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Highlights 2002
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10-07-2002
Q&A: Why Two Competition Regulators: NRAs and Competition Authorities?
In each WDR e-Brief we feature a question or comment posted to the Online Dialogue at
http://www.regulateonline.org/dialogue/ and ask our research teams to comment. The featured question in this e-Brief comes from E. Wightman. Wightman’s question highlights potential jurisdictional conflict between regulators and competition authorities regarding competition issues in the telecom sector.
The reply comes from William Melody, general manager of WDR.
Question:
Both convergence and multisector utility developments tend to integrate telecommunications with other industries and introduce new forms of potential competition. It seems that both national regulatory authorities (NRAs) and general competition authorities will have jurisdiction over competition issues. Doesn’t this introduce duplication and potentially conflicting competition rules in the new market environment?
- E. Wightman
Answer:
The mission of general competition authorities is to try to maintain competitive markets by preventing and punishing monopolistic practices. The threat of punishment for anti-competitive behaviour is intended to prevent it. However the effectiveness of competition law is very limited. It applies after the fact where evidence (dead competitors, damaged competition and bad behaviour) is examined in a relatively costly, time consuming legal process that can never restore the damage done to competitors, consumers and market competitiveness. Competition law is a very blunt instrument for addressing major attempts to significantly diminish competition. Its effectiveness lies much more in the good market behaviour it hopefully stimulates (which can rarely be measured) than the bad behaviour it successfully prosecutes. But the latter clearly affects the former. For firms contemplating monopoly practices, the possibility of a competition law prosecution and conviction, and its consequences, is assessed as a business risk.
The severe limitations of general competition law have prompted some countries to require that proposed mergers which might reduce competition be approved in advance by competition authorities. Mergers can´t be undone after they have been implemented any easier than eggs can be unscrambled.
In e-Brief #01, the Q & A examined “Competition and Regulation: Substitutes or Complements?” It emphasized that competition was perhaps the key tool of regulation in achieving its efficiency, market development and public service objectives. But the competition authority needed by telecom regulators is very different from that provided under general competition law. The latter presumes that markets are competitive, and the purpose is to punish anticompetitive practices that create monopoly power. In telecom, the established market condition is monopoly, and the purpose is to change the market structure by promoting competition. Thus, NRAs must act proactively, applying competition principles ex ante, in order to open the opportunities and provide the stimulus for pro-competitive changes in the market. General competition authorities are trying to maintain a presumably satisfactory competitive market condition by punishing aberrations. NRAs are trying to change dramatically a highly imperfect market condition. NRAs must set the rules of the game for the new more competitive market environment.
The role of NRAs in the establishment and application of ex ante competition rules is especially important because of the unique technological and economic characteristics of the telecom sector. As a network industry, competitors must cooperate, and nodes or pockets of monopoly power in the network can be exploited to the extreme disadvantage of competitors and consumers. Local interconnection, access and termination services are illustrations. Ex ante competition rules are essential if competition is to develop at all. In addition, ex ante rules are needed with respect to the use of public resources (e.g., spectrum, rights-of-way, numbers), and public service responsibilities (e.g., universal service) so that competitors will know all the rules of the competitive game.
As competition grows in telecom and related convergence and multisector utility markets, regulators will need to monitor the structure, conduct and performance characteristics of the dynamic, evolving markets. This will require greater attention by NRAs to the tools of analysis used by general competition authorities (market definitions, measures of monopoly power, etc.). The European Commission, in association with a new European Regulators Group (ERG) - made up of the EU country telecom NRAs - is already moving in that direction.
The two competition regulators in telecom are each applying different aspects of competition principles. Ex ante competition regulation by NRAs is needed to create opportunities for, and to promote competition in former monopoly markets. Ex post competition regulation by competition authorities is needed to deter and punish monopoly practices in markets that are competitive, or becoming so. We have already seen one illustration of its application. The US FCC introduced ex ante competition rules between 1968 and 1978. AT&T flagrantly violated them, destroying many potential competitors. The competition authority (Antitrust Division of US Department of Justice) prosecuted AT&T, and AT&T was broken up in 1984. This split jurisdiction in the application of competition principles will be the model in telecom and the other network utility industries for the foreseeable future.
- William H. Melody
Follow the dialogue post a question or make a comment at
http://www.regulateonline.org/dialogue/ .
19-06-2002
Q&A: The thin line between policy and regulation
In each WDR e-Brief we feature a question or comment posted to the Online Dialogue at http://www.regulateonline.org/dialogue/ and ask our research teams to comment. The featured question in this e-Brief comes from Rodrigo de la Parra, advisor to the chair at Mexico’s Federal Telecommunications Commission. De la Parra’s question follows up on an earlier discussion on independence and political interference
(see here).
The reply comes from Rohan Samarajiva, coordinator of the Multisector research team based at the Economics of Infrastructures at the Delft University of Technology, with additional comments by WDR general manager, William Melody.
Question:
The line that divides policy and regulation is a very thin one even before we think of a convergent regulatory and institutional framework. In e-brief #7 Samarajiva comments that political interference may be reduced if service providers are completely privatized. But what if this has been already done. In this new convergent environment what new definitions can be given regarding policy and regulation powers? and what would be the optimal institutional design?
- Rodrigo de la Parra
Answer:
It is correct that the line between policy and regulation is a thin one. The margin is problematic, but the core of policy is distinct from the core of regulation.
The question is about political interference. It may be necessary to distinguish between politicians taking political positions in public from covert political interference. The former is part of democracy, while the latter is not. What motivates persons within government to engage in covert political interference? The most obvious reason is if the government is a shareholder in a regulated company. This has been stated in a previous response. The question now is what if the government no longer holds shares in the regulated company? In an environment of good governance, it is unlikely that persons within government will seek to engage in covert efforts to influence regulatory decisions on behalf of regulated companies. But if the environment is not one of good governance, it is possible that such actions may take place for various reasons. The interferor may honestly believe his/her action to be correct, but for some reason wishes to hide the fact of influencing. This is less blameworthy, but is nevertheless wrong. The most problematic case is where the interference has some ulterior motive. This kind of covert influencing is not unique to regulated industries. It is found wherever public officials are given discretionary power.
