Rational Regulatory Policy for the Digital Economy: Theory and EU Policy Options

Telecommunications is a key element of the ICT sector which has been shaped by strong innovation dynamics since the 1990s. Market dynamics in selected OECD telecommunications markets are analyzed. We present new ideas about efficient regulation, emphasizing the need to adopt a broader international perspective. Analytical innovations also include the discussion of an adequately-modified Hitch-Sweezy oligopoly model. Moreover, we suggest differentiated two-part tariffs as an ideal welfare-maximizing approach in both wholesale and end-product markets. From a theoretical point-of-view, the need to avoid regulatory uncertainty is also emphasized. Theoretical progress is contrasted with regulations in the EU and the US. The EU offers a broad range of different regulatory approaches where the link between framework regulation and national regulation is rather complex. The internationalization of telecommunications requires a broader cooperation among regulators in the OECD.Digital Economy, Regulatory Policy, European Union

Technological Convergence: a Strategic Perspective

The information and communication technologies (ICT) sectors are in a process of technological convergence. Determinant factors in this process are the liberalisation of the telecommunications markets and technological change. Many firms are engaged in a process of mergers and alliances to position themselves in this new framework. Technological and demand uncertainties are very important. Our objective in this paper is to study the economic determinants of the strategies of the firms. With this aim, we review some key technological and demand aspects. We shed some light on the strategic motivations of the firms by establishing a parallel with the evolution of the retailing sector.Technological Convergence; Demand Uncertainty; technological Uncertainty; Technology Life Cycle; Internet; Multimedia; Strategy

Regulation of telecommunication and deployment of broadband

This memorandum explores the question whether regulation in telecommunications encourages or hampers the development of new technologies. Contrary to other network industries, the telecommunications industry is more and more characterized by several, competing networks, such as cable, copper, and wireless. Regulation is, however, still needed as in several components of telecommunications sources of market power remain. The key issue in the regulation of access to a network is dealing with the possible trade-off between static efficiency and dynamic efficiency. Favourable conditions for access to the network contribute to allocative efficiency and productive efficiency, but can negatively affect incentives for investments in upgrading of existing infrastructures and developing new ones. In the Netherlands, regulation of the telecommunication industry is designed to enhance competition between alternative infrastructures without affecting the technology choice of both incumbents and entrants. In the market for unbundled access to the local loop and the market for high quality wholesale access, a trade-off exists between static efficiency and dynamic efficiency. Regulated access tariffs, which are based on average costs, seem to be a good compromise between static and dynamic efficiency. Tariffs for access to the local loop reflect actual costs of the existing copper infrastructure, giving entrants incentives to make efficient make-or-buy decisions. In addition, the threat of infrastructure competition in the local loop, as well as the service-based competition between providers using different infrastructures, i.e. copper and cable, provide incentives for the incumbent to increase efficiency. Our overall conclusion is that Dutch regulation of the telecommunication industry gives efficient incentives for technological developments such as the deployment of broadband. See also: Do market failures hamper the perspectives of broadband?

Incentive Regulation, Investments and Technological Change

Based on an idiosyncratic reading of the literature I propose intermediate (rather than tight or soft) regulation for balancing investment incentives with allocative efficiency and competition objectives. Intermediate regulation is compatible with incentive regulation and helps lengthening the regulatory commitment period necessary for incentives. However, such commitment for the whole time horizon of infrastructure or innovation investments is impossible. The compatibility of incentive regulation and efficient investment is thus in doubt. Incentive regulation for regular infrastructure investments therefore needs periodic updating based on rate-of-return regulation criteria. Innovative infrastructure investments may warrant regulatory holidays, which should be conditioned on strict criteria.

Global Diffusion of Interactive Networks. The Impact of Culture

The Internet and other interactive networks are diffusing across the globe at rates that vary from country to country. Typically, economic and market structure variables are used to explain these differences. The addition of culture to these variables will provide a more robust understanding of the differences in Internet and interactive network\ud diffusion. Existing analyses that identify culture as a predictor of diffusion do not adequately specificy the dimensions of culture and their impacts. This paper presents a set of propositions to be used in analyses of the impact of culture on the diffusion of interactive networks. The propositions were developed using cultural constructs presented by Hofstede, Herbig and Hall. Diffusion of innovations theory and critical mass theory provide the theoretical base. The development of the propositions resulted from a close examination of the theories for\ud relationships mediated by culture. The resulting propositions use cultural variables in relationships established by the theories. It is hoped that the propositions will serve as a starting point for future research in the area of cultural influences on the diffusion of interactive networks

Human Resource and Employment Practices in Telecommunications Services, 1980-1998

