The Broadband Facts 3

From Dave Burstein’s always informative DSL Prime newsletter:

“Empirically, the world leaders [in broadband] were built with strong regulation in France, Korea, Japan – and China.”

Why does unregulated competition in telecom work so well in theory, but so poorly in practice?

3 thoughts on “The Broadband Facts

  1. Uncle Mike Sep 9,2006 12:42 am

    With respect to Kevin, I don’t think there is any evidence to support what is described as ‘unregulated competiton in telecom.’ The only discussion of this idea I have ever seen are completely blue-sky sorts of musing, like George Gilder or John Perry Barlow that come from people with no legal, antitrust, or economics background.

    All competition, at least here on Earth, is regulated. Whether it’s buying a pair of jeans (regualted by the FTC, CPSC, among others) or a car (FTC, NTSB, DOC, EPA, etc.) or a glass of milk, (Agriculture, EPA, FDA, etc.) every competitive sector is regulated, some more, some less.

    I join with Kevin in the belief that the telecom sector has the potential to be a sector with very little regulation. In the countries cited by Dave Burstein, very strict regulation was followed by much lighter regulation. Its possible, and its done today.

    But the US model seems to be no regulation at all, and let the chips fall where they may. This will not lead to a competitive market, because there is no competitive market from which it can form. Monopolies or cartels will not voluntarily act to give up their advantage.

    Unregulated telecom can work well, Kevin, but only if it follows a period of strict regulation that breaks up and destroys the unfair competitve advantage of incumbent players.

    Uncle Mike

  2. Kevin Werbach Sep 11,2006 3:26 pm

    Mike, of course “regulation” is not a binary quality. That’s one of the fallacies of the intellectual approach my post questions. You’d be surprised, though, how widespread the “deregulatory” viewpoint is in telecom policy circles, from people with lots of legal, antitrust, and economics background.

    Anyway, here’s the more careful formulation. There is no competitive market in PC operating systems, and yet we regulate Microsoft’s competitive practices (if at all!) through general-purpose antitrust rather than sector-specific administrative regulation. Similarly, Google has 60% or more of the highly lucrative Internet search market, which in most industries would suggest excessive market power. Why should Verizon’s broadband offerings be treated differently than Microsoft and Google?

    Again, I disagree with that viewpoint. I just don’t think you can dismiss it so easily.

  3. Gregory Rose Sep 11,2006 4:42 pm

    The Microsoft example is extremely pertinent to explaining the deregulation craze in American telecom policy. Even where there was substantial evidence of monopoly power being abusively used to stifle competition and suppress technological innovation, Microsoft’s political and economic clout was sufficient to game the system in such a way as to gut any serious imposition of antitrust sanctions.

    The US regulatory system has been turned into a farce by the political elite’s quasi-religious embrace of an economic libertarianism which has been repeatedly falsified by empirical experience. That political elite’s ideological stance has in large part been dictated by the political influence of incumbent firms on the policy process. Like any ideology, economic libertarianism is intended to provide rationalization of policy which benefits a small circle of actors by claiming a general, common good as the ultimate objective.

    We choose to employ ineffective regulation or no regulation at all in the telecom industry because the incumbents substantially control the political process underlying regulatory decisions and have a ready ideological smokescreen in the form of economic libertarianism to divert attention attention from the fact that their real objective is consolidation and monopoly power, not genuine competition.

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