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Re-regulating the Telecommunications Industry in the United States and Japan

Samantha Lee
School of Law
Stanford University
December 2001

In this highly competitive information age, the telecommunications infrastructure is the nerve center of every country. Many countries are implementing reforms in the telecommunications industry. I will conduct a comparative study between the United States and Japan to examine how their telecommunications industries have evolved after deregulation. I intend to investigate the legal, economic, technological, and political implications of such outcomes. Special emphasis will be placed on what role law should or should not play in the post-reform era.

Differences in existing social, political, and cultural circumstances have led to distinct telecommunications reforms in these two countries. In the United States, AT&T dominated the telecommunications industry before it was broken up in 1984. Since then, long distance carriers have steadily increased in numbers and rates have substantially decreased. While the American telecommunications industry has always been operated by private entities, the Japanese telecommunications industry has experienced a complicated process of transforming from a government-owned sector to a privatized industry.

However, whether in the U.S. or in Japan, it is not easy to transform a regulated industry into a free market regime overnight. The U.S. has not succeeded in increasing competition in the local telephone market. In Japan, it has been difficult to increase competition even in the more profitable long distance telephone market because the previous monopoly controls bottleneck facilities, i.e. the local telephone network, and has anti-competitive incentives.

I intend to investigate the dynamics of transition from a heavily regulated to a deregulated market where open competition is encouraged. To begin with, I will discuss the nature of regulation in the telecommunications industry. Regulatory interventions by governments may be designed to allocate resources, to attain social or economic goals, to favor one group over another, or a combination of all three. I will review the techniques used to regulate the telecommunications industry, the economic and political effects of telecommunications regulation, and the sources of stability and instability in the regulatory regime of these two countries. Further, inquiries will be made as to what has prompted telecommunications liberalization and what approaches were adopted.

After exploring the dynamics of the process of telecommunications regulation and deregulation, I will investigate whether liberalization has generated sufficient competition in the U.S. and Japan and the possibility of re-regulation. I will use legislative materials to examine to what extent legal revisions or policy changes reflect technological development and political reality. I will then use market indexes such as changes in the number of carriers, household penetration levels, and tariffs to analyze economic effects of deregulation. Most importantly, by reviewing the experiences of the U.S. and Japan, I will further consider whether this market in the post-reform era functions well free of regulation, or whether it is still necessary for a government to intervene and re-regulate the telecommunications industry. In an industry characterized by rapid technological innovations, consolidation, and globalization, I hope the above findings will also offer a more credible basis for evaluating regulation at the international level, such as the interconnection, international settlement rate system, and the establishment of a pro-competitive environment.