Slashdot Mirror
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.
Why isn't half of slashdot lining up to attack the report's methodology?
Answer:
Because slashdot readers like the conclusions in this one.
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.
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
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
Boy, you really are living in a dream world. I admire your idealism, and I wish I could share some of that Utopia. Unfortunately, I live in the real world where some folks just aren't quite of pure heart.
Me wanting government regulation has nothing to do with me fearing my neighbors. It has to do with me fearing corporations.
How many scandals have to go down before folks like you realize that for-profit corporations exist for one purpose and one purpose only: to make money. If they can make more money by killing their customers than not, they'll kill their customers. (Witness the tobacco industry.) If they can do it by hacking into their customers' computers, they'll hack into their customers' computers. (Witness Sony.) If they can do it by projecting a squeaky-clean image, they'll project a squeaky-clean image. (Witness Google.)
Why do we need regulation then? Because somewhere around the dawn of the age of mankind, people discovered that one really effective way to get people to do stuff you want them to (e.g. to give you money, which is, remember the sole purpose of a corporation) is to lie.
There are thriving businesses that makes lots of money that exist for the sole purpose of helping other corporations lie about things. Lawyers, accountants, public relations firms, advertising agencies... the list goes on and on. Why do these businesses exist? So that other companies can pay them some money to make a lot more by lying about things.
Given a choice between making an honest buck or making a dishonest two, very rarely will a corporation choose the former. My own company (a Fortune 100) has gotten in trouble many times over the years, especially the last twenty or so, for doing things that everyone knows is wrong. But it still goes strong, because it pays hundreds of millions of dollars every year to some of those companies listed above to convince everyone that it's an all-American company. Because Americans have such a frustratingly small attention span and don't recognize important things as being important, they keep getting away with it.
So how do us average schmoes out here keep all these unetical companies from absolutely stripping us dry? Well, if we tried your way, I suppose we could depend on what little information we get through investigative journalism and the scant few whistleblowers that are out there to help protect us from these corporate lying bastards, but I kind of like the thought of not being insane. No, a better idea would be to set up some government agencies with the collective power of the American consumer to act on our behalf to serve as the representative of our interests. Thus, we have organizations around like the FAA, the USDA, the FTC, and all the others that are supposedly looking out for us because it's impossible for us, individually, to look out for all the millions of others who want to screw us over and rob us blind every day.
There are two serious problems with the system, though. The first, I hate to say, is people like you. People who give corporations a lot more credit than they deserve, more credit than they've historically earned. They think that the public has some sort of magical insight to see past multi-million dollar ad campaigns to know when corporations are being evil and when they aren't. They think that if a person gets food poisoning because some corporation ran the numbers and figured out that it could make more money by poisoning some small percentage of its customers, it's the sick person's fault for not personally sending every morsel they eat to a lab to be tested. No, they're "irresponsible consumers" who deserve what they get, right?
The other problem is that a lot of the very same government agencies that we set up to protect us are now working for the corporations they're supposed to be protecting us from. That's why you have stuff like energy policies being written by oil companies and DRM laws being written by the RIAA. This i
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
Don't drop the soap, Tommy!