Controlling Market Power in Telecommunications: Antitrust vs. Sector-specific Regulation.

• Author: Williams, Mary Newcomer
• Position: Book Review

Controlling Market Power in Telecommunications: Antitrust vs. Sector-specific Regulation, Damien Geradin & Michel Kerf, Oxford: Oxford University Press, 2003, 401 pages.

1. INTRODUCTION

   In Controlling Market Power in Telecommunications: Antitrust vs. Sector-specific Regulation ("Controlling Market Power"), Damien Geradin and Michel Kerf undertake the ambitious task of comprehensively reviewing and analyzing the telecommunications regulatory structure of five nations that have achieved some success in promoting competition in telecommunications markets. The purpose of this undertaking is to evaluate the use of telecommunications sector-specific regulation versus more general, economy-wide antitrust regulation to accomplish specific goals related to promoting competition and efficiency in the provision of telecommunications services.

   Controlling Market Power is a slow read, densely packed with information about a broad range of telecommunications regulations in the five countries analyzed. The discussion ranges from interconnection obligations to retail and wholesale price regulation to spectrum auction rules to universal service programs. In the course of this wide-ranging analysis, the authors make a number of useful observations and recommendations. But their overarching conclusions, concerning the ideal division of telecommunications regulation between sector-specific rules and institutions and antitrust-based rules and institutions, are simply too broad to be of much use to policymakers or practitioners in countries that already have well-established telecommunications regulatory models.

   Despite its limitations, Controlling Market Power offers an important lesson. Understanding the contributions and limitations of the comparative analysis contained in the book helps to clarify the circumstances in which comparative analysis of telecommunications regulations can serve as a useful tool for the telecommunications policymaker or practitioner. That is, where the circumstances and objectives of the countries are sufficiently comparable, and the issue being analyzed is sufficiently narrow, much can be learned by examining the experience of other countries that have already undertaken regulatory activity designed to promote the relevant policy objectives. (1) This type of analysis often takes place as other countries look to U.S. regulatory activity, but there also are a number of circumstances in which U.S. policymakers and practitioners can benefit from analyzing regulatory activity that has taken or is taking place in other countries.

   Part II of this review describes the comparative analysis undertaken in Controlling Market Power. To convey the scope and substance of the analysis, this review summarizes (1) the criteria upon which Geradin and Kerf evaluate the various regulatory models they examine, (2) the regulatory regimes analyzed and evaluated, and (3) the conclusions the book derives from the comparative analysis. Part III discusses the contributions to be made by--and the pitfalls encountered in--undertaking the type of broad comparative analysis contained in Controlling Market Power. Part III also offers a few suggestions about the circumstances in which a comparative evaluation of different telecommunications regulatory approaches can be most useful.

2. CONTROLLING MARKET POWER IN TELECOMMUNICATIONS

   Controlling Market Power undertakes an ambitious and comprehensive comparative analysis of five national telecommunications regulatory regimes, evaluating the regimes in terms of their success in meeting a list of policy criteria identified by the authors. Based on their analysis, the authors make some specific regulatory recommendations and reach a few broad conclusions about the effects of regulating telecommunications through sector-specific versus antitrust-based regulations and institutions. This Part summarizes the evaluative criteria, the regulatory regimes analyzed, and the comparative analysis.

   1. Criteria for Evaluating Telecommunications Regulatory Models

      Controlling Market Power identifies seven criteria that serve as the basis for evaluating the efficiency and efficacy of the various regulatory models examined in the book. Although Geradin and Kerf acknowledge that the list is not exhaustive, they assert that the identified criteria represent "many of the most important features which regulatory models in telecommunications should present." (2) The criteria are:

      1. Providing incentives to meet users' demands for efficient, reasonably priced telecommunications services: Geradin and Kerf--and the regulators in the countries they examine--see this as the overarching goal of telecommunications regulation. Means for accomplishing this goal include generating competition in the market, requiring providers to compete for the market (such as through auctions), and directly regulating prices and quality.

      2. Specificity versus coherence: Telecommunications regulation should strike an appropriate balance between addressing the specific characteristics of the telecommunications industry while ensuring sufficient coherence of the national economic regulatory framework as a whole.

      3. Flexibility versus certainty: Regulations and regulatory institutions should have sufficient flexibility to adapt to changes in circumstances while providing enough certainty to facilitate investment in telecommunications services and providers.

      4. Competent, impartial regulation: Regulators should be competent to address and understand the issues. The system should be designed to enable the regulators to resist "regulatory capture" by the regulated entities or industries.

      5. Regulatory accountability and stakeholder participation: Regulators must be accountable, through means such as publication and appellate review of reasoned decisions. Regulatory procedures must allow interested parties to present their views before final decisions are made.

      6. Benefits of regulation should outweigh their potential costs: Costs include those borne by taxpayers, industry, and the economy as a whole.

      7. Efficient allocation of regulatory resources: Regulatory institutions should perform their functions effectively. The system should ensure that regulatory decisions across institutions are consistent.

      The book then summarizes the types of economic regulatory issues the authors will address as they evaluate the various countries' telecommunications regulatory regimes. The issues include regulation of retail prices and interconnection prices, approaches used to promote competition (such as facilities-based competition, resale, and unbundled access to elements of the local network), methods for allocating scarce resources like spectrum (including various auction methodologies), universal service, vertical separation and integration, convergence within communications and between the communications and information technology industries, and international benchmarking of telecommunications prices.

   2. Description of Telecommunications Regulatory Models

      The bulk of Controlling Market Power is devoted to describing and analyzing the regulatory regimes and institutions of the five countries evaluated: the United States, New Zealand, the United Kingdom, Chile, and Australia. The authors chose these countries both because of the relative success the countries have achieved in bringing competition to their telecommunications markets and to show a continuum of regulatory approaches ranging from very telecommunications sector-specific to very antitrust-focused.

      The organization of the comparative analysis is effective. The authors begin with the two most extreme examples, the United States and New Zealand, and then describe the more intermediate approaches taken in the other three countries. Australia, discussed last, fits particularly well into the comparative analysis because Australian policymakers, who were somewhat late to initiate efforts to promote telecommunications competition, conducted a comparative investigation of other countries' experiences before adopting a regulatory framework. The analysis of the various regulatory regimes is thorough and for the most part accurate, except that it unavoidably fails to reflect the (in some cases substantial) developments in telecommunications regulation that occurred between the writing and publication of the book.

      1. United States

         The comparative discussion begins with the United States, which has the most sector-specific regulatory regime of the countries analyzed. Regulatory efforts to minimize and control market power in U.S. telecommunications markets center on the detailed 1996 Telecommunications Act ("the 1996 Act"), (3) which is part of the Communications Act of 1934, as amended ("the Act"). (4) The Act and its implementing regulations are administered by the Federal Communications Commission ("FCC"), a powerful, highly competent, independent regulatory body. The book describes the U.S. regime's local exchange network unbundling obligations (and the related Total Elemental Long-Run Incremental Cost ("TELRIC") pricing methodology); universal service and access charge reform efforts; the 1996 Act provisions allowing the Regional Bell Operating Companies ("RBOCs") to enter the long-distance market only upon a showing that their own local markets are open to competition; spectrum auction procedures; and proposals, being considered...