The Use of Excess Capacity in International Telecommunications to Deter Competitive Entry

by Leland Johnson

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This Note explores possibilities that owners of satellite and undersea cable facilities invest in excess capacity as a strategy to deter competitive entry by outsiders. The situation is illustrated by the controversy about the ground rules under which new satellite systems should be permitted to compete with INTELSAT. The study concludes that (1) issues of predatory pricing will persist in international markets, with anticompetitive use of excess capacity remaining a possibility; (2) even if excess capacity is being used to deter competition, competitive facilities are emerging; (3) the cost of excess capacity may be worth bearing if it helps to break monopolies held by postal, telegraph, and telephone administrations (PTTs); (4) INTELSAT and Comsat must be given pricing flexibility in a competitive market; (5) elimination of the Federal Communications Commission's ban on switched traffic on separate satellite systems might hasten liberalization by the PTTs; and (6) substitution of price cap regulation for rate-of-return regulation of AT&T might reduce any pressures for excessive investment from the U.S. side.

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