The role of competition and regulation in stimulating innovation – Telecommunications

The telecommunications sector is innovative and its innovations strongly affect the growth of the rest of the economy. While regulatory policy has therefore shifted towards innovation as its major goal besides enabling competition, there appear to be tensions between regulation, competition and innovation. This paper identifies as the roots of these tensions the consumer protection objective enshrined in regulatory legislation and the regulatory neutrality issues arising from stranded assets, loss of labor rents, loss of services by captive customers, and the threat to regulators from looming deregulation, all of which are associated with innovations. This paper identifies some similar threats to innovation in unregulated sunk-cost industries with a monopolistic incumbent. A very simple model shows that a comparison of innovation incentives in such an unregulated industry with a regulated one leads to ambiguous results. However, the prospect of converting a regulated industry into an unregulated one after the innovation has occurred will unambiguously increase innovation incentives.     

Convergence and unbundling of corporate R&D in telecommunications: is software taking the helm?

This paper presents a view of the changing structure of corporate R&D in telecommunications – one that is close to Adam Smith’s insightful and enduring idea of division of labor – that perhaps we are witnessing the beginnings of vertical disintegration and unbundling of important segments of the industry’s R&D activity. The paper maintains that the emergence of an independent software industry – aided by the convergence of computer, telecommunications and imaging technologies – and the rapid growth of technology-based alliances are at the heart of this trend. So extensive is the vertical disintegration of R&D that, in 1997, the top 10 independent software vendors in the US spent more on R&D than the combined spending by AT&T and Lucent whose sales were well over three times as large. It appears that the source of future innovation in the telecommunications industry lies not in its services segment but rather in telecommunications and Internet equipment firms and independent software firms. Increasingly, the fortunes of large service providers like AT&T will depend less on innovation and more on their ability to configure and market complete one-stop-shopping solutions to customers by combining internal resources with outsourced technologies, products and services.     

40 years on: An account of innovation in the regulation of UK telecommunications,in 3½ chapters

The past nearly 40 years have seen major developments in telecommunications networks and services, and in how they are regulated. This paper describes innovations in UK telecommunications regulation which have taken place over the period, broken down into stages, beginning with the regulation of the former monopolist by an independent regulator under a price cap, continuing the regulation first of mobile and then, under European Directives, of copper-based broadband, and ending with the diffusion of fibre networks. It is argued that a variety of changes have reduced the scope of innovation over the period, including domestic institutional reform, the limits placed on later decisions by earlier ones (path dependency), and the constraining impact of European Union law and regulation. The paper concludes with some consideration of the effects on future innovation of the UK’s withdrawal from the EU.     

Mapping worldwide mobile networks: Some problems and indicative solutions

Mobile telecommunications is a global and complex industry containing many actors. However, relatively little research has been undertaken into explaining its structure. With this in mind, the objective of this paper is twofold: first, to map the structure of the mobile telecommunications industry and, second, to use this mapping exercise to highlight the data collection issues that are frequently encountered. Through outlining one particular approach to data collection, the paper argues that researchers need to be careful when constructing datasets and wary when relying on those provided by others. By mapping the structure of the mobile industry, the paper highlights a series of key issues in data collection and trends in operator and market structure.     

Restructuring the US telecommunications industry: Impact on innovation

Plans for restructuring the US telecommunications corporation, AT & T have been discussed recently. The fear has been expressed that such restructuring would be harmful to innovation and technical progress in the industry, and hence ultimately harmful to the USA. This article addresses that question in the context of proposed legislative changes to the 1934 Communications Act. Existing economic evidence suggests that these fears are unfounded. Arguments relating to firm size (the ‘Schumpeterian hypothesis’), concentrated industry structure, and regulation suggest that the proposed changes would increase rather than decrease innovative activity.     

The influence of regulations on the efficiency of telecommunications operators: A meta-frontier analysis

The telecommunications industry has a great ripple effect on the overall national economy. However, there is no consensus about what is the optimal regulation policy for the telecommunications industry. Regulations on the telecommunications industry are different by region (i.e. United States, European Union and Asia). A number of studies have been conducted on comparative efficiency analysis for different policies that apply stochastic frontier analysis or data envelope analysis. However, these comparative studies are inappropriate because the production functions for each region are not identical. Thus, this paper addresses meta-frontier methodology, which can reflect differences in production functions. The results indicate that the United States has the highest meta-frontier efficiency in contrast to previous research findings.     

A unified framework for open access regulation of telecommunications infrastructure: Review of the economic literature and policy guidelines

The concept of open access (OA) plays a central role in the ongoing academic and political debate on the appropriate regulatory framework for next-generation access networks in Europe. However, clear policy conclusions on the effect of OA regulation were usually precluded by a fundamental lack in common understanding what actually defines an OA policy and along which dimensions of OA regulation can be structured. This paper attempts to reconcile these diverse views by offering a definition and a conceptual framework by which OA endeavors can be identified and uniquely classified. The framework encompasses, among others, mandated OA regulation of vertically integrated firms, public-sector participation, co-investments, and OA in the context of vertical separation. Along this framework, the extant economic literature is surveyed with regard to aspects of competition and social welfare, investment and innovation, as well as practical and legal issues. Based on these insights, a policy guideline is developed that shall assist policy makers in identifying the appropriate OA scenario for the regulation of telecommunications infrastructure.     

