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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."
Is the submitter on drugs? The reason most industries that are regulated are regulated is precisely because the market doesn't work for that industry!
When natural gas was deregulated in my state, prices skyrocketed and a bunch of natural gas marketers (mine included) began outright stealing money from their customers. (Long story.) When cable television was deregulated, my cable prices skyrocketed and I got less and crappier channels. (Thank god for satellite, which itself is regulated to prevent it from competing with cable companies on their own terms.) After 9/11, the airline industry, which isn't regulated, liked the government enough to go begging for a $5 billion bailout. What did they do with the money? Well, Delta Airlines used $17.3 million of it to give executives bonuses while losing $1.3 billion more and cutting 16,000 jobs. But when anyone bought up the thougt of regulating the industry, god, you would have thought we were communists.
And don't even get me started on the phone company.
A healthy market depends on well-regulated businesses. If anything, I would say that customers are hardly ever better off when government gets out of the way and let the market work in an unfettered manner. The only exceptions are when the government bureaucrats are working in collusion with the industry, a sad state of affairs that is unfortunately becoming more and more common.
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.
Anyone else remember making pay phone calls for $0.10? It was that way from when I was born in 1980 until... oh, just about the time they started playing with the notion of deregulating the phone companies. Then it immediately hit $0.25 a call.
Last I looked, you can't make a pay phone call for less than $0.50 now. And if you use a calling card, it's probably closer to $1.00 just to connect.
Of course, cell phones eat into the profitabily of pay phones; but then, at current prices it doesn't take long for someone to think that any cell phone plan is cheaper than using a pay phone, never mind convenience. That wasn't the case, though, when deregulation started.
Long, cute, or funny Sigs are just another form of over compensation, used by geeks, nerdz, etc.
> 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.
This is economics 101.
Free markets are efficient. Monopolies are the exact opposite of a free market. One of the roles of the State is to intervene to prevent monopolies.
Slashdot is going downhill.
Posts about full-on AI being developed and now this?
Do you really want to present something which has been known about since Adam Smith wrote Inquiry (1776) as if it were startling new news?
Why isn't half of slashdot lining up to attack the report's methodology?
Answer:
Because slashdot readers like the conclusions in this one.
What makes the Telecom markets (apart from the Internet) different from most markets is the fixed spectrum and high capital costs which limit the number of companies that can provide national telecom services at any given point in time to just a handful. So the presure to keep prices low to prevent new entrants from coming in to take your market share away is just not there.
On systems like the Internet that allow for very free competition, customers pay less for more without any need for government regulation whatsoever.
__________
My New Blog
Here's a condensed version of Adam Smith's: An Inquiry Into The Nature And Causes Of The Wealth Of Nations.
And it's still read in Economics 101 BTW.
Shh.
With the long lines of lobbyists/corporate pundits going through the revolving doors of our dear Uncle Charlie (oh, that's old CB-talk for FCC),
... wait... I had it at the tip of my tongue... hold on... Had a couple of answers in mind a second ago. Dang.
Only FCC accomplishments that I can peg is
Never mind. FCC did squat for us lowly consumers.
But if you can't name the 14 technologies that FCC did a rim-job for consumers, you're ain't no uber-geek.
The truth is that France had realized this early on. Some things shouldn't be left up to the market to decide: electricity, gas, water, telecoms were all owned by the state previously. Even if you lived on top of a lone mountain, it was your right as a French citizen to have access to water, electricity and a phone line (not sure about the phone line and natural gas, can't be bothered to check), and almost on-the-spot service from them. The cost of such a measure was spread out over the millions of users that these companies had. So everyone was happy paying a FIXED FEE, wherever you lived, and usually a pretty low one too.
But now, the EU with their "free market is good no matter what", has been pressuring France into privatizing EDF, GDF, France Telecom/Orange... This study comes 5 years too late :(
We all know that capitalism and free market is only fine on paper. Sadly, but because of people's characters (and believe me, there is more place for some kinda of power psyhology, not business or economical theories), markets mostly _must_ be regulated. Reasons mostly
consists of "I'm free to do whatever I want" monopoly power play and lack of business ethics (actually nonexistence of them). I call it coorporative feodalism - and it feels like.
