Research in Telecommunications: Recent work by
Pablo
T. Spiller
The Death of the Internet
Structure, Strategy and Regulation: Telecommunications in the New Economy
Towards
a Property Rights Approach to Communications Spectrum
What’s in the Air: Interlicense Synergies and their
Impact on FCC Broadband PCS License Auctions
Organizing Global Seamless Networks;
Contracts, Alliances and Hierarchies
The Frontier of Telecommunications Deregulation: Small Countries Leading the
Pack
Downstream Product Complementarities and the Governance of Upstream Transactions:
A Dynamic Transaction Cost Perspective (with applications to the Telecommunications
Service Sector)
The Effect of Incentive Regulation on Infrastructure Modernization: Local
Exchange Companies' Deployment of Digital Technology
The Institutional Foundations of Regulatory Commitment: a Comparative Analysis
of Telecommunications Regulation
Listed
under 'research on institutions:
The Institutional Foundations of Regulatory Commitment: a Comparative Analysis
of Telecommunications Regulation
THE DEATH OF THE INTERNET
by
Pablo T. Spiller
Sloan Management Review, 2002
Abstract
The Internet is at a crossroads. The dot-com
debacle has raised the possibility that the idea of universal access upon which
the Web is based may not be economically viable. Advertising-based business
models have generally proved disappointing and small, per-click payments known
as microcharges — long viewed as the Holy Grail of profitability for the open
Web — have been difficult to implement. But now, third- and fourth- generation
(3G for short), high-speed wireless networks, once viewed exclusively as
providers of mobile broadband access, can provide something more fundamental:
the widespread implementation of microcharges. That may set in motion an
evolution away from the open Web as we know it and toward a "wireless Internet"
that would be, in effect, a Web of proprietary webs.
STRUCTURE, STRATEGY AND REGULATION: TELECOMMUNICATIONS IN THE NEW ECONOMY
by
Pablo T. Spiller and Rui deFigueiredo
Detroit Law Review, 2001
Abstract
The last decade has seen fundamental changes in the way businesses do
business. The explosion of the internet has resulted in a parametric shift in
the costs of information, engendering a plethora of new businesses, new
industries and a qualitative change in the value that firms can provide to
customers. This change has raised a number of important strategic imperatives
for businesses in the telecommunications industry. Traditionally, the most
fundamental basis for success in telecommunications was ownership of a large
network of real, physical assets. Ownership of the physical network created
opportunities for rents that could be plied over time. The change in the
economics of information, and more importantly, the ability to network
individuals and firms at very low cost has changed this strategic landscape.
Four fundamental changes have occurred which have been particularly relevant to
telecommunications firms. First, where advantages in the transport of
information used to be the basis for long-term sustainable competitive
advantage, it has now become commoditized. Second, access to the network has now
become a central place for the collection of rents. Third, whereas before the
physical network created advantage, now control of a large network of customers
and suppliers has become much more important. And finally, the emergence of new
technologies has created opportunities for new business models to emerge which,
at least for the short-term, create rents for their originators. These changes
have been particularly important to telecommunications companies as they try to
establish positions in this changing strategic topography. Firms that can take
advantage of short windows of opportunity are ultimately the most successful in
generating market share, growth and profits. To do this requires employing both
market and non-market strategies to transform these short-term opportunities
into long-term competitive advantage.
TOWARDS A PROPERTY RIGHTS APPROACH TO COMMUNICATIONS SPECTRUM
by
Pablo T. Spiller and Carlo
Cardilli,
Yale Journal of Regulation, 1998.
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Abstract
The United States' traditional command and control administration of
spectrum distorts technological change, prevents value maximization of
spectrum, and delays consumer access to new technologies. Extensive
technological change and increased demand for wireless communications have
exposed the economic inefficiencies and welfare losses generated by the
traditional spectrum administration, and have forced spectrum regulators
to begin a gradual deregulation of spectrum licensing. These deregulatory
steps have been hesitant and limited. To properly prepare the telecommunications
sector for current and future technological development, the US should
implement a property rights approach to spectrum. A property rights
approach would ameliorate the economic inefficiencies of traditional spectrum
regulation by allowing spectrum holders to decide the appropriate use for
the spectrum and to transfer the spectrum to other users. Moreover,
license holders could protect their spectrum from interference in common-law
courts through tort law. Recent experiments in New Zealand and Guatemala
reveal that spectrum property rights, when implement through careful legislation
and a sophisticated auction process, are an immediately viable option for
spectrum management.
