Dial C for competitor

This book solves the Christmas present problem for the families of all telecom anoraks. Ingo Vogelsang and Bridger Mitchell have made a strikingly well-informed contribution to the American Enterprise Institute's nascent series Studies in Telecommunications Deregulation. They begin, where such a study should begin, with the recognition that: "Dramatic advances in communications and information technologies are imposing severe strains on a government regulatory apparatus devised in the pioneer days of radio." And they continue with succinct accounts of the changes in technology, market and company structures which provoked a shift in received wisdom from what was for long assumed to be the mon-opoly "default" state of modern telecommunications systems to a new, presumed, default state of competition.

It is easy to forget how rapid that transition has been. In 1982 British Telecom was a monopoly and AT&T was the world's largest firm, providing integrated end-to-end telecommunications services to most Americans. Competition was highly exceptional and fierce arguments raged over issues which now seem utterly ridiculous. It is hard to believe that there really was once a time when sensible people believed that answering machines should only be supplied by the monopoly network operator. Now in the US, following the break up of AT&T under the Modified Final Judgement of 1982, and the Telecommunications Act of 1996 (replacing the creaky Act of 1934), and in the UK, following the successive phases of liberalisation beginning with the 1981 Telecommunications Act, the policy norm is competition.

So too in Sweden, Canada, Australia and so on. Even the European bastions of monopoly national post, telephone and telegraph, will fall on January 1 1998 when the European Union's directive requiring the opening of voice telephone markets takes effect. And, just as the US was paradigmatic of the old monopoly order, so it is of the new - hence the general relevance of Vogelsang and Mitchell's comprehensive account of the reciprocal shaping in the US of telecommunications markets and regulation. Their account of the US case is complemented by a (necessarily briefer) account of the UK which they recognise has, in some respects, surpassed the US as the prime instance of the new paradigm.

Yet, competition is not, and perhaps cannot be, pervasive in telecommunications systems. For there seems to be a section of telecommunication networks where monopoly is most efficient - in the "local loop", in what the authors call "The Last Ten Miles". Whether it be the last mile, the last ten miles, or even the last ten metres from kerb to home, there is a strong case for stating that competition may never pervade the whole of a telecommunications network. Once that premise is granted, a chink appears through which the nightmare, which haunts those who have advocated the new competitive paradigm can intrude. What if monopoly really is more efficient? What if "asymmetrical" regulation, like Oftel's denial to BT of the opportunity to deliver television and telephony over the same infrastructure that cable operators enjoy, only hobbles the naturally more efficient giant in order to keep a few tame dwarfs on artificial life-support systems?

This then is no simple-minded vision of a yellow brick road to a glorious end-state of efficiency, innovation and consumer friendliness delivered by competition, once the ogre of government, whether incarnated in a monopoly PTT or an intrusive and conservative regulator, has been vanquished.

Not only do Vogelsang and Mitchell nicely acknowledge the costs of competition but they squarely face the central issue. Is competition more efficient? And if so, how is the "network externality", whereby the utility of a telephone increases as the number of other phones on the same network rises, to be maintained under competition? For the commercial interests of a firm which has built a large network lies in denying interconnection between its network and that of a firm with a smaller network. If a network with ten telephones is interconnected with one of two phones the benefits to the ten-phone operator are considerably less than they are to the two-phone operator - even though all 12 subscribers benefit. Moreover, if interconnection to the "essential facilities" controlled by a dominant firm is denied, competition is stifled. The problems of regulating interconnection - that is, requiring that society benefits from the "any to any" network externality - and of adjudicating the intractable problems of interconnecting firms agreeing interconnection pricing, rightly constitutes the central theme of this book. It provides a rich meal for those who feast on arcane debates about the merits of virtual and physical collocation.

But Vogelsang and Mitchell also weave a clear analytical thread into their historical exposition of US regulatory doctrine and practice, complemented by a skirmish with the UK model for comparative evaluation. Arcane and exotic though interconnection pricing may be, the authors make it clear that this is the central policy issue. And not only, as they claim, because competition in telecommunications will be pervasive and ultimately reconfigure the last ten miles, but also because classic telecommunications policy issues will increasingly characterise the whole new order of media convergence.

The principles hammered out in the hard schools of US, and latterly UK, telecommunications (and transport) regulation will inform, and may well be robust enough to underpin, regulation of the Internet, pay television and the cornucopia of new services which awaits us. Telecommunications Competition: The Last Ten Miles provides an excellent orientation for understanding these issues and a comprehensive exposition and evaluation of the practices and principles which inform American telecommunications' regulatory history. This anorak was pleased not to have to wait for Santa and Rudolph to deliver his copy.

Richard Collins is senior lecturer in media and communications, London School of Economics.