Phoenix Center Disputes CFA Special Access Findings
The Phoenix Center released a study Monday challenging conclusions in a recent Consumer Federation of America study that special access "overcharges" by major carriers have cost consumers more than $150 billion in macroeconomic losses since 2010 (see 1604050031). The center…
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said the paper by CFA Research Director Mark Cooper draws heavily on a 2011 report by economist Stephen Siwek of consulting firm Economists Inc. “There are both significant conceptual and technical problems with the Siwek-Cooper Method,” said the paper by Phoenix Center economist George Ford. “The conceptual underpinning of the method is logically inconsistent and leads to ridiculous policy prescriptions. Also, making relatively minor but valid adjustments to Siwek['s] and Cooper’s assumptions turns an alleged multi-billion-dollar benefit from a special access price reduction into a multi-billion-dollar bust for the U.S. economy.” Cooper’s description of his calculation of the $150 billion in alleged benefits is “characteristically a muddled mess,” but Siwek’s analysis is more clear, Ford said. Among its flaws, Siwek and Cooper assume that elasticity is a constant -1.6 across the entire demand curve, he said. “This is an implausible assumption, well known to economists, but ensures that the computed quantity change for a large price reduction is enormous (thus, ensuring a large revenue increase),” Ford wrote. “If you expect your research to influence policies that could impact billions of dollars of investment, you should put in the effort to do the work properly,” Ford said in a news release. “CFA’s claim is based on a method that is internally inconsistent, economically unsound, and computationally flimsy.” Special access reform is before the FCC. Chairman Tom Wheeler recently circulated a Further NPRM and tariff order for a vote at the commission’s April 28 open meeting (see 1604110065). Cooper fired back. “There is no data in George’s paper, he never has any data, it’s just this vacuous theory,” he told us. Verizon and Incompas made a joint proposal at the FCC for revamping special access services (see 1604070069) because the telco now recognizes “that the jig is up,” he said. “The existence of market power and the use of market power are overwhelmingly clear. … The reality has finally caught up with the special access services of the local phone companies.” Cooper also said the price reduction data isn't based on Spiwak but on analysis by Susan Gately and “my own extensive analysis … over the past two decades.”