Lessons from Deregulation: Telecommunications and Airlines After the Crunch

102 Pages·2004·0.7 MB·English

by  Alfred E. Kahn

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Lessons from Deregulation
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Lessons from
Deregulation
Telecommunications
and Airlines
after the Crunch
Alfred E. Kahn
-  
  
Washington, D.C.
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Copyright © 2004 by AEI-Brookings Joint Center for Regulatory Studies, the American
Enterprise Institute for Public Policy Research, Washington, D.C., and the Brookings
Institution, Washington, D.C. All rights reserved. No part of this publication may
be used or reproduced in any manner whatsoever without permission in writing
from the AEI-Brookings Joint Center, except in the case of brief quotations
embodied in news articles, critical articles, or reviews.
Lessons from Deregulation may be ordered from:
Brookings Institution Press
1775 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Tel.: [phone] or [phone]
Fax: [phone]
www.brookings.edu
Library of Congress Cataloging-in-Publication data
Kahn, Alfred E. (Alfred Edward)
Lessons from deregulation : telecommunications and airlines after the
crunch / Alfred E. Kahn.
p. cm.
Includes bibliographical references and index.
ISBN 0-8157-4819-1 (pbk. : alk. paper)
1. Aeronautics, Commercial—Deregulation—United States.
2. Airlines—Deregulation—United States. 3.Telecommunication—
Deregulation—United States. I. Title.
HE9803.A3K28 2004
3849.041—dc22 2003022922
9 8 7 6 5 4 3 2 1
The paper used in this publication meets minimum requirements of the
American National Standard for Information Sciences—Permanence of Paper for
Printed Library Materials: ANSI Z39.48-1992.
Typeset in Adobe Garamond
Composition by Circle Graphics
Columbia, Maryland
Printed by R. R. Donnelley
Harrisonburg, Virginia
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Contents
Foreword vii
Acknowledgments ix
1 Introduction 1
2 The Airlines: “Normal” Recession plus 9/11 and Iraq 3
Cyclical Sensitivity plus 9/11 4
The Triumph and Vulnerability of Hub-and-Spoke Operations 5
The Restructuring Response 7
3 Telecommunications: Tangled Wires and
Deregulatory Remedies 21
The Unequivocal Successes of Deregulation 21
The Role of the AT&T Divestiture and Its Gradual Reversal 23
The Growth of Local Competition 25
The Bubble Bursts 26
The Apportionment of Blame: The 1996 Telecommunications Act 28
A Reentry of Antitrust? 41
Line Sharing 43
4 Conclusion 47
Notes 49
Index 83

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Foreword
Fred Kahn is one of a kind. As chairman of the New York Public
Service Commission, he ignited the quest for more efficient regulation
of telephone and electricity monopolies. As chairman of the federal
Civil Aeronautics Board, he opened the door to airline deregulation.
And as one of the most insightful and articulate proponents of eco-
nomic deregulation, he helped set the agenda for regulatory reform
around the globe.
In this book, Dr. Kahn examines the role of regulation (or lack
thereof) in the recent financial meltdowns in the airlines and telecom-
munications industries. He concludes that the catastrophic outcomes
experienced by investors in these industries did not result from deregu-
lation. Indeed, he argues that more deregulation, not less, is the order
of the day.
This volume is one in a series commissioned by the AEI-Brookings
Joint Center for Regulatory Studies to contribute to the continuing
debate over regulation. The series addresses several fundamental issues
in regulation, including the design of effective reforms, the impact of
proposed reforms on the public, and the political and institutional
forces that affect reform. We hope that this series will help illuminate

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 
many of the complex issues involved in designing and implementing
regulation and regulatory reforms at all levels of government.
The views expressed here are those of the author and should not be
attributed to the trustees, officers, or staff members of the American
Enterprise Institute or the Brookings Institution.
 . 
Executive Director
 . 
Director
AEI-Brookings Joint Center for Regulatory Studies
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Acknowledgments
I gratefully acknowledge the invaluable comments of Jonathan Baker,
Gary Dorman, Michael E. Levine, Dennis Weisman, John C.
Wohlstetter, Charles A. Zielinski; the research assistance of Jaime
D’Almeida and Peter Rothemund; the continuing support of Richard
Rapp and National Economic Research Associates (NERA); the superb
editing of Peter Passell; and Martha Ullberg and Tanis Furst for taking
charge of the editorial process. The section on telecommunications
draws so heavily on my previous collaborations with Timothy J. Tardiff
and has profited so from his continuing assistance and review that mere
acknowledgement of his contribution is inadequate. Still, coauthorship
would unfairly hold him responsible for its deficiencies.
