Policy Brief
Brief prepared by Sheila Kyte, MPIA 2007
Click here to access this brief as a PDF.
Background
Problem: How should policymakers in the advanced economies regulate competition in the rapidly converging markets of telecommunications, broadcasting, and information services? This paper examines government decision-making regarding the communications industry from 1970 to the present.
Policy Shifts
Policy Shift I, 1970-early 1980s: The combination of slow economic growth and high inflation in the 1970s prompted the U.S. government to seek out policy solutions to revive the economy. Policymakers decided that deregulation of public utilities was the answer and specifically targeted the AT&T monopoly, breaking it into “Ma Bell” and the “Baby Bells.” This introduced competition in the fields of information services and terminal equipment, which benefited both politicians and their constituents.
Policy Shift II, 1984-mid 1990s: After 1984, policymakers realized that basic telecommunications services could be made more competitive by forcing telecom carriers to lease data transmission at cost-based rates and permitting users to configure the data transmission to their own technological specifications. Politicians also changed the spectrum licensing procedure to a more efficient auction process which produced significant revenue for the government. These policy decisions opened the market for an alternative set of equipment suppliers. Firms became more efficient and innovative, resulting in the development of increasingly high-tech and inexpensive basic services like the Internet and World Wide Web. These advances opened networking up to the masses, whose demand culminated in the production of broadband networks for households in the late 1990s.
Policy Shift III, late 1990s-present: The “deepening” of widespread broadband networks and telecommunications markets that took place during the second policy shift causes firms to produce single packages of wired, wireless, and video services. While reducing problems with competition and increasing innovation, convergence causes older carriers’ market segments to be competed away by alternative service options, and fragmented markets make it harder for governments to extract rents. The deepening of networks and markets has split the traditional corporate coalition that dominated communications and information policy, thereby adding uncertainty to the policy future. Thus, a new policy equilibrium has not yet emerged.
Conclusion
The direction of technological change toward innovative and integrated all-purpose services is clear, but it is unclear who wins during the third policy shift and whether government intervention will play a positive or negative role. Oligopolistic behavior can still be present and harm consumer welfare, especially by slowing innovation. Policymakers must be sensitive to the fact that government intervention can further this damage. However, beneficial regulatory intervention may now be possible, if that intervention facilitates flexibility, experimentation, and innovation in the convergence of technological goods and services. During the first two policy shifts, U.S. leadership in the policy domain enhanced its global economic leadership. It is an open question whether or not the U.S. will provide similar leadership in the new era.