The endless need for regulation in telecommunication: An explanation

Telecommunication services have existed as a legal monopoly nearly throughout its entire history. In 1998, telecom market liberalisation was achieved across the European Union (EU) through the introduction of competition among telephone services. Asymmetrical obligations were deemed necessary in order to compensate the market power of the former monopolist.As the evolution of asymmetrical regulation in Spain illustrates, obligations and the telecommunications operators subject to them increased with the regulatory framework established in 2002 in the EU. This new regulatory framework may continue to expand through the inclusion of functional separation as another possible asymmetrical obligation. In short, it seems that the regulatory pressure on the telecommunications industry is increasing, despite the lapse in time since the liberalisation of the industry.In this paper, a methodology developed by the Austrian School of Economics is applied in order to explain why the telecommunication market is subject to increasing regulation in Europe, rather than deregulation, after more than 10 years of liberalisation. In particular, Mises's theory of price control is used to explain the evolution of the regulation of local loop unbundling.     

Information needs in US telephone industry regulation: A systems approach

After an initial discussion of current regulatory data problems in the common carrier telecommunications industry, the author proposes an alternative to the traditional regulatory process of the Federal Communications Commission. This proposal is essentially that the traditional control mechanism of rate-level regulation can be made more effective if, in addition, a comprehensive system of continuing industry surveillance is implemented.     

Predatory pricing and foreclosure in Canadian telecommunications

This article provides a historical perspective and current data on predatory pricing in the Canadian telecommunications industry. It is a rejoinder to another article in Telecommunications Policy, by Steven Globerman, which argued that tighter regulation of the Canadian telephone industry is unnecessary to prevent anticompetitive abuses in the industry. The author argues that predatory pricing has been an enduring feature of the industry, and precipitated the need for regulation in the first place. In the light of the evidence provided on activities and reorganization by the largest telephone company, it is argued that a high degree of deregulation has already taken place and regulators should contemplate means of reestablishing regulation.     

中国制造业最优环境规制强度的选择——基于绿色全要素生产率的视角

按照污染排放强度,本文将中国28个制造业部门分为重度污染产业、中度污染产业和轻度污染产业三大类,在测算1999—2009年三大产业部门环境规制强度和绿色全要素生产率的基础上,利用面板数据模型对环境规制与绿色全要素生产率的关系进行检验,力图从促进生产率的角度找出不同产业最优环境规制强度的拐点。研究结果表明:重度污染产业当前环境规制强度相对合理,能够促进产业绿色全要素生产率提高、技术创新和效率改进;中度污染产业环境规制强度较弱,环境规制与绿色全要素生产率、技术创新和技术效率的关系呈"U"型,相对于生产率和技术创新而言技术效率可以更早地突破"U"型拐点;轻度污染产业环境规制强度与三者的关系也呈"U"型,相对于生产率和技术效率而言,技术创新能够更早突破"U"型拐点。在制定适当的环境规制强度同时,政府应推进环境规制政策从控制型向激励型转变,诱导企业进行技术创新,实现环境和经济发展的双赢。     

Leveraging the EU regulatory framework to improve a layered policy model for US telecommunications markets

What is the best way to overhaul the current telecommunications legislative framework in the United States? This is an ongoing debate among telecom policy analysts and many others affected by the legacy of regulatory compromises that govern US telecommunications (and related information and media) industry sectors. This paper compares a Layered Model for US telecommunications policy with the regulatory framework adopted by the European Union. Both approaches focus on service characteristics rather than underlying technological traits.¹ It becomes clear that the Layered Model could be adopted to move away from sector-specific regulation, and could successfully use conventional market analysis criteria.     

Is telecommunications regulation efficient? An international perspective

This article addresses the efficiency of regulation policy in the telecommunications sector. First, the concepts of static and dynamic efficiency are reviewed, with the main policies used into achieve these goals identified, while distinguishing effective competition from industrial policy. Indicators are proposed that enable assessment of components of sector efficiency. These indicators are used to empirically investigate the link between regulation policy and economic performance for OECD Member Countries. The investigation is based on national differences in regulation policy and efficiency indicators. The results support the notion that asymmetrical ex ante regulation alone is not necessarily efficient, and that an ex ante policy, integrating an industrial policy, could favor dynamic efficiency.     

US telecommunications regulation: Will technology decide?

Twenty years ago, the telecommunications industry was an established regulated monopoly. But improvements in technology and reductions in costs have ripped apart the premises of natural monopoly and the economic rationale for public utility regulation. The authors review past US telecommunications policy and question the assumptions of the current search for a policy for the future. They believe that, for the industry to develop, institutions and restraints need to be removed.     

