Telephone Companies in Paradise: A Case Study in Telecommunications Deregulation.

Almost every day, some telecommunications story is in the news, reflecting both the rapid changes in technology and industrial organization and the complexities of finding appropriate policy responses to these changes. Telephone Companies in Paradise contributes to our understanding of the difficulties of devising and implementing effective policies. Unfortunately, its focus on telephone alone limits the applicability to the merged communications technologies that will characterize what the Clinton Administration is calling the National Information Infrastructure, or NII. Nevertheless, within its more limited framework, it is a clearly written book that thoroughly evaluates the effects of one form of deregulation and draws useful lessons for readers with interests in political economy, regulation, or state policy as well as telecommunications policy.

The breakup of AT&T in 1982 and a Supreme Court decision increasing state power over telecommunications regulation offered states an opportunity to develop innovative forms of regulation. Nebraska, the state central to Mueller's book, went farthese in deregulating telephone companies.

Mueller assesses the effectiveness of deregulation in reducing the inefficiencies economic theorists impute to regulation. He begins with a chapter on economic theory of regulation that not only sets the stage for the remainder of this study by suggesting where changes might occur with deregulation, but also serves as one of the clearest and most concise reviews of the theory of rate regulation that I have ever read. The author then offers a brief history of the legislation that paved the way for deregulation in Nebraska, showing how compromises necessary to get the bill passed resulted in a law that did not in fact fully deregulate. Although the majority of the book uses quantitative data to assess the economic effects of deregulation, here and throughout several of the later chapters, Mueller is careful to discuss the political and institutional implications and causes of the various phenomena he identifies, enriching and deepening his economic analysis.

The book is also useful for those who are interested in ways of conducting sound, quantitative comparative research (several other states are included along with Nebraska) in the absence of all the necessary data. Mueller finds that deregulation has not had all the effects predicted by economists, in part because of the limitations in the statute, and in part because of institutional and other constraints on the phone companies, who do not operate in a perfect marketplace. The temptations faced by truely competative phone companies to ignore small and rural consumers did not arise in full force in Nebraska, and Mueller does not treat them in as much detail as they perhaps deserve.

A reviewer cannot criticize a work because it is not the book she wanted to read. The present work is thorough, surprisingly pleasant to read given its subject matter, makes imaginative and sensible use of available data, and provides useful summaries and analysis to keep the reader on track. Nevertheless, Nebraska's was not a full experiment in deregulation for reasons the author makes clear, and telephone is not the only player nor the only model for the coming NII. Exemplary though the present work is, it will be of limited use for thos hoping to formulate innovative policies for the merged technologies of the future. Nevertheless, in the field of deregulation, where ideology rather than data has often served as the basis for analysis, this work stands out for its use of both qualitative and quantitative background and for its thoughtful and balanced approach to a complex issue.

Susan G. Hadden
LBJ School of Public Affairs
The University of Texas at Austin