Reform Interconnection Long Distance Entry

Symmetric vs. Asymmetric Termination Rates * 07/16/96 Symmetric vs. Asymmetric Termination Rates Asymmetric cellular termination Assume 1000 local minutes per month, 10% share. Net termination payments of $27 per month per customer. $0.00/min Wireline Cellular $0.03/min *

Interconnection--What were we thinking? * 07/16/96 Interconnection--What were we thinking? Leveling the playing field upwards Dominant network vs. competing to garner network effects Forward-looking economic costs *

What has happened? Moving with all due speed Jurisdictional fights or * 07/16/96 What has happened? Moving with all due speed Jurisdictional fights or ? Act discusses negotiation. Sets up framework for what to do if negotiations fail. That should have been completed a long time ago. (9 months from date of Act). Just now getting some permanent rates. Court challenges on a variety of fronts GTE challenging (almost) every state hearing in court. Others have been somewhat more circumspect because of need for future state cooperation. Bill of attainder and 8th Circuit cases/ *

Local Rate Structure -- Kentucky

InterLATA Entry Economies of scope through bundling * 07/16/96 InterLATA Entry Economies of scope through bundling Incentive to open local market Incentive to increase number of access minutes Tauzin-Dingell Value of one stop shopping Cost savings through better use of networks. Opening local competition. If no carrot, then harder to do. Look at differences with GTE “Double marginalization” problem. B/c of imperfect competition *

RBOCs IXC – IP Companies AT&T MCI/Worldcom Sprint Level 3 Others Wireless Co.s Verizon Sprint AT&T Nextel Cingular Voicestream Nextwave CLECs Covad Northpoint Rhythms XO Winstar Others Cable Co.s AT&T AOL-TimeWarner Comcast Charter Others