Why I mentioned that it is not reason of economics? Problem with economical theory for now it is that it totally shuns out reasons of capital owner. Economical theories assume that owners are reasonable, clever, have good reasons to do whatever they want to do, right?
So what about Bin Laden with his milions to rise war against West? What about those "banana republics" where milioners mostly compete which will have bigger boat, count of cars, and don't care about their country? What about Balmer of Microsoft, which, as we know, has got emotional in his war against Google?
Someone will say that it is good that personal ambitions are all good to drive capitalism and free market. It is clearly overestemated. It is not.
So, more on topic. About regulations - I don't know about other countries, but for our country I say "thanks God" - and it will be truely that way - that we have _some_ regulation. It doesn't work all the time, but hey at least monopolies - and frankly we have them lots - thinks twice before say "ok, we will rise prices". At least it have been important for heat and gas, which affects as all, as we have rather large and cold winters.
So regulations should be everywhere where it feels that market isn't capable to set price tag right, t.i. there is no competition.
Hmmm, some of such market we all know. Operational systems, software anyone?
user@ubuntubox:~$ stfu This server is going down for shutdown NOW!
Does the government levying taxes in the form of technology fees and other surcharges count as regulation? All I know is that my $49.99/mo. plan gets turned into $60+ after taxes.
I give them credit though, at least they're smart enough to get a piece of the action.
Competition is supposedly what makes the free market work in favor of customers, so let's take a closer look at it.
The goal of competition is to end all competition
Every company wants to be in a position where you have to buy their product. No matter how often a product manager or marketing executive tells you that competition is good for them, their real dream situation is of course a monopoly. Just look at the companies that are or have been there, and how they cling to it. It makes perfect sense, competition is not their goal, sales are. One common way of achieving this is through consolidation, where you end up with a dozen brands but only a few actual producers. It may look like competition, but it's just different brands from the same producer.
It doesn't happen as often as you think
There are very few products on the market that compete head on. It's the explicit job of the product manager (I've been one) to find the "niche" for his products, to make sure that they do not compete head on with someone else, to find a slightly different demographic, a different price range, a different geographic location. Differentiation is the key, and the purpose is to avoid head-on competition.
Consumers don't make informed choices most of the time
For consumers to be able to "vote with the wallet" (this feature is supposedly what makes a deregulated market good) they need to be able to make informed choices. But no company is compelled to inform their customers, only to persuade them. Hence all the marketing BS that we are constantly exposed to, and that is also why the one with the biggest marketing budget wins, not the one with the best product. This doesn't benefit consumers.
A totally unregulated market is perhaps the best choice for your local bakery stores, but for large corporations regulation is needed to protect the consumers by ensuring that competition actually is taking place. Competition is a consumer interest, not a corporation one.
In my country Internet connections were ridicilously expensive just couple of years ago. 256 kb/s connection was going at 50 eur/month. All ISPs were saying that it would be impossible to get faster & cheaper connections. Notice, that's "impossible" not "unprofitable". Anyway, then the goverment desided to start an investication about price controls. All of the sudden, all ISPs pretty much cutted their prices in half and doubled their connection speeds. Now my 1 Mb/s ADSL costs 23 eur/month, and that's the price in a backwater town. And no, companies didn't go and run new backbone lines throughout the country.
From TFA: 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.
There's an underlying assumption that is not addressed here in the article; it isn't clear from the article whether it's addressed in the report. That assumption is that spending more money correlates to better services for end users. But does it?
Do the authors of the report demonstrate the ways in which investment in telecommunications "leads to better services for end users"? Do they document the services that are better in the countries that they rank as more effectively regulated? "Better" itself is a very subjective term. Better in what way? Using what standard? How is "investment in telecommunications" defined? What kind of corporate expenditures qualify as "investment in telecommunications" and what kind of expenditures do not? Do they consider government subsidies as part of the overall "investment in telecommunications"?
