James Alleman

Copyright© 2002 by AEI-Brookings Joint Center for Regulatory Studies, the American Enterprise Institute for Public Policy Research, Washington, DC, and the Brookings Institution, Washington, DC All rights reserved. No part of this publication may be used or ...

In the mid-1980s a movement towards privatization and de-regulation of the telecommunications sector was begun. The sector has been privatized in most countries and subjected to regulatory reform. The major reform occurred in the late 1990s. Since then the internet and cellular-mobile industries have advanced significantly. Mobile service has exploded, particularly in the developing world. This has changed the dynamics of the industry dramatically. This paper empirically evaluates the reforms twenty-plus years after they have been implemented in selected OECD countries using cross-country analysis. Earlier studies did not account for the regulatory environment nor cover the entire ICT sector. This paper empirically evaluates the impact of regulation in selected OECD countries.

ABSTRACT The World Bank's The East Asian Miracle explores the inequality in economic growth among developing East Asian Countries during the last two decades. In the above mentioned study, the World Bank identified the essential drivers for economic growth: ...

The efficiency results of marginal-cost pricing have been used to justify the imposition of regulatory policy tools to determine optimal pricing. In the more sophisticated form, Ramsey pricing methodology is recommended as a pricingpolicy tool. These methods are static. Nevertheless, they are applied to major infrastructure industries such as telecommunications. At best, these methods assume prospective events with certainty; they do not account for stochastic changes in cash flows. However, uncertainty can make a substantial difference in the vector of optimal prices. Moreover, significant sunk (irreversible) costs are incurred by the incumbent firm in these industries. Once the sunk costs are incurred, the firm no longer has the delay option available. This opportunity cost has not been acknowledged by the regulatory community in its pricing decisions. In addition to the neglect of opportunity costs, regulators have additional impacts on the incumbent firm’s cost of capital. In th...

序論 ブロードバンド・ミステリー 帯域需要—ＩＮＤＥＸプロジェクトによる検証 ブロードバンド需要—アクセス、コンテンツ、および時間価値 固定高速インターネット接続—ＤＳＬ、ケーブルＴＶ ２Ｇから３Ｇへ—インターネット関連サービスにおけるワイヤレス競争 インターネット関連サービス—非対称規制の結末 ブロードバンド通信市場における競争と規制 ブロードバンド・アクセス供給における規制と垂直統合 ブロードバンドの展開—政策は障壁になっているか ブロードバンド規制の金融市場への影響 ブロードバンドの価値および固定費の重要性 ブロードバンドの便益と規制の効果

Abstract: Investment in infrastructure such as the information and communication technology sector requires large, substantial amounts, most of which are sunk or irreversible. Uncertainty of market demand, competition, costs and public policy complicates the investment decision process. This paper provides an investment decision-making criterion under uncertainty using (deferred) real options methodology to evaluate if an investment should be made immediately, cautiously, deferred (wait-and-watch), or foregone. A decision-making index d is developed, which is equal to the expectation of net present value (NPV) normalized by its standard deviation. Under a lognormal assumption of the distribution of NPV discounted by risk-free rate, we find the "break-even point " at which the NPV equals the real option value (ROV): d = D * = 0.276. Using the absolute value of D*, one can make sophisticated decisions considering opportunity losses. This new decision index, d, provides a cri...

In the late 1970's, when competition was introduced in the United States, competitive forces pushed international telephone prices down. Lower prices, inter alia, resulted in an increase in international calls (and minutes) from the U.S. to countries whose prices were high relative to U.S. prices. This increase in minute volume in turn resulted in a significant increase in settlement payments out-flow from the U.S. The U.S. is not the only developed country to be experiencing settlement deficit. Several other

Abstract: This paper provides an investment decision-making criterion under uncertainty using real options methodology to evaluate if an investment should be made immediately, cautiously, deferred (wait-and-watch), or foregone. A decision-making index d is developed, which is equal to the expectation of net present value (NPV) normalized by its standard deviation. Under a lognormal assumption of the distribution of NPV discounted by risk-free rate, we find the “break-even point ” at which the NPV equals the real option value (ROV): d = D * = 0.276. Using the absolute value of D * , one can make sophisticated decisions considering opportunity losses and costs of uncertainty. This new decision index, d, provides a criterion to make investment decisions under uncertainty. When making a decision, a manager only has to observe three parameters: expectation of future cash flow, its uncertainty as measured by its standard deviation, and the magnitude of investment. We discuss examples usin...