The solutions are not perfect but include:
- Creating channels for the communication of legitimate concerns. As long as the communication is seen by others, it is acceptable. For example, it is a good thing to give government ministers the right to give written public directions on specific subjects to regulatory agencies.
- Saying no, or disregarding improper and covert communications. Provisions regarding independence are intended to make it possible for decision makers in regulatory agencies to say no. It is a pity that more regulators do not avail of these protections to do the right thing.
- Reducing areas of discretion. This can be done by statute and policy as well as by regulatory procedures. Sometimes it is easier to say "I cannot do it" than "I will not do it."
The diffuseness of the boundary between regulation and policy is not increased or decreased by convergence. The problem is no different in a convergence environment than in a pre-convergence environment. The problem is one of poor governance. The real answer is that we convince ourselves of the overall benefits of good governance, through explicit educational activities as well as good institutional design and in some cases plain raw acts of courage.
- Rohan Samarajiva, LIRNE.NET & Delft University of Technology
Follow the dialogue post a question or make a comment at
http://www.regulateonline.org/dialogue/
.
WDR’s Managing Director, William Melody added the following points in response to the excellent, but difficult question raised by Rodrigo de la
Parra.
The observations made by Rohan Samarajiva are fundamental, and link directly to some practical steps that can be taken to strengthen the positive role that regulation can play in the telecom reform process. Channels of communication and regulatory credibility are strengthened when clear administrative procedures are established, regulatory processes are made transparent and information is made publicly accessible. (See, Samarajiva, R., Regulating in an imperfect world: building independence through legitimacy, Telecom Reform, Vol. 1, No. 2 -
http://www.telecomreform.net/volume2/#policy ).
For the range of issues - e.g. spectrum management - that sit in the grey area between the core policy and regulation functions, the dividing line is best drawn with reference to the capabilities for effective performance in achieving the policy objectives. Given the increasing complexity of issues associated with convergence, one can see the potential for regulation taking on a broader mandate. But only if the regulator has the expertise, independence and objectivity to implement it effectively. That is why training is such an important issue for the staff of regulatory agencies. The answer to the question may depend as much on the technical and strategic competences of the staff of the regulator as anything else.
- William Melody, WDR
Follow the dialogue post a question or make a comment at
http://www.regulateonline.org/dialogue/ .
28-06-2002
In each WDR e-Brief we feature a question or comment posted to the Online Dialogue at
http://www.regulateonline.org/dialogue/ and ask our research teams to comment. The featured question in this e-Brief comes from Charles Roocroft who follows up on a question posed on regulatory independence and argues that the benefits of multisector regulatory agencies -- mainly insulation from political interference and cost-savings --may be difficult to achieve.
The answer comes from Rohan Samarajiva, coordinator of the Multisector research team based at Delft University of Technology.
Question:
It is argued that multisector regulation contributes to the independence and effectiveness of regulatory agencies. Doesn’t the fact that the multisector agency is responsible to multiple government ministries increase the possibilities of political interference? Doesn’t the cost-saving rationale underlying the creation of multisector agencies result in inadequate resources for regulatory activities, thereby reducing the effectiveness of regulatory agencies?
Charles Roocroft
Answer:
The achievement of benefits in terms of greater independence and effectiveness depends on the actual design of the multisector regulatory agency and the fit between that design and the institutional environment of a particular country. Simply creating a multisector agency will not yield the desired outcomes.
There can be no condition of complete independence. Independence must always be coupled with accountability. The difficulties that most regulatory agencies face arise from government ministries, in their roles as shareholders of service providers, seeking to exercise covert influence over the regulatory agency. Complete privatization can reduce this tendency, though of course the moment of privatization, at which the government has the greatest incentive to maximize privatization revenues, is one of the most dangerous for regulatory independence. Short of complete privatization, the design of multisector agencies has to recognize and address the potential of interference on the part of government that functions as the shareholder of the incumbent. It is vitally important that the regulatory agency not be accountable to that unit, be it the so-called “line” ministry or the finance ministry. Where the line ministry functions as the shareholder, the regulatory agency should be accountable to the finance ministry or the chief executive’s office. Where the finance ministry functions as shareholder, it may be necessary to report to the line ministry. This basic design principle should be applied to “convergence” or industry regulatory agencies as well as multisector agencies. The difference with multisector agencies is that there is no “natural” line ministry. The policy makers and legislators who create the agency will have to directly address the independence/accountability issue.
It is true that the capture of economies of regulation is an important part of the rationale for multisector regulatory agencies. The effort to contain the costs of regulation is not an unreasonable one. Again, the efficient organization of a regulatory agency that may be made possible by giving it a multisector mandate must be distinguished from cost-cutting as an end in itself. The lumpy nature of regulatory tasks (such as periodic rate reviews) may allow for a more efficient use of staff resources in a multisector agency. This requires careful design, not only at the moment of creating the agency, but also on a continuing basis. If staff numbers can be kept low, the agency will have a better chance of paying adequate salaries to the staff, enabling the retention of skilled staff and the attraction of qualified personnel. It is misleading to equate staff size with effectiveness. Again, all forms of regulatory agency organization should address the question of efficiency. Multisector regulation, may, in certain circumstances, enhance the possibilities of achieving organizational efficiency.
Rohan Samarajiva
LIRNE.NET & Delft University of Technology
Follow the dialogue post a question or make a comment at http://www.regulateonline.org/dialogue/ .
08-05-02
In each WDR e-Brief we feature a
question or comment posted to the Online Dialogue at http://www.regulateonline.org/dialogue/
and ask our research teams to comment. The featured question in this
e-Brief comes from Nathan Dawson and highlights the issue of whether
network security falls within the ambit of regulators’ area of
responsibility. This has been a topic of discussion both within WDR and
among regulators in recent forums in Denmark and Bulgaria (see news
items from the last e-Brief on security at http://www.regulateonline.org/news/security.htm).