Anecdotal evidence aside, I'd have to see those questions addressed by the authors of the report before I could draw any conclusions one way or the other about whether it demonstrates that a well-regulated industry produces better services. The article is too vague to give any clear indication whether the report itself answers these questions. The fact that it goes into a fair amount of detail in defining what is meant by "effective regulation" makes me think that if other definitions had been addressed, they would have been included.
Maybe regulation is the answer, and maybe this study supports that. Or maybe the free market is the answer, and this study is designed to obscure that by using unsupported assumptions. Maybe neither one is the answer. But without knowing more about the answers to these questions, there's not much point in using the article to stump for your particular pet economic/political point of view.
How can a post be modded "overrated" or "underrated" when it hasn't been rated yet?
Here in South Africa, recently the government communications regulator told the the Telco that they were charging too much for broadband connections; once for the line rental to the consumer and again for ISP costs on availible monthly bandwidth. The telco turns around, says "bite me" and subsequently raises the ISP bandwidth costs (consumer-side) by 700%! Just goes to show what a private monopoly can do when the government doesnt have the muscle to back up its regulatory authority.
Before there were patents and government protection to monopolies, there were multiple competing providers, for phone service, water, gas, electricity, at least in most US cities.
:)
Of course, since government started it, it's only fair that they clean up the mess now.
Europe wasn't as lucky to start with competing providers. We had France Telecom, Deutsche Telekom and that kind of stuff, all backed by government.
Centrally planned economy in all its glory. OF COURSE that makes those big corporations a bit more powerful than they should be, now that they're privatized. Maybe regulation in the other direction is what it takes to get some competition going in this defunct market.
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
Let's step back and consider why is it that things are the way they are. Telecom regulation is but one facet of various reforms that need to be carried out, but for some reason are not in most cases.
I argue that Francis Fukuyama completely misread what he called "The End of History"--the late 20th century was not the triumph of what he called liberal democracy but its rejection. The 21st century then will be various countries dealing with the consequences.
Western Europe I would argue is re-creating not the Roman Empire but the Catholic Church, only a secular version in its bureacracy. Thus Europe's new Church will once again be the fusion of the functions of moral guidance, legal enforcement, and scientific research.
The United States has no historic fallback position and will simply continue to deteriorate in the effectiveness of its regulation of anything. There is period of its history that could be used to revitalize it, but it is generally forbidden to teach that a major plank of the Progressive movement was greatly restricted immigration.
The central Indian belief appears to me to be fatalism, which has advantages in that there is no illusion that there is any chance of fair outcomes for the masses. However fatalism is not exactly the most conducive philosophy for summoning the national will to have a functioning government.
But the country in the strongest position is China, for its defining literature is free of the illusions that plagued both the Catholic Church and its successor the European bureacracy, the confusion that what is moral has to agree with what is true. China will be led by people who, even if they have not read the work, are influenced by the ideas of works such as Romance of Three Kingdoms.
I suggest the Chinese idea of the cycle of rise and decline of empire is at its heart a protest against what seemed to be the deadlock that the only people who had the power to end hereditary rule were the people who when they achieved power would simply reimpose it to favor their own offspring. If the current regime has solved that problem then it will be China that has the greatest alignment of its form of government with the truth and not what one wishes to be true. For the Chinese are the ones who feel the least constraint towards the sacrifice of oceans of blood to achieve the needs of the state.
The knee-jerk reaction is usually that the government is always worse. But think about it - a government monopoly is still accountable to customers because customers are voters, whereas a private sector monopoly is accountable to no one.
Obviously the smart thing to do is to keep companies private and legislate against monopolies forming in the first place. But once the horse is out of the barn, it's hard to argue that the private sector monopoly isn't the greater evil.
A-Bomb
Free market relies, as everything else, on something more basic to human life: Namely our consciousness. If it is clouded with anger, hostility, personal issues, greed or outright distortions of reality, the free market is subject to this as everything else in life. In some ways, a free market and modern democracy alleviates this in two opposite ways:
..people dropped their sense of ownership and shared all possessions freely, while also taking a responsible attitude for everyone and everything they encounter without requiring the threat of loss of personal value, a system based on greed would be wholly unnecessary. Of course, even if this worked very well for small populations of native americans, it may be harder to make it work for larger populations where citizens are more alienated towards eachother. It is just an idea to raise a point further down.
