Tuesday, December 2, 2003 - The Progress & Freedom Foundation Blog

In Praise of TELRIC

No, surely not from me. I decided one of those proceedings and it proved an analytical pain I do not wish to duplicate. Nevertheless, the pseudonymous M. Quodlibet offers this rejoinder to Kent Lassman's earlier knock at the NARUC TELRIC resolution:

"The PFF blog (on 11-19-03) appears to take issue with NARUC's recently passed resolution on TELRIC. First, it claims that NARUC was not embarrassed and admitted that its position was arbitrary when it urged that States retain discretion to adopt fill factors that may vary from an ILEC's actual fill factors. It is not arbitrary to suggest that the FCC should resist the temptation to lock in indefinitely fill factors that reflect only current ILEC data, nor is it arbitrary to suggest that the FCC should consider letting the states recognize the "long run" aspect of TELRIC, as upheld by the U.S. Supreme Court, and set fill factors that take into account potential changes in the market. The blog also questions whether TELRIC has been a factor in "encouraging and sustaining local competition." The facts speak for themselves. Local competition has been fostered by the states' application of TELRIC, with more than 13 million lines today in the hands of UNE-P providers, most of the lines being secured after states applied TELRIC principles. The ILECs have in turn been able to offer bundled packages to more than 27 million customers, in direct competition with UNE-P providers. The impairment proceedings currently pending before state PUCs will reveal the importance of their granular analysis- some markets will be deemed competitive and UNE-P will be phased out, in other markets, impairment will be found to exist and the ILECs will continue to receive a fair return on the lines that they lease."

I reprint the good francophile's correspondence complete, but now am obliged to briefly respond. To begin with "fill factors" -- along with average loop length, plant mix, soil mix, depreciation rates and innumerable other factors in a TELRIC cost model are arbitrary insofar as the "LR" part of "TELRIC" admits no fixed point for the regulator or the advocate to prove a factual case about the efficient forward-looking cost. It is the old reproduction cost problem from the 1930s back in the extreme. TELRIC is a fantasy (which can cut any way you like from a public choice perspective; it need not be, as it often is now, UNE-P entrant beneficial). In turn, that fanciful number being generated by the TELRIC cost model obscures a much more real, short-run industrial policy judgment by the regulator: how much immediate, intramodal [UNE-P] competition do we want to create by creating margin under the retail rates at the expense of facilities-based competition? This regulatory industrial policy is the source of the UNE-P competition that M. Quodlibet praises. Personally, however, I see no consumer benefit issuing from this aggressive TELRIC margin-awarding, and great cost from the TELRIC's implosion of Schumpeterian incentives to invest and innovate by all parties, incumbents and new competitors alike.

posted by Ray Gifford @ 2:28 AM | General