The Telecommunications Act removed regulatory barriers to entry, opening the market to new competitors. Deregulation has led to a large number of new players. The third factor having a great influence on the modern telecommunications industry is deregulation. This article will discuss some thoughts on the impact of deregulation and unfettered competition on the industry and a brief discussion of deregulation versus a new form of regulatory intervention.
Deregulation changed the telecommunications industry by transforming local and long distance monopolies into highly competitive providers of communications offers. The Telecommunications Act of 1996 in the United States coincided with a decrease in regulation in countries around the world. The Telecommunications Act removed regulatory barriers to entry, opening the market to new competitors. Deregulation has led to a large number of new companies entering the market, which has led to increased competition. Cable and Internet companies began to offer telephone services while traditional landline providers began to offer Internet and television services.
Telecommunications markets have been regulated to achieve public interest objectives (such as widespread availability of services) and to avoid abuse of market power by incumbents through price discrimination, cross-subsidies and remonopolization. In a regulated environment, network owners with considerable market power are obliged to provide access to other market players (non-discriminatory and based on regulated prices).
Before this law, AT&T was the only major telecommunications provider in the country. Until the 1980s in the United States, the term “telephone company” was synonymous with American Telephone & Telegraph. AT&T controlled almost every aspect of telephone activity. Its regional subsidiaries, known as “Baby Bells”, were regulated monopolies, holding exclusive rights to operate in specific areas. The Federal Communications Commission regulated rates for long distance calls between states, while state regulators had to approve rates for local and national long distance calls.
The rationale for this regime rested on the theory that telephone companies, like electric utilities, were natural monopolies. The telecommunications industry, however, was originally regulated to ensure that a standard level of telephone service was available at a reasonable cost. It was regulated, like all monopolies, to serve everyone equally.
The competition, which was supposed to require several cables to be laid across the countryside, was seen as wasteful and inefficient. This way of thinking changed from around the 1970s, when far-reaching technological developments promised rapid advances in telecommunications. Independent companies claimed that they could, indeed, compete with AT&T. But they said the telephone monopoly had effectively shut them out by refusing to allow them to interconnect to its huge network.
What is deregulation?
Deregulation is the process of lowering the level of regulation imposed to promote liberalization and competition among market players. Deregulation is a logical step to support the future development of the industry by enabling a sustainable competitive market environment. The rationale for deregulation is that less regulation will lead to greater competitive intensity, increased related investment, more innovation, and better customer benefits.
The deregulation of telecommunications took place in two main stages. In 1984, a court effectively ended AT&T’s telephone monopoly, forcing the giant to split up its regional subsidiaries. AT&T continued to hold a substantial share of the long distance phone business, but vigorous competitors such as MCI Communications and Sprint Communications won’t have some of the business, showing that competition could drive prices down and improve the service.
Second, the Federal Telecommunications Act of 1996 proposed less government regulation in response to the uncertainties of technological innovation. Under the new law, anyone was allowed to enter any communication company and compete with others. Under Section 251 of the Telecommunications Act, local telephone companies were required to share their lines with competitors under certain conditions and at fixed rates to encourage a competitive market.
In exchange, local telephone companies were then allowed to enter other telecommunications markets, such as wireless and Internet. Many companies have grown and started offering services in several branches of telecommunications.
Companies could now offer consumers bundled service packages that combined home phone, wireless, Internet, and cable TV services. The opening of the industry has led to rapid growth and the formation of new businesses, resulting in a surplus of services available. Prices have fallen, fostering competition between suppliers.
To stay competitive, struggling firms have consolidated and adopted consumer-facing go-to-market strategies. Due to increased competition, consumers now have more power to demand more options and choices. Businesses must meet these demands or risk losing their customers to another supplier.
Deregulation induces technology-based competition and the technology-induced proliferation of new providers at all stages of domestic and international communications.
In this scenario, the role of government would change from regulator to monitor, enforcing full access or interconnection so that there are as many suppliers as possible and preventing collusive behavior. There will always be a very limited type of regulation, such as price caps when circumstances require.
A new paradigm is emerging for international telecommunications trade. The last five years have been marked by historic changes in the field of communications technology. Government policymakers have struggled to keep up with the rapid evolution of Internet, telephone and cable television technology, trying to generate an effective regulatory balance that ensures consumer protection and facilitates efficient deployment of new technologies by willing companies.