Competition, convergence and asymmetry in telecommunications regulation

Telecommunications Policy

Volumn 21, Issue 6, 1997, Pages 493-512

  Perrucci, Antonio ^a   Cimatoribus, Michela ^a  

^a Ctro Studi S Salvador Telecom I   (Italy)

Author keywords

[No Author keywords available]

Indexed keywords

COMPETITION; LAWS AND LEGISLATION; PUBLIC POLICY;

ASYMMETRIC REGULATION;

TELECOMMUNICATION CONTROL;

EID: 0031192769     PISSN: 03085961     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0308-5961(97)00022-0     Document Type: Article

References (62)

1. In this paper, the industries considered as the main elements of the phenomenon that is usually labelled 'technology convergence' are telecommunications, information technology, the media and consumer electronics. We consider this definition more suitable than other taxonomies which, by also embracing sectors such as finance, training, etc., risk giving the phenomenon an all-embracing, and thus abstract, dimension.
2. It is interesting to note how the term asymmetric regulation made its appearance in economic literature only recently, moreover with reference to the well known break-up case of AT&T. In this regard, see Schmalensee, R 'Statement of Richard Schmalensee' Attachment 4 to comments of AT&T in CC Docket No. 83-1147, 2 April, 1984, contained in Haring, J Implications of Asymmetric Regulation for Competition Policy Analysis FCC, Office of Plans and Policy, Washington DC, 1984 (unpublished).
3. It is interesting to note how the term asymmetric regulation made its appearance in economic literature only recently, moreover with reference to the well known break-up case of AT&T. In this regard, see Schmalensee, R 'Statement of Richard Schmalensee' Attachment 4 to comments of AT&T in CC Docket No. 83-1147, 2 April, 1984, contained in Haring, J Implications of Asymmetric Regulation for Competition Policy Analysis FCC, Office of Plans and Policy, Washington DC, 1984 (unpublished).
4. For an in-depth discussion of these topics, please refer among others to Benzoni, L and Svider, R 'Departing from monopoly: asymmetries, competition dynamics, and regulatory policy' in Noam, M E and Pogorel (eds) Asymmetric Deregulation. The Dynamics of Telecommunications Policy in Europe and the United States, Ablex Publishing Corporation, Norwood, US, 1994.
5. Schankerman, M. Symmetric regulation for competitive telecommunications. Information Economics and Policy, 1996; 8.
6. A similar stance to this is expressed by Weisman, D L 'Asymmetrical regulation. Principles for emerging competition in local service markets' Telecommunications Policy 1994 18(7).
7. Many authors concentrate their attention mainly on access-conditions regulation; some others instead also consider the subsequent phase, called post-entry regulation. For example see Schankerman, op cit Ref 4; Bassan, F and Ghidini, G 'TV cavo e regolazione asimmetrica: riflessioni a partire dall'esperienza nordamericana' LUISS, Osservatorio per la proprietà industrials e la concorrenza, 1995 (unpublished). Other scholars such as Kay, J and Vickers, L'Regulation reform: an appraisal' in Majone, G (ed) Deregulation or Reregulation? Regulatory Reform in Europe and in the United States, Pinter, London, UK, 1990 distinguish between a structural regulation, in which the market form is defined together with a conduct regulation, whereby the operators' behaviour is conditioned in a competitive sense. For a study on the aspects regarding exit regulation, a reference to the US experience is contained in Brenner, D L Law Regulation of Common Carriers in the Communications Industry. Westview Press, Boulder, CO, 1996.
8. Many authors concentrate their attention mainly on access-conditions regulation; some others instead also consider the subsequent phase, called post-entry regulation. For example see Schankerman, op cit Ref 4; Bassan, F and Ghidini, G 'TV cavo e regolazione asimmetrica: riflessioni a partire dall'esperienza nordamericana' LUISS, Osservatorio per la proprietà industrials e la concorrenza, 1995 (unpublished). Other scholars such as Kay, J and Vickers, L'Regulation reform: an appraisal' in Majone, G (ed) Deregulation or Reregulation? Regulatory Reform in Europe and in the United States, Pinter, London, UK, 1990 distinguish between a structural regulation, in which the market form is defined together with a conduct regulation, whereby the operators' behaviour is conditioned in a competitive sense. For a study on the aspects regarding exit regulation, a reference to the US experience is contained in Brenner, D L Law Regulation of Common Carriers in the Communications Industry. Westview Press, Boulder, CO, 1996.