The answer comes from Anders
Henten, coordinator of the Convergence research team based at the Centre
for Tele-Information at the Technical University of Denmark.
Question:
What is the appropriate role for
telecom regulation in relation to information and network security? It
seems to be a much bigger issue than telecom regulators normally cover.
Nathan Dawson
Answer:
The question of the
confidentiality of communication has been one of the basic building
blocks in regulation of telecom since the first telecom laws. Network
security has been on the agenda in one form or another since the
earliest days of telephony, attempting to preserve the network from
unauthorized interruption, as well as the privacy of conversations.
However, lately information and network security issues have cropped up
in new forms, encompassing a broader range of problems relating to
confidentiality, integrity, repudiation, authentication, and
availability as well as the questions of data protection of
person-related data and of cyber-crime. In the old networks based on
voice communication, the protection of communication channels
automatically protected the information being conveyed. In the new
networks, there is a decoupling of information from communication to
such a degree that security concerns have been extended to the security
of the information accessible on the network as well as the security of
the network itself.
The primary reasons for the
increasing focus on information and network security issues are related
to a combination of the growing general dependency on electronic
communications and the emergence of the Internet, which is an open
communications environment and, therefore, relatively less secure than
traditional telecom networks. Furthermore, wireless communications are
gaining increasing importance and are less secure than wired
communications. A good example is WLAN, where many different players set
up hotspots with not always the greatest concern for information and
network security. The growing importance of information and network
security issues is one of the consequences of the convergence of
telecom, IT and different forms of information content.
In response to these
developments, and the continuing spread of security problems, there is a
growing policy awareness of security matters. This applies both
nationally and internationally. For example, the Independent Regulators
Group (IRG) of national telecom regulators in the European Union (EU)
countries recently held a major conference to examine information and
network security issues, even though they have no jurisdiction at
present over information security (see recent news item on security at http://www.regulateonline.org/news/security.htm).
Another example is the EU
Council's recently issued ‘resolution on a common approach and
specific actions on network and information security’. One of the main
concerns expressed by the European Community is that IT security does
not always get sufficient attention because the information and
communication networks are made up of many operators and service
providers in an increasingly competitive environment where none has the
incentive or the capability to address overall network information and
network security issues. This is an expression of the security
externality problems attached to the open network environment, calling
for some kind of policy and regulatory intervention.
Users and providers of network
services are interested in protective measures that are tailored to
their specific needs. However, no security systems are stronger than
their weakest links, and initiatives or lack of initiatives affect other
parts of a network negatively or positively. Furthermore, the network is
international, which has implications for adjusting international
standards, regulations and codes of practice. Security problems must not
only be addressed at the national level but also regional and
international levels.
Telecom regulators can't avoid
the problems of information and network security because they are
approached by an increasing number of people - including politicians and
policymakers - who experience problems in this area. However, most
often telecom regulators do not have any authority in the field. It is,
therefore, an area of increasing importance, but with no clear programme
for policy development and regulatory implementation yet set in place.
The need for policy
initiatives to improve security levels (e.g. information and education
campaigns, establishment of best practice solutions, educational
initiatives, co-ordination measures etc.), have been recognized. But
there are yet many issues to be settled regarding how to improve
security through the promotion of standardization and interoperability,
while at the same time encouraging innovation. Most importantly, the
interplay between public regulation and market initiatives in terms of
regulation, co-regulation and self-regulation must also be examined as
basis for defining and assigning regulatory authority. New convergence
regulators at the national level will certainly have increased
responsibilities relating to information and network security, but in
the new more diversified and complex environment there will need to be
more active attention to these issues from other public and private
organizations. Hopefully the WDR discussion on these issues will help
all parties clarify the needs and the best ways to satisfy them.
Anders Henten
Centre for Tele-Information &
LIRNE.NET
Technical University of Denmark
Follow the dialogue post a
question or make a comment at http://www.regulateonline.org/dialogue/
.
19-04-02
In each WDR e-Brief we feature a question or comment posted to the Online Dialogue at http://www.regulateonline.org/dialogue/ and ask our research teams to comment. The featured comment in this e-Brief was posted in the forum on WDR’s Framework and Objectives by Bruce Girard of Comunica, in the Netherlands. The answer comes from Professor William Melody, managing director of WDR.
Question:
According to Girard, telecom reform may support the rollout of information infrastructures, however, if the
“information infrastructure is defined as the Internet (or even basic telephony), the vast majority of the world’s population does not have access and will not have access for a very long
time.”
Furthermore, “access is just the tip of the iceberg,” argues Girard.
“Other factors, such as languages, education, poverty and illiteracy, serve to keep the Internet inaccessible to billions, even if they did have a
connection.” In his view, “harnessing knowledge for development doesn’t require that everyone have access to the Internet - it requires that they have access to relevant and meaningful content, regardless of the communication channel
used.”
Girard provides the example of the radio, with its ubiquitous presence in the most remote and poor communities of the world.
“Local radio broadcasters speak in local languages and accents, have knowledge of their community and are established and trusted providers of communication, education, commerce, governance and entertainment
service.” However, he adds, the current regulatory environment “on the one hand promotes access to knowledge for development via the largely inaccessible Internet, while at the same time being indifferent to the development potential of broadcast radio, the most important medium for the region’s poor and rural
communities.”
Finally, he poses the following question: “What kind of regulatory regime will be able to regulate telecoms, internet and broadcasting in a consistent, coherent matter that really prioritises
development?”
Read Girard’s complete comments and a paper he wrote on the subject at:
http://www.comunica.org/w-agora/index.php?bn=wdr_framework
Answer:
Bruce Girard has poured a cold dose of reality on the idealist aspirations of Internet and development enthusiasts. But at the same time he has pointed to an overlooked and relatively straightforward mechanism for multiplying by an order of magnitude the potential benefits of Internet information for the poor.
