Designing Competition Policy for Telecommunications

Journal of Competition Law and Economics, 2010

The Obama administration came into power championing a philosophical shift in regulatory and antitrust policy. The telecommunications industry was singled out by the administration as a case where past regulatory/antitrust policies may have been too permissive. Prominent policy issues slated for (re)examination include forbearance from network unbundling obligations, net neutrality regulation and prospective market failures in the provision of broadband. The principal objective of this article is to develop a set of competition and regulatory principles, firmly grounded in the law and economics literature, that can serve to inform the design of the optimal public policy for the telecommunications sector.

Launching and stimulating competition in telecommunications markets is an important policy goal. It contains two elements: to encourage entry and to make competition effective such that consumers benefit. The first one requires that entrants can make profits after investing in infrastructure so that they have an incentive to invest. The second one requires prices to be sufficiently low so that consumers enjoy higher net utilities. At a first glance, these two elements seem difficult to achieve at the same time. In this paper, we consider price regulation in the retail and wholesale market and answer to what extent such regulatory policy can stimulate competition. Our main finding is that, in the short run, asymmetric access price regulation is an effective instrument to make the entrant and consumers better off.

Unbundling of the local loop (ULL) has seen quite different "success stories" in the various countries across Europe. Although the obligation for the provision of ULL was implemented in the regulatory framework early and mostly parallel to other means of liberalisation, national implementation has been rather heterogeneous. One question of decisive importance for national regulatory authorities (NRAs) was whether to foster service-based competition in the first phase of liberalisation or to focus on infrastructurebased competition. The different NRAs chose to head down different roads. This paper analyses whether the strategy of NRAs has had any mid-term effect on the economic welfare created in the communications markets. It indicates that infrastructure-based competition has a positive effect on innovation. Moreover, infrastructure-based competition appears to be more important for business customers than for residential clients. On the other hand, service-based competit...

In this study, the origin and main parameters of the Essential Facilities Doctrine are analysed through the case-law that developed out of the application of the EC Competition Rules. Besides putting forward the historical roots, the basic criteria and limitations that apply to the Doctrine are elaborated so as to clarify the legal and analytical foundations of the Doctrine in the EU context. In addition, the added value attributed to the Doctrine in realm of competition policies pursued in network-based industries is expounded with special emphasis on telecommunications sectors. With this regard, the potential role of EFD against the challenging effects of ‘convergence’ phenomenon and the technological changes is discussed. At last, the effects of EFD on the competitive dynamics of Turkish telecommunications sector which is undergoing a liberalisation process are also examined with the accompanied Turkish case-law.

Traditionally, neoclassical economics has been the guiding framework in the development of legislative and regulatory rules in the telecommunication markets. The regulatory perspective has long assumed a static environment. However, telecommunication markets have evolved into extremely dynamic, innovative and technology-driven markets. At the same time, economic theory has moved well beyond simple, static concepts of neoclassical analysis. Inter alia, Schumpeterian Economics, Institutional Economics and modern Industrial Organization provide a broader framework more suitable to analyze modern telecom markets. Drawing on an extended theoretical baseline and on major industry trends, we propose a more comprehensive framework for telecom regulation – the new regulatory pentagon – based on the cornerstones competition, investment and innovation, convergence and platformization, macroeconomics and growth and, lastly, commitment and credibility.

SSRN Electronic Journal, 2000

Telecommunications industry requires a high and steady level of investments in successive generations of equipments to cope with the exponential growth of traffic volumes. This paper argues that in this context, only imperfections of competition provide market players with the necessary margins to finance the renewal of equipments at the frequency needed to minimize the overall industry cost. A nearsighted policy which would push down the industry profits hoping to reduce prices would be counterproductive as it would have the opposite effect: if profits are reduced below the level needed to sustain the optimal level of investments, production costs would increase, having a negative impact over market prices. Policy should therefore target an optimal competition intensity allowing enough profits to finance this optimal level of investments. The constant reduction of margins in the European telecommunications industry raises an alert for European policy makers: they should be seriously concerned about not overpassing the optimal level of competition.

Communication Law and Policy, 1998

The introduction of competition for local telephone service and electricity has focused attention on the access pricing issue, or the terms under which competitive entrants can secure inputs necessary to compete with the incumbent provider in final markets. This article reviews the essential facilities literature and proposes a new definition of essential facilities based on whether prospective entrants can remain viable after paying an efficient access price. The efficient access price, commonly known as the efficient component pricing rule (ECPR), or efficient variants thereof, require that the entrant pay an access price equal to the incremental cost of access plus a portion of the contribution foregone when the incumbent firm provides the access service in lieu of the retail service. The ECPR or variants of it serve to screen relatively inefficient entrants, thus ensuring that entry is welfare-enhancing.