This paper will review and critique the recent telecommunications proxy cost models that have been developed for the industry. While these cost models go into great detail on the engineering aspect of the telephone network, they lack a fundamental understanding of economics and finance, i.e. they fail to apply the appropriate, traditional techniques of engineering economics. Some do not use discounted cash flow (DCF) techniques to evaluate the capital investments. They simply use a revenue requirement method, based on arbitrary cost allocations. 1 These cost models have ignored DCF’s major contribution to asset valuation. 2 More recently, valuation analysis has been enhanced with "real options theory" which accounts for the investment uncertainties, subject to probability distribution, which are fundamental in the DCF analyses. Applying the real options methodology to DCF analysis can make a significant change in the valuation – by as much as a factor of two or more. 3 Thi...

Developing countries lack effective infrastructure: transportation, telecommunications, financial systems, etc. The positive economic impact of the improved telecommunications infrastructure has been demonstrated. The ability of microfinance has been shown to stimulate and enhance economic activity. Now a hybrid of the technologies has begun to emerge: mobilemoney. The ubiquity of cell phone service, coupled with the notion of microfinance offers the possibility of service in remote areas of a country where it would be otherwise economically unsustainable to provide banking services. Mobilemoney has all of the attributes of money including store of value and medium of exchange. This paper addresses the economics and policy issues of mobile money: What are the economics of mobile money? What policy issues does it raise? Is it a threat to the traditional banking system? How should it be regulated? What can we learn from the microfinance literature? Do we have empirical evidence of its...

This study explores the causal relationships between information and communications technology (ICT) and economic growth. It spans the post-Great Recession period of 2008–2017, which is both a period of economic tumult and slow recovery but also significant pathbreaking developments in ICT technologies. Generalized Method of Moments estimation is applied to a dynamic panel of 107 countries to examine causality between ICT measures and economic growth. The study is unique in that it distinguishes between more affluent and less affluent countries, which makes a significant difference in the results. Stronger and statistically significant causal impacts exist in less affluent countries from mobile internet penetration to GDP per capita. Conversely, causal impacts are statistically detected from GDP per capita growth to mobile internet penetration in both more affluent and less affluent countries. However, a weak and delayed causal impact occurs from GDP per capita to fixed broadband penetration in more affluent countries; none in less affluent countries. Granger-causality between mobile internet penetration and GDP per capita is, indeed, bidirectional, at least in less affluent countries.

The internet giants - Facebook, Amazon, Netflix and Google, among others - have transformed society with both positive and negative effects. The negative effects have been stark. There have been huge disruptions caused by e-commerce. More recently, subtler, but even more serious negative effects are only now being recognized: threats to democracy, violations of privacy, and monopolistic behavior. By traditional measures Facebook and Google are highly concentrated. Each has obtained de facto monopolistic or oligopolistic power with little concern on the part of government. Facebook and Google and other internet giants are multisided markets (MSM); their economic rents are "hidden" from the public. On the user-side of the market, prices are zero - "free." On the other side of the market, Facebook's and Google's revenues are derived from advertising which appears when the users click on advertiser's web sites. Facebook and Google can extract exorbitant prices for ads, since they are virtually the only source that can target ads directly to potential customers. This is where the economic rents are not so obvious. This paper addresses the monopolistic/monopsony aspect of the internet giants. In the singlesided market, monopoly pricing is well defined - as well as tests for predatory behavior; not so with multisided markets. Since the definition of markets is central to the legal enforcement of antitrust statutes, the paper examines non-transactional multisided markets for their potential for determining consumers' harm and welfare effects, as well as defining monopoly and predatory pricing in this context. Initial estimates of Google's and Facebook's social cost in terms of consumers' welfare loss are $54 and $33 billion, respectively and increasing cost to consumers at least $87 billion dollars. It demonstrates and quantifies that dominate internet platforms can create three major harms to consumers: - Increasing prices to consumers via added costs to the products being advertised, - Elimination (or non-emergence) of competition in markets to the products being advertised, - Increasing prices to consumers beyond the cost of advertising via the market power of the remaining firms in the market of the products being advertised The paper outlines potential remedies to ameliorate the problems.

In recent years, the global mobile market has seen unprecedented growth in its subscriber base. Globally, the mobile subscribers overtook fixed-line subscribers in 2002 and now stand at around 1.5 billion. This growth is expected to continue in the future due to the new emerging mobile technologies and services in mature markets, and the potential of the emerging markets.

