Is Telecommunications a Natural Monopoly?

May 29, 2014
By: Gary Kim

Is telecommunications a natural monopoly? The question, though not often asked, is relevant for discussions of common carrier regulation as it pertains to either voice services, private line or Internet access services.

Whether telecommunications is a natural monopoly or not ultimately affects the regulatory model and principles applied to the industry, and its services. 

The principle is that natural monopolies have to be regulated, as there is no effective competition.

But lots of industries once highly regulated have been deregulated over time, including some, such as telecommunications, once thought impervious to effective competition. 

In fact, since the actual empirical test for market power includes metrics such as market share, incumbent service providers everywhere have much less market share than they once held.

In Western Europe, North America and many countries in Asia and Africa, for example, the former incumbent has less than 50 percent market share in various key product lines, in some cases just 40 percent. In most markets, the share held by incumbents continues to decline, as well.

Though market share might not be the only relevant test of whether markets for various products are competitive, such market share shifts provide key evidence that various telecom markets no longer have the characteristics of natural monopolies.

Under those conditions, broadly stated, regulators might be cautious about applying common carrier regulation where the facts do not support such regulation.

With the Federal Communications Commission now formally inviting public comment about whether Internet access should be regulated using common carrier rules, some argue in favor, also calling for mandatory wholesale access to transmission tower facilities, for example.

Ignore for the moment the separate question of whether ownership of cell towers by mobile carriers is necessary, or actually confers a degree of market power that prevents other contestants from entering the market.

In the U.S. and other markets, leading mobile service providers have concluded that ownership of towers does not, in fact, confer strategic advantage, and have sold off those assets to third parties.

Were ownership of towers actually strategic, no major service provider would consider selling those assets. Sprint (News - Alert), for example, sold its towers in 2008. AT&T likewise has sold its tower network.

T-Mobile USA also has sold its towers, while Verizon (News - Alert) seems to always have relied on tower leases, not tower ownership.

One might infer from such behavior that ownership of cell towers does not, in fact, provide strategic advantage, or represent a barrier to competitor entry. 




Edited by Maurice Nagle