2007

Telecommunication economic analysis has largely relied upon a conventional economic framework that has its roots in neoclassical analysis that emerged almost a hundred years ago, and has contributed to reshaping the direction of economic policies by attacking the premises of the 1996 Telecommunications Act, and providing far greater leeway to incumbents, as well as challenging the economic efficiency of new entrants. Common approaches based upon a large number of simplifying assumptions that include, for instance, the idea that the technology is exogenous. Such hypotheses make little sense at a conceptual level. In addition, this idea is largely contradicted by the short period during which the sector achieved some level of competition around the 1900's and 2000. Not only have economists not thought about any number of such hypotheses, but they have also failed to consider how they might have an impact on their analysis. Evaluating a number of such issues in this paper, we are able to show how conventional economic analysis, uncritically applied to the sector, contributed to the undoing of the 1996 Telecommunications Act and of much of the competition it helped facilitate.

Yale Journal on Regulation, 1985

In recent years, analysts have increasingly invoked neoclassical price theory' to justify radical changes in the regulation of the American telecommunications market, namely the trend toward competition and away from traditional regulatory and rate-setting practices. Many economists assert that competition and marginal-cost pricing2 will eliminate crosssubsidization' and promote efficient markets for local and long-distance telephone services and telecommunications equipment." Price theory, however, does not necessarily support structural reform of the telecommunications industry. Indeed, pre-divestiture pricing policy can be defended on the same grounds its critics employ to advocate structural changes. This article assesses the applicability of static price theory to market conditions currently confronting local operating companies. It challenges the widely held belief that structural reform in telecommunications is necessary to achieve economic efficiency, particular...

2006

In summer 2005, the German telecommunication incumbent Deutsche Telekom announced its plans to build a new broadband fibre optics network. Deutsche Telekom decided as precondition for this new network not to be regulated with respect to pricing and third party access. To develop a regulator's strategy that allows investments and prevents monopolistic prices at the same time, we model an

Should regulation of potentially competitive elements of network utilities be left with sector regulators or solely subject to normal competition laws? Britain evolved licenses for network activities overseen by regulators while the EU places more emphasis on making sector regulation consistent with competition law. The paper discusses the appropriateness of the competition law approach for telecoms and electricity. Post-modern utilities like telecoms, in which facilities-based competition is possible, lend themselves to the approach laid out in the Communications Directives, and its application to mobile call termination is discussed. Electricity, where collective dominance is more likely, does not fit comfortably into this approach. Instead, licence conditions retain advantages where it may be necessary to modify market rules in a timely and well-informed manner, as exemplified by the English Electricity Pool.

SSRN Electronic Journal, 2000

The OECD Competition Committee debated competition and regulation issues in telecommunications in May 2001. This document includes an executive summary and the documents from the meeting: an analytical note by Mr. Darryl Biggar for the OECD, written submissions from Australia, the Czech Republic,

The Quarterly Review of Economics and Finance, 2005

When the facilities of an incumbent monopolist are made available to potential competitors through some type of "essential facilities" or related claim, a concern is that the ability to "buy" inputs substantially attenuates the incentive to "make" inputs. We evaluate both theoretically and empirically the relationship between "make" and "buy" and find three sometimes-conflicting effects are present, of which the substitution effect is only one. Our empirical example considers the deployment of switching facilities by entrants to local exchange telecommunications markets, and these empirics indicate that the substitution effect is not dominant in this particular case.

Information Economics and Policy, 2002

This article analyzes demand side particularities of telecommunications markets and their consequences for the market structure. I assume that telecommunications markets are characterized by two distinguishing features: (i) the efficacy of network externalities and (ii) the presence of two-part tariffs as a simple instrument of price discrimination. Then, the usual tendency to conformity established by network externalities may in some sense be overcome by sufficient differentiation in price structures. In contrast to the perception that deregulated telecommunication markets exhibit a genuinely higher degree of competition, this article points to the observation that discrimination may retain monopoly power to network suppliers by introducing more product differentiation. Various regulation patterns and pricing rules are analyzed with respect to their influence on competition and market structure.

Lecture Notes in Computer Science, 2012

We analyze in this section game-theoretic models of competition between telecommunication networks providers in various contexts. This analysis helps to define and understand the operators' pricing and technology investments as well as the most efficient market rules by a regulator.