In many developing countries, less than 10% of the population have access to the telecom network and less than 1% have access to the Internet. Telecom reform is allowing greater participation in extending telecom networks and services, but despite significant progress over the last decade, it will be several generations before even a simple majority of people in poor countries have effective access to the telecom network. Moreover, the driving force for network expansion in developing countries is prepaid mobile services that can’t be used to access the Internet. Under this traditional network model of development, only a very small percentage of the poor have any hope of ever benefiting directly from the Internet’s vast information store, even assuming all the ambitious programmes and plans are successful.
But right now the poor of the world have almost universal access to local broadcast radio, and the information they receive is actionable for them, i.e., it is presented in a form and language they can understand and use. They can also ask questions through the local post. To make effective use of the information they get, these people (like most of us) benefit tremendously from supportive intermediaries who can interpret the information and the questions to help achieve an effective result. Why hasn’t convergence between telecom, Internet and local broadcast radio been seriously examined as an economical and highly effective way for making at least some of the Internet store of information available to the poor in useable form?
Girard’s comment and paper bring to mind the role that broadcast radio has played historically in many countries in providing agricultural information to farmers, education to rural children and health advice to rural families. It improved the knowledge base of rural people, improved productivity dramatically, and provided a sense of community to listeners. It drove the agricultural revolution in most developed countries, and particularly the big ones - US, Canada and Australia - where it provided the folklore for an entire genre of books and films. Broadcast radio continues to play this important role today in virtually all developing, and some developed countries.
The potential role of intermediary institutions in communication development has not been totally neglected in modern times. InfoDev, World Bank, ITU and other development agencies are supporting telecenters, web site development for local entrepreneurs in poor areas, and other related experiments in developing countries. The development of e-readiness indicators for countries considers institutional readiness in addition to network capacity measures. But I am aware of no case where local broadcast radio has been an integral part of these initiatives. It has been around for so long its enormous past contributions to communication and development have been forgotten, and its potential for innovative application in the new environment have been overlooked. Yet it could promote the economic and social sustainability that is essential if experiments are to demonstrate models for more general application.
Girard’s evidence and analysis points persuasively to the need for a more holistic approach to communication and development policy that includes the full potential of broadcast radio. But what is the role of next generation regulation in facilitating or promoting the implementation of such policies? Industry specific telecom regulators are charged with facilitating the growth of national telecom networks with a capacity to deliver a full range of services. This includes ensuring efficient interconnection of networks, whether telecom, broadcast or Internet, reasonable prices and service conditions, etc. Under convergence regulation, telecom regulators are being assigned an expanded responsibility to facilitate broadband rollout for next generation Internet services, including e-commerce. This activity presumably includes local radio operators in their role as broadcasters, Internet service providers, or providers or consumers of other communication services. However, under this rationale, it is unlikely that the role of regulation would be extended to include a more direct involvement in the implementation of communication and development policies.
Under a broader conception of convergence regulation, such as that being proposed for Ofcom in the UK, infrastructure regulation and broadcast content regulation are being brought under a single regulator. Public interest content regulation of broadcast services includes very specific categories of information (local news, children, advertising, etc.), including non-commercial content requirements. Information society policies that have been announced by many national governments in recent years identify electronic access to information as the cornerstone of the policies. If local broadcasters in underserviced areas are mandated to provide at least a minimal form of access to specific types of information that can be found on the Internet, then the convergence regulator likely would be the most appropriate agency for ensuring this policy is implemented. A proactive regulator could seek innovative ways to ensure this policy was implemented as fully as possible.
However, Girard’s challenge must be directed primarily to policymakers. Regulators implement policy, they don’t make it; and they are on questionable ground when they step in to fill the gaps of inadequate policies. Communication and development policymakers, and those agencies that support new experimental communication and development programmes need to attend to the lessons of Girard’s analysis and fashion more holistic approaches that recognize the important roles of intermediaries and established communication networks in achieving their objectives. A greater volume of successful experiments involving local broadcast radio would provide a stimulus to more comprehensive policy development. This in turn would determine the precise role of the convergence regulator in implementing the goals of information society policies.
This is an issue at the boundaries of convergence regulation that has not yet been exposed to sufficient research, discussion and critical analysis within the context of the very different circumstances that prevail in different countries. Hopefully WDR can help fill that gap by promoting further attention to this issue.
William Melody
Also from the Dialogue: Bangladesh Railway Brings Broadband to Rural Areas
In a message posted to the WDR Framework and Objectives Forum, Partha wrote that Bangladesh Railway has had a optic fibre network running along its right of way for a decade now. However, the network has been used only for the company’s internal communication, “an example of under utilizing a powerful resource”. Partha reports that “it took such a long time to convince the decision makers that if opened this network can also be used for rural telephony, high speed Internet connection and all sorts of communication linkages”. He did not say which decision makers needed to be convinced, but it may be that closer cooperation between railway and telecom authorities might have resulted in this infrastructure being made available earlier.
Follow the dialogue post a question or make a comment at http://www.regulateonline.org/dialogue/ .
3-04-02
Interaction Highlights
In each WDR e-Brief we feature a question or comment posted to the Online Dialogue at
http://www.regulateonline.org/dialogue/
and ask our research teams to comment. The featured comment in this e-Brief was posted in the forum on WDR’s
Framework and Objectives by Malcolm Matson of National Telecable Ltd. In
the United Kingdom. http://www.comunica.org/w-agora/index.php?bn=wdr_framework. The answer
comes from Professor William Melody, managing director of WDR.
Question: In his comment Malcolm Matson wrote that “regulation and
public policy are one of the greatest inhibitors to the rapid advance [toward the digital world] -- not because of some perverse evil intent of beaurocrats, but rather because of the powerful voice of vested
interests who will expend incredible effort to ‘make tomorrow as close
as possible to yesterday’”.
