Incentivize Me! - How Incumbent Carriers in the United States Attempt to Extract Greater Deregulation and Incentives in Exchange for Making Next Generation Network Investments
31 Pages Posted: 12 Nov 2009
Date Written: Winter 2009
Incumbent carriers often vilify the regulatory process as a drain on efficiency and an unnecessary burden in light of robust marketplace competition. Some claim that regulation creates disincentives for investing in expensive next generation networks (“NGNs”), particularly if regulations mandate unbundling of services into composite parts, with burdensome interconnection and below market pricing of access by competitors. Both incumbents, prospective market entrants and recent market entrants may seek to tilt the competitive playing field to their advantage typically by securing a regulatory sanction that helps them reduce investment costs, delay having to make an investment, or secure a competitive advantage through reduced regulator-imposed costs.
Without assessing the necessity to do so legislators, regulators and judges have accepted the premise that government must create incentives for NGN investment. Incumbent carriers in particular have seized upon the concept of uncertainty as a justification for refraining from making necessary infrastructure investments, despite the onset of declining revenues and market shares in core services.
This paper will examine how incumbent carriers in the United States have gamed the incentive creation process for maximum market distortion and competitive advantage. The paper suggests that the U.S. government has rewarded incumbents with artificially lower risk, insulation from competition, and partial underwriting of technology projects that these carriers would have to undertake unilaterally. The paper provides recommendations on how governments can calibrate the incentive creation process for maximum consumer benefit instead of individual carrier gain.
Keywords: telecommunications, incentive creation, regulatory arbitrage, FCC, broadband development, best practices
JEL Classification: L51, L96, K23
Suggested Citation: Suggested Citation