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Regulation, institutions, and commitment in the British telecommunications sector

Listed author(s):
  • Spiller, Pablo T.
  • Vogelsang, Ingo
  • DEC

In the past decade the United Kingdom has emerged as a world pacesetter for institutional change in the telecommunications sector. In particular, British Telecom has been divested, price-cap regulation has been introduced, a new regulatory institution (Oftel) has been set up (with its Director General of Telecommunications), and the market has been opened up to increasingly more competition. At the same time, investment in the sector has jumped, despite the uncertainty that might have been created by the United Kingdom's lack of modern experience with public utility regulation, by the lack of constitutional protection against governmental and regulatory discretion, and by continuing institutional change. Part of the reason for the investors'confidence may be the government continuity resulting from a series of Conservative election victories. But the authors emphasize the nature of British Telecom's privatization and restraint on discretion achieved by basic features and specific details of the regulatory process. In particular, the use of the license as an instrument to stipulate pricing and access regulations, and the use of several agencies to check on license amendments, have a strongly stabilizing influence. The authors show how the regulatory process provides commitment even when there are personnel changes among regulators and government officials, so long as changes in government are not long-term. This commitment -- based on the British courts'tradition of upholding contracts -- is supported by a number of weak but mutually reinforcing pillars. Changes in the United Kingdom's regulatory practice -- such as the gradual tightening of price-cap regulations -- can be interpreted largely as adaptations to increased competition and to the more favorable cost and demand conditions British Telecom faces.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1241.

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Date of creation: 31 Jan 1994
Handle: RePEc:wbk:wbrwps:1241
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  1. Thomas P. Lyon, 1991. "Regulation with 20-20 Hindsight: "Heads I Win, Tails You Lose"?," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 581-595, Winter.
  2. Glaister, Stephen, 1987. "Regulation through Output Related Profits Tax," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 281-296, March.
  3. Spiller, Pablo T, 1996. "Institutions and Commitment," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 421-452.
  4. Oliver E. Williamson, 1976. "Franchise Bidding for Natural Monopolies -- in General and with Respect to CATV," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 73-104, Spring.
  5. M.E. Beesley & S.C. Littlechild, 1989. "The Regulation of Privatized Monopolies in the United Kingdom," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 454-472, Autumn.
  6. Bradley, Ian & Price, Catherine, 1988. "The Economic Regulation of Private Industries by Price Constraints," Journal of Industrial Economics, Wiley Blackwell, vol. 37(1), pages 99-106, September.
  7. McCubbins, Mathew D & Noll, Roger G & Weingast, Barry R, 1987. "Administrative Procedures as Instruments of Political Control," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 243-277, Fall.
  8. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, July.
  9. Gely, Rafael & Spiller, Pablo T, 1990. "A Rational Choice Theory of Supreme Court Statutory Decisions with Applications to the State Farm and Grove City Cases," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 263-300, Fall.
  10. Spiller, P.T. & Vogelsang, I., 1993. "Regulation without Commitment: Price Regulation of UK Utilities (with Special Emphasis on Telecommunications)," Papers 41, Boston University - Industry Studies Programme.
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