The Regulatory Balancing Act-Not so Difficult

I had written a post titled "Closing the Market Efficiency Gap-Regulation and Competition" wherein I has said that closing the Market Efficiency Gap demands putting in place sound laws and regulation modeled on international best practices but adapted to local context. This would ensures inter alia a level playing field which precludes vested interests from rent seeking behaviour that is detrimental to the economy as a whole.

In this post I has mentioned the likely mandating of a reduction in access charges for fixed line grid by the Italian firm Telecom Italia SpA by the Communications Regulator of Italy. This article also speaks about the general trend towards reduction in network access charges (both fixed line and mobile) across Europe as a result of conscious efforts of regulators to enhance penetration. It does mention that the Italian Regulator was under pressure from Telecom Italia's rivals.

It is now reported that the Italian Regulator's (Agcom) ruling has been put on hold by the European Commission on account of doubts as to whether the proper procedure of a separate market analysis of impact of cut was carried out. A quote from The European Commission er in charge of the digital agenda is enlightening and worth emulating by telecommunications' regulators:

"In departing from the approach announced last year for setting access prices in the Italian broadband markets, Agcom undermines the required regulatory certainty for all market players,” ...... “Regulation must aim at creating a level playing field for all operators.”

The lesson here is that a systematic and scientific approach to regulation can ensure that regulators meet the ultimate aim of consumer welfare and not fall prey to regulatory capture or political pressures.

Telecom Regulation Reform for Effective Competition & Growth-BCG Report on EU Regulation. Also, Indian Operators Finding Own Unique Solutions

I strongly believe that good regulation and competition are imperative for  achieving at least near universal service and digital inclusion and unlocking the potential of communications as a growth driver.

While in my opinion, the e-communications regulations in EU are worthy of emulation, it would appear there is always scope for improvement.

A study by The Boston Consulting Group (BCG) for the European Telecommunications Network Operators’ Association (ETNO) suggests  “a reformed regulatory framework” to ensure competition and encourage investment in advanced Next Generation networks.

Thus the report finds that “outdated and intrusive regulation is responsible for distorting market-based competition and discouraging capital investment, particularly by telcos, in NGA.  It states that,

“These trends must be turned around if Europe is to remain innovative and competitive in the global digital marketplace. Doing so requires a shift in the approach to regulation towards a new paradigm centred around:

1.    A harmonised-and substantially reduced-pan-European regulatory approach, relying mostly on established competition law

2.    A short- and long-term comprehensive view of all the costs and benefits for consumers which takes into full account the long-term benefits of investments for consumers

3.    A full view of the value chain, in a technology-agnostic manner and with a differentiated geographic lens

The study proposes five measures that will reverse the regulatory root causes of lagging telecommunications investment and help to unlock the funding required to build the ultra-fast connectivity that is increasingly the lifeblood of the digital economy:

• Substantial deregulation of fixed-line wholesale access
• A level playing field for network operators and digital services providers
• Spectrum policy that accelerates the build-out of mobile networks
• Permitting healthy consolidation in mobile
• Harmonising rules and procedures to unlock cross-country synergies

Taken together, BCG estimates that these five measures would increase telecom operator cash flows by a cumulative total of €105 billion to €165 billion by 2020 and asserts that a significant portion of these funds would be available for additional investment in next-generation networks.  Along with the roll-out cost savings that DG Connect initiatives, such as the pending “less digging = more broadband” regulation,are expected to deliver, this programme would significantly close Europe’s next-generation network investment gap, fuel growth and add jobs, and bring the goal of a vibrant Digital Single Market much closer to reality."

A similar approach would greatly benefit many a developing nation and perhaps developed nations too as previous my blog posts on telecom regulation and competition  would suggest.

While on the subject of Competition and Telecom reforms an article from the Economic Times highlights how smaller mobile operators are taking advantage of intra circle roaming to come together, share infrastructure and compete with bigger players even as the industry is critical of the current M&A regulation. Innovation and adaptation is the hallmark of Indian telecom market.

National Broadband Plans-Regulatory Issues

Let me begin by highlighting the tremendous progress made in penetration of  ICTs across the world. The figure below sourced from ITU shows us that mobile voice and data penetration are progressing relatively rapidly while the growth of fixed services is steady but slower. 

However the ITU report also underlines the persistence of the digital divide,

 'ITU estimates show that mobile broadband penetration in the developing world will reach 20 per cent while penetration levels in the developed world will represent 75 per cent by end 2013. Total global Internet users will reach an estimated 2.7 billion worldwide by end of 2013. In developing countries, the number of Internet users will have more than tripled between 2007 and 2013, to reach more than 1.8 billion. Despite this rapid growth, however, less than a third of inhabitants in the developing world will be online by end of 2013.' 

Given the significance of broadband in today's information age and the unacceptability of the digital divide from a socio-economic and political viewpoint, nations across the world are developing plans and strategies to universalize broadband access. 

Different models are adopted ranging from public funding to PPPs to USF subsidies and these should ideally be well thought out policy decisions which weigh short run benefits against long terms costs. All modes  of public funding have the potential to distort competition. This is a recurring theme that I discuss in this blog and would be happy to receive comments/feedback.

Keeping this in view, EU's regulatory framework requires that US funding should be subject to ex ante scrutiny to ensure that it does not not cause market distortions and before state aid is resorted for broadband networks,  a detailed mapping is to be carried out to ascertain inter alia that it is really needed and will not end up not driving out existing/potential private investment.A recent news item talks about such a mapping effort in Ireland. Please see http://www.siliconrepublic.com/comms/item/33271-government-launches-broadba/

State aid to broadband networks in EU has emerged as a major source of funding. (See figure below).Yet it is achieved in a well regulated, competition neutral manner.