in the Telecommunications Industry: Implications for Competition and Innovation 1

Abstract: Telecommunication economic analysis has largely relied upon a conventional economic framework that has its roots in neoclassical analysis that emerged almost a hundred years ago, and has contributed to reshaping the direction of economic policies by attacking the premises of the 1996 Telecommunications Act, and providing far greater leeway to incumbents, as well as challenging the economic efficiency of new entrants. Common approaches based upon a large number of simplifying assumptions that include, for instance, the idea that the technology is exogenous. Such hypotheses make little sense at a conceptual level. In addition, this idea is largely contradicted by the short period during which the sector achieved some level of competition around the 1900's and 2000. Not only have economists not thought about any number of such hypotheses, but they have also failed to consider how they might have an impact on their analysis. Evaluating a number of such issues in this paper, we are able to show how conventional economic analysis, uncritically applied to the sector, contributed to the undoing of the 1996 Telecommunications Act and of much of the competition it helped facilitate. Key words: scale and scope, competition, telecommunications industry structure