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Tilburg University The competitive order for the new economy Trubnikov, Dmitrii Publication date: 2018 Document Version Publisher's PDF, also known as Version of record Link to publication in Tilburg University Research Portal Citation for published version (APA): Trubnikov, D. (2018). The competitive order for the new economy: Lessons from the telecommunications experience. 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Download date: 25. sep. 2021 Dmitrii Trubnikov The Competitive Order for the New Economy: Lessons from the Telecommunications Experience Alma Mater Studiorum – Università di Bologna in collaborazione con LAST-JD Consortium Università degli studi di Torino Universitat Autonoma de Barcelona Mykolas Romeris University Tilburg University DOTTORATO DI RICERCA IN Erasmus Mundus Joint International Doctoral Degree in Law, Science and Technology Ciclo 30 – A.Y. 2014/2015 Settore Concorsuale di afferenza: 12H3 Settore Scientifico disciplinare: IUS20 TITOLO TESI The Competitive Order for the New Economy: Lessons from the Telecommunications Experience Presentata da: DMITRII TRUBNIKOV Coordinatore Relatore Prof. dr. Monica Palmirani Prof. dr. Ronald Leenes Relatore Prof. dr. Pierre Larouche Relatore Prof. dr. Mindaugas Kiškis Esame finale anno 2018 The Competitive Order for the New Economy: Lessons from the Telecommunications Experience Proefschrift ter verkrijging van de graad van doctor aan Tilburg University op gezag van de rector magnificus, prof.dr. E.H.L. Aarts, en University of Bologna op gezag van de rector magnificus, prof.dr. F. Ubertini, in het openbaar te verdedigen ten overstaan van een door het college voor promoties aangewezen commissie in de aula van Tilburg University op maandag 29 januari 2018 om 16.00 uur door Dmitrii Trubnikov geboren te Kuybyshev, Rusland Alma Mater Studiorum – Università di Bologna in partnership with LAST-JD Consortium Università degli studi di Torino Universitat Autonoma de Barcelona Mykolas Romeris University Tilburg University PhD PROGRAMME IN Erasmus Mundus Joint International Doctoral Degree in Law, Science and Technology Cycle 30 – A.Y. 2014/2015 Settore Concorsuale di afferenza: 12H3 Settore Scientifico disciplinare: IUS20 TITLE The Competitive Order for the New Economy: Lessons from the Telecommunications Experience Submitted by: DMITRII TRUBNIKOV The PhD Programme Coordinator Supervisors Prof. dr. Monica Palmirani Prof. dr. Ronald Leenes Prof. dr. Pierre Larouche Prof. dr. Mindaugas Kiškis Year 2018 Prof. dr. R.E. Leenes, promotor Prof. dr. P. Larouche, promotor Prof. dr. M. Kiškis, promotor Overige leden van de commissie: Prof.dr. Th. Fetzer Prof.dr. I.L. Hancher Prof.dr. A.E.H. Huygen Prof. mr. drs. C. Stuurman Dr. I.J.M.A. Graef LAST-JD-programmacoördinator: Prof.dr. M. Palmirani Table of Content CHAPTER 1 Introduction 11 1.1. Free economic order for the new economy 15 1.2. The “pro-market” controversy of property rights 18 1.3. Contemporary views and the main hypothesis of the research 21 1.4. The order of the telecommunications industry and the main research 28 questions 1.5. Methodology and chapters outline 33 CHAPTER 2 Market and Regulatory Failures in Telecommunications: Analysis of 37 the Main Regulatory Frameworks 2.1. Introduction to Chapter 2 37 2.2. Government failure vs. market failure 38 2.3. Transformation of the landscape of telecommunications 42 2.4. Key regulatory issues in telecommunications 46 2.4.1. Strategic planning and distribution of limited resources such as radio 47 spectrum 2.4.2. Access to network elements and associated facilities 50 2.4.3. Harmonization of networks, associated facilities and services through 52 standardization 2.4.4. Control over companies that have signifcant market power 54 2.4.5. National security and criminal investigations 56 2.4.6. The social signifcance of telecommunications services 58 2.5. Summary and conclusion for Chapter 2 60 !7 CHAPTER 3 Intersection of Public and Private Interests in Regulatory Policy of 63 Telecommunications 3.1. Introduction to Chapter 3 63 3.2. Theoretical framework 65 3.2.1. The public interest concept 65 3.2.2. The public choice view 67 3.3. Universal service and digital divide 70 3.3.1. The lesson from the early days 70 3.3.2. Separation of services and cross-subsidization 73 3.3.3. The growth of information society and the changing nature of universal 75 service 3.3.4. Weakness of the public interest view on the universal service and digital 77 divide problem 3.3.5. The public choice perspective of the universal service and digital divide 81 problem 3.4. Liberalization of the industry 84 3.4.1. The