Review of Industrial Organization 22: 89–92, 2003.
The Telecommunications Act of 1996: The “Costs” of Managed Competition,Dale
E. Lehman and Dennis Weisman, editors. Boston: Kluwer Academic Publishers,
September 2000, x + 128 pages, $95.
This short monograph assesses the success of the Telecommunications Act of 1996
in promoting competition in the telecommunications industry. It concludes that the
Federal Communications Commission (FCC) has been obstructionist in order to
maintain its role in regulating the telecommunications industry.
In one sense I am a good choice to review this monograph because I am familiar
with the institutional structure of the industry and I continually work on implement-
ing provisions of the Telecommunications Act of 1996. In another sense, however,
I am a poor choice to review this monograph because it is sharply critical of my
employer and I have self-preservation instincts. Nevertheless, I will try to stick to
the facts of the analysis by Lehman and Weisman.
The monograph is divided into two parts. The ﬁrst deals with telecommunica-
tions industry trends and market structure and the impact of the Telecommunica-
tions Act of 1996 on stock prices of incumbent local exchange carriers. The second
part deals with network element pricing mandated in the Telecommunications Act
of 1996. I think both parts suffer signiﬁcant shortcomings. In part one, for example,
the second chapter assesses what has happened in the telecommunications industry
since the divestiture of AT&T in 1984. Unfortunately, the discussion lacks any ana-
lysis of the technical complexities involved in implementing the separation of long
distance service from local service. (The notion of separations is never addressed.)
How to deal with regulatory boundaries and the interactions between local service
and long distance service are things that continue to plague the industry. Beyond
this, cost issues associated with providing local service are not discussed. This
is a real oversight since it bears heavily on which elements are included in un-
bundled network element pricing and how these prices are determined. When cost
issues for long distance service are discussed, they are incompletely understood.
For example, access charges, which are what local telephone subscribers and in-
terexchange carriers (long distance companies) pay the local exchange carriers to
connect to the local exchange carriers’ network, are complemented in rate proceed-
ings with a subscriber line charge. The authors suggest that the FCC has nefarious
motives in setting that portion of rates over which it has jurisdiction because, in and