Economic Implications of the FCC's UNE Decision: An Event Analysis Study

Abstract

On February 20, 2003, the Federal Communications Commission (FCC) voted to approve new unbundled network element (UNE) rules modifying the terms under which incumbent telephone companies must resell their network facilities to competitors. The previous rules were widely criticized - and indeed, had been invalidated by the courts - for being too broad and requiring that facilities be made available at rates far below cost, even in the absence of evidence they were necessary for competitive entry. The FCC's February 2003 decision modified the prior rules by giving the states authority to forbear from enforcing the UNE or rules, and were seen as a defeat for those who had argued for doing away with the rules altogether. In this study, we examine the impact of the FCC's decision on the two telecommunications industry sectors most directly affected by the FCC's decision, the Regional Bell Operating Companies (RBOCs) and the competitive local exchange carriers that rely on the platform (UNE-P CLECs). We also examine the impact of the decision on facilities-based CLECs and telecom equipment makers. We find that the FCC decision had a significant negative impact on RBOC market capitalization, reducing their going-forward value by approximately $19 billion compared to what it would have been had the FCC repealed the UNE-P rules. By impairing access to capital needed for investment in telecommunications infrastructure, the decision will likely slow deployment of advanced broadband telecommunications services, impede growth in the information technology sector, and result in a less robust economic recovery than would otherwise have occurred.