“When technologies of discontinuity are thrown up by the market (e.g.
optical fibre transmission media and the digital computer ) it is IMPERATIVE that they are allowed to "destroy" today's vested interests
as much as to be deployed by them.” However, according to Matson, regulation has done the opposite,
“it has invested "yesterday's" licensed telecoms industry and the cartel of suppliers and consultants
etc. with the exclusive right to deliver "tomorrow's" digital
infrastructure.”
He sums up his views with the statement, “I am increasingly of the view
that the ‘new world’ we are entering upon maybe does NOT require any
great body of special regulation but rather a firm rule of law and private property rights coupled with a political understanding that the
new infrastructure needs some measure of LOCAL democratic control and accountability - as did the highways of the industrial
revolution.”
Read Matson’s complete comments and a paper he wrote on the subject at:
http://www.comunica.org/w-agora/index.php?bn=wdr_framework
Answer: Malcolm Mason doesn’t pull any punches in his critique of
regulation, and expresses a view commonly heard from some members of the
Internet community. Moreover, one doesn't have to look far to find cases
where government regulations have functioned, and are functioning to protect vested interests from competition from new technologies and
services. But one can also find cases where regulation has been the
instrument to open markets to new technologies and competitors, against the power of monopoly vested interests.
We should recall that the period over which Mr. Mason has observed "protective government regulation" has been primarily one where the
generally accepted government policy for telecommunication was the preservation of national monopolies. The PTTs were viewed as "natural
monopolies". Regulation was being implemented to achieve a clear policy objective. In contrast, the new telecom regulation is being implemented
by new telecom regulatory authorities that have been established with a clear policy mandate to promote competition and the introduction of new
technologies. Without regulation of interconnection to the networks of incumbent operators, the explosion of competitive cellular mobile
services would not have been possible. Without the regulatory requirement that value-added telecom services be unbundled from the
supply of telecom facility networks, the Internet could not have developed as it did.
Regulation by an authority specifically designed to be independent from the day to day influence of politicians and powerful industry operators,
and given a specific mandate to promote competition and new technologies, is significantly different from regulation by old style
PTTs which had both a vested interest and a policy mandate to protect the
monopoly. We must recognize that there are different objectives, structures and methods of regulation. Regulation can be an instrument
either to prevent or promote change. The new telecom regulation is supposed to be the latter. It is perhaps a bit premature to condemn it
in light of experience drawn primarily from the old school of protective
regulation.
Yet we must recognize Mr. Mason’s additional concern about the effectiveness of regulation, even if it has been empowered by new
progressive policies. There is no guarantee that the new model of pro-competitive regulation by independent regulators will be effective.
Independent regulatory agencies are subject to capture by powerful corporate or political special interests. With the advantage of
hindsight, most observers have concluded that the UK regulator, Oftel, was influenced far too much by British Telecom in its early days. But
Oftel learned from its early experience and became more independent during the 1990s. Many developing countries have gone through, or are
going through a similar learning experience. In the US, which has had independent regulatory agencies at the state level for about a century,
and at the federal level for about 80 years, there have been periods of regulatory capture of various authorities by incumbent monopolies. But
it was also the US Federal Communications Commission (FCC) that initiated the regulatory changes introducing competition in new
technologies and services, against the massive resistance of AT&T, including the first Computer Inquiry in 1966.
In many countries undergoing telecom reform, the new regulatory agencies
have had a major problem establishing their independence and credibility
in the face of powerful incumbent operators resisting reform. Yet by now
the evidence is unmistakably clear that in the network utility industries with powerful incumbent former monopoly operators, without
regulation most opportunities for new technologies and services provided
by competitors will be foreclosed. The challenge is to design and implement regulation that works effectively to achieve its objectives.
In the very dynamic field of information and communication, there is an additional concern that technologies and markets are changing so rapidly
that policy and regulation will not be able to keep up with the pace of change, let alone anticipate and lead developments. Yet if regulation is
going to fulfil its dynamic mandate of establishing the regulatory foundations for 21st century network economies, there must be continuing
special attention to the design, structure, capabilities and adaptability of the new telecom regulatory agencies. This World Dialogue
on Regulation (WDR) project is contributing to that objective. We hope to significantly increase the chances that the new regulation will
succeed in most countries. But we need to be constantly mindful of Mr. Mason’s healthy scepticism. There is no guarantee of success in this
venture.
Shared infrastructure – End of a nightmare?
"Opening up streets in the capitals and major cities in Europe has become a nightmare for all stakeholders.”
In a contribution to the dialogue on WDR Framework and Objectives, Walter Lemstra of Industry Insights (The Netherlands) reported on a
couple of interesting European initiatives that seek to limit the disruption to city life caused by multiple service providers digging up
streets to install multiple optical fibre infrastructures. By having the
fibre installed by a neutral party and leased to service providers, it may be possible to both encourage competition, and minimize traffic
interruptions.
See Lemstra’s article in the WDR Framework and Objectives dialogue. You
can also download a PowerPoint presentation on the subject that was given by David Cleevely of Analysys (UK) at the EICTA conference
Broadband Europe: Call for Action, that took place in Brussels in March.
http://www.comunica.org/w-agora/index.php?bn=wdr_framework
13-03-03
Interaction Highlights
The discussion on WDR's online forum during the last two weeks generated questions and comments on the topic of regulation -- the role of regulation in a digital world, the organizational structure of regulatory agencies and the desirability of achieving regulatory independence.