What’s in the Air: Interlicense Synergies and their
Impact on FCC Broadband PCS License Auctions
by
Pat Moreton and Pablo T. Spiller
Journal of Law & Economics, 1998.
Abstract
In this paper we analyze the extent of synergies among wireless licenses
using information from the FCC’s first two broadband PCS spectrum auctions.
We use a reduced form regression of the winning bid for each license on
a set of regressors capturing the demographics of the license region, its
regulatory environment, the degree of competition for it, and the network
synergies among that property and other wireless licenses, both cellular
and PCS. We find evidence that in both auctions the winning bid for
a license was higher when either the winning bidder or the second-to-last
bidder had a large national cellular telephone network or when the license
was located adjacent to other PCS licenses won by either of these two bidders.
By contrast, the winning bid was lower when the license was located in
a region in which the second-to-last bidder owned existing cellular telephone
licenses, although this effect was only significant in the second auction.
We also find strong evidence that the state or states in which a license
was located affected bidding. These state-effects appear to account
for the “spatial” correlation in the regression errors of adjacent licenses,
and there is evidence that these effects are related to state-level wireless
regulation.
THE FRONTIER OF TELECOMMUNICATIONS DEREGULATION: SMALL
COUNTRIES LEADING THE PACK
by
Pablo T. Spiller and Carlo
Cardilli,
in Journal of Economic Perspectives, 1997.
Abstract
Interconnection, equal access, unbundling, and industry structure are
four key determinants of facilities-based competition in telecommunications.
Using these building blocks, this paper analyzes the differences in telecommunications
regulatory regimes in Australia, Chile, Guatemala and New Zealand, assessing
the effect on competition and consumer welfare. Some regulation is necessary
as incumbents can prolong their market power after demonopolization by
exploiting positive externalities inherent to telecommunications networks.
We emphasize the superiority of market mechanisms over traditional regulatory
processes to achieve efficient transactions among operators. Such
market mechanisms need clear rules and credible enforcement.
by
Svein Ulset and Pablo
T. Spiller
in E. Bohlin and S.L. Levin, Eds., Telecommunications Transformation:
Technology, Strategy, and Policy, IOS Press, The Netherlands., 1997.
Abstract
The purpose of this paper is to provide a transaction cost approach to
the development and organization of global seamless telecom networks. When
a network of remote computers or intelligent terminals work together over
a network as if they where parts of one huge flawless computer, the computer
network is said to be technically seamless. Global networks are usually
built by interconnecting different vendor-specific and partially incompatible
national networks. In developing our approach to the organization of such
networks we focus on the critical physical and human assets necessary to
build and operate them. Building and operating global networks in a seamless
way is, to say the least, not an easy task. There are two basic dimensions
to the problem. First, to achieve a more seamless operation, not only must
compatible communication technology be installed, but it must be maintained
and continuously upgraded as technology evolves and newer services are
introduced. Second, a world-wide service organization must also be established
capable of solving the coordination problems associated with technical
upgrading, service deliveries, and economic and financial matters such
as pricing, billing, cost and revenue sharing with partners and associates.
The Internet, shows, though, that the development and operation of global
seamless networks need not be organized in a highly hierarchical fashion.
There are, however, several other more or less global and seamless networks,
that are substantially more centralized and hierarchically organized than
the Internet. A major task of this paper is to explain this diversity in
organizational forms. The main thrust of the paper is that to understand
the variety of organizational forms we must analyze the nature of the transaction
that these different GSN are attempting to satisfy. A key issue in understanding
the organization of GSNs is that GSNs respond to various demands for bundled
service. A company rather than having to contract with multiple suppliers
of various services, engages a GSN to satisfy that need. But the type of
GSN service that the provider will deliver depends, to a large extent,
on the nature of the product being demanded. The more complex the product
and the less sophisticated the customer, the higher the demand for bundling.
Bundling, however, has important strategic and organizational consequences.
Interfirm transactions that would be naturally undertaken in an arms length
relation, may now have to be undertaken in closely related fashion. The
nature of the assets in play and the differential need for speedy resolution
of coordination problems are then the basic determinants of the extent
of internalization of these transactions. Our main thrust is the following:
the higher the complexity of the product relative to the sophistication
of the customer, the higher the need for customization and bundling. The
need for customization and bundling of services into a GSN calls for the
deployment of complementary strategic physical and knowledge assets. The
higher the extent of specificity of the physical and human assets and the
higher the potential for leakage of strategic knowledge assets, the higher
the need for governance structures to be developed. On the other hand,
the higher the need for speedy resolution of coordination problems and
for speedy deployment of new products, the higher the need for deploying
those assets through inter-firm rather than within the firm transactions.
by
Bennet Zelner and Pablo
T. Spiller
Industrial and Corporate Change, Vol 6, No. 3, 561-594, (1997).
