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Telecom network equipment markets continue to play a significant role in shaping the global information and communications system. At one level, network equipment influences network performance attributes and has direct bearings on the dynamics of innovation at higher layers of the Internet ecosystem. More strategically, participating in network equipment markets is of vital importance for nations in the present era when the openness of the Internet is challenged by actions of many stakeholders. During the past decade, momentum in global equipment markets has shifted from established players such as Ericsson, Nokia Siemens, Alcatel-Lucent and Cisco to emerging firms such as Huawei. Consolidation and takeovers have strongly affected the number of North American network equipment suppliers and raised the question of whether and how public policy could contribute to preventing further decline. Determining how policy choices affect firm-level competitive advantage in the oligopolistic telecom equipment markets is a complex task. Three major challenges need to be overcome that no single method of analysis can handle well. First, the telecom equipment sector is inherently dynamic with ever-changing technology and market dynamics. Second, data documenting the industry and its main players are heterogeneous, of non-uniform quality, and need to be dealt with at different levels of aggregation (firms, nations) simultaneously. Third, due to endogenous and independent decisions at multiple levels (firms, nations), the determination of future scenarios is enormously difficult. Thus, there is a lack of understanding and of strong inference about whether and how public policies, - including measures affecting research and development (R&D), procurement, mergers, acquisitions, and international trade - influence the telecom equipment market. This paper reports on a collaborative research project designed to tackle these challenges and to develop a modeling framework that allows for assessing the impact of policies on the national and global dynamics of the telecom equipment industry. To this end, we built a multi-level modeling framework to incorporate and analyze disparate data available about telecom equipment markets to understand the nature of inference possible. First, we built a set of econometric models to study factors that affect revenues and market shares at the level of individual firms and at a more aggregated sector-level for specific technologies like fixed broadband; 2G, 3G, LTE; and optical networks. Data for these analyses were collected from several sources, including Infonetics, Ovum, and public sector databases. We used several econometric techniques including machine-learning approaches to overcome the challenges of heterogeneous data. We then took the findings of these models to build dynamic simulation models of competition that allow us to relax the constraints of the empirical analysis based on historical data, and study the effects of various policy decisions on outcomes such as market shares and revenues. Our analysis illuminates four sets of lessons: First, we demonstrate the limitations of the available data and its implications for what we can and cannot learn about telecom market even after comprehensive modeling efforts. Second, we discuss how competition has changed in the telecom equipment markets over time and how, despite it being an oligopolistic and overall a fairly stable market, certain firms have exploited competitive advantage by sustained commitment to R&D and strategic mergers and acquisitions (M&A) activity. Third, we identify a number of factors that may not have much effect on competitive outcomes and consequently should not be the focus of public policy. Finally, we discuss how a combination of policies can be used to foster an environment of competition even in a seemingly oligopolistic market. We perform this analysis for four global regions: North America; Europe, Middle East, and Africa; Central and Latin America, and Asia Pacific.
Since 1971 competition has begun to replace regulation as a governing force in the telecommunications industry. The breakup of the national telephone monopolies, technological advances, and the worldwide network in telecommunications have brought a revolution in the telecommunications equipment and services industries. These changes have forced legislators and regulators to rethink public policy toward communications. The papers in this book were first presented at a conference organized by Robert Crandall and Kenneth Flamm, pulling together a group of industry professionals and scholars to address the far-reaching implications of the upheaval in the communications industry. The contributors analyze the effects of this increasing competition on standardization, technical innovation, and international rivalry. Changing the Rules offers possible policy options and analyzes their potential effects on the future market structure and the competitive positions of the U.S. computer and communications industries.
The authors analyze regulatory reform and the emergence of competitionin network industries using the state-of-the-art theoretical tools ofindustrial organization, political economy, and the economics ofincentives.
companies to diversify may outweigh the costs of doing so, and that some traditional regulatory concerns may be excessively restrictive. The papers by Hillman, Harris, and Jang and Norsworthy, while all relating to individual industries, have lessons for other regulated industries. Hillman's paper, "Oil Pipeline Rates: A Case for Yardstick Regulation," deals with the important topic of yardstick regulation for oil pipelines. While his application is highly specific, the potential application of yardstick regulation goes beyond oil pipelines. He reviews the evolution in the law regulating oil pipelines. While showing that some progress has been made in introducing economic efficiency considerations into regulation, he provides a careful critique of the operation of existing regulation and suggests an alternative based upon a yardstick approach. His approach seeks to use competitive market prices as the yardstick, with administration of price discrimination limited to dealing with possible "favoritism" to subsidiaries and affiliates. "Telecommunications Services as a Strategic Industry: Implications for United States Public Policy" by Harris and "Productivity Growth and Technical Change in the United States Telecommunications Equipment Manufacturing Industries" by Jang and Norsworthy provide important insights for telecommunications.
The U.S. telecommunications industry has undergone dramatic changes in recent years that have touched almost every American home and business. The average American can dial almost anywhere in the world directly, store and forward a message, or transmit a fax in less than a minute; often for less than the real cost of a 500-mile telephone call tweny-five years ago. The combination of telecommunications breakthroughs, competition among new and old carriers, and the AT&T breakup has transformed the telephone industry and provided customers with a new array of equipment and services. Robert W. Crandall examines the effects of the AT&T breakup and weighs the costs and benefits to the residential and business consumer. On balance, he finds that the efficiency gains from opening up the telephone industry have more than offset the possible efficiency losses, which may be caused by the sacrifice of economies of scale and scope or the absence of fully compatible equipment and services. The replacement of regulation with competition has led to greater productivity in the telephone industry, a more efficient rate structure, and lower equipment prices. Crandall traces the telecommunications evolution from its early beginnings as pairs of copper wires up through the historic 1982 decision to divest. He investigates the impact of technological changes, competition, and the advent of divestiture on the quality of service, local and interexchange service rates, productive efficiency, and income distribution. He also focuses on problems that linger after the breakup in the increasingly competitive but highly regulated sector.