Malcolm Matson, providing a perspective from the private sector, argues that regulation and public policy are the "greatest inhibitors" to the advancement of a converged digital world. According to Matson, when "technologies of discontinuity", like optical fibre and the personal computer, are thrown up by the market they should be "allowed to 'destroy' today's vested interests". In his view, regulation is often fashioned by vested interests to "make tomorrow as close as possible to yesterday". Matson expands on his views in an attached article based on a paper he delivered at the 1995 ITU Technology Summit in Geneva. Read his intervention and the paper under the subject “Regional regulation adds new element to debate“ in the Framework forum:
http://www.comunica.org/w-agora/index.php?bn=wdr_framework
Continuing on the topic of regulation, Charles Roocroft, a frequent contributor to the forum, asks the Multisector Utility Regulation team whether the actual organization of multisector regulatory agencies show any evidence of economies of regulation. You can read Rohan Samarajiva's response to that question on the forum at:
http://www.comunica.org/w-agora/index.php?bn=wdr_multisector
"To what extent should regulators behave independently?", asks Saskia Lavrijssen to the Multisector Utility Regulation team, also posing the question of the week. Lavrijssen agrees with the multisector regulation paper when it states that multisectoral regulators can act more independently from the line ministries than sectoral regulators can. However, according Lavrijssen, "utility regulators are not only confronted with economic and technical questions. Their decisions might have social or environmental implications... A multisector regulator should be accountable to the responsible ministries (or directly accountable to parliament)." Rohan Samarajiva addresses the issues of accountability and independence raised by the question later in the e-Brief. Follow the debate in the Question of the Week below or online in the Multisector Utility Regulation Forum at:
http://www.comunica.org/w-agora/index.php?bn=wdr_convergence
Question of the Week
In each WDR e-Brief we feature a question or comment posted to the Online Dialogue at
http://www.regulateonline.org/dialogue/ and ask our research teams to comment.
The featured question in this e-Brief was posted in the forum on Mutisector Utility Regulation by Saskia Lavrijssen of Tilburg University in the Netherlands.
http://www.comunica.org/w-agora/index.php?bn=wdr_multisector
Question: In the paper on multisector regulation it is stated that by creating a multisectoral regulator the regulatory agency will be taken out of control of one line ministry (because there will be more than one) and will give it a reporting relationship to either a ministry devoted to economic reforms or the overall subject of finance , or the president, or the prime minister, or the legislature. An alternative solution to the problem of line ministries is to abolish them altogether, as Senegal has done (p. 28).
Since multisector regulators will be accountable to more than one ministry, I agree with the fact that multisectoral regulators can act more independently from the line ministries than sectoral regulators can do. One should, however, ask oneself to what extent should regulators behave independently? I think regulators should be insulated from political (and of course private) influences in case they have to implement legislation by making difficult economic and technical assessments in concrete cases concerningaccess to essential infrastructures.
For instance I think that isssues of access pricing should be left to independent regulators. However, utility regulators are not only confronted with economic and technical questions. Their decisions might have social or environmental implications. This is for instance the case when a regulator should guarantee that universal service obligations are met and when it has to control the performances of the universal service providers to that end.
I am of the opinion that a multisector regulator should be accountable to the responsible ministries (or directly accountable to parliament) in case the agency has to deal with social and environmental matters. In addition, although there should be no political influence in individual decision-making, the general performance of a regulator should be supervised by the responsible ministries by making for instance a cost benefit analysis of the activities that are performed by the regulator (regulating the regulators).
I am interested in the opinion of the authors of the paper on the accountability of the multisectoral regulators and how this accountability should be institutionalised.
Saskia Lavrijssen
Tilburg University
Answer: The intervention contains a number of interesting and important questions. It merits a detailed answer that for purposes of convenience is divided into sections.
Independence
It makes eminent sense that a regulator should be independent from those it regulates. Many countries recognize the value of this safeguard as a pre-condition of fair treatment for competitors, but not all have succeeded in building it into their regulatory practices. This principle has now received international imprimatur with its inclusion in the WTO Regulatory Reference Paper:
The regulatory body is separate from, and not accountable to, any supplier of basic telecommunications services. The decisions of and the procedures used by regulators shall be impartial with respect to all market
participants.(1)
The WTO definition does not require independence or even separation from government. For example, Japan, which has not yet created a separate telecommunication regulatory agency and regulates through the Ministry, is in compliance with Article 5 of the Regulatory Reference Paper.
In approaching the more problematic aspects of independence, namely the regulatory agency’s relation with government, it is useful to begin by asking whether the desirability of insulation from political pressures is unique to regulatory agencies. Efficient and unbiased public administration requires a degree of protection from day-to-day political pressures. The civil-service protections written into many constitutions and laws around the world testify to this. Clear separation of the policy-setting function and the implementation function, with political accountability for the former, and administrative/legal accountability for the latter, is a basic element of sound public administration. Additional insulation from political pressure is provided in certain exceptional cases such as investigative bodies dealing with corruption, attorneys general and central banks. In this light, the more appropriate question is whether the functions of telecommunication regulatory agencies warrant such additional protections.
There is no single answer for all countries. In countries with well functioning governments such as Chile, telecom sectors have performed exceptionally well even with regulatory agencies that are no different from government departments. The case study of the Singapore Infocomm Development Authority at
http://www.itu.int/ITU-D/treg/Case_Studies/Index.html shows that it has little independence from the political authorities. Therefore it is not possible to say that good sector performance requires additional protections for regulatory agencies in all cases.
Added insulation from political pressure for telecommunication regulatory agencies in the form of independence from political interference is critical where overall governance is weak, namely in most developing countries. In effect, the independence that is called for serves as a dike to protect the island of good governance that the NRA is intended to be, from the surrounding ocean of bad governance. So, for example, a firm investing in the telecom sector in the Nordic countries or in Singapore does not demand the creation of an independent NRA because there is adequate trust that governance is effective and that administrative expropriation is unlikely to take place. By contrast, the independence of the NRA was considerably strengthened in Sri Lanka in 1996, at the same time that two Wireless Local Loop operators made major new investments in the telecommunication sector.
Accountability
The other side of independence, as the intervenor clearly shows, is accountability. The most basic form of accountability is transparency of regulatory decision-making. The decisions must gain legitimacy directly from the process by which they were arrived at. In addition, there must be structural accountability. Depending on the political system (e.g., parliamentary/Westminster, separation of power/US-type), its form will differ. This has to be to the legislature through annual reports and other means; through responsiveness to questions by committees and so on. Generally, in environments of poor governance, it is not a good idea to leave this solely to one ministry within the executive. The more public the accountability, the better it is.
