English for Business Management

The telecommunication industry has been growing at a higher rate of growth than the overall rate of growth of all industries in most countries. The industry has also been subject to high rates of growth in product innovation and in process innovation. However, the pace of technological change can also benefit the incumbent if it uses new technologies and services to strengthen its market position.

 

 The argument that the telecommunication market was static in size, often used by incumbent monopolists to argue for no or limited entry, was often accepted in the past by policy makers. The evidence, however, overwhelmingly contradicts this argument. On the contrary new entry and competition have helped expand markets to a significant extent especially by placing downward pressure on prices and stimulating demand (e.g. in mobile communications).

 

 Telecommunication is playing an important role in OECD economies so that efficient service provision is also important. General consensus has emerged that efficiency is best achieved through competitive structures, hence the importance regulatory reform. Telecommunication can lead to incremental national economic growth in several ways. The sector plays a significant role in reducing the transaction costs of doing business, the costs of ordering, gathering information, searching for services and using services, and as the role of information increases in economies and the service sector increases its share in overall output, the importance of communications is enhanced. Further, telecommunication services provide significant externalities which allows enterprises to produce more efficiently. The importance of externalities increase as the information content of production increases, that is as the communication intensity of the production processes increase.

 

 Several studies have been undertaken to try and show the impact of telecommunication investment on economic growth. For some of these studies, the purpose has been to show that improved telecommunication investment and increased consumption of telecommunications (which would result from a competitive market environment) would have more broad positive impacts on the economy. Analysis in Japan suggests that investment in communication broadcasting facilities had a multiplier effect of 2.08 in terms of increased production in the Japanese economy.

 