9. Many authors concentrate their attention mainly on access-conditions regulation; some others instead also consider the subsequent phase, called post-entry regulation. For example see Schankerman, op cit Ref 4; Bassan, F and Ghidini, G 'TV cavo e regolazione asimmetrica: riflessioni a partire dall'esperienza nordamericana' LUISS, Osservatorio per la proprietà industrials e la concorrenza, 1995 (unpublished). Other scholars such as Kay, J and Vickers, L'Regulation reform: an appraisal' in Majone, G (ed) Deregulation or Reregulation? Regulatory Reform in Europe and in the United States, Pinter, London, UK, 1990 distinguish between a structural regulation, in which the market form is defined together with a conduct regulation, whereby the operators' behaviour is conditioned in a competitive sense. For a study on the aspects regarding exit regulation, a reference to the US experience is contained in Brenner, D L Law Regulation of Common Carriers in the Communications Industry. Westview Press, Boulder, CO, 1996.
10. This division appears to strongly hark back to the 'classic' distinction between the competition's promotion and its safeguarding, which begs the very delicate question (beyond the scope of this contribution) concerning the questions of the division and balance among the powers of the institutions entrusted with sector regulation discipline, i.e. the sector regulation and anti-trust authorities.
11. The classification (which will be proposed below) of such contents into the three above phases is basically for reasons of explanation and does not therefore intend to attempt categorization.
12. For an interesting illustration of this theoretical debate, see among others: Cossutta, D and Grillo, M Concorrenza monopolio e regolamentazione II Mulino, Bologna, 1987 (in particular the introduction).
13. In this paper, no reference will therefore be made to the positions of those who, in keeping with the wave of deregulation that swept the 1960s have shown an outright hostility towards all forms of regulation in the telecommunications industry (among others, Wenders, L T The Theory of Economic Regulation and the US Telecommunications Industry. Department of Economics, University of Idaho, 1986;
14. Spulber, D F 'Deregulating telecommunications' Yale Journal on Regulation, 1996, 12(1). An interesting study of the telecommunications regulation process in the US can be found in
15. In this paper, no reference will therefore be made to the positions of those who, in keeping with the wave of deregulation that swept the 1960s have shown an outright hostility towards all forms of regulation in the telecommunications industry (among others, Wenders, L T The Theory of Economic Regulation and the US Telecommunications Industry. Department of Economics, University of Idaho, 1986; Horowitz, R B The Irony of Regulatory Reform. The Deregulation of American Telecommunications, Oxford University Press, New York, 1989. Horowitz, R B The Irony of Regulatory Reform. The Deregulation of American Telecommunications, Oxford University Press, New York, 1989.
16. Weisman op cit Ref 5.
17. Shankermam op cit Ref 4.
18. Haring, J, Rohlfs, J H and Shooshan, H M Disabilities of Continued Asymmetric Regulation of AT&T, Strategic Policy Research, 1995.
19. Bassan and Ghidini op cit Ref 6.
20. As is known, the connection between form of market and technological innovation has long been studied by economists, without however a unanimous conclusion being drawn. This applies both to the theoretical interpretations (in this regard, it is known that Schumpeter himself drew up two different scenarios of the phenomenon), and to empirical studies (for all of which please refer to Cohen, W M and Levin, R C Empirical Studies of Innovation and Market Structure. Handbook of Industrial Organization, Vol. II, North Holland Amsterdam, 1989.
21. Lyon, T P and Huang, H 'Asymmetric regulation and incentives for innovation' Industrial and Corporate Change, 1995, 4(4).
22. Pera, A 'Concorrenza e regolamentazione net settore delle telecomunicazioni' report presented at the Conference of the Sole 24 Ore, 1996.
23. Telecommunications Act (Pub. L. No. 104-104, 110 Stat. 56 1996), passed on 8 February, 1996.
24. Act 96-659, passed on 26 July, 1996.
25. Telecommunications Act (BGBI, I S. 1120) passed on 25 July, 1996.
26. In July 1996, the Italian Government passed two bills - one on the reform of the telecommunications sector, the other for the setting up of an independent regulation Authority.
27. As mentioned earlier, whether the various contents of the regulation can be attributed to each of the phases is clearly open to question and therefore subject to alteration. Its use in this paper must therefore be considered as dependent on the need to make a summary presentation of the different regulation topics.
28. Since the divestiture of AT&T is the only important event of this nature, this paper will restrict its scope to analysing points (a) and (b).