Some scholars argue for a clear demarcation between economic regulation that is amenable to “technical” approaches and socio-political forms that require political judgement. (2) In reality, this demarcation is difficult to achieve. (3)
Socio-political objectives tend to involve redistribution of resources. It may be more appropriate that they be set through political processes than through the expertise-based processes generally associated with regulatory agencies. A middle ground would leave the policy function of setting of socio-political objectives to government and the associated political processes but mandate the regulatory agency to devise the optimal ways of achieving the stated policy objectives.
Rohan Samarajiva
LIRNE.NET
Notes:
1. World Trade Organization (1997), Fourth Protocol to the General Agreement on Trade in Services (Geneva: WTO), Reference Paper, article 5. At:
http://www.lanka.net/trcsl/wtodocs.html
2. Foster, Christopher D. (1992). Privatization, public ownership, and the regulation of natural monopoly (Oxford UK: Blackwell), chapter 9.
3. Prosser, Tony (1997). Law and the regulators. Oxford UK: Clarendon Press.
Follow the dialogue - post a question or make a comment at http://www.regulateonline.org/dialogue/ .
28-02-02
Interaction Highlights
During the last two weeks, the online discussion has moved from issues of structure and conduit to issues related to content. Commenting on the first WDR Discussion Paper, Building the Regulatory Foundations for Growth in Network Economies, Walter Bolter argues that network conduit is not "the kingpin for regulatory schemes," rather the "public interest" lies in regulating privacy rights and who controls information content. See Bolter's complete comments in the WDR Framework and Objectives Forum at:
http://www.comunica.org/w-agora/index.php?bn=wdr_framework
Gunilla Larsson posed the question of the week by expressing her concern about the survival of public broadcasting services in a converged environment and asking how convergence regulation can ensure plurality and diversity of television programming. Anders Henten and Morten Falch from the convergence regulation research team, take turns to address this issue. Anders Henten's response is highlighted later in the e-Brief. Follow the debate in the ICT Convergence Regulation Forum at:
http://www.comunica.org/w-agora/index.php?bn=wdr_convergence
Question of the Week
In each WDR e-Brief we select one or more of the questions or comments posted to the Online Dialogue at http://www.regulateonline.org/dialogue/ and ask our research teams to comment. The featured question in this week's e-Brief was posted in the Forum ICT Convergence Regulation. Gunilla Larsson asked how one an be sure that public service channels will survive in a converging environment where TV broadcasting is regulated just like any other telecom service. Will we not
"end up in a situation where we can only get access to commercial channels dominated by quiz programs and low-cost American
series?"
The question sparked two comments from the ICT Convergence Regulation research team. In his comments below, Anders Henten first summarises Morten Falch's answers and then goes on to further explore the issue. You are invited to add your own comments to this and other issues raised in the ICT Convergence Regulation discussion at:
http://www.comunica.org/w-agora/index.php?bn=wdr_convergence
Public service broadcasting in a converging environment
In an answer to Gunilla Larsson's question, Morten Falch (a member of the ICT Convergence Research Team at the Centre for Tele-Information) fully appreciated the concern whether a free market will be able to ensure public service and stated that existing public broadcasting models are challenged by technological developments and that it is, therefore, important to discuss other models for ensuring public service.
Falch wrote that regulation of broadcasting services traditionally has been related to licensing of scarce spectrum resources. License holders have had certain obligations with regard to the content distributed. An essential criterion has been to ensure pluralism and diversity in the limited choice of programs that limitations of the radio spectrum allow. However, in a situation where an almost unlimited number of broadcasting channels can be delivered through a wide range of infrastructures such as cable, Internet, satellite and terrestrial networks, it is much more difficult to argue for this kind of regulation, says Falch. Pluralism and diversity can be obtained through a choice between a large number of TV channels rather than through pluralism and diversity in one or a few publicly funded channels, is the argument.
With these concerns and analytical elements, questions regarding content have entered the World Dialogue on Regulation. Often, discussions are confined to the infrastructure side, but broadcasting is certainly an area where relationships between infrastructure and content questions are apparent. The strong position of public service channels in the broadcasting picture in many countries is partly based on their terrestrial networks. But only partly! Presently, where the large majority of people in many countries rely on terrestrial networks to access national public service channels, holders of terrestrial licenses are in an advantageous position. However, in the longer run, where other means of access get a broader penetration, the importance of terrestrial networks will decline. The really decisive issue is the funding of the providers of public service programming. How large is the funding of public service programming and in which ways are these funds acquired ? by means of license fees, payments for advertisements, or different pay-TV arrangements? If funding is sufficient and dependency on income from commercials is not too heavy, there is a good chance that quality public service broadcasting will continue to develop.
The conclusion is, therefore, that the continuing development of public broadcasting services is inherently a political question. It is true that the present institutions of public service broadcasting are challenged by technological developments. But changing technology is not a sufficient reason to change policy objectives. Even if there is a multitude of access means to broadcast programs and a multitude of different channels and programs, there may still be room for public service broadcasting and a necessity to financially support programming that is independent of commercial interests and that does not have to attract large crowds for all programs in order to obtain high advertisement income.
Anders Henten
WDR ICT Convergence Regulation Research Team
Follow the dialogue post a question or make a comment at http://www.regulateonline.org/dialogue/ .
15-02-02
Interaction Highlights
Hundreds of you have already
downloaded the first three WDR Discussion Papers since they were
posted two weeks ago. The three papers direct attention to important
aspects of WDR's theme for 2002, ICT Convergence or Multisector
Utility Regulation?. They are also the starting point for the online
dialogue. If you haven't yet read the papers, they are available at http://www.regulateonline.org/dp/.
