Lessons from Telecommunications Regulation for Tech Competition Policy

This paper examines the parallels between historical telecommunications regulation and current proposals for increasing competition in technology markets, focusing on three key market characteristics the sectors share: network effects, economies of scale, and switching costs. Regulators have addressed these issues in telecommunications markets through mandatory interconnection among telephone networks, compulsory asset sharing, and number portability requirements. While some of these interventions proved successful, others—such as the 1996 Telecommunications Act’s complex leasing requirements—generated significant costs with limited benefits. Real competition ultimately came not from the beneficiaries of those requirements, but from facilities-based innovators who built alternative networks. As the paper argues, policymakers should consider the history of telecommunications regulation—both the success stories and the cautionary tales—as they contemplate analogous forms of intervention in tech markets, which are similar to telecom markets in some respects but different in others. With those lessons in mind, policymakers should apply a careful cost-benefit analysis to proposed regulatory strategies for increasing competition in tech markets, recognizing that disruptive intervention can sometimes impede rather than promote genuine competition and innovation.