Competition and Chaos

U.S. Telecommunications since the 1996 Telecom Act

When Congress passed the 1996 Telecommunications Act, legislators anticipated that the reduced regulatory barriers would lead to increased competition among U.S. telecommunications providers, and, in turn, the new competition would drive innovation and reap economic benefits for both American consumers and telecommunications providers. But the legislation had a markedly different impact. While many of the more aggressive providers enjoyed sharp short-term rises in stock market values, they soon faced sudden collapse, leaving consumers with little or no long-term benefit.

In Competition and Chaos, Robert W. Crandall analyzes the impact of the 1996 act on economic welfare in the United States. He also examines how the act and its antecedents have affected the major telecommunications providers, some of whom are now a threatened species, caught in a downward spiral of declining prices and substantial losses. In the wake of the 2001-02 telecom stock market collapse, the industry is preparing for an intense battle for market share among three sets of surviving carriers: the wireless companies, the local (largely Bell) telephone companies, and the major cable television operators. None is assured a clear path to dominance in the drive to attract customers to an expanding array of voice, data and audio services. Although the telecom stock market collapse is now history and the survivors are investing once again, Crandall concludes that regulators failed to adapt to the chaos to which they contributed until the courts forced them to do so.