The impact of regulatory policies and technology innovations on United States international message telephone service market

This thesis provides an extensive and in-depth analysis of U.S. international message telephone services (IMTS) industry during the 1990s. By examining the past industry structure and performance, it gives important suggestions to recent and future changes in regulatory policies. Empirical study on the demand also shows how recent technology innovations have challenged traditional telephone services.; By integrating international practices (especially International Accounting Rate System) and U.S. policies (especially International Settlement Policy), this thesis examines how they affected the cost structure of and hence the strategic interactions among major carriers and small fringe carriers. First, when outbound telephone traffic was linked to inbound telephone traffic as mandated by regulatory policies, it was no longer valid to examine either one in isolation. Correct formulae allowing for such a linkage are derived for calculating carriers' actual costs, which are important for us to understand long-term trends in profitability and competition in this market. Second, theoretical equilibrium shows that new entrants to this market had to bear significant cost disadvantages due to Proportionate Return Policy. This premise is confirmed by simulations and a case study.; On demand side, with a panel data covering 57 international routes and 6 years, I develop a model featuring a two-stage budgeting process and product differentiation to study demand for IMTS. Acknowledging the surging popularity and importance related to new technology innovations during the period, represented by the Internet, I estimate its effects on the demand for traditional telephone services. Furthermore, by explicitly acknowledging product differentiation and market segmentation, the model allows estimation of own and cross demand elasticities of each of the three major carriers (AT&T, MCI and Sprint) and the small fringe carriers. Empirical results reveal some interesting patterns in consumers' preferences, which should be important for carriers' competition strategies.; Some of the empirical results from demand and cost models are then combined to analyze the competitive behaviors of IMTS carriers. To find out how competitive each carrier was, I compare its real prices to equilibrium prices predicted by Bertrand competition model. Results suggest that the extent of competitiveness varies not only between the major carriers and the fringe carriers but also within the three major carriers.