What Happens When Local Phone Service Is Deregulated?

The process of de-monopolization and price liberalization of retail telephone services has been underway in the United States for several decades. In recent years, roughly a dozen states have completed the liberalization process by eliminating price controls on basic telephone service. Opponents of price liberalization have claimed that the removal of price controls would lead to higher (even “unaffordable”) rates. This regression analysis, however, demonstrates that, holding other factors constant, liberalization has led to lower prices. Moreover, looking at several indices of utilization, this study finds no evidence that rates have become less affordable as a result of liberalization. Given the broad consensus that liberalization contributes to innovation and overall economic welfare, and the strong evidence that the removal of price controls on other telephone services has benefited consumers, it can be concluded that liberalizing price controls on basic telephone service will benefit consumers and contribute to economic growth.

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