Quality and Reliability of Telecommunications Infrastructure

By William Lehr | Go to book overview

local exchange carrier simultaneously integrated backward into long distance services. The alliances between Bell-Atlantic and Tel, Time Warner and US West, MCI and Teleport, AT&T and McCaw Cellular, and so on, suggest that this may be the mode of competition in the future. Fortuitously, the results presented in section 3.2.1 indicate that this will produce an outcome that out- performs the integrated monopolist. It is noteworthy that this is the only industry structure that outperforms the original predivestiture model, and that even this solution falls far short of the socially optimal level of total surplus (i.e., total surplus with integrated duopolists is 0.069 versus 0.1055). Thus, even with duopoly competition in every market, continued regulation may be justified. Moreover, our results assume that the production costs are such that duopoly competition is sustainable (i.e., local access is not a natural monopoly).

Our model indicates that there are no gains from offering hybrid systems. The integrated firms will price so as to foreclose these markets. This may be unfortunate because other reasons to interconnect might exist. For example, active hybrid system markets may be useful in helping to assure network reliability (i.e., hybrid systems offer alternative routing options in the event one of the subnetworks fails). However, because real networks are unlikely to perfectly overlap, the opportunity to reach additional customers will help encourage interconnection.


5. CONCLUDING REMARKS

Although the preceding discussion attempted to interpret our analytic results in terms of policy questions that are of interest to telecommunications regulators, we should not forget that this is an abstract model. Its real contribution may be in expanding our understanding of the theoretical tools that underlie economic- based policy analysis. We were somewhat surprised to find that the standard models were inadequate for addressing the questions posed by the evolution toward a more highly decentralized information infrastructure.

Much work needs to be done if we are to understand the effects of changing industry structure on incentives to invest in quality. For example, two important theoretical extensions to the present work include (a) accounting for the effect of positive externalities on quality investments, and (b) incorporating imperfect, asymmetric information. In addition to these theoretical extensions, we need additional empirical work that addresses how the quality of our infrastructure has changed since divestiture.


ENDNOTES
1.
For a comprehensive discussion of the economics of networks, see Economides and White ( 1994).
2.
Moreover, the quality of the bottleneck facility sets the maximum system quality that will be available to consumers. This last point follows directly from our modeling assumption that the quality of a system is never higher than the quality of the weakest link in the system.

-38-

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Quality and Reliability of Telecommunications Infrastructure
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Introduction 1
  • Endnotes 12
  • Part 1 Economic Theory of Network Quality 15
  • Chapter 1 The Quality of Complex Systems and Industry Structure 17
  • Introduction 17
  • Concluding Remarks 38
  • Endnotes 38
  • References 41
  • Chapter 2 The Political Economy of Entry Into Local Exchange Markets 43
  • Introduction 43
  • Conclusion 58
  • Acknowledgments 59
  • Endnotes 59
  • References 61
  • Chapter 3 Dynamic Effects of Regulation on Exchange Carrier Incentives 63
  • Introduction and Overview 63
  • Summary 81
  • Acknowledgments 81
  • Chapter 4 Issues in the Pricing of Broadband Telecommunications Services 83
  • Introduction 83
  • Concluding Comments 99
  • Endnotes 101
  • Part II Regulatory Practice 105
  • Chapter 5 A New Index of Telephone Service Quality: Academic and Regulatory Review 107
  • Introduction 107
  • Concluding Observations 128
  • Acknowledgments 130
  • Appendix 130
  • References 133
  • Chapter 6 Network Utilization Principles and Pricing Strategies for Network Reliability 135
  • Introduction 135
  • Conclusion 150
  • Acknowledgments 151
  • Endnotes 151
  • References 154
  • Chapter 7 Rate Regulation and the Quality of Cable Television 155
  • Introduction 155
  • Acknowledgments 176
  • Endnotes 176
  • References 181
  • Part III Empirical Trends and Evidence 185
  • Chapter 8 Quality-Of-Service Measurement and the Federal Communications Commission 187
  • Introduction and Overview 187
  • Conclusions 197
  • Appendix A: Raw Data Received by the Commission 198
  • Appendix B: Data Components Included in the FCC Report 200
  • Appendix C: Data Summarized in the FCC Report 202
  • Chapter 9 The Impact of Local Competition on Network Quality 213
  • Introduction 213
  • Summary 222
  • Endnotes 223
  • Chapter 10 Gigabits, Gateways, and Gatekeepers: Reliability, Technology, and Policy 225
  • Introduction 225
  • Acknowledgments 236
  • Endnotes 236
  • About the Authors 239
  • Author Index 243
  • Subject Index 247
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