Phoenix Center on Business Data Services and the FCC

The Phoenix Center has released a new paper penned by Dr. George Ford titled “Learning from Bad Technique: The WIK-Consult Report on Business Data Services.” While the title of the paper may leave you guessing, its findings make pretty clear that the FCC’s current course and speed when it comes to Business Data Services are misguided. From the paper:

The need for rate regulation requires first a determination that there is market power, meaning that the observed prices or rates are above some “proper” level, usually defined with reference to economic cost or competitive outcomes. Yet, no party has provided the Commission with convincing evidence that prices are not “just and reasonable.” Instead, the unsupported claim that BDS prices “are too damn high” pretty much sums up the economic arguments, leaving the Agency little to work with and explaining its historical reluctance to intervene.

But past is past and the current Commission under Chairman Tom Wheeler has signaled its determination to address and likely lower BDS rates. The regulatory paradigm is outlines in the BDS NPRM is to skirt the issue of evaluating market power altogether, and instead use the simple head-count of the number of competitors as proxy. This analytical substitution is without validity in economic theory and especially inapt for telecommunications markets where fixed costs are largely relative to market size.

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