We have received a number of comments in the forums and
by e-mail about the WDR website and the three discussion papers. The
papers have not been up long, so it is not surprising that most comments
have been about the website -- its design, organization and interface,
rather than the content posted on the website.
The questions we didreceive were provocative and
have kept our researchers busy. For example, commenting on the ICT
convergence paper, Steve Armstrong asked why a big deal was being made
about convergence regulation when the courts were more than adequate to
deal with issues of intellectual property, electronic contracts etc. In
another thread, S. Logan posed the question of the week by asking "Why
not leave it to the market?" and concluded by stating: "Lets
get rid of regulators!". Later in this e-Brief WDR
Managing Director, William Melody, provides his comments in response to
Mr. Logan’s question.
The regulateonline.org website is the centrepiece of an
international dialogue on major issues of regulatory reform, we welcome
your active participation. Join the debate at http://www.regulateonline.org/dialogue/
A number of you have asked us permission to provide a
link to the WDR website from your site, as Prof. John Ure, Director of
the Telecommunications Research Project located in the Centre of Asian
Studies at the University of Hong Kong, has done at http://www.trp.hku.hk/
. You are encouraged to provide a link to the WDR from your website and
use WDR research documents in your work and courses with appropriate
acknowledgement. (See WDR’s copyright policy at http://www.regulateonline.org/ipr.htm).
Question of the Week
In each WDR e-Brief we will select
one or more of the questions or comments posted to the Online Dialogue
at http://www.regulateonline.org/dialogue/
and ask our research teams to comment. The featured question in this
week's e-Brief was posted in the WDR Framework and Objectives forum
by S. Logan who asks:
What about the role of competition in WDR? Isn't
telecom regulation a transitional exercise? Isn't it supposed to be
replaced soon by "regulation" by competition authorities
like any other industry? This is what is happening in the US, Europe
and other countries now. Won't all this regulation you're talking
about just slow down market development?
Lets get rid of the regulators!
WDR Managing Director William Melody
provides his comments in response:
Competition and Regulation: Substitutes or Complements?
The telecom reform movement began with a recognition
that telecom monopolies, in all but a handful of countries, were not
fulfilling their objectives - either in terms of economic efficiency or
providing universal access/service. Other organisations, ranging from
small entrepreneurs and local co-operatives to transnational
corporations, with new ideas for improving or extending service were
being denied the opportunity to participate in the industry. The reform
movement has been essentially a program of removing barriers to
participation in the supply of telecom services - some competitive and
many complementary, i.e., extending networks to new geographical areas,
previously unserved people and businesses, and providing entirely new
services.
In the early stages of reform, the wealth of obvious
opportunities for competition to improve efficiency, services and
universal access coverage led many experts and policymakers to predict
that the telecom industry could become effectively competitive and
thereafter be monitored by competition authorities. Industry specific
telecom regulation was needed only to facilitate this transition. This
view reflected more the ideals of economists and the aspirations of many
policymakers than a hard-headed analysis of the industry technologies,
services and market structures. Unfortunately, experience has
demonstrated these expectations to be unrealistic, if not naive.
The limits of effective competition have become stalled
long before the telecom industry can be declared competitive. The
countries that claim the greatest amount of competition -- US and UK --
are strengthening their regulatory capabilities. New Zealand, which
tried a policy of open entry and monitoring by the competition authority
for more than a decade, recently has established a regulator.
Ironically, if competition is to be used to its maximum extent in
driving industry restructuring, it will require that regulators be
proactive in keeping barriers to entry to a minimum and using
competition as the most effective tool of regulation. In the telecom
industry today, and for the foreseeable future, competition and
regulation are not substitutes, they are complements.
When one considers the dynamic changes underway today in
telecom and neighbouring industries, and associated government policies
-- information infrastructure rollout, next generation internet services
development, and preparation of the foundations for network economies --
the role of telecom regulation becomes even more important. A highly
imperfect telecom industry structure with extremely limited competition
provides a very "biased" foundation for rolling out a new
information infrastructure and implementing new policy objectives. The
advantage of the technological and market dynamism is that industry and
market boundaries are becoming blurred by convergence and the
establishment of multisector utilities, raising new opportunities for
both competition and monopoly. But the ex post "regulation" of
competition authorities in dynamic markets of continuously changing
definition cannot be effective in promoting competition. Its role is
limited to preventing the further accumulation of monopoly power through
anti-competitive mergers and punishing monopoly abuses after the fact.
If the evolving opportunities for competition are to be actively
promoted in the direction of achieving the new policy objectives,
proactive ex ante regulation will be required. But the scope of that
regulation must be defined with reference to the new and evolving
industry conditions, not the historic definition of the telecom
industry. Regulation and competition are complementary in this
environment as well.
This complementarity of regulation and competition
applies equally in developing and developed countries. The major
differences between them are the magnitude of the task at hand and the
challenges they face. In the developed countries, both general market
and governance/regulation institutions have been developed over a long
period of time, providing strong institutional frameworks that can
facilitate the telecom market and regulatory transitions now underway.
Most developing countries do not have as strong a framework of such
institutions. Thus, the role of the telecom regulator becomes pivotal to
the successful implementation of policy objectives, and the stimulation
of market development, participation and competition as key elements in
policy implementation strategies. This has been demonstrated by the
successes achieved by those countries that have established strong,
independent and proactive regulatory authorities.
The decision by the WDR to focus on the structure and
priorities of next generation regulation does not raise an issue of
whether regulation is substituting for competition. Rather, it raises
the issue of the structure of regulation that will be able to promote
competition most effectively as a essential tool for implementing the
new network economy and information society policy objectives. That is
an issue on which there is little knowledge, considerable controversy
and a need for informed policy and regulatory decisions. It is an issue
where the contributions of people with a variety of diverse experiences
are needed, as well as a dialogue to test the evidence and enrich the
knowledge base.
William Melody
Follow the dialogue post a question or make a comment at
http://www.regulateonline.org/dialogue/.
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