Author(s)
Source
Federal Communications Law Journal, Vol. 61, pg. 43, 2008
Summary
This article examines trends in regulation of telephone networks.
Policy Relevance
The telephone industry has been transformed from monopoly to competitive market, and most traditional network regulation is outdated and harms consumers.
Main Points
- The 1996 Telecommunications Act was passed to help the law adapt to growing competition in telephone service enabled by new technology. The FCC enacted controversial “access regulation,” controlling the terms on which phone networks offer access to their competitors.
- Traditional regulation was supported by four concerns, now outdated. One view was that local phone service is a natural monopoly, most cheaply provided by one firm. But technology has changed the economics of phone service.
- Some thought consumers would prefer the network that most others used, limiting competition due to “network effects.” But such preferences played little role in network growth historically, and are not important today, as many firms of equal size compete.
- Some feared the phone company would deny access to rivals in related businesses through “vertical integration.” But vertical integration often helps consumers, while regulation has been harmful; it is better to encourage competing businesses to invest in alternative networks.
- Another worry was that competing networks would not survive, because of “ruinous” competition or “wasteful” duplication. But investment and price cuts spurred by competition help consumers; regulators should not try to protect firms.
- Networks configurations are very complex. Traffic management, costs, prices, reliability, and bandwidth affect one another.
- The five types of network regulation are retail access, wholesale access, interconnection access, platform access, and unbundled access. Each type causes serious problems such as interfering with network management, reducing investment, and reducing competition. Unbundled access is probably the worst.
- Competing phone companies often have strong incentives to interconnect their networks and allow users to plug in competitor’s equipment voluntarily.