The entire complex of communications, computing, and multimedia industries has experienced far-reaching technological and institutional change due to growing competition and convergence. Because pre-convergence regulatory paradigms and the existing policy apparatus are ill-equipped to deal with a complex and multi-faceted phenomenon like convergence, the policymaking community is now facing a number of regulatory issues, including whether regulation is still necessary, and if so, where it should be directed and what form it should take.

In this paper, presented at the International Telecommunications Society's 2006 Biennial Conference, NERA Vice President Christian Dippon and former Vice President Dr. Aniruddha Banerjee explore how communications policy must evolve in order to adapt to changing industry circumstances. Mr. Dippon and Dr. Banerjee propose that that with growing competition and convergence in the communications sector, policy or regulatory options must be fundamentally revised and, rather than rely on natural monopoly theory and allocative efficiency principles, be based on dynamic efficiency. The authors find that any replacement for traditional horizontal regulation must have a rationale that is both forward-looking and attuned to actual competitive developments in the market. The practical implication of this finding is that greater regulatory restraint (particularly regarding ex ante regulation) is likely to become virtuous policy, as preventing the emergence or exercise of market power will become secondary to ensuring that consumers fully reap the benefits of convergence. The paper also examines, from a dynamic efficiency standpoint, two particularly controversial ramifications of convergence: network neutrality and video franchising.