Report: Telecom Act Spurred Investment

WASHINGTON, June 24 -- The 1996 Telecommunications Act produced a surge in telecoms investment and capital stock, and claims to the contrary are untrue, according to the Phoenix Center, non-profit organization that studies public policy and regulated industries.

Based on the difference between actual ($572 billion) and forecasted levels of investment ($305 billion), the Phoenix Center estimates that the 1996 Act generated $267 billion in additional telecommunications investment from 1996 through 2001. Using data from the US Commerce Department's Bureau of Economic Analysis, the Phoenix Center said it found that the historic legislation in fact triggered a surge in new investment by the nation's telecom firms, and that new investment grew at an average annual rate of 22.3 percent, with $95.3 billion invested annually (on average) for a total of about $572 billion during this time.

"The data shows clearly that the mere prospect of competition unleashed a wave of new investment," Phoenix Center President Lawrence Spiwak said in a statement. "The investment growth verifies basic economics -- companies that have to compete for customers invest more than monopolists who, by definition, never cut costs or innovate."

Spiwak said the relationship between competition and investment is worth remembering in current policy decisions. "The Bell companies are telling regulators that if you shield them from competition, they will spend more money on innovations. But both their record and economic common sense says it's not so," Spiwak added. "If you want to boost investment, the best answer is more competition."

The bulletin reports that even with the recent slowdown, as long as policy-makers do not retreat from the competitive gains made to date, telecom investment should continue to exceed the historic norm.

A copy of "Policy Bulletin No. 4: The Truth About Telecommunications Investment" may be downloaded free at: www.phoenix-center.org/PolicyBulletin/PolicyBulletin4Final.pdf