Status Of Competition And Deregulation In The Telecommunications Industry

According to this book, the anticipated benefits of the Telecommunications Act of 1996 are proving elusive, as competiton has been slow to rise, and government agencies have been slow to implement the deregulation and market-opening processes specified in the new law. The authors argue that the pace of innovation and the telecom industry's demonstrated capacity to restructure itself efficiently show that the benefits of competition far outweigh the costs of trying to micromanage the industry through regulation.

In 1986, the state of Nebraska completely discarded traditional utility regulation, deregulating rates and profits of its local telephone companies. The Nebraska experiment has become a benchmark for reassessing the role of state regulation in the future of telecommunications. Using comparative data from five midwestern states, Mueller shows how deregulation affected rates, investment, infrastructure modernization, and profits. He uncovers both positive and negative results. Mueller found established telephone companies to be basically conservative, not aggressive and expansionist, and concludes that new competition, not regulation or deregulation, is transforming the telecommunications industry.

The telecommunications industry has experienced dynamic changes over the past several years, and those exciting events and developments are reflected in the chapters of this volume. The Telecommunications Policy Research Conference (TPRC) holds an unrivaled place at the center of national public policy discourse on issues in communications and information. TPRC is one of the few places where multidisciplinary discussions take place as the norm. The papers collected here represent the current state of research in telecommunication policy, and are organized around four topics: competition, regulation, universal service, and convergence. The contentious competition issues include bundling as a strategy in software competition, combination bidding in spectrum auctions, and anticompetitive behavior in the Internet. Regulation takes up telephone number portability, decentralized regulatory decision making versus central regulatory authority, data protection, restrictions to the flow of information over the Internet, and failed Global Information Infrastructure initiatives. Universal service addresses the persistent gap in telecommunications from a socioeconomic perspective, the availability of competitive Internet access service and cost modeling. The convergence section concentrates on the costs of Internet telephony versus circuit switched telephony, the intertwined evolution of new services, new technologies, and new consumer equipment, and the politically charged question of asymmetric regulation of Internet telephony and conventional telephone service.

Using the 1996 Telecommunications Act as a natural experiment, I examine the role of competition in “how” economic shocks drive industry-level clustering of merger activity and “who buys whom?” In the telecom industry, deregulation opened both the local and long-distance markets to competition from new communication technologies, driving significant increases in IPO and merger activity. My findings support the view that the increase in merger activity following the 1996 deregulation was an efficiency-improving restructuring response to increased competition from deregulation and technological change, and not to increased misvaluation. The economic shocks from deregulation and technological change drive merger activity by increasing industry competition. I find no significant relationship between the level of merger activity and stock market misvaluation. I find evidence systematically relating telecom firms' performance and merger characteristics; pre-1996 deregulation levels of efficiency and leverage show up as important determinants of an incumbents' survival and/or merger fate; the more efficient and less leveraged incumbents are more likely to be the acquirers than the targets in mergers involving two incumbents.

Although the airline, railroad, telecommunications, and electric power industries are at very different stages in adjusting to regulatory reform, each industry faces the same critical public policy question: Are policymakers taking appropriate steps to stimulate competition or are they turning back the clock by slowing the process of deregulation? This volume addresses that issue and identifies the next steps that policymakers should take to enhance public welfare in the provision of these services. Each chapter identifies the central policy issues that have arisen in each industry as it undergoes transformation to a deregulated environment. The authors reveal the flaws in the residual regulations and make the case for faster and more comprehensive deregulation. A concluding chapter identifies how interest groups continue to exert influence on regulatory agencies and on Congress, potentially undermining deregulation. The papers included here were initially presented in December 1999 at a conference sponsored and organized by the AEI–Brookings Joint Center for Regulatory Studies.