Debate on Need for Deregulation
There are many arguments in favor of deregulation. Advocates argue that continued regulation can only support the development of static markets whereas deregulation is necessary for the development of dynamic markets. Market convergence and related infrastructure competition are more likely to take place in dynamic markets. In many telecom markets, deregulation is currently being discussed, in this article, we will examine the impact of deregulation on the overall economy and study arguments that are placed in favor and against deregulation.
Arguments in favor of Deregulation:
- While achieving a lasting competitive market environment, deregulation is a logical step to sustain the further development of the industry and it supports the liberalization process from a monopoly to a competitive market.
- The rationale for deregulation is that less regulation will lead to higher competitive intensity, an increase in related investments, more innovation, and higher customer benefits.
- Continued regulation can only support the development of static markets whereas deregulation is necessary for the development of dynamic markets. Market convergence and related infrastructure competition are more likely to take place in dynamic markets. Deregulation is expected to positively influence the infrastructure investment decisions of incumbents and to unlock dynamic market effects.
- Increased infrastructure competition raises consumer welfare and operators would be willing to invest in case of an adequate ROI, Market convergence may result in the entrance of neighboring players in each other’s core business, increasing the pressure for innovation and related investment. Expect deregulation of the telecom sector to stimulate investment in new infrastructure.
- Deregulation of the telecom sector is expected to have a positive impact on employment, tax receipts, consumption, and GDP as deregulation stimulates infrastructure investment and has a positive impact on the overall economic growth and consumer welfare. In many countries deregulation of the telecoms sector is being discussed as a means to stimulate investment into new infrastructure.
- It is argued that the analysis of regulatory policy changes in the US over the last years has indicated that deregulation in fact led to significant investment announcements of the leading fixed operators in the country and suggests a positive impact of deregulation on the number of investments in the telecoms sector and on the overall economy.
Arguments against Deregulation:
- Markets are often regulated to prevent abuses by de facto or legal monopolies and to protect consumers' and new entrants' rights.
- Liberalized telecom markets have been regulated to achieve public interest objectives (such as widespread service availability) and to avoid abuse of market power by incumbents through price discrimination, cross-subsidization, and re-monopolization.
- In regulated marked network owners having a considerable market, power is obliged to provide access to other market players (non-discriminating and based on regulated prices).
- Since the passage of the Act, the degree of monopoly power and market concentration in the telecommunications sector has been on the rise, this might have potentially serious consequences for the deployment of technology in disadvantaged communities. There is a common understanding in the US that regulation resulted in a decline in infrastructure investment.
- The Consumers Union concludes that the Telecommunications Act of 1996 did not foster competition among ILECs as the bill had hoped, instead of, ILECs encroaching on each other they did mergers, and five years later the largest four local telephone companies own about 85% of all the lines in the country. It continued the historic industry consolidation reducing the number of major media companies from around 50 in 1983 to 10 in 1996 and just 6 in 2005.
- Now most players will seek to exploit and, control markets and technology for their own advantage. It will be challenging to enforce a set of programs that shape the emerging infrastructure to meet societal efficiency, equity, and universal service goals.
Conclusion:
Although, it is far from clear whether infrastructure investments are best achieved through deregulation and unfettered competition or through some new form of regulatory intervention, however, there are several studies supporting the conclusions that deregulation of the telecom sector triggers investments and overall growth of the economy.
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