Excess Capacity in International Telecommunications

Poor Traffic Forecasting or What?

by Leland Johnson

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Under international cooperative arrangements, governments and private firms have been remarkably successful in building worldwide systems of communications satellites and undersea cables. At the same time, the prospect of competitive entry by new firms offering satellite and cable services has triggered policy debate. Competition could foster new services and lower prices for some, while harming others. This Note examines the problem of excess capacity, which may grow because large international facilities are under construction, and because new market entrants are planning to invest in systems that compete with those of the established carriers. In particular, the author considers three reasons that common carriers and others have invested in a seemingly wasteful manner: (1) overoptimistic traffic forecasts, (2) market structure and regulatory policy, and (3) inefficient pricing of circuits.

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