Regulation and the Performance of Communication and Information Networks

Regulation and the Performance of Communication and Information Networks

Edited by Gerald R. Faulhaber, Gary Madden and Jeffrey Petchey

Digital markets worldwide are in rapid flux. The Internet and World Wide Web have traditionally evolved in a largely deregulated environment, but recently governments have shown great interest in this rapidly developing sector and are imposing regulations for a variety of reasons that are changing the shape of these industries. This book explores why the industrial organization of broadband ISPs, Internet backbone providers and content/application providers are in such turmoil.

Chapter 14: Policy Implications of Asymmetric Termination Rate Regulation in Europe

Edmond Baranes and Cuong Huong Vuong

Subjects: innovation and technology, technology and ict


Edmond Baranes and Cuong Huong Vuong INTRODUCTION Competition policy is the best instrument through which to achieve market efficiency via the foundations of economic science. However, until the late 20th century a paucity of competition in many vertically-integrated network industries is observed, with a monopoly serving the market and controlling both inputs and outputs. Apart from political, security and technological reasons, the situation occurs, as competition is not in the public interest due to the presence of scale economies that result in natural monopoly characteristics and stranded costs. The situation has radically changed through the past two decades due to stronger public pressure, advances in technology and especially high regulatory costs. In particular, the liberalisation and deregulation of the network industries globally provided opportunity to new market players entering potentially competitive market segments. These processes aimed at increasing market performances with more favourable consumer prices and enhanced product choices and innovation. To ensure successful transition, asymmetric regulation plays a significant role in the remaining monopolistic market, and is an effective instrument to enhance market competitiveness by promoting entry. Conceptually, asymmetric regulation refers to the practice of imposing market constraints on a firm or group of firms whilst not subjecting competitors to similar constraints. This term, initially coined by Schmalensee (1984), depicts a stricter regulatory requirement imposed on the United States (US) telecommunications historical incumbent, AT&T, than new providers of long-distance telecommunications do. Asymmetric regulation is to correct for the position of the incumbent and entrants during the liberalisation and...

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