The US telecommunications industry in transition: Bypass, regulation and the public interest

Abstract

Since the AT&T divestiture, the Federal Communications Commission has been attempting to introduce competition into the telecommunications industry in the USA. This article discusses the problems of the transition period, particularly the contradictions between the policy of widespread availability of affordable basic telephone service, and the short-run burdens on most subscribers as competition erodes the toll-to-local subsidy. The authors discuss welfare economics in the telecommunications industry, and propose an interim and self-terminating plan for gradual deregulation. The proposal includes an empirical test of economic or uneconomic local exchange bypass, and a social compensation option which meets the requirements of Pareto superiority.