The Impact of Technological Change on Market Power and Market Failure in Telecommunications
Technological change is an historical constant-no era has lacked for it. But it cannot be denied that it waxes and wanes. Its pace has quickened recently, with dramatic impacts on telecommunications, broadening its very definition. No longer is it confined to voice sent over copper wire, but now also is applied to such applications as e-mail, data, and video transmitted over fiber optics, cable, and satellite (Blumenstein 2000b, R4). Recent years have seen the development of broadband, capable of high speed delivery of large quantities of voice and data, accessed through cable or digital subscriber lines (DSLs), copper telephone wires modified to boost capacity. Wireless telephony has become a mass phenomenon; broad usage of wireless Internet is thought to be imminent. Institutional economics consistently has recognized the inevitability and ongoing nature of technological change, and its importance in shaping the future. Where neoclassical models regularly hold technology constant or bury it in residuals, institutionalists, though interpreting the term diversely (e.g., Hamilton 1986), uniformly view it as a causal force. Moreover, actual and perceived relationships among technological change, regulation, and market forces influence public policy in subtle and often poorly understood ways. Among the many grounds upon which economic regulation is faulted is its hindrance of innovation.' Deregulation is advocated as an incentive to risk taking, including investment in new technology. Moreover, technology is portrayed as destructive even of natural monopoly and as decentralizing because, for example, it produces substitutes (Friedman 1962, 28-9), eroding both monopoly on the supply side and consumer necessity on the demand side, modifying the "affected with a public interest"