Weeks 1 and 2 Flashcards
What is the general definition of regulation?
Externally or internally imposed rules and/ or routines to CONTROL THE OPERATION AND GUIDE THE OUTCOMES of a DEFINED social, economic, or technical system
What is the technical definition of regulation?
Maintaining the “expected” performance parameters of a system
What is the Policy definition of regulation?
Controls and rules imposed on a system UNDER LEGISLATION and applying the provisions defined in legislation to real world situations
UNDER LAW, JURISPRUDENCE
What is a defined system?
Engineers, broadcasters etc.
Advantages of regulation as policy choice?
- Responsiveness (to technical factors and socio-economic)
- Flexibility
- Specificity (legislation tends to be general/ broad objectives)
- Arms length
- quick compared to parliament
Disadvantages of regulation
- Imaged as RED TAPE
- Political costs of compliance
- Cost of MAINTAINING and keeping up to date
- Possibility of capture (regulated become regulators)
Myth or fact:
Regulations are only a method for applying or enforcing laws.
Myth
Myth or Fact:
Regulations is always imposed on industry by government.
Myth
most regulation is requested by industry
Myth or fact:
Regulated industries are less profitable.
Myth
higher correlation with increased profit and regulation
Myth or fact:
De-regulation results in less red tape.
Myth
fewer regulations higher correlation with increased compliance costs
Myth or fact:
Companies will act in their own interest whether regulated or not.
Fact
Most national systems today run on a basis of
___ ownership and ____ control.
Private/ Public
however public control is evolving and diversifying
Network Evolution Principles:
Networks replicate through LINKAGES NOT INDIVIDUAL GROWTH
Scale
Network Evolution Principles:
Networks ADAPT TO CHANGES in a complex of social and tech factors
Transformation
Network Evolution Principles:
Options and possibilities for NETWORK EVOLUTION ARE NOT INFINITE, always subject to constraints
Restraint
Essential services and the Universality principle are used to argue for _______ as a social concept.
Universal Service
What was the Vail Doctrine promising?
to roll out technology quickly to entire country
How did the Vail Doctrine achieve its goal?
- Granted monopoly rights over interconnection revenues
- In return the government can regulate profits and rates of return
When did Bell-Edison patents expire?
1890s
Vail (ATT) emulated Westurn Union telegraphy monopoly by:
Connecting more individual premises to rural networks through predatory pricing then swallowing up local competitors who can’t afford to do so.
INTERCONNECT AND SWALLOW UP THE URBAN NETWORKS
Was Vail’s goal universal access? If not, what was it.
No, system financial architecture
No part of the network is self-sustaining in revenue
What three principles did Vail base rates on?
Costs determined as if you were using whole system
- LD rates averaged on distance basis, not density
- LD revenues pooled to subsidize high- cost routes (not true)
T or F:
The logic of the natural monopoly results in incentive for new entrants to invest
FALSE,
incumbents can always lower prices at a rate that new entrants never attain profitability b/c service requires fully integrated system
Monopolies are justified as the “efficient” route to universality based on accumulating economies of ______ on the supply side
SCALE
Significance of Vail doctrine? 3 things
- defined telecom policy for 75 years
- evoked by monopolists and oligopolists in regulatory contexts
- almost all developments in comms regulation stem from OPPOSITION to this doctrine
What is the Equilibrium Assumption
Economies always tend to bring supply and demand into balance
- this never happens but is a starting point to find out why is isnt
What is the perfect information assumption
all parties have or have access to the same information in any transaction, have to assume we know why were paying that much
What is the utility assumption
economies are driven by the known usefulness of goods and services
What is the rational choice assumption?
Consumers always act rationally and in their own interest when acquiring goods and services
Price signal assumption is
Price reflects costs, enabling rational choice making
What is the tragedy of the commons?
Everyone acting rationally in their own interest regarding a COMMON ASSET, the result is degradation of the asset for everyone
-Opposite case than orthodox econ.
What are three special factors regarding why economics doesnt work properly with Telecoms?
- Network effects
- Economies of scale and density
- Monopoly leveraging
The view that accepts conventional economics paradigms and maintain that all of the network anomalies can be worked out in this framework.
Orthodox faction of the regulatory arena
The view that does not accept conventional economics except as a point of departure for explaining the dynamics of networks.
Heterodox faction of the regulatory arena
Basic Logic of Regulation in a wired environment? (4 points)
- Compensate for network effects by REGULATING INTERCONNECTION
- Integrate all service providers into conceptually A SINGLE END TO END NETWORK W/ INTERCONNECTION AGREEMENTS
- Calculate COSTS ON A WHOLE NETWORK BASIS
- Regulate the revenues to PROTECT USERS FROM MONOPOLY ABUSE
What were some regulatory implications of data networks?
- Not just physical networks generate network effects
- Barriers to entry can also be “APPLICATIONS- BASED” (operating systems etc.)
What is the argument FOR a monopoly being inevitable and permanent?
All networked systems tend towards monopoly and must always be regulated externally
What is the argument AGAINST a monopoly being permanent and inevitable?
Innovation and market forces mitigate monopoly, especially through technical change
(however tech changes now but monopolies then develop within that ex. apps based monopoly)
What is the prevailing regulatory philosophy? (When is it unnecessary and necessary)
Platform and Services segment: Sometimes necessary and often unnecessary
Physical infrastructure and “last mile”: usually or always necessary
What is the difference between Sunk costs and Marginal costs?
