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Study Finds Regulation Good For Telecom Customers
jfruhlinger writes "Customers are always better off when government bureaucrats get out of the way and let the market work, right? Well, maybe not in all cases. As described at ITworld.com, a recent study compared the regulatory regimes and telecom environments in various European countries. The study concluded that in countries where regulators had more power to levy fines and punish monopolistic behavior, customers paid less and got more services." From the article: "The report, conducted by Jones Day and Strategy and Policy Consultants Network Ltd., showed that investment in telecommunications, which leads to better services for end users, is lower in countries where there is little competition."
Independent regulation works perfect.
In Sweden a local landline call was almost 15 cents per minute, now a cell phone call is 5-6 cents per minute depending on your contract.
We also have flat fee for cell phones, call as much as you want to any cell phone operator or landlines, including free SMS and MMS for $45 a month. And free UMTS data traffic for as low as $20. Without a contract! And we are allowed to buy and use almost any phone we can find somewhere in the world - unlike our locked-up American friends, chained to their contracts using branded and crippled last year model phones.
We also have a cell network with almost 100% coverage. Most of my business partners have now canceled their land lines and are only using cell phones for their business.
Governments should think about using the same type of regulation when it comes to digital TV. One standard to help the consumer but completely free market to compete with service and price.
Frankly, it depends on the market structures. For example:
If you have a natural monopoly (like the local telephone service in the United States is - like, you can only get service from one company be it Bell South, SBC, Verizon, etc.), you need to regulate the crap out of it. Most economists would agree with this. If you don't regulate them, you'll be paying monopoly prices for the product which is bad for consumers and bad for the economy overall (since less customers will purchase services creating what is know as a dead-weight loss).
Wireless, on the other hand, is both an oligopoly and monopolistically competitive. Now, oligopolies will not give you as cheap a price as perfect competition. In a perfectly competitive industry, you pay the equilibrium price which is as close to a real, fair price as one can claim for a product - it is the price where demand and supply meet and it treats sellers and buyers exactly equal. In oligopoly, you will pay more than the equilibrium price - which favours sellers. In fact, you will be paying the price at the Cournot/Nash equilibrium. The more sellers in the oligopoly, the closer you will get to the equilibrium under perfect competition (when you have 100 firms, you will come within 1% of the perfectly competitive equilibrium).
But wireless is also monopolistically competitive. Monopolistic competition is where you have many firms selling different varients that are close relatives. For example, Verizon Wireless has a different coverage area from Cingular and Cingular has different phones from VZW, etc. They are close, but some people will prefer one to the other. Monopolistic competition is inefficient by economic standards. Why? Because Cingular could serve many more people than the 50 million customers they currently have and they desire to serve more customers. The same can be said for each of the other wireless providers - they all have the capacity and desire to serve more customers. But their prices are also higher than equilibrium prices because they have a product that is different from their competition - and therefore likely to attract less people. If VZW and Cingular had the exact same network with the exact same phones, and exact same everything else, people would choose their carrier on price alone. But because they offer different services, people won't choose based on price and will often take other considerations before price and therefore, all the wireless carriers can charge more than equilibrium.
As such, we can use regulation. We can't use regulation just to force companies to be nice to us, but there are things we can do that are better for consumers and better for society as a whole. For example, if monopolistically competitive firms charge prices higher than equilibrium, we can reduce the differences between firms. By mandating a single technology, GSM or CDMA or anything else, we can eliminate one standard that people choose a carrier by. By mandating that every carrier carry the same lineup of phones, we eliminate another. The more differences we eliminate, the more likely people are going to choose a wireless provider based on price rather than the carrier's own attributes.
Of course, you might see a problem with this. For example, if we mandated that all carriers sell both the Nokia 6010 and 3120 and only those two phones, consumers would have less choice. You would loose the ability to choose something that you liked better - that suited you better. There is no way to quantify the benefits of choice. Think of restaurants. We pay higher prices at restaurants because of the choices we get when we are deciding where to dine, but I don't think any of us would want all restaurants to become Taco Bells just to save a little money.
As an example of this in wireless, before the Cingular ATT merger, Verizon had a far superior national network to any of its competitors. As Cingular got traction, VZW lowered prices because network wasn't going to serve as quite as big a differentiation between
I would like to point out that everything you noted can fall into either infrastructure or communications that rely on expensive to create physical objects. The kinds of things that people rely on in order for a modern society to continue to be effective. I would say, well duh. For this kind of thing, it's far too easy for monolopies to form (whether one company or 15 companies colluding on price).
A clear majority of companies fall outside of these categories and ultimately don't need to be regulated, outside of saftey issues. I think that is what the sound bite referenced by the submitter is refering to. It's a shame people use sound bytes without understanding them.
Burn Hollywood Burn