Abstract: Regulation is presumed to be designed to avoid (potential) market failures, usually because of firms ' market power, the consequence of which leads to a decrease in economic welfare. However, the cost of regulation may outweigh any effects policy makers have on the firm due to administrative costs, regulatory capture and other effects that have been addressed by others. More importantly, policy makers have been using the wrong models to guide their decisions, with a major impact on the investment incentives of firms, a misallocation of resources and a lowering of social welfare. As policy makers misread economic theory, they produce results worse than those they are attempting to correct. Thus, these distorting effects are equally as bad, or worse than, the market failure regulators hoped to ameliorate. However, this need not be the case. By concentration on dynamic models, rather than the simple static models on which policy makers have focused, it is possible to imp...

Facebook, Amazon, Netflix and Google, as well as Twitter – the FANG companies – have transformed society with both positive and negative effects. Soaring consumer access to information, news, social networks, and entertainment has been stimulated by the ever-more ubiquitous and falling prices of broadband services. E-government has transformed the delivery of public services. However, negative effects have likewise been stark. Certainly, there have been huge disruptions caused by e-commerce. State tax collectors are fighting the loss of sales tax collections. Because Facebook and Google can identify you, the ads can be targeted to your specific wants and needs, even creating "wants and needs" based on your profile. So, what the "customer" – you – perceived as free is not. Indeed, you are the commodity being sold to the advertisers. Because Facebook and Google are two-sided markets, their economic rents are "hidden" from the public (and, apparently, from...

This survey focuses on the application of real options methodology to the information and communications technology (ICT) industries. It examines the development of the methodology to areas as diverse as wireless cell site investments to dynamic pricing issues. In addition to aiding the reader in understanding the breadth of the applications, it demonstrates the importance of the topic. It provides a guide to the reader who is interested in exploring the topic in greater depth.

Neoclassical economics has long been a tool and model, for policymakers in the development of legislative and regulatory rules. It has been applied in the information and communications technology (ICT) sectors with such policies as the long-run incremental costs rules, appeals to economies of scale and scope or, inappropriately, reliance on two or three firms to emulate perfect competition’s results. However, economics has moved well beyond these simple, static concepts. Experimental, behavioral, developmental, institutional, complexity and network economics are now part of the economists’ tool kit. Similar advances have been made in financial theory and practice and the disciplines are becoming linked. The objective of this paper is to understand the implications of the new economics and financial models for the ICT sectors. What do they mean for policymakers, investors, and industry leaders? It shows the failures of the current models and sets forth some of the necessary steps to...

Developing countries lack effective infrastructure: transportation, telecommunications, financial systems, etc. The positive economic impact of the improved telecommunications infrastructure has been demonstrated. The ability of microfinance has been shown to stimulate and enhance economic activity. Now a hybrid of the technologies has begun to emerge: mobilemoney. The ubiquity of cell phone service, coupled with the notion of microfinance offers the possibility of service in remote areas of a country where it would be otherwise economically unsustainable to provide banking services. Mobilemoney has all of the attributes of money including store of value and medium of exchange. This paper addresses the economics and policy issues of mobile money: What are the economics of mobile money? What policy issues does it raise? Is it a threat to the traditional banking system? How should it be regulated? What can we learn from the microfinance literature? Do we have empirical evidence of its...

In the United States and elsewhere, traditional sources of television programming (or "pay TV") are facing rising competition from bypass or over-the-top ("OTT") alternatives in the form of streamed or downloaded access to video content. As a result, consumers of video content now fall into three segments: "cord loyalists" that continue to use pay TV exclusively, "non-pay TV" that includes consumers who have cut the video cord, i.e., dropped pay TV entirely in favor of OTT, and "cord couplers" that use both pay TV and OTT. Household demographics, use of connected OTT-capable devices, and availability of subscription-based and free streaming video services are hypothesized to influence how consumers choose to view video content. This paper reports on an empirical study of US households to answer two questions: (1) do households transition among the three OTT segments over time? and (2) what factors determine the household's decisi...

