Smartphone Wars

None.Technology and Industry

Irrational Expectations: Can a Regulator Credibly Commit to Removing an Unbundling Obligation?

There is a large empirical literature that investigates the effects of unbundling requirements on broadband operators' incentives to invest in infrastructure. To date, that literature has generally relied on industry-wide data as an indicator of how the representative operator reacts to the imposition of mandatory unbundling. In this paper, we present original findings on how specific firms reacted to the removal of an unbundling obligation that is, an act of "regulatory forbearance"either for an existing access technology or for a new access technology. We rely on three case studies to evaluate the impact of regulatory forbearance on specific incumbents and entrants that were directly affected by the regulator's decision. Our findings from the first case study appear to undermine the so-called "stepping stone" justification for unbundling an existing access technology (for example, the copper loop). In particular, there is a large discontinuity in the investment by entrants around the date of forbearance, in contrast to the steady movement up the ladder of investment predicted by the stepping stone hypothesis. Such a discontinuity suggests that either (1) the regulator failed to signal its deregulatory intentions to entrants, or (2) that the signal was clear but the entrant did not react according to the theory. We also find that incumbent investment increases significantly in response to forbearance from regulating a new access technology (for example, fiber loops). When forbearing from regulating an existing access technology, regulators can signal their future intentions to entrants by slowly increasing the regulated wholesale rate. In the case of forbearing from regulating a new technology, however, there is no equivalent mechanism by which regulators can signal their deregulatory intentions to incumbents. Because a regulator cannot credibly signal its commitment to industry participants, and because such a commitment is critical to the practical success of the stepping stone theory, the best policy for maximizing investment is to accelerate the date of forbearance for existing and new access technologies.Technology and Industry

Why the iPhone Won't Last Forever and What the Government Should Do to Promote its Successor

Because of the overwhelming, positive response to the iPhone as compared to other smart phones, exclusive agreements between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. In this paper, we document the myriad revolutions that have occurred in the mobile handset market over the past twenty years. Although casual observers have often claimed that a particular innovation was here to stay, they commonly are proven wrong by unforeseen developments in this fast-changing marketplace. We argue that exclusive agreements can play an important role in helping to ensure that another must-have device will soon come along that will supplant the iPhone, and generate large benefits for consumers. These agreements, which encourage risk taking, increase choice, and frequently lower prices, should be applauded by the government. In contrast, government regulation that would require forced sharing of a successful break-through technology is likely to stifle innovation and hurt consumer welfare.

The Need for Greater Price Transparency in the Medical Device Industry: An Economic Analysis

Proposed legislation seeks to impose price transparency in the health care industry as a remedy for increasing medical device prices. This paper analyzes previous attempts to mandate similar price-disclosure rules in a variety of industries. We identify the economic conditions under which mandatory price disclosure is likely to generate substantial benefits and costs. Applying these conditions, we conclude that mandatory price disclosure for implantable devices is unlikely to pass a benefit-cost test.

The Effect of Incumbent Bidding in Set-Aside Auctions: An Analysis of Prices in the Closed and Open Segments of FCC Auction 35

This paper examines the impact of an incumbent carrier’s participation in two simultaneously conducted auctions: one set-aside for non-incumbents and one open to all carriers. This paper estimates the extent to which prices in the closed auction were inflated by the participation of incumbents. This paper also estimates what prices would have been in the open auction had incumbents been excluded from bidding in the closed. It is found that an incumbent’s participation in the closed auction through a front, Alaska Native, enabled it to win more licenses at lower prices in FCC Auction 35. In contrast, non-incumbents won fewer licenses and paid more for what they won. The econometric techniques employed here to estimate prices in a “but for” world could be replicated in future damage analysis. Finally, this paper suggests an alternative method of screening bidders seeking access to set-aside auctions that would be consistent with the FCC’s goal of promoting competition in the wireless industry.Auctions, spectrum auctions, market design

The Economics of “Wireless Net Neutrality”

None.

Addressing the Next Wave of Internet Regulation: The Case For Equal Opportunity

In October 2009, the Federal Communications Commission released a Notice of Proposed Rule Making in which it asked for guidance on how to convert a principle of “nondiscrimination on the Internet” into a practical rule for broadband service providers. The ultimate formulation of the nondiscrimination principle could have a significant economic effect on economic welfare in the short term and on innovation. In this paper, we explain the economics of discrimination and offer a new approach for identifying anticompetitive discrimination. Discrimination raises concerns when it interferes with what is often referred to as “equality of opportunity.” However, the Commission’s proposed nondiscrimination policy, which would limit the ability of service providers and content providers to contract on terms that (1) are mutually agreeable to both parties, (2) are available to all prospective consumers, and (3) do not impose significantly externalities on third parties, is inimical to promoting equality of opportunity. Moreover, given the twosided nature of the Internet access market, a blanket rule forbidding broadband service providers from offering quality of service to content providers (and charging for it) would likely harm endusers and certain content providers.

Uberregulation without Economics: The World Trade Organization\u27s Decision in the U.S.-Mexico Arbitration on Telecommunications Services, General Agreement on Trade in Services, GATS

In April 2004, a World Trade Organization ( WTO ) arbitration panel found that Mexico had violated its commitments under the Annex on Telecommunications to the General Agreement on Trade in Services ( GATS ) by failing to ensure that Telmex, Mexico\u27s largest supplier of basic telecommunications services, provide interconnection to U.S. telecommunications carriers at international settlement rates that were costoriented. The WTO panel deemed long run average incremental cost ( LRAIC ) to be the appropriate cost standard for setting settlement rates. Mexico thus became obliged to change its domestic telecommunications regulations or face trade sanctions. The decision is the first WTO arbitration to deal solely with trade in services under GATS. This Article shows that both the U.S. complaint against Mexico and the WTO decision misunderstood or ignored critical economic facts and principles. Both conflated international settlement rates and domestic interconnection pricing, and failed to recognize the factors that would justify Mexico\u27s permitting Telmex to charge a settlement rate exceeding LRAIC. Moreover, the U.S. government failed to understand that U.S. long-distance carriers were not passing reductions in Mexico\u27s international settlement rate on to their U.S. customers. Finally, both the U.S. government and the WTO incorrectly defined the relevant market and incorrectly evaluated market power