Arnold Kling notes today in the Washington Times how the FCC is being guided into a pro-market stance by it’s chairman, Michael Powell. The genius of Powell is humility in the face of complexity: the market knows more than any individual player, including the regulator.
As I have said before, the job of regulation is to make the market work, and to fix the externalities where market failure occurs.
One can’t help wonder if there is a lesson here for telco regulators everywhere. What would have happened if instead of market-fixing access regulations and enforced shring of last-mile connectivity, the market had been allowed to operate properly? The assumption has always been that the last mile is a natural monopoly. But the build-out of cable, fiber and fixed wireless networks belies this. How much sooner could true access competition have arrived if the regulation approach had been less interventionist?
The key would have been to prevent dominant incumbents abusing existing market power. The most likely scenario would have been local price drops whenever a new entrant attempted to build out new networks. Abuse of wayleaves is another plausible way in which incumbents could prevent physical access.
This is all quite reminiscent of the bus wars that followed deregulation of public transport in the UK by the Thatcher government. Failure to impose intelligent regulation resulted in large dominant players such as Stagecoach pushing out smaller plays. They did this through flooding certain routes with service, timing busses to arrive just ahead of the competition to scoop up waiting passengers, and give-away pricing. Of course, once competition was crushed, services eroded rapidly and fares skyrocketed.
The easiest way to deal with discriminatory pricing is to apply a little game theory. What if you passed a rule that said that you had to maintain services and prices unchanged following the entry of a new competitor for a fixed period (e.g. 3 years)? Incumbents would then be incentivized to not extract monopoly rents. During that period of competition with a new entrant, they would only be able to compete by improving service quality. Overpricing would be punished because new entrants would have an extremely stable business environment in which to become established. Everyone would come out a winner. Perhaps Michael Powell would like to give the market an opportunity to prove itself rather than be second-guessed by well-meaning bureaucrats?
Posted by Martin Geddes at 11:52 AMTrackBack URL for this entry:
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