29. Armstrong, M, Cowan, S and Vickers, J Regulatory Reform. Economic Analysis and British Experience. MIT Press, Cambridge, MA, 1994.
30. Here we return to the distinction between a more 'radical' regulation policy - with a time limit being imposed on the incumbent's field of operation - and a more 'compatibility-oriented' approach, whereby obligations are assigned to the incumbent, who is not however prohibited from entering new markets. With reference to the case of cable television in the US, refer to Bassan and Ghidini, op cit Ref 6.
31. Some scholars, Scherer, J., 1994, Asymmetric re-regulation of telecommunications under European Community law, in Noam and Pogorel (ibid.) have noted how, according to articles 85, 86 and 90 of the Treaty of Rome, it is not possible to identify a single line as to the need for an asymmetric regulation of telecommunications at EU level within the scope of aspiring to the goals stated in the 1987 Green paper. At Community level, the principal promoting organ for the asymmetric view in favour of newcomers is the European Commission, while the European Council, on which representatives from the Member States sit, reflects much more the national interests and therefore tends to adopt a middle position between the two views.
32. FCC, The First Report and Order on the Local Competition Provisions of the Telecommunications Act 1996 (FCC 96-325) of 8 August, 1996.
33. Commission of the European Communities (1995), Green Paper of 25.1.1995 liberalization of telecommunications infrastructure and CATV networks-part 11 COM(94)682.
34. Conférence Européenne des Postes et Télécommunications/European Radiocommunications Committee.
35. On 16 September, 1996 Greece, Portugal and Luxembourg presented their formal requests to the European Commission for postponement to 2003 (Greece, also for the alternative networks) and 2000 (Portugal - to implement liberalization in 1999; and Luxembourg - with its liberalization planned for 1998), while the Irish Republic has already applied for a postponement to 2000 (until 1999 for the alternative infrastructures).
36. A common position was reached by the Commission and the Council in September 1996, which was not accepted by the European Parliament. The latter filed a modified Directive Proposal in October 1996.
37. At least formally, even though the Authority is located within the Economics Ministry.
38. Here defined as the sector of communications as a whole and therefore including CATV, regular and satellite TV.
39. Already before the national law, in many cities the Public Utility Commissions authorized the CAPs to also supply the local telephone service.
40. The ILECs have been defined as: (1) providers that offered local telephone services on the date the Telecommunications Act of 1996 came into force; and (2) enrolled members of the National Exchange Carrier Association (NECA).
41. In France and Germany, for example, the public telecommunications providers also control extensive CATV networks.
42. Commission of the European Communities (1996),Directive 96/19, which modifies Directive 90/388 for the full opening of the telecommunications markets to competition, 13 March, 1996.
43. Commission of the European Communities (1995), Directive 95/51 regarding Directive 90/388 with reference to the abolition of the restrictions on the use of the CATV network for supplying already, liberalized telecommunications services, 18 October, 1995.
44. Nevertheless, the independent CATV providers - which control two thirds of the 16 million subscribers receiving TV programmes across DT's network - will shortly have the option to choose from among the other network operators (Vebacom and Mannesmann are the most likely competitors of DT) as the carriers of their services. By virtue of this aspect of the CATV market's 'contestability', they are able to put pressure on DT so that it strengthens the CATV network and so that they will also be able to offer high-speed Internet access. The main bone of contention between DT and the CATV operators is the return channel: DT want to use the ISDN network, into which it has poured heavy investments, but the CATV providers want to acquire direct contact with their subscribers by way of a return channel installed in the CATV network, In this way, if they approached DT's future competitors, the latter would find themselves with direct access to millions of German homes, thereby putting DT's control over the domestic user market in serious jeopardy (Reuters, German cable operators challenge Telekom, in NewsPage, www. newspage.com, 20 September, 1996).
45. At the time of the AT&T divestiture, the business territory of each LEC was divided up into areas called Local Access and Transport Areas (LATA), among which the telephone service was prohibited to the LECs and reserved to the long-distance operators.
46. This rule does not apply for the out-of-region interLATA telephone system or for the incidental services.
