The assumption that the telecommunications industry has natural monopoly characteristics dominated industrial policy during the twentieth century, supporting the monopolistic structure of telecommunications markets all across the world, and still prevails in many views on the economy of this field. The high level of concentration of telecommunications markets is often considered as a natural way of its development and some claim that this is a necessary condition for innovations in the industry. Meanwhile, the evolution of telecommunications in Russia after the collapse of the Soviet Union has shown quite the opposite. The industry in the country was able to demonstrate a relatively low level of market concentration, at least in some of the areas, to provide a high quality and a large variety of telecommunications services at significantly lower prices, in comparison with western countries, and shows one of the best indicators of network development in the world. While the Russian case poses quandaries for mainstream theories, the phenomenon fits the view of the Austrian school at the market process and exposes the benefits that the competitive order can bring to society.

The paper analyses the role of regulation in the suppression of disruptive innovations and shows that this process might be explained by the dependance on the path of joint evolution of regulation and the mainstream technology. Industrial policy in highly regulated industries such as wireless telecommunications is able to support evolution of established technologies and adjust itself to sustaining innovations, while regulatory disconnection impedes disruptive technologies, and the market plays a quite secondary role in this process. We observe more innovations in those parts of telecommunications where regulator is less active, but the core, the physical layer, of the industry is changing in sustaining way of development of the technology. The paper argues that the problem of impediment to disruptive innovations could be alleviated if the crucial resources of the industry were accessible for a number of potential innovators and newcomers. The openness makes easier the appearance of disruptive technologies, and regulation must facilitate it in order to promote opportunities for creative destruction.

It is commonly accepted that universal service is clearly justified by reference to the public interest, and this understanding stems from the natural monopoly paradigm. However, telecommunications monopolies have never been ‘natural’, and the alternative to regulation has always been a competitive marketplace. The liberalisation movement had a chance to create a genuinely competitive industry but failed to do so. This article argues that the universal service dogma has played a significant role in the formation of the ordered competition regime of modern telecommunications, and explains this phenomenon in terms of public choice theory.