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"[S]uch is life that, whatever is proposed, it is much
easier to find reasons for rejecting than embracing."
- Samuel Johnson, The Rambler No. 39

Thursday, July 21, 2005

The Case for Total Preemption; and Response
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For Preemption:
The preemption model has enjoyed a large measure of success in deregulating network industries. Preemption of state regulation under a uniform deregulatory federal scheme resulted in large consumer welfare gains in other network industries: airlines, trucking, railroads and natural gas production. In addition, preemption allowed parochial interests and public choice pressures inherent in state regulatory schemes to be overcome. [This is not to deny that federal agencies can also be a public choice wonderland. It is just more difficult to capture them.] Preemption allowed the interests of consumers to triumph over the interests of regulated industries, which often act as the fiercest defenders of state regulation because the regulation can be turned to their advantage.

The political economy of a continued state role cannot be ignored. The conditions that allowed for broadly preemptive federal roles in other network industries are not present in communications. For one, in no industry save communications, has the state role in rate regulation -- and specifically rate regulation in pursuance of “universal service” goals -- been so pervasive. This means that state reliance interests remain strong for some continued regulatory role. Finally, recent history shows that the political economy preferences for federal as opposed to state jurisdiction can shift – rapidly. Since the ’96 Act, the main industry opponents, the RBOCs and IXCs, flipped their respective jurisdictional preferences. Immediately post-96 Act, the RBOCs preferred the state regulatory venues; the IXC’s preferred the FCC. That changed around 2000, when the RBOC allegiance shifted to the FCC and the IXC”s embraced the states’ as their champions. In sum, there is no a priori reason to prefer the policy choices at a given jurisdictional level.

All said, the universal service traditions of communications, the rate structures, the access charges, were barely touched by the '96 Act, despite provisions to the contrary. It would be fanciful to think that those universal service traditions can be excised root and branch in this DACA. Therefore, we retain a basic service rate for states to maintain, but largely shift the ground to competition policy, which can only be undertaken by states subject to federal delegation.

posted by Ray Gifford @ 9:21 AM | Preemption

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