Should a ‘Natural Monopolist‘ Be Subject to Competition?: With Special Reference to Cellular Mobile Telephone Services in Australia

Abstract

AbstractThe argument against competition based on natural monopoly is questioned. A true natural monopolist needs no protection. Rapid product innovation and technical advance render the telecommunications industry not a natural monopolist.Telephones may involve two sources of external benefits: benefits to callers and benefits to receivers. Neither source justifies treating country areas more favourably since the access externality also applies, probably with larger magnitudes, to metropolitan areas.The Cellular Mobile Telephone Service (CMTS) involves the use of parts of the radio frequency spectrum. The spectrum should be treated as a scarce resource. Competitive bidding is probably the most efficient method of allocation if the whole spectrum is to be reallocated. However, with only a small band allocated to CMTS, auctioning need not be the most efficient outcome though it is better than maintaining its monopolised usage.Even if competition results in a higher cost initially, the gain in dynamic efficiency can offset this initial loss. A minimum estimate of the benefits to the public of introducing competition in CMTS gives a present value of $2.4 billion.