, Volume 42, Issue 2, pp 203-230

Telecommunication in the US: From Regulation to Competition (Almost)

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Abstract

Alfred E. Kahn was an observer and practitioner of telecommunications regulation as technology changed the industry from a natural monopoly to a platform-based oligopoly among telephone, cable, satellite, and wireless carriers. Regulation and legislation were slow to recognize these changes, and large welfare losses occurred, some of which could have been avoided if regulators, legislators and economists had followed Fred’s economic advice: Prices must be informed by costs; the relevant costs are actual incremental costs; costs and prices are an outcome of a Schumpeterian competitive process, not the starting point; excluding firms from markets is fundamentally anticompetitive; a reliance on imperfect markets subject to antitrust law is preferable to necessarily imperfect regulation; and a regulatory transition to deregulation entails propensities to micromanage the process to generate preferred outcomes, visible competitors, and expedient price reductions.

This paper is an expanded version of “Telecommunications Deregulation,” a paper that was presented at the 2012 American Economic Association session that was entitled “In Remembrance of Alfred E. Kahn: Fred Kahn’s Impact on Deregulation and Regulatory Reform.” Both Hausman and Taylor have consulted for numerous telecommunications companies.