47. Non-ILEC local operators are exempt from the obligation to offer wholesale prices since they do not command a strong market position. They must therefore offer services for resale, but not at discount prices.
48. The PUCs must identify which of the costs met for marketing, advertising, billing, accounts pending procedures and other 'avoidable costs' are no longer paid by the LECs in the case of resale of a service by another provider. They most then calculate the proportion of the retail prices that must be attributed to the 'avoidable costs' and thereby determine the wholesale price.
49. Cimerman, R Report at the 38th NARUC Regulatory Studies Program, Michigan State University, 7 August, 1996.
50. On which the European Council reached a common position on 18 June, 1996.
51. In that it is assumed that the newcomers do not have their own networks, nor do they already supply telecommunications services.
52. See Oftel, Consultative Document: 'Interconnection and Accounting Separation' (ICAS), 1993, cited in EIU, Telecoms regulation in Europe, London, 1995.
53. In this regard, please note that some (Wilsey, M and Bauer, J Toward a New Paradigm in Telecommunications. Analysis and Current Implementation of the Telecommunications Act 1996 Michigan State University, East Lansing, MI, 1996) feel that the method of private negotiation implicitly favours the incumbent, since small operators would certainly not have the human, economic or time resources to maintain a tough negotiation with the dominant provider.
54. The FCC also defined the interconnection points, how the unbundled access should be supplied and to which elements of the network and network accessory services; it also defined which methods must be used to calculate the prices of such elements.
55. 50 The TELRIC is calculated on the use of the specific network elements and is made up, respectively, of the costs directly met and of a 'reasonable' proportion of the joint and common costs. The TELRIC which is directly attributable to each network element is made up of: (1) operating costs; (2) depreciations; (3) risk-adjusted cost of capital. For further details see Neri, P, L'interconnessione negli USA: le difficoltà della liberalizzazione, Rapporto dell'Osservatorio sulla Regolamentazione, n. 2, Centro Studi San Salvador/Telecom Italia, 1996.
56. 51 The operators qualifying for rural LEC status can apply for exemption from the additional obligations weighing on the ILECs, until they receive a bona fide request for interconnection or access to elements or services of their own network, in which case the PUC will decide whether such request is excessively costly under an economic viewpoint and whether it is technically feasible and in keeping with the rules pertaining to the universal service. Such exemption is not however valid if a CATV provider wants to offer telecommunications services in an area where the rural LEC offers video services.
57. Of the 91 arbitration cases pending on 20 September, 1996 between the East Coast and Mississippi, as many as 53 involved AT&T and MCI, followed by Teleport Communications Group (12 cases) and MFS Communications (9 cases) (source: Telecom A. M. 20 September, 1996). Such a concentration of the larger providers can partly be explained by the fact that these companies are the main competitors of the LECs in terms of the number of networks installed. One can also surmise that it is also partly due to their resource availability in facing long arbitration cases, whereas smaller companies might be drawn into signing even barely favourable agreements with the incumbents simply to shorten the time lags involved.
58. 53 Commission of the European Communities (1996), Green Paper on a numbering policy for telecommunications services in Europe, COM(96) 590 final.
59. The first actual case took place in May 1996, when Nynex CableComms announced that at the end of August number portability would be available in all the served areas. The contribution asked of the home and business subscribers for keeping their numbers was fixed at £20 and £40 respectively.
60. FCC, Telephone Number Portability, CC Docket No. 95-116, First Report and Order and Further Notice of Proposed Rulemaking, FCC 96-286.
61. From the viewpoint of competition between national systems, it is worth noting that the greater speed of the US and UK in adopting a regulatory framework that is complete and in keeping with the structural changes in world telecommunications, ensures these countries' undoubted competitive advantages. It also appears clear that potential investors will be more inclined to look at markets where clear and complete rules have already been defined, especially with regard to interconnection and access.
62. Telecommunications Policy, Vol. 21, No. 6, pp. 565-573, 1997