Marginal-cost pricing results are often employed to justify the imposition of regulatory policy that determines optimal prices. In a more sophisticated form Ramsey pricing is also recommended as a pricing tool (Willig 1979). While the methods are static they are commonly applied to network industries such as telecommunications. Implicitly these methods assume future events are certain and so stochastic cash flow changes are not explicitly modeled. This modeling limitation is important as uncertainty can impact substantially on otherwise optimal prices. Moreover, substantial sunk (irreversible) costs are routinely incurred by incumbent firms in telecommunications network industries. When an investment is sunk the firm has exercised a delay option, i.e., the delay option is no longer available. This opportunity cost is not typically acknowledged by regulators in their pricing decisions. Additionally, in neglecting opportunity costs regulators impact on an incumbent firm’s cost of capi...

Competitive forces, technology, and the convergence of traditional industries such as telephony, broadcast media, publishing, and computers are transforming the world’s economies. The long-anticipated global information infrastructure is here, although its structure is still evolving. The convergence of the previously distinct industries has created new problems and issues for policy makers and analysts. The regulatory structure in each industry has been distinct, with different methods of social control, goals and objectives.1 The traditional telephone monopolies are disappearing, although vestiges of their market power may continue for some time.2 New regulatory tools of incentive regulation and competitive entry are replacing the traditional rate-based, rate-ofreturn regulation, and rate structure setting methodologies.3 Many issues arise because of this transition: Are the competing regulatory structures at odds with one another? What

limited but growing literature exists on the application of real options methodology to the information and communications technology (ICT) industries. The methodology has been applied to examining the sunk costs of assets and the regulator's impact on the distribution of returns; economic depreciation; an analysis of capacity in long distance data service, and optimization of wireless capacity and other network optimizations. In addition, the approach has been used to examine strategic investments in technology standards. While the methodology has existed almost as long as the development and refinement of financial option theory and applications, it has had a much slower acceptance as an analytical tool. Perhaps, because of its complexities; maybe because of lack of a market for real options and associated data with which to apply the technique, as opposed to financial options which are traded daily. Perhaps because it has not been critically assessed and its benefits have not...

Overview: The Future of Telecommunications, media, and technology.- Prologue I: Research Demands on Demand Research.- Prologue II: Lester Taylor's Insights.- Advances in Theory.- Regression with a Two-Dimensional Dependent Variable.- Piecewise Linear L1 Modeling.- Empirical Applications: Information and Communication Technologies.- "Over the Top:" Has Technological Change Radically Altered the Prospects for Traditional Media?.- Forecasting Video Cord-Cutting: The Bypass of Traditional Pay Television.- Blended Traditional and Virtual Seller Market Entry and Performance.- How Important Is the Media and Content Sector to the European Economy?.- Product Differences and e-Purchasing: An Empirical Study in Spain.- Forecasting the Demand for Business Communications Services.- Residential Demand for Wireless Telephony.- Empirical Applications: Other Areas.- Pricing and Maximizing Profit within Corporations.- Avalanche Forecasting: Using Bayesian Additive Regression Trees.- Evi...

Regulation is presumed to be designed to avoid (potential) market failures, usually because of firms' market power, the consequence of which leads to a decrease in economic welfare. However, the cost of regulation may outweigh any effects policy makers have on the firm due to administrative costs, regulatory capture and other effects that have been addressed by others. More importantly, policy makers have been using the wrong models to guide their decisions, with a major impact on the investment incentives of firms, a misallocation of resources and a lowering of social welfare. As policy makers misread economic theory, they produce results worse than those they are attempting to correct. Thus, these distorting effects are equally as bad, or worse than, the market failure regulators hoped to ameliorate. However, this need not be the case. By concentration on dynamic models, rather than the simple static models on which policy makers have focused, it is possible to improve economi...

Free!! Google and Facebook!!! We all know them, what to worry about? Everything! The giants of the internet are expanding into every corner of the economy, politics and our lives. They control the majority of digital advertising; Alphabet, Google's parent, and Facebook receive more than 60 percent of digital advertising revenue (Media Buying 2017); Google controls over 90 percent of search on the web (Statcounter 2017); Facebook and Google represent 40% of consumption of digital content (Economist 2017c). Facebook dominates the social media market (Galloway 2017, p. 96); Amazon has nearly 40 percent of online Xmas sales and is destroying the traditional retail outlets (Galloway 2017, p. 28). Apple earns over 90 percent of smart phone profits, although it has less than 20 percent of the market (Galloway 2017, p. 75). This paper will examine the threat to social order and democracy posed by Facebook and Google, as well as others in the internet space. Facebook, and Google have con...