..the masses would be educated enough about every issue, we could impose direct democracy, where every voter would be expected to sensibly vote on every issue without personal interest. As it is now, the masses would simply vote for the most popular ideas mostly beneficial towards their own group. Representative democracy is here to lessen the pain of "tyranny of the majority".
A) In a free market, like the stock market, greed and sense of ownership ensures that often the right price for a product is found in a way better than any expert can predict.
B) In a democracy, the ignorance of the masses of every issue is solved by representative democracy. The representants will come to the conclusions independent of their voters to a certain extent.
These two diagonally opposite measures is really to alleviate limitations in our consciousness. If:
A)
B)
Both the solution of A and B require the same measure, namely to lift off the ignorance of the masses, instead of relying on an external system to decide things for us through lower emotions such as greed and fear of loss.
So I believe spirituality is the answer toward all the growing problems of humankind. If you want to read some provoking thoughts on spirituality, you can read an earlier post about the difference between spirituality and religion. Often, people confuse spirituality with the external traditions, symbols, mantras, leaders, etc of established religions or sects. This is not really spirituality, just the package around it. Spirituality is that which unites every path, every human being, both religious and atheist. It is the unchanging core, and not just the wrappings which are always changing with time. The core of a muslim is the same as the core of a christian and the core of an atheist, etc. I recommend reading this earlier post to see the difference between spirituality and religion.
I'm also convinced the "Economist Dream" is about to burst. Here is a post about the "Economist Dream" too. It is really a very appropriate post for this article.
http://www.debunkingskeptics.com/
Folks who talk about deregulation or decriminalization being "dangerous" do so because they fear their neighbors. They project that because some "government" wouldn't be holding a gun to other peoples heads, those people will act in irresponsible and evil ways. It is a very pervasive irrational belief.
A perfect example: "Imagine how things would be if there wasn't regulation on safety and repair."
Government regulation is always double-edged. First, it creates bureaucratic overhead, both for the "industry" regulated, raising their costs of doing business and therefore their prices, and for the taxpayer who has to pay for the bureaucracy. Government, by its regulations, creates a limit on liability. So the hapless consumer has to pay three times over for everything done "for your own good".
Unfortunately, because of this democracy crap, people who fear their neighbors gang together and demand that "government do something", thereby externalizing the costs of their phobia on everyone else by force. Bureaucrats and politicians love it, because it increases their power and prestige. The phobic receive a false sense of security, and the rest of us have yet another barrier to overcome, another loss of liberty, another tax.
It's actually very easy to imagine deregulation. No more excuses that "we were following regulations, so you can't sue us."
The airline's insurance company does not want to pay out, neither do passengers want to die. Therefore, they will make efforts to be safe and reliable in order to get more business. It might indeed raise the price of a ticket on a reputable airline, but that price is paid only by those who choose to use that service. No tax-supported bureaucracy, no regulatory overhead. The actual "costs" to "society" are reduced dramatically, and there are more resources available to do something productive.
The Ludwig von Mises Institute. The reasoning individuals economics
...regulation will probably become a necessary evil.
Their VP recently said that they should have the right to, for example, offer Yahoo! a paid service which allows BellSouth's customers to access Yahoo! more quickly than Google. If they're allowed to have monopoly access to infrastructure, they shouldn't be allowed to do this. Philosophically, the consumers would wind up footing the bill through higher costs.
Not the telecom industry discussion...but
I find it unbelievable that US citizens believe it is cheaper not having national health insurance. The industry is so unregulated and regulated (which is the real problem) that big companies are shielded from the small companies. The product's costs are inflated and it is the little man that is screwed.
The old saying that an ounce of prevention is worth a pound of cure really applies. If people didn't put off getting treatment for simple things because of the rising costs of healthcare, then they wouldn't have to pay more to 'cure' it later.
