Category Archives: Investment

When in Doubt, Regulate…

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In 1999, the FCC began to grant incumbent LECs pricing flexibility on special access services in some Metropolitan Statistical Areas (“MSAs”) when specific evidence of competitive alternatives were proven to be present.  Ever since, whether or not the Commission was justified in following the path toward deregulation of special access services has been disputed.  A proceeding initiated in 2002 on the topic of special access pricing flexibility remains open today. Recent press reports indicate that FCC Chairman Julius Genachowski is now circulating a proposal that would transform the way the FCC regulates such high capacity services.  Among other things, this Continue Reading »

What is the Effect of Regulation on Investment?

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What is the effect of regulation on investment?  At a high level of abstraction, it is impossible to say.  Rate-of-return regulation, for example, is criticized by economists for possibly encouraging too much investment—a principle known as the Averch-Johnson Effect.  On the other hand, if a firm fears that the regulator will alter the rules in a way that reduces the ability to earn profits on large, long-term capital investments, then the incentive to make such investments is reduced.  Importantly, the issue is not, as some claim, just about “regulatory uncertainty.”  There could be great uncertainty about future rule changes, but Continue Reading »