In this post, James Alleman focuses on the negative welfare effects of the typical pricing structures found in the ICT sector. To enhance welfare, the author suggests, regulators should require ICT firms to bill their consumers the “best” price structure for their usage ex post, instead of making consumers to select a package ex ante. It is suggested that this pricing policy would allow society to reap the savings and welfare benefits of nonlinear pricing.

In the mid-1980s a movement towards privatization and de-regulation of the telecommunications sector was begun. The sector has been privatized in most countries and subjected to regulatory reform. The major reform occurred in the late 1990s. Since then the internet and cellular-mobile industries have advanced significantly. Mobile service has exploded, particularly in the developing world. This has changed the dynamics of the industry dramatically. This paper empirically evaluates the reforms twenty-plus years after they have been implemented in selected Latin American countries using cross-country analysis. Earlier studies did not account for the regulatory environment nor cover the entire ICT sector. This paper empirically evaluates the impact of regulation in selected Latin American countries. The results are only suggestive, but not conclusive - that weaker regulation supports investment in the ICT sector due to higher prices for the service.

ABSTRACT When the billing of local telephone service is changed from flat rate to measured service, the distribution of monthly calling rates is altered. This paper models the distribution of flat-rate telephone use in terms of demographic variables and stochastic components; the shift to measured service affects both the systematic and stochastic parameters. The model is fitted by maximum likelihood to data for interviewed households participating in General Telephone's local-measured-service experiment in Illinois. Households tend to make more calls if they are larger (more people), older, or include teenagers. They tend to reduce calling proportionately more in response to usage charges if they average many calls under flat rate for any of the above reasons or for other, unexplained reasons. There is substantial variation in telephone use by households with similar demographic characteristics. Consequently, the benefits and costs of local measured service will tend to be diffused across demographic groups.

... Document Details. Copyright: RAND Corporation; Availability: Available; Format: Paperback; Pages: 97; List Price: $30.00; Price: $24.00; ISBN/EAN: 0-8330-0313-5; ... Park, Rolla Edward, Bridger M. Mitchell, Bruce M. Wetzel and James H. Alleman. ...

ABSTRACT During the late 70’s and early 80’s the series of articles on nonlinear/multi-part tariffs explored the efficacy in the welfare effects of these prices. They found that multi-part prices could improve consumers’ surplus or welfare. In particular, non-linear prices can benefit each and every individual consumer as well as consumers in the aggregate (Willig 1978). During the same period, articles appeared on self-selecting tariffs where the consumer picks from a menu of prices to select a pricing plan. One of the principal finding of these studies on self-selecting or optional tariffs was that individual consumers generally purchased a plan which was more expensive than they needed. In other words, consumers paid for service above their needs, and paid more than they would have if they had knowledge of perfect information about their future usage. One critical assumption of neoclassical economics is that consumers have perfect information regarding prices and usage of products. Observation of consumers’ behavior with self-selecting tariffs belies that assumption. Today, more than ever in the Information and Communications Technology (ICT) sector, we have a variety of self-selecting packages of plans from which to choose. One must select among the various plans of cellular phone packages, broadband services, and mobile wireless devices “hot spot.” What broadband plans for DSL service, how many minutes for cellular service, what level of use for wireless data, etc. However, with the push for “competition” and deregulation, the ICT oligopolies have not been subject to price controls. Indeed, pricing regulation of these firms has been neglected (Alleman and Rappoport 2005). This paper explores the relationship between these various areas and suggests how regulators should insert their influence in policy making. Specifically, regulators should require ICT firms to be more transparent regarding their optional pricing packages. Indeed we propose that ICT firms should be required to bill their consumers the “best” price structure for their usage ex post, and not require consumers to select a package ex ante. This pricing policy would allow the society to reap the saving and welfare benefits of nonlinear pricing.

This paper surveys issues in economics of standards-the contribution to the understanding of standards based on economic theories. The survey focuses on standards in telecommunications. The economic nature of standards, their consequences, and the advantages/disadvantages of standards are investigated. Selected literature from 1984 to 2000 is examined and critiqued in an annotated bibliography, which is sub-divided into four areas: (1) network externalities and technology adoption, (2) compatibility of standards, systems, or components, (3) exclusionary/strategic behaviors, and (4) other frameworks. Considered as a whole, the empirical and theoretical issues analyzed herein, as well as the methodologies, have sufficient quality and depth to form a generalized framework, which we hope to develop in future work