The Emergence of Global Networks in Telecommunications: Transcending National Regulation and Market Constraints

By Bauer, Johannes M. | Journal of Economic Issues, June 1994 | Go to article overview

The Emergence of Global Networks in Telecommunications: Transcending National Regulation and Market Constraints


Bauer, Johannes M., Journal of Economic Issues


Telecommunications is currently undergoing an unprecedented reorganization from a predominantly national organization to an industry that operates globally. The importance of electronic telecommunications for international communications and commerce was recognized shortly after the invention of the telegraph in the nineteenth century, which led to international agreements such as the West European Telegraph Union and ultimately the establishment of the International Telecommunication Union (ITU) in 1865. Since most national governments placed a high strategic and military value on telecommunications, the key organizing principle of these agreements was the preservation of national autonomy over the telecommunications system with a system of joint provision of international services. Thus, despite a strong internationalization dating back to the early days of the industry, the principle of joint provision led to a national organization and regulation of the industry.[1] Within this nationally fragmented framework, considerable cross-national differences in the performance of the sector evolved and could co-exist.

This "ancien regime" [Drake 1994] is currently undergoing significant changes toward a more open, transnationally integrated environment. Three interrelated factors, emerging during the 1970s and especially 1980s, contributed to this reshaping of the industry. First, technological change contributed to the development of a wide array of innovative and specialized equipment, services, and applications for which the monopoly environment did not seem to provide a conducive framework. Second, and in part driven by previous advances in telecommunications, multinational enterprises increasingly demand customized and specialized global telecommunications services provided by one rather than a multitude of vendors. Also, constrained by emerging domestic competition and regulatory restrictions, large equipment and service providers started to reach for profitable investment opportunities by pursuing the new global opportunities. As a result of these developments and a growing skepticism concerning the role of the government in telecommunications, many countries adopted policies of privatization and liberalization of former state-owned monopolies and to open market access for foreign companies. Within this globally changing framework, major service providers began to transcend their predominantly domestic orientation and embark on global business strategies through foreign direct investment, joint ventures, and alliances.

However, the legal and regulatory framework of the industry is still predominantly national. In this paper, I discuss possible implications of this "mismatch" between corporate strategies and the institutional framework of the industry. I argue that the existing regulatory asymmetries may enable globalized telecommunications network operators to evade national regulatory control. Moreover, the emerging take-overs, joint ventures, and alliances amount to a considerable accumulation of market power that contradicts the growing trend of deregulation and brings into question the workability of competition in core parts of the industry. My arguments will mainly focus on the effects of the current global framework on the strategies of main players and not on the design of an optimal international framework.

The International Institutional Framework and Corporate Strategies

The strategies for global expansion of telecommunication service providers are shaped and constrained by a diverse set of national legal and regulatory frameworks linked by a few supplementary international agreements. The deregulation movement of the past two decades has somewhat homogenized the previously more fragmented national frameworks for the telecommunications industry. Common international trends are the liberalization of the terminal equipment market and the market for value-added services. …

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