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ken place in a monopoly market structure. Many of these innovations have played a part in creating pressure to change regulation (the development of mobile technologies) or placed pressure on monopoly structures (the development of call-back technologies). Many innovations have been slow to diffuse because they were expensive when introduced and lack of competition ensured that they remained unattainable to users (video-telephony, ISDN). A number of innovations have helped strengthen dominant positions (fibre-optic, digital switching) by helping to significantly reduce per unit output costs and improve the efficiency incumbents. Arguably, however, these same technologies provided strength to new entrants by resulting in technological convergence allowing for the undifferentiated switching of video, data or voice signals.
The fact that convergence is resulting in the inability to strictly define monopoly boundaries means that it is difficult to control new entry and therefore police a market where some services are provided on a competitive basis and others on a monopoly basis. This realization that monopoly provision of specific services was becoming untenable played a significant role in obtaining a consensus from industry players and policy makers that monopolies had to be eliminated.
The pressure for change created by technology, was through enhancements to existing equipment, and by creating new services. Perhaps one of the earliest examples of the former was the Hush-a-phone case in the United States and in terms of the latter an example was the development of the value added network services which provided new on-line data services for enterprises. As computer and communications technologies converged, new services emerged which were aimed mainly at business customers. The combination of the requirements of business for choice between service providers, competitive prices and flexibility, and the difficulty in arguing that these services came within a universal service concept, eroded the ability of public telecommunication operators to maintain monopoly control over new services.
Linked with the developments in technology, there was an emerging belief that monopoly operators were inefficient, lacked sufficient flexibility in providing new services and that competition wedded with appropriate regulations could provide the benefits of a competitive market as well as the social benefits which monopoly service provision was purported to provide. These developments led as well to the development of policy frameworks to manage the sector. Policy control was taken slowly from the operators, and government began a process of implementing laws and regulation through which to administer the sector.
Exercise 1
Answer the following questions based on the text.
How were telecommunications services treated in the past?
How many reasons are given to justify retaining monopoly provision of telecommunications services?
What are they?
Why have many innovations been slow to diffuse?
Why did governments begin a process of implementing laws and regulation?
Exercise 2
Find the verb or adjective from the text that corresponds to the following nouns.
Nouns
Verbs or adjectives
Justification
Provision
Competition
Diffusion
Reduction
Combination
Dominance
Stimulation
Necessity
Efficiency 
Exercise 3
Product
Product (n): something produced
Production (n): the act or process of producing.
Productive (adj): producing or cable of producing, used especially to talk about ability to produce abundantly.
Productivity (n): rate of production; the quality of being productive.
Produce (v): to make or manufacture.
Produce (n): agricultural products and especially fruits and vegetables.
Use the words given above to fill in the blanks:
He is the most _________ man in the group.
What should we do to reduce ________ cost?
His labour ________ is low because the work doesn’t suit him.
Could you tell me about your _________ plan?
They decided to _________ more items.
That part of the market sells _________ while this part sells meat.
Study the words
Terminal equipment (n)
Monopoly (n)
Government Department (n)
Norm (n)
Carrier (n)
Call-back technology (n)
ISDN: Integrated Services Digital Network
Convergence (n)
Consensus (n)
Hush-a-Phone (n)
Erode (v)
Wed (v)
Policy framework (n)
Administer (v)
Text 6.3 The impact of Telecommunications investment on the economic growth.
	The telecommunication industry has been growing at a higher rate of growth than the overall rate of growth of all industries in most countries. The industry has also been subject to high rates of growth in product innovation and in process innovation. However, the pace of technological change can also benefit the incumbent if it uses new technologies and services to strengthen its market position.
	The argument that the telecommunication market was static in size, often used by incumbent monopolists to argue for no or limited entry, was often accepted in the past by policy makers. The evidence, however, overwhelmingly contradicts this argument. On the contrary new entry and competition have helped expand markets to a significant extent especially by placing downward pressure on prices and stimulating demand (e.g. in mobile communications).
	Telecommunication is playing an important role in OECD economies so that efficient service provision is also important. General consensus has emerged that efficiency is best achieved through competitive structures, hence the importance regulatory reform. Telecommunication can lead to incremental national economic growth in several ways. The sector plays a significant role in reducing the transaction costs of doing business, the costs of ordering, gathering information, searching for services and using services, and as the role of information increases in economies and the service sector increases its share in overall output, the importance of communications is enhanced. Further, telecommunication services provide significant externalities which allows enterprises to produce more efficiently. The importance of externalities increase as the information content of production increases, that is as the communication intensity of the production processes increase.
	Several studies have been undertaken to try and show the impact of telecommunication investment on economic growth. For some of these studies, the purpose has been to show that improved telecommunication investment and increased consumption of telecommunications (which would result from a competitive market environment) would have more broad positive impacts on the economy. Analysis in Japan suggests that investment in communication broadcasting facilities had a multiplier effect of 2.08 in terms of increased production in the Japanese economy.
	Analysis has been undertaken in the United States on the impact of introducing more competitive market structures and changing regulatory frameworks. These studies focussed on the impact of eliminating the regulatory restrictions which were imposed on the Regional Bell Operating Companies by the Modification of Final Judgement. For example, the United States Council of Economic Advisers estimated in 1995 that, the legislative proposal which had been put forward at that time by the Administration aimed at opening the telecommunication markets to more competition (much of which has been incorporated in the Telecommunication Act of 1996), could add $100 billion to GDP over the next decade. Further the estimates indicate that the share of the telecommunication and information sector in GDP could double by 2003 and that there could be a net increase of 1.4 million jobs in that sector. Incremental capital investment over the next decade is estimated to reach $75 billion. The significance of the Council of Economic Advisers’ study is the underlying recognition that existing regulatory frameworks are an impediment to investment, service development and employment growth. A similar study estimated that by eliminating line of business restrictions on the BELL Operating Companies (the present Act has in effect eliminated them), the economy would gain 3.6 million additional jobs over the next 10 years, 0.5 per cent in manufacturing output and $247 billion would be added to GDP.
	Irrespective of the magnitude of the economic impact of information infrastructures, the most important factor for policy makers is to understand the social costs of inefficiencies in non-competitive markets or insufficiently competitive markets. These costs arise in particular from lower output in the less competitive markets slower development and diffusion of applications, and higher prices. Given that the communication industry and the main using industries, especially the service sector, form an increasing part of the economy, this can result in high social costs. Empirical results have shown that the spillover effects from information and communication technologies also have an important influence on the productivity level of the whole economy, and inefficient markets will limit these spillover effects.
Exercise 1
Answer the following questions based on the text.
How is the efficiency best achieved according to the consensus?
How many ways can telecommunications lead to incremental national economic growth?
What did the US studies focus on?
What is the most important factor to policy makers?
What form an increasing part of the economy?
Exercise 2
Find the verb or adjective from the text that corresponds to the following nouns.
Nouns
Verbs or adjectives
Argument
Similarity
Regulation
Investment
Consumption
Competition
Elimination
Significance
Estimation
Incremental
Study the words
Overall (adj)
Pace (n)
Externality (n)
Impact (n)
Positive (adj)
Decade (n)
Input (n)
Output (n)
Impediment (n)
Irrespective of (pre)
Magnitude (n)
OECD: Organisation for Economic Co-operation & Development.

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