Cost or Benefit? A Review of the Consumer Federation of America’s Report on Regulating Special Access Services

In this perspective, I provide a detailed review of the Consumer Federation of America’s attempt to calculate a “big number” in the context of the Federal Communications Commission’s development of a new regulatory scheme for special access services. CFA’s claim is based on a method that is internally inconsistent, economically unsound, and computationally flimsy. Justifiable changes in CFA’s assumptions results in multi-billion dollars reductions in economic output and the method leads to ridiculous policy prescriptions. Is there market power in special access markets? Perhaps. But poorly crafted and clumsily implemented efforts to measure revenue changes are entirely unhelpful.

What the Commission needs to know is how to properly define market power in these markets, “how much” market power there is, and if the answer is “a lot,” then what regulations, if any, can be designed and implemented that will make society better off.33 Thus far, the Commission and the advocates for more regulation have no reasonable plan. By far, however, the most critical misunderstanding in the Commission’s thinking is its failure to trace out the implications of its choice for market definition. If special access services are sold in markets defined as individual customers, then there is countervailing market power. Economic theory indicates that regulation cannot improve economic welfare under such conditions. Nevertheless, the Commission, the alleged “expert” agency, blindly proceeds to develop regulations incompatible with its own characterization of special access services.