Letting Go: Deregulating the Process of Deregulation.

• Author: MacAvoy, Paul W.
• Position: Review

By Alfred E. Kahn.

East Lansing, MI: Institute of Public Utilities, Michigan State University, 1998. Pp. iv, 146. $19.95

The Telecommunications Act of 1996 (TA96) was the largest and latest in a series of deregulation statutes from the United States Congress that sought to decontrol prices and entry by phases, subject to regulation in each phase, eventually to achieve a soft landing at the competitive market equilibrium. It was the largest on many dimensions--the amount spent by special interests in lobbying, the length of the statute, and the extent of the mandate given to the Federal Communications Commission (FCC) to implement phased deregulation--to name just three.

Emeritus Professor Alfred E. Kahn, the senior visionary in the economics of regulation, takes the position in Letting Go that since TA96 there has been no substantive deregulation of telecommunications. Instead, the industry has been put on a trajectory by the FCC of increasing costs in local exchange, so as to add token carriers but not competitors, while sustaining high regulatory barriers to entry in long distance.

That was Professor Kahn's vision 18 months after passage of the statute. Now five years after passage, one incumbent regulated local exchange carrier, in one state, has met the FCC requirement of underpricing the services of its network elements to entrants in order to be allowed itself to enter long-distance services. In this process, that carrier involved both state and federal regulatory agencies in setting the terms and conditions of its service at every, switch in its statewide network. So much for deregulating while phasing in the TA96 prescriptions in local and long-distance markets.

This book is important for those concerned with new federal policies for reducing regulation by stages under agency jurisdiction. And it is of interest as well, so as to determine why Professor Kahn is so accurate in forecasting more regulation from such phased deregulation. One compelling reason is his enviable record for detecting and revealing administrative malfeasance; after all, as chairman, he redefined the level of "necessary" regulated entry at the Civil Aeronautics Board as whatever level resulted from free entry, and as a member of the White House staff, he redefined the Carter administration's dysfunctional inflation policies as "banana." But another, more immediate reason for reading Letting Go is that Professor Kahn has an economic theory of regulatory agency...