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Regulatory Governance and the Implementation of Universal Service: A Comparative Study of the US and Japan
Unformatted Document Text:  Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 24 regulatory paths the two countries have taken reveal a great deal about how the structure of decision making shapes both the policy-making process and policy outcomes (Noll & Rosenbluth, p.141). The Japanese universal service model is relatively simple and likely to involve only moderate regulatory costs. Also, it may provide a “rough and ready” solution to the problem of cream-skimming by competitors that undermine the NTT’s willingness and ability to cross-subsidize universal service related activities from more profitable lines of business. The model, however, may not provide effective accountability of the NTT’s management for controlling the productivity and the costs of universal service. The regulatory policy gives the carrier access to a flow of subsidy payments without detailed, disaggregated reporting of the costs that the subsidy is intended to cover (Tyler, p.73). The US system may maximize accountability of the providers’ management in universal service by measuring costs and shortfalls for specific categories of universal service activities. Furthermore, the model can minimize competitive disadvantages of the long-distance carriers and maintain a clear division between the regulator’s responsibilities and those of the players that are involved in universal service obligations. However, despite the regulator’s lack of involvement in detailed operational planning, the complexity and cost of decision-making for the regulator, and hence, delays in decision-making may still be substantial. Also, the degree of arbitrariness inescapably involved in allocating certain common costs among the players may create extensive opportunities for commercial and regulatory disputes (Tyler, pp.75-76). Finally, it should be noted that whichever path the regulators have taken, the relationship between the regulator and the players is inevitably political. As the capture theorists argue, governmental agencies can be captured by the industries or interest groups with the most resources and most intense interest (Horwitz, 1989). In the US the FCC has always favored the incumbent players when there is new competition with new technologies. The relationship between the US government and AT&T has been a series of compromise and negotiation even though sometimes it has been battle. In Japan the relationship between MPHPT and NTT has been beyond that of the regulator and a private actor because NTT was a part of government. But, the importance here is that how the institutional governance organizes these relationships and provides the direction with which policymakers and the players interact with each other. In this study, I have found that regulatory governance has affected the formation of the incentives of the regulators, and thus influenced the implementation of universal service in the US and Japan, as the new institutionalism perspective suggested. From the institutional perspective, it is essential that the institutional (political, social, and legal) environment provide sufficient constraints on arbitrary government action. Such constraints include constraints on

Authors: Park, Namkee.
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Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 24
regulatory paths the two countries have taken reveal a great deal about how the structure of
decision making shapes both the policy-making process and policy outcomes (Noll &
Rosenbluth, p.141). The Japanese universal service model is relatively simple and likely to
involve only moderate regulatory costs. Also, it may provide a “rough and ready” solution to the
problem of cream-skimming by competitors that undermine the NTT’s willingness and ability to
cross-subsidize universal service related activities from more profitable lines of business. The
model, however, may not provide effective accountability of the NTT’s management for
controlling the productivity and the costs of universal service. The regulatory policy gives the
carrier access to a flow of subsidy payments without detailed, disaggregated reporting of the costs
that the subsidy is intended to cover (Tyler, p.73).
The US system may maximize accountability of the providers’ management in universal
service by measuring costs and shortfalls for specific categories of universal service activities.
Furthermore, the model can minimize competitive disadvantages of the long-distance carriers and
maintain a clear division between the regulator’s responsibilities and those of the players that are
involved in universal service obligations. However, despite the regulator’s lack of involvement
in detailed operational planning, the complexity and cost of decision-making for the regulator,
and hence, delays in decision-making may still be substantial. Also, the degree of arbitrariness
inescapably involved in allocating certain common costs among the players may create extensive
opportunities for commercial and regulatory disputes (Tyler, pp.75-76).
Finally, it should be noted that whichever path the regulators have taken, the relationship
between the regulator and the players is inevitably political. As the capture theorists argue,
governmental agencies can be captured by the industries or interest groups with the most
resources and most intense interest (Horwitz, 1989). In the US the FCC has always favored the
incumbent players when there is new competition with new technologies. The relationship
between the US government and AT&T has been a series of compromise and negotiation even
though sometimes it has been battle. In Japan the relationship between MPHPT and NTT has
been beyond that of the regulator and a private actor because NTT was a part of government.
But, the importance here is that how the institutional governance organizes these relationships
and provides the direction with which policymakers and the players interact with each other.
In this study, I have found that regulatory governance has affected the formation of the
incentives of the regulators, and thus influenced the implementation of universal service in the
US and Japan, as the new institutionalism perspective suggested. From the institutional
perspective, it is essential that the institutional (political, social, and legal) environment provide
sufficient constraints on arbitrary government action. Such constraints include constraints on


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