Economist Credits Gore with Retarding Broadband Infrastructure Development

(April 28, 2000) AEI economist Thomas Hazlett assessed the economic and political consequences of government regulation of communications at a conference in Washington DC on April 27. Among his conclusions were that the Cable Act of 1992 was a disaster for broadband infrastructure deployment, and that then Sen. Al Gore played a big role in passing the Act.

Thomas Hazlett, an economist at the American Enterprise Institute (AEI), presented and answered questions about a paper titled "The Economic and Political Consequences of the 1996 Telecommunications Act."

	Thomas Hazlett

He participated in an AEI conference titled "Economic Evidence on the Effects of the Telecommunications Act of 1996", on Thursday, April 27, in Washington DC. The event was cosponsored by the USC Center for Communications Law and Policy.

Hazlett stated that compared to other major communications legislation, the 1996 Act has done well. But this is only because most of the others have been disasters. His singled out the 1927 Radio Act, the 1934 Communications Act, and the 1992 Cable Television Consumer Protection and Competition Act for harsh criticism.

Hazlett wrote that the 1992 Act's "primary thrust was rate regulation. This program quickly became counter-productive for consumers, as cable systems responded to FCC-mandated rate rollbacks by lowering quality."

Hazlett also presented data showing that the growth of cable subscription rates grew rapidly prior to rate regulation, and again after the rate rules were relaxed by the Federal Communications Commission. However, they barely grew during the time period that the 1992 Act's restrictions were in effect.

"Gore had a big part in the 1992 Cable Act. I think that the message is clear that the Cable Act was a disaster for infrastructure development. Gore does not take credit for retarding broadband infrastructure by imposing price controls on cable TV," said Hazlett.

Hazlett elaborated on the 1992 Cable Act in his paper. The price controls led "cable operators to lower quality and defer investments in upgrading systems".

"Growth trends indicate that households are more likely to subscribe to unregulated packages than to price-controlled cable packages. Since the former are nominally more expensive, the implication is that subscribers perceive them to be of higher quality."

Hazlett continued that removing the price controls has been critical to facilitating the investment necessary to upgrade cable systems to provide Internet access. "Existing plant must be upgraded, and such upgrades are costly. Removing the risk premium associated with rate controls will lower the cost of capital in the sector, allowing the necessary investments to be made more efficiently."

Hazlett addressed the 1992 Cable Act in his written paper, and in his oral presentation. His comments about Al Gore came in response to a question from a Wall Street Journal reporter about Al Gore's role.

Hazlett began by stating that all political leaders try to build a portfolio of political accomplishments; and Gore's portfolio includes Internet development.

"It is certainly a great identification for Gore, as a Democrat, to have the linkages that he has to that sector. And really, smart, and alert, and leading Democrats, have at least since Gary Hart in 1984, tried to be Atari Democrats," Hazlett continued.

"And, uh, ___. And not knowledge of telecom specifically, but through his, his interest and involvement, implicit as it may be, with the Department of Justice for the Microsoft case. He has connections to the California software industry, that are extremely important politically, as well."

"And, I think that what is interesting is that, specifics of actual big policy, big ticket items, we are talking about here, usually don't get much -- there is really not much feedback on exactly what he thinks. What is Al Gore's _______? He seems to be really interested in charting one."

"Gore had a big part in the 1992 Cable Act. I think that the message is clear that the Cable Act was a disaster for infrastructure development. Gore does not take credit for retarding broadband infrastructure by imposing price controls on cable TV systems. And certainly, the press doesn't take a look at that."

"Gore certainly does take credit for being out front for subsidies to certain advanced networks, you know, promoted by the Defense Department. And there is a question as to how much that action has had to do with infrastructure development of the Internet, but Gore is able to draw a connection, and does benefit from that."

"I think that it is probably fairly important that Gore has this thing. Probably, the Bush campaign is looking very seriously at what they can do to try to catch up."

Gerald Faulhaber, the discussant for Hazlett's paper, smiled silently when it was his turn to answer the Wall Street Journal reporter's question.

Hazlett then quipped, "He's looking at me like, 'I'm smart enough not to answer that question.' "

Hazlett presented the third of three papers at the conference. Gerald Faulhaber, of the Wharton School, at the University of Pennsylvania, then discussed his paper. The other participants were Gregory Sidak (AEI), who acted as moderator, Nicholas Economides (NYU) who presented a paper overviewing the 1996 Act, Gerald Brock (GWU) who discussed it, Dale Lehman (Fort Lewis College) who presented another paper, and Jeffrey Rohlfs (Strategic Policy Research) who discussed it.