PARTIAL DEREGULATION IN TELECOMMUNICATIONS: AN UPDATE

Paul MacAvoy asked, What is the escape from the situation in which industry growth is held back by the lack of competitive entry brought about by regulatory agencies ostensibly acting in the name of protecting consumers? In this article, we examine MacAvoy's prescient critiques of the failure of antitrust and regulation to produce competitive markets for telecommunications services. We explain how the real competition has come from new products and innovation. Market power in the short run is the incentive that drives investment in research and development, and, in telecommunications, it is a small price to pay for innovative new services. Unfortunately, the experience in telecommunications has been one of regulatory delay of implementing new services and technology to level some hypothetical playing field rather than rewarding innovation with a temporary market advantage. We suggest that technical change enhanced by benign regulatory neglect is the answer to MacAvoy's question. It is the escape from counterproductive regulation to control market power in telecommunications.