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Abstract
The phenomenon of "product bundling," in which two or more discrete products
or services are sold jointly rather than separately, is widespread. The
economic literature, however, has treated product bundling with suspicion.
Indeed, most analyses of bundling have focused on its welfare implications
as bundling purportedly increases companies' ability to discriminate thus
increasing their exercise of market power. While such motives may explain
some instances of product bundling, they not only leave untreated the appearence
of product bundling in environments where competition is strong, but they
fail to analyze the organizational implications that bundling, under these
circumstances, may have. To a large extent, this originates in that most
extant analyses of product bundling are undertaken in a stable environment.
Failure to appreciate the ramifications of transaction costs in a dynamic
context is responsible for the previous neglect of this explanation. We
propose to analyze the organizational implications of product bundling
in a dynamic environment. The environment is dynamic because of two considerations:
first, there are repeated environmental (i.e. technological or regulatory)
shocks which create new but temporally limited opportunities for firms
to earn rents, and these in turn determine firms' actions. Second, consumers'
and firms' capabilities adjust to experience and learning, hence changing
optimal organizational and marketing strategies over time. Concerning environmental
shocks, we focus on those that create a new "product complementarity,"
resulting in the ability of one type of product or service to work in conjunction
with another, thereby creating additional demand for each supplier above
that would exist would the products be sold separately on a standalone
basis. Firms must make both strategic and structural decisions about how
best to exploit this additional demand. The former are the choices that
firms make about which upstream transactions they will undertake in order
to exploit demand for their products. The latter are the subsequent choices
that firms make regarding the efficient organizational structures to govern
these transactions. The comparative effect of both types of decisions are,
in turn, dependent on conditions that are themselves subject to systematic
change over time: the relationship between the levels of product complexity
and consumer sophistication, the match between the technological capabilities
that a firm possesses and those required to produce a new product, the
number of firms possessing capabilities in either of these sets at a given
point in time, and the rate at which technological and regulatory shocks
themselves occur. Our main result is that, under conditions of rapid environmental
change, firms face strong incentives to exploit additional demands generated
by product complementarities through inter-firm collaboration rather than
through market transactions.Market forms of governance, however, are generally
inefficient for sustaining such collaboration, so that more hierarchical
structures such as equity cross-holdings, joint ventures or outright integration
are more likely to be chosen. The main reason for this result is that customers'
demand for bundling arises in the environments we analyze mostly from the
need to contract, organize and enforce "support" transactions. Support
transactions are those transactions needed to organize the provision of
ancillary support services such as billing, marketing, customer assistance,
or repair. Support transactions are intrinsically different than "core"
transactions which consist on the supply of the two products needed for
the bundle. Even if core transactions could be supported through market
governance, support transactions would most often not. Thus, the need for
hierarchical organizational forms. The intellectual foundations of our
model are threefold. First, the model is broadly consistent with Chandler's
(1962) basic thesis advanced in Strategy and Structure, in that successful
firms develop strategies to take advantage of new opportunities, and that
these strategies then determine the organizational structures required
for effective implementation, or in other words, that structure follows
strategy. Second, the model draws on the literature on firm-level capabilities
to address the strategic component of firm behavior. Finally, the model
draws on the transaction cost approach to organizations to address the
structural component of firm behavior. We implement this framework to an
analysis of the organization of the telecommunications service sector.
by
Shane
Greenstein, and Pablo T. Spiller June 1996
Abstract
We examine investment by local exchange telephone companies in fiber optic
cable, ISDN lines and signal seven software, infrastructure which plays
an essential role in bringing digital technology to local telephone networks.
We estimate the elasticity of the derived demand for infrastructure investment
faced by local exchange companies, controlling for factors such as local
economic activity and the political disposition of state regulators. Our
model postulates a regulated profit maximizing local exchange firm and
a regulatory agency with predetermined political leanings in favor of consumer
prices or firm profits. The model accounts for variation in state regulation
and local economic conditions. In all our estimates we find that consumer
demand is sensitive to investment in modern infrastructure. We find that
all measures of instructure enhance demand. The estimated elasticity of
consumer surplus to fiber optic deployment is never less than 11 percent
and as high as 24 percent in some estimates. The elasticity of for ISDN
ranges between 11 and 26 percent. The estimated elasticity for SS7, however,
is not robustly estimated. In all our estimates these magnitudes lead to
the conclusion that infrastructure investment is responsible for a substantial
fraction of consumer surplus and business revenue.
by
Shane
Greenstein, Susan McMaster and Pablo T. Spiller, Journal of Economics,
Management and Strategy
Abstract
This study examines the investment patterns of all large local exchange
telephone companies in the United States over time. It identifies how different
regulatory environments have influenced the recent historical pattern of
investment in modern infrastructure equipment. It focuses exclusively on
the post-divestiture experience of local telephone exchange companies (LECs).
