Wither service quality?

Recently, the Telecommunications Industry Association published a report examining the potential impact of declining capex on service quality. Its findings show what many have long known or suspected: There is a direct and irrefutable relationship between levels of network investment and service quality. The more than 50 percent drop in capex from 2001 to 2002 therefore should cause alarm bells among regulators at every level. The time to act to create a regulatory environment that promotes investment, innovation and shareholder value clearly is now. The TIA report refers to a period between 1993 and 1999 when Ameritech reduced its capital-to-sales ratio well below both industry norms and the company's prior levels. In fact, during that period, the RBOC cut its annual capex below 20 percent of sales and below $100 per access line. Ameritech's decision to cut capital spending had a negative impact on the company's customers. In 1993 and 1994, residential customer complaints filed with state regulatory commissions in Ameritech's five-state region averaged 16 (1993) and 15 (1994) complaints per 1 million access lines, the lowest of any RBOC at that time. The data further indicates that it took two to three years for relative reductions in capex to adversely affect service quality.