Sunk costs are a necessary investment that cannot be used for another purpose once made and marginal costs are what it costs to connect each new customer
What is the principle behind an economy of scale?
Marginal costs decrease with each unit produced.
Implication: larger network, the lower cost should be bourn by customer, argument made for regulation
What is the principle behind an economy of density?
Costs of serving a market in any given location decrease in proportion to the size of that market.
(Implication: Cost recovery from each customer can be lowest if just one connection is laid vs highest if many competing parallel connections are laid)
ex. payphone in village, might as well connect whole village
Normal vs. Network paradigms for increasing returns:
Normal: value decreases as supply increases
Network: value increases as the number of users increases, because value to all is defined by the number of nodes that can connect to each other
True or false: Economies of scale in communications infrastructures will eventually decrease as average cost per unit stops decreasing.
FALSE
in most cases there are limits as market grows in size or diversifies, but in telecoms they can keep increasing b/c
- one firm can supply entire market
- incumbents can always lower prices faster than new entrants
What is the principle behind economies of scope?
Because of economies of scope and density, it can be more “efficient”” (profitable) to offer as many services as possible on the same infrastructure
(Implication: tech convergence strategies and vertical and horizontal integration incentives)
What is horizontal integration?
The interconnection of substitutable service providers within the same service market.
ex. local exchanges
Buy out of companies within same sector
What is vertical integration?
The integration of complimentary/ adjacent service markets
ex. Wired telecom, cable , internet access, VoD
Integrated supply chains? ex. Netflix producers/ distributors
Where does regulation come into play here?
What is monopoly leveraging?
Utilizing economies of scope to leverage one monopoly by monopolizing another adjacent market.
- cheaper to provide many services on same infrastructure
- forms basic logic of network convergence and media conglomeration
ex. Microsoft (word processing and operating system)
What is a vertical monopoly?
Vertical integration can yield economies of scope: making many products at the same time
- regulation is usually light as competition in each segment is still viable ex. Walmart doesn’t erase small bakeries
- For comms industries, same rationale as natural monopolies is usually retained and transferred to vertical monopolies resulting in ownership and cross-ownership restrictions
What is the usual argument for regulating vertical integration?
New tech lessens but does not eliminate the possibility of harm to new entrants b/c usually there are at least 2 competing networks offering the same vertically integrated stack of services
Cost is the same b/c of regulation
What is the counter argument for regulating vertical intergration?
One monopoly- one profit (Cournot)
No point in leveraging b/c the single monopoly price can always be controlled.
- restricting access to providers of complementary assets (apps etc.) lowers the value of the monopoly platform
What are some reasons that the natural monopoly doctrine persists?
1) public choice theory (cheaper to socially distribute cost of regulation for themselves)
2) new anti-competitive dangers if new entrants take over incumbent monopolies
3) possibility of regulatory capture (main arguments behind deregulation) (regulated is the one who sets regulations, creating more barriers to entry instead of compensating for them)
What is bandwidth, simply?
network carrying capacity
What are 3 transmission facilities? (Wired)
- Local loops (copper pair, coaxial cable, optical fiber)
- Transport links (cable or optical fiber)
- Long distance lines (fiber, satellite, microwave)
What are 3 transmission methods? (Wired)
- Multiplexing (many signals exchanged simultaneous on the same line)
- Time division multiplexing (TDM) (oldest form, based on sampling but is so quick that it looks like streaming, interleaved time slots)
- Demultiplexing (original signal is re-aggregated)
What is packet switching versus circuit switching?
Circuit Switching: hierarchical and establishes individual circuits that are “dedicated” to each individual call
Packet Switching: no dedicated circuits, instead messages cut up into packets of bits and reassembled at destination
All PSTNs are moving to packet switched internet protocol systems
What does PSTN stand for
public switched telecommunication network
Private carriage versus common carriage
Private: carrier has the right to make individual arrangements w/ each custi
Common carriage: carrier must offer non-discriminatory services to any customer that can pay and offer a defined range of services on same basis to all
PSTN is regulated and defines on common carriage basis
What is a prescriptive approach to enforcing regulations?
Intervention, parties monitored to ensure that rules are being respected and advised how best to comply
What is a performance approach to enforcing regulations?
Forbearance, provided that the outcome envisaged in regulation is achieved the regulator may forbear to intervene
(More stable in Europe, not in US)
Price regulation occurs under the assumption that ____ and prices are set to __________.
market cannot establish fair prices through competition, compensate artificially for what they assume would be the price under competition
Methods of rate regulation: rate of return
Retail rate should deliver “fair and reasonable” return on anticipated expenses plus net expenses (historical costs)
Downside: gold plating to increase rate base (historical costs, unnecessary investments to jack up costs)
Methods of rate regulation: price cap
- Return based on limiting costs
- Assessed on the basis of historical revenues on the rate base under rate of return
- Imposition of “quality of service” provision to guard against degrading of network quality
American deregulation began with _____ followed by the abolishing of _______.
access competition for long distance carriage
vertical integration of equipment and services (competition in terminal equipment allowed)
Computer I, II, and III court decisions contributed to
structural separation of the computing and telecom industries
(prevented americans from combining knowledge in these areas but they didn’t want a super IBM/ATT)
Regulation shifted to ____, ______, and _______ during deregulation in America.
- Service terms and structures
- Facilities Sharing
- Intercarrier compensation
True or False: The regulation objectives shifted in 1990s from building up the information and communication technology industries to universal service concerns.
FALSE, opposite.
Industrial agenda now vs. social agenda before
