TEL 310

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TEL 310

03/20 Intro to Telephone Regulation

Homework #2 returned

Midterm test returned

Proposal

Review: FCC and Broadcasting

Licensing

Content Regulation

Structural regulation

Intro to Telephone Regulation

  1. Telephone vs. Broadcasting

BroadcastingTelephone

Point to multi-pointPoint to point

No expectation of privacyExpectation of privacy

Supported by advertisingSupported by consumer

Competition on local levelLocal natural monopoly

Uses spectrumWireline use no spectrum

Limited com areasWorldwide comm.

Editorial discretionCommon carrier

  1. Other important characteristics of telephone:

Network externality

Economies of scale and Natural monopoly (p. 345)

"The costs of producing a unit of the good or service are declining over the normal range of consumer demand for the good or service"

--- Implication for regulation:

--- Natural monopoly and the lack of substitute

 Telephone model of regulation: regulation of rate and service

  1. Simple Model of Telephone system (p. 346)
  1. Changes to the basic model

1). Microwave and satellite technology - implication for long distance services

2). Fiber optic cables and digital signal processing --- increase phone line capacity

3). Growth of cellular phone industry --- competition in the local market

5. The pre-Divestiture Bell System

Controls everything:

Customer Premises Equipment (CPE)

Switch and other telecom equipment

Local service

Long distance service

How did Bell initially achieve dominance in the telephone market? (p. 353-356)

1)Market division agreement with Western Union

2)Patents

3)Denial of interconnection to rivals

4)Control of superior long distance technology

  1. Cross-subsidies

Business vs. residential

Urban vs. rural

Long distance vs. local calls

Heavily vs. lightly used routes

  1. Universal Service

Veil and "universal service"

The 1934 Act and "universal service"

The meaning of "universal service" changed: from concern with efficiency to equity