It examines the growth of fiber-optic deployment and of complementary equipment
associated with the modernization of today's information infrastructure.
The study estimates the influence of different regulatory structures on
infrastructure deployment by LECs. The study is unique in that it relates
individual LEC investment patterns to LEC-specific regulatory, demographic
and economic characteristics. Thus, it isolates the contribution of state
regulatory policies from that of other demographic and economic factors
in the determination of infrastructure deployment at the state LEC rather
than at the corporate level. Its main findings are as follows: First, price
regulation (and in particular price caps) is a more potent regulatory mechanism
than the standard earnings sharing scheme. Second, when associated with
an earnings sharing scheme, price regulation is less effective in triggering
infrastructure deployment than when it is implemented by itself. These
results raise questions about the effectiveness of a popular regulatory
instrument --earnings sharing schemes--, and highlight the effectiveness
of generic price cap regulation. These results have implications for the
design of regulatory policy at both the state and federal level. In particular,
given the importance being currently placed on the development of the information
superhighway, regulatory emphasis should be placed more on price regulation
rather than on regulating profits.
by
Brian Levy and Pablo T. Spiller
Journal of Law, Economics and Organization, 1994
Abstract
This paper explores comparatively the impact of core political and social
institutions on telecommunications regulatory structures and utility performance
outcomes in five countries -- Argentina, Chile, Jamaica, the Philippines
and the United Kingdom. Utilities privatization and regulatory reform are
increasingly billed as the way to improve service quality and to lower
prices. In this paper, we argue that such expectations may not always be
attainable. In particular, looking at the problem of utilities regulation
through the lens of transaction cost economics -- with its micro-analytical
perspective, its emphasis on discriminating alignment and remediableness,
and its view of regulation as a contracting problem -- provides an understanding
of the determinants of performance of privatized utilities in different
political and social circumstances. Our objective is to highlight how political
institutions interact with regulatory processes and economic conditions
in exacerbating or ameliorating the potential for administrative expropriation
or manipulation, and hence determining the economic performance of the
sector. We argue in this paper that the credibility and effectiveness of
a regulatory framework --and hence its ability to facilitate private investment--
varies with a country's political and social institutions. Further, we
argue that performance can be satisfactory with a wide range of regulatory
procedures, as long as three complementary mechanisms restraining arbitrary
administrative action are all in place: a) substantive restraints on the
discretion of the regulator; b) formal or informal constraints on changing
the regulatory system; and c) institutions that enforce the above formal--
substantive or procedural --constraints. Our evidence suggests that regulatory
commitment can indeed be developed in what appears to be problematic environments,
that without such commitment long-term investment will not take place,
that achieving such commitment may require inflexible regulatory regimes
that go against prevailing academic views, that in some cases public ownership
of utilities is the default mode of organization, and furthermore, that
it may be the only feasible alternative. Political and social institutions
not only affect the ability to restrain administrative action, but also
have an independent impact on the type of regulation that can be implemented,
and hence on the appropriate balance between commitment and flexibility.
For example, relatively efficient regulatory rules (e.g., price caps, incentive
schemes, use of competition) usually require granting substantial discretion
to the regulators. Thus, unless the country's institutions allow for the
separation of arbitrariness from useful regulatory discretion, systems
that grant too much administrative discretion may not generate the high
levels of investment and welfare expected from private sector participation.
Conversely, some countries might have regulatory regimes that drastically
limit the scope of regulatory flexibility. Although such regulatory regimes
may look inefficient, they may in fact fit the institutional endowments
of the countries in question, and may provide substantial incentives for
investment. These results may be especially relevant for the design of
regulatory policy in developing, newly industrializing and previously socialist
countries, where lack of economic development may be related to a generalized
lack of administrative restraints. But the results are also relevant in
understanding the historical evolution of utilities regulation and ownership
in developed countries. Indeed, restraining regulatory discretion seems
to be behind the development of regulatory institutions in developed countries
as well.
Last Updated: September 21, 1999