Sending The Right Signals: Promoting Competition Through Telecommunications Reform
(Released October 2004)
Executive Summary
Although the telecommunications industry accounts for only 0.9 percent of U.S. employment today, it was responsible for an astonishing 29 percent of net job losses suffered between March 2001 and May 2004. The industry remains mired in depression, even as the U.S. economy now exhibits expansion in virtually every other sector. Overall employment increased by 1.4 million jobs between August 2003 and May 2004; during the same period, telecom employment declined by a further 23,000 jobs.
The magnitude of lost wealth is staggering. From March 2000 to July 2004, the market capitalization of the telecommunications service industry declined by 67 percent, or $760 billion, from $1,135 billion to $375 billion. During the same period, the market capitalization of the equipment makers in the communications technology sector declined 74 percent, or $944 billion, from $1,282 billion to $338 billion.
A healthy telecommunications sector is crucial to U.S. economic growth. The quality of our voice, video, and data services helps drive both productivity gains and the global competitiveness of American business. Although telecommunications made up just 2.9 percent of total GDP as of 2002, communications networks are a key component of the basic infrastructure of our modern economy. Improving investment incentives here would substantially improve growth, employment, and incomes all across the economy.
This study examines how government regulation contributes to the pronounced, long-lived telecommunications slump. The study then recommends reforms to promote the creation of competitive voice, video, and data networks, to encourage new investment, and to speed deployment of innovative technologies. Finally, the study provides estimates of the impact of these reforms on capital formation, employment, productivity, and growth.
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