Telecommunications Regulation: Current Approaches with the End in Sight
Chapter in NBER book Economic Regulation and Its Reform: What Have We Learned? (2014), Nancy L. Rose, editor (p. 345 - 406)
The regulatory restructuring of telecommunications markets, beginning with the breakup of AT&T in 1984 and extending to telecommunications markets worldwide, has transformed the telecommunications industry. The rise of cellular ("mobile") telecommunications over the past twenty-five years has achieved penetration rates in excess of 80 percent in most industrialized countries, and for many consumers now replaces, rather than supplements, landline service. The spread of competing fiber networks operated by cable companies that offer voice service and broadband service in addition to pay TV has further transformed the competitive telecommunications environment in the US, and has the potential to do so in many other countries. This transition is greatly influenced by regulatory policy on mandatory unbundling of network elements, first adopted in the US in the mid-1990s and now used by regulators in most advanced economies. This chapter discusses central issues in deregulation of telephone service, including the prospect of competitive local markets. The chapter focuses on the role of facilities based competition in achieving that outcome. Regulatory impediments to facilities based competition are described, as are conditions under which a jurisdiction could end up with "regulation forever" by creating incentives for new entrants to choose a mandatory unbundling offer rather than investing in their own competing facilities.
This paper was revised on February 4, 2016
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