The rise of the Australian Telecommunications Industry Ombudsman

Australia is the first jurisdiction in the world to introduce a national private telecommunications industry ombudsman. Created in 1993, the Telecommunications Industry Ombudsman (TIO) has grown in jurisdiction and importance, becoming a regulatory cornerstone of the fully competitive post-1997 Australian telecommunications regime. This paper examines the role of the TIO as a mechanism for dispute resolution and as an industry regulator, suggesting that it provides an example of an innovatory regulatory process which transcends the divide between deregulation and proregulation. This raises the question as to the applicability of the ombudsman institution in terms of the regulation of telecommunications. Through highlighting the conciliatory nature of the ombudsman, the role of the TIO as a regulator is considered in its Australian context.     

Government regulation and quality in the US beef market

We show how government regulation played a critical role in shaping the beef industry over the past century. Technological developments in the late 19th century led to a highly concentrated meatpacking industry and fostered a national market for beef in the US, and the development of a national market for beef led to regulations to ensure quality uniformity, especially USDA grading. We explain the problems with beef quality created by USDA grading using tools from information economics. Because USDA’s fairly coarse grading system failed to measure significant aspects of beef quality, beef production suffered from the multi-tasking problem, which led producers to focus on producing larger quantities of beef while ignoring quality issues. We show that producing high quality beef requires either ex ante input controls or ex post sorting. In turn, we show how newly developed programs such as USDA quality certification and branding are incentivizing production of higher beef quality and dealing with information problems arising under USDA grading. We conclude with the implications of the regulatory history for current regulation of beef markets.     

Regulating audiotex: Lessons for the future development and oversight of electronic information and telecommunication services

Much can be learned from the audiotex experience regarding the future regulation of automated, recorded, live conversation and fax-based information and entertainment telecommunication services. Audiotex has raised a number of ‘carriage v content’ issues with significance for value-added multimedia services more generally. In addition, audiotex has led policy makers and practitioners alike to wrestle with the challenges posed to traditional, industry-focused regulatory regimes by the convergence of the telecommunications, broadcasting, computing and publishing industries which lies at the heart of the development of multimedia services. This paper draws heavily on events in two of the most developed domestic audiotex markets (the UK and the USA) in discussing four lessons which it is suggested both industry players and regulatory bodies take from the audiotex experience in considering the future development and oversight of electronic information and telecommunication services.     

Telecommunications pricing and consumer expectations : The case of alternate operator services

Traditional discussions of telecommunications pricing utilize microeconomic models that are often timeless. In reality, static models of price-based decision making in telecommunications do not capture an important reality: that the price feedback is substantially delayed. Since consumers have no immediate feedback on which to base rational decisions, they must utilize their expectations of price. This article analyses the implications of this, using the alternate operator services as a discussion case. This analysis shows that few alternatives beyond price regulation exist to resolve the rampant complaints in this industry.     

Korean telecom policy in global competition: implications for developing countries

United States efforts to open the Korean telecommunications market have been incessant and tenacious, to the extent that Korea is the only country to be twice designated by the US as a priority foreign country (PFC). Through major restructuring driven by the Korean government, the telecommunications infrastructure of Korea has been strengthened and expanded, and in the process has posed a threat to the US telecommunications industry. Thus, since the late 1980s, the Korean telecommunications industry has been monitored and threatened with trade sanctions by the United States Trade Representative, and all internal restructuring has been closely related to bilateral negotiations with the US, and multilateral negotiations in the Uruguay Round. Based on interviews with key Korean telecommunications personnel and analyses of public documents, this research examines the Korean telecommunications market, telecommunications policies relative to the US and WTO, and the recent economic crisis that has affected the stability of the industry. The paper also offers five major recommendations to government and industry policymakers, including a more active and positive stance toward liberalisation, the relinquishing by bureaucrats of their monopolistic power over policymaking, the securing of an open and transparent policymaking process, and, in relations with the US, and the mobilisation of regional and multilateral organisations to ensure fair competition in telecommunications.     

The impact of regulation on the retail prices in fixed-line telephony across the European Union

This paper estimates reduced-form models for incumbent prices in the fixed telecommunications industry using data for European Union (EU) countries from 1998 to 2002. The regulation of fixed-line telephony has a significant impact on prices for residential consumers. Liberalization of the telecommunications industry decreased retail prices by about 8.2%. The introduction of carrier pre-selection and number portability had a negative impact on price levels. The estimation results also suggest that a 1% decrease in termination charges on the incumbent network led on average to a 0.17% decrease in the cost of usage basket for residential consumers. Furthermore, in the pricing regressions for incumbent local and national calls at peak and off-peak times interconnection charges are significant only in the estimation of national peak prices. A 1% decrease in single transit interconnection charges on the incumbent network led to a 0.31% decrease in incumbent national prices at peak times, as calculated for the average prices in the EU in 2002.