public interest explanation of liberalization 84 3.4.2. The view on liberalization through the lens of private interests 92 3.5. Telecommunications networks and public infrastructure 101 3.5.1. Public infrastructure for telecommunications development 101 3.5.2. Wasteful duplication and efcient use of resources 106 3.5.3. Public subsidization of the private means of production 110 3.6. Summary and conclusion for Chapter 3 116 CHAPTER 4 The Russian Telecommunications: A Positive Outcome of the 119 Competitive Order in the Industry 4.1. Introduction to Chapter 4 119 !8 4.2. Review of the literature and cross-country diferences 122 4.2.1. The role of regulation in telecommunications development 122 4.2.2. Case studies and cross-country diferences 124 4.2.3. Characteristics of the Russian institutional environment 127 4.3. From the Soviet monopoly to the competitive market 128 4.3.1. The Soviet monopoly and privatization 128 4.3.2. Development, competition and the trend towards concentration 132 4.4. Interplay between regulation and private interests in the Russian 135 telecommunications industry 4.4.1. Post-privatization period of the 1990s 136 4.4.2. New industrial policy of the frst part of the 2000s 139 4.4.2.1. Interconnection 139 4.4.2.2. Distribution of radio spectrum 143 4.4.2.3. Commissioning of communication facilities 145 4.4.3. The broadband revolution of the second part of the 2000s 148 4.4.3.1. Wireless broadband access 150 4.4.3.2. FTTB 154 4.4.4. Reincarnation of the Soviet monopoly 157 4.5. Summary and conclusion for Chapter 4 160 CHAPTER 5 Impact of Regulation on Disruptive Innovations: the Case of 163 Wireless Technology 5.1. Introduction to Chapter 5 163 5.2. Disruptiveness in wireless communications 167 5.2.1. Disruptive innovations in telecommunications 167 5.2.2. Strategic infection point in telecommunications 169 5.2.3. Disruptiveness in diferent layers of telecommunications and the 171 economic model of the wireless innovation !9 5.3. The role of regulation in development of wireless technology 175 5.3.1. Radio spectrum allocation 177 5.3.2. Issues of intellectual property related to wireless technology 180 5.3.3. Promotion of competition and technological pluralism in the industry 182 5.4. Mutual shaping of technology and regulation in telecommunications 183 5.5. Summary and conclusion for Chapter 5 189 CHAPTER 6 Summary and Conclusion 193 6.1. The ordered competition regime of the contemporary telecommunications 193 sector 6.2. Answers to the research questions 197 6.2.1. “Competitive order” vs. “ordered competition” 197 6.2.2. The political choice of the ordered competition frameworks 199 6.2.3. Inherited characteristics of the industry 201 6.2.4. Prerequisites of the competitive order 204 6.3. The competitive order for the new economy 208 BIBLIOGRAPHY 212 " " "10 CHAPTER 1 INTRODUCTION “I would stand for a free economic order even if it implied material sacrifce and if socialism gave the certain prospect of material increase.” Wilhelm Röpke (1959), The Economic Necessity of Freedom. Sometimes ideas of “pro-” and “against-” free market pundits are so close to each other and so contrasted to their proclaimed foundations that they even might be confused.1 Rothbard (2006), for example, points out that “[socialism] tried to achieve the liberal goals of freedom, peace, and industrial harmony and growth”, and that many libertarian “positions are now considered “leftist” on the contemporary ideological scale”. Moreover, those views that are treated by some economists as “democratic socialism” (see, e.g., Block and Barnett 2005), in fact, have been attempts to contribute to “a positive program for laissez-faire” (Simons 1934). At the same time, those who consider themselves liberal scholars, support established monopolies and claim that markets are self-correcting,2 very often do not even admit that the market provides enough incentives for creative minds and support government actions in this area (see, e.g., Landes and Posner 2003). 1 It is also interesting to note that modern studies notice similarities in conclusions of scholars from the opposite camps (see e.g. Holcombe 2015). In this sense, on the both extremes of the political economy spectrum there are claims that “the growing privilege of the 1 percent is not due to market forces but to the political power of those at the top” (Holcombe 2015. See also Stiglitz 2015). 2 E.g. Posner (1968) argues that “public utility regulation is probably not a useful exertion of governmental powers; … and that even in markets where efciency dictates monopoly we might do better to allow natural economic forces to determine business conduct”.