[Excerpt] In the academic literature on manufacturing, much research and debate have focused on whether firms are adopting some form of “high-performance” or “high-involvement” work organization based on such practices as employee participation, teams, and increased discretion, skills, and training for frontline workers (Ichniowski et al., 1996; Kochan and Osterman, 1994; MacDuffie, 1995). Whereas many firms in the telecommunications industry flirted with these ideas in the 1980s, they did not prove to be a lasting source of inspiration for the redesign of work and employment practices. Rather, work restructuring in telecommunications services has been driven by the ability of firms to leverage network and information technologies to reduce labor costs and create customer segmentation strategies. “Good jobs” versus “bad jobs,” or higher versus lower wage jobs, do not vary according to whether firms adopt a high- involvement model. They vary along two other dimensions: (1) within firms and occupations, by the value-added of the customer segment that an employee group serves; and (2) across firms, by union and nonunion status. We believe that this customer segmentation strategy is becoming a more general model for employment practices in large-scale service | operations; telecommunications services firms may be somewhat more | advanced than other service firms in adopting this strategy because of certain unique industry characteristics. The scale economies of network technology are such that once a company builds the network infrastructure to a customer’s specifications, the cost of additional services is essentially zero. As a result, and notwithstanding technological uncertainty, all of the industry’s major players are attempting to take advantage of system economies inherent in the nature of the product market and technology to provide customized packages of multimedia products to identified market segments. They have organized into market-driven business units providing differentiated services to large businesses and institutions, small businesses, and residential customers. They have used information technologies and process reengineering to customize specific services to different segments according to customer needs and ability to pay. Variation in work and employment practices, or labor market segmentation, follows product market segmentation. As a result, much of the variation in employment practices in this industry is within firms and within occupations according to market segment rather than across firms. In addition, despite market deregulation beginning in 1984 and opportunities for new entrants, a tightly led oligopoly structure is replacing the regulated Bell System monopoly. Former Bell System companies, the giants of the regulated period, continue to dominate market share in the post-1984 period. Older players and new entrants alike are merging and consolidating in order to have access to multimedia markets. What is striking in this industry, therefore, is the relative lack of variation in management and employment practices across firms after more than a decade of experience with deregulation. We attribute this lack of variation to three major sources. (1) Technological advances and network economics provide incentives for mergers, organizational consolidation, and, as indicated above, similar business strategies. (2) The former Bell System companies have deep institutional ties, and they continue to benchmark against and imitate each other so that ideas about restructuring have diffused quickly among them. (3) Despite overall deunionization in the industry, they continue to have high unionization rates; de facto pattern bargaining within the Bell system has remained quite strong. Therefore, similar employment practices based on inherited collective bargaining agreements continue to exist across former Bell System firms

Adoption of New Technology

The contribution of new technology to economic growth can only be realized when and if the new technology is widely diffused and used. Diffusion itself results from a series of individual decisions to begin using the new technology, decisions which are often the result of a comparison of the uncertain benefits of the new invention with the uncertain costs of adopting it. An understanding of the factors affecting this choice is essential both for economists studying the determinants of growth and for the creators and producers of such technologies. Section II of this article discusses the modeling of diffusion and Sections III to V explore the determinants of diffusion and the evidence for their importance.

Adoption of New Technology

The contribution of new technology to economic growth can only be realized when and if the new technology is widely diffused and used. Diffusion itself results from a series of individual decisions to begin using the new technology, decisions which are often the result of a comparison of the uncertain benefits of the new invention with the uncertain costs of adopting it. An understanding of the factors affecting this choice is essential both for economists studying the determinants of growth and for the creators and producers of such technologies. Section II of this article discusses the modeling of diffusion and Sections III to V explore the determinants of diffusion and the evidence for their importance.

Unlocking the potential of the smart metering technology: How can regulation level the playing-field for new services in smart grids?

By integrating a communications system with the existing power grid, smart grids provide end-to-end connectivity. This enables all entities and components integrated in the electricity supply system to exchange information without knowing the network's structure. New services and applications such as demand response or virtual power plants that will aid to improve and optimize the use of electricity depend on the availability of a smart grid communication network. End-to-end communication networks require that the missing communications gap between consumers' premises and the remaining energy network is bridged by deploying an Advanced Metering Infrastructure (AMI). Given the current liberalized electricity markets' structure incumbent distribution system operators (DSOs) will control the AMI and the meter data. This gives rise to concerns about anti-competitiveness. We argue that leveraging the AMI in a social welfare maximizing way requires non-discriminatory access for all entitled parties to the (1) AMI and the (2) meter data through (3) interoperable standards. We discuss possible regulatory remedies to ensure a level playing-field for innovative services in smart grids and consider implications for research and regulation. --Regulation,Smart Grid,Smart Meter,Antitrust