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Sunday, September 29 • 12:20pm - 1:00pm
The Impact of Bureaucratic Structures of the Regulatory Authorities on Diffusion of Telecommunication Technology: A Cross-National Analysis of the Regulatory Governance and its Impact on VoIP Regulation

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Advent of mobile Internet has brought the telecommunication market on the cusp of new era: voice services no longer dominate use. The regulators are challenged with new innovations, surging demand, and evolving market. We conduct a cross-national analysis to ascertain the effect of regulatory governance on the diffusion of technology. The present paper aspires to ascertain the effect of regulatory governance on the regulatory decisions regarding embracing Voice over IP (VoIP) technology.

Numerous researches have been conducted to understand the impact of the regulatory practices both in the developing and developed world. However, empirical research on these issues is scarce. We examine the impact of the institutional environment in the regulatory decision making process. We show that the structure of the regulatory body has high correlation with the uncertainties in the regulatory environment that bars diffusion of new innovations.

The operators and vendors in the telecommunication market adjust their responses as the regulatory directives alter. However, hasty decisions, inclination towards micro-management, lack of long term planning, and frequent change in regulatory directives render the firms unable to anticipate the regulatory change. The uncertainty in the regulatory decision making process therefore, can hinder the operator?s plans of network expansion, introduction of new technology, price structure and can ultimately hinder the process of diffusion of technology. Our hypothesis is that when all things are equal, operators would invest more and keep prices low in an environment where regulatory decisions are not subject to frequent change.

Telecommunication regulatory authorities around the world are of different types- some are independent, some are semi-independent and some work as dependent organizations within the bureaucracy. The structure of the organization in which decisions are made may affect whether the organization has a predisposition to be more lenient or more stringent in taking public policy. Decisions made by the regulators are influenced by the structure of their governing boards. The regulatory bodies, which have strong presence of former employees of the incumbent operator might have predilection towards the former work place. Similarly, the regulatory bodies comprised of bureaucrats might prefer to serve the undue governmental or political purposes resulting in regulatory capture. This phenomenon could well result in a regulatory failure to cater to the greater need. Along with this phenomenon, the personal relationship of the regulators with the policy makers of the Government, role of judiciary, the way the bureaucracy deals with public pressure and the extent to which it gets influenced by the national and multinational operators also have impact on various decisions.

The existing literature on the importance of bureaucratic structure have divergent views on the matter- some sees the regulators as the mechanism to avoid market failure, some believes presence of strong judiciary dwarfs the need of regulatory authorities and others believe that for better result the scope of the government regulations should be minimal at best. Although many have shed lights on the theoretical issues of the structural compositions, very few works have scrutinized these issues empirically. We believe that as governments around the world have relied on the regulatory authorities for the better management of the market, it would be prudent to look at the structural composition of the regulatory bodies instead of scrutinizing the importance of the very existence of the regulatory bodies. This research empirically examines the impact of the structure of the regulatory board on the outcome.

Our hypothesis is, a regulatory body that enjoys independence (both financial and political) and has the presence of experts from various backgrounds (engineers, economists, lawyers), and has a good mix of former employees of the incumbents and the alternate operators can reduce the regulatory uncertainty. Hence the research question we try to answer is: do independence and the structure of the regulatory board reduce regulatory uncertainty and thus positively influence diffusion of new technology? We try to answer this question in light of regulatory decisions related to VoIP legalization.

We conduct an econometric analysis of the effect of regulatory uncertainty using a unique multi-country panel dataset accumulated from various data sources including the ITU, POLCON database, World Bank, Freedom House, and various regulatory authorities. The dataset has ten years-long (2000-2011) information regarding telecommunication regulatory environment, structure of the bodies, political pressure, discretionary limits, demographic and mobile-industry data for 127 countries of the world. The dependent variable is a proxy of regulatory decisions. In this research, we have focused on the regulator?s decision to legalize VoIP-PSTN interconnection. Voice over IP (VoIP) in various forms, has become a prevalent technology for voice communication. However, many countries around the world have not yet legalized VoIP-PSTN interconnection. We posit that the regulatory bodies that have already legalized the communication method are forward looking, pro-innovation and capable of introducing new and disruptive technology in the technology-market place.

The analysis shows that structure of the regulatory board has positive correlation with the regulatory decisions related to technology diffusion. We also find that the uncertainty around the regulatory decisions significantly affects the relative rate of telecommunication infrastructure deployment. Uncertainty on the regulatory environment causes price volatility in the retail market and slows the growth of the technology diffusion. The study provides new insights to understand the governance factors that are necessary to ensure effective telecommunication regulation in the changing telecommunication market-place.

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Sunday September 29, 2013 12:20pm - 1:00pm
GMUSL Room 329

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