National Health Insurance is the ultimate regulation of the industry, but it would be far cheaper for the nation and the average citizen.
anyway...just my 2cents
"Only one thing, is impossible for god: to find any sense in any copyright law on the planet." Mark Twain
Reading the article, the problem is not one of deregulation. The problem is entrenched telecommunications "monopolies" created by government in the first place.
Actual deregulation, that is allowing anyone to enter the market and at the same time letting companies that do not do well fail, is not the problem at all. As usual, failures of government regulation are being touted as "free market" failures where there is no "free market".
Bob-
The Ludwig von Mises Institute. The reasoning individuals economics
The airline's insurance company does not want to pay out, neither do passengers want to die. Therefore, they will make efforts to be safe and reliable in order to get more business. It might indeed raise the price of a ticket on a reputable airline, but that price is paid only by those who choose to use that service. No tax-supported bureaucracy, no regulatory overhead. The actual "costs" to "society" are reduced dramatically, and there are more resources available to do something productive.
That sounds great in theory, but so did a lot of things that fell apart in practice. In particular, you are assuming airline executives know exactly how much to cut in order to be perfectly competitive, the execution will be perfect, and they will never be tempted to cut just a bit more to survive against a competitor. Otherwise, you are assuming that anybody would want to be on the planes of the airline that does go too far and is eliminated by "the invisible hand of the perfect market". Finally, you assume that the market does not tend towards a monopoly. Unfortunately, history and present day are littered with counter-examples to your assumptions.
Interestingly, nothing in your post addresses the study under discussion, which itself finds yet another hole in "perfect market" theories.
Lies about crimes
Once gain, a quick R of TFA shows that the poster hasn't a clue of the content of the article. "Regulation" here refers to oversight: the ability of independant agencies to monitor and 'correct' anti-competitive and monopolistic behavior. In the study, the 'regulated' businesses were free to make fundamental business decisions within the framework of laws that protect the consumers. "Regulation" as applied in American political economics is where a government agency sets controls on specific business decisions, such as the wholesale price of goods, import/export quotas, taxation of specific for entirely political reasons, or mandating specific practices.
People, no matter how hard you want to not have to admit it, government regulation is bad. In the US, it has a particularly nasty track record in that it has caused or significantly contributed to every "market correction" of any signifigance. While no economist will ever admit that having government regulatory bodies watchdog private industry is a bad idea, only a rabid Keynesian (or outright Marxist) would ever think it's kosher to allow government to fiddle with the mechanicals of a societies economic engine.
You are a fool. Long distance prices used to subsidize that ten-cent payphone call. Now long distance costs are down in the noise, and a payphone calls costs a little more but isn't subsidized. When I was in college, and you wanted to call your girlfriend, you waited up until 11PM when phone calls became cheaper. Even then you heard stories of people getting $200 and higher bills. We are MUCH better off with less telephone regulation, and we would be MUCH MUCH better off with no telephone regulation.
-russ
Don't piss off The Angry Economist
You're making an argument for monopoly.
Not really. He's talking about utility companies. Utility companies are the perfect example of an industry that if left to the free market will inevitably contract into a monopoly. The cost of entry into becoming a utility company is enormous, and it's very hard to convert customers from other businesses. In a deregulated water utility market, nothing forces the incumbent to share water pipes with competitors. If I want to switch, then the new company has to build lines to my house (hence the five pipes to a house comment). The cost of this (which I must bear) is too large to the smaller company to be competitive. A monopoly that forms because of natural barriers to competition is called a natural monopoly. The concept is covered well in any introductory economics class.
Without regulation, competition can't survive in a utility market. This is why we have to have the FCC make phone and cable companies share their networks. Otherwise, companies like Earthlink can't offer competitive prices (or service at all in some areas). Sure technology might come along that gives new competition to a service (like cell phones) but nobody's replacing good old pipes for getting people water & gas anytime soon.
Regulation is necessary for some markets to preserve competition. This is his argument. The free market doesn't work for utilities because of the high barriers to competition and the unique hold utility companies hold over their customers' lives.
If it's for-profit but free, you're not the customer -- you're the product (e.g., the Slashdot Beta's "audience").