Другое : Regulation in telecommunications industries: Why, What and How to Regulate?
Regulation in telecommunications industries: Why, What and How to Regulate?
Graduate
School of International Corporate Strategy, Hitotsubashi University
Asian
Tax and Public Policy Program
Economic
Analysis of Regulation and Public Enterprise
REGULATION IN
TELECOMMUNICATIONS INDUSTRIES:
Why, What and How to
Regulate?
Bakhodir
Mardonov IM0313
February
20, 2001
Recent empirical
studies have showed that national indicators correspond closely to the degree
of competition in telecommunications markets. Greater competition has generated
greater innovation, investment and spin-offs for the economy as a whole.
However, many governments have found that competition in telecommunications can
bear good results only if appropriate regulatory institutions are functioning
effectively. Consideration of advantages and disadvantages of specific
regulatory policies raises questions on why regulate, what to regulate and how
to regulate.
Why Regulate
Telecommunications?
There are
different approaches trying to answer this question, but basically they are
split into two views: whether government should regulate actively or intervene
only in case of “market failure”.
Public
policy goals: Even though the ultimate goals are
the same, the relative priority given to different goals may vary. For example,
in developing countries with a limited access to telecommunications services,
the policy goal to make them universally accessible is especially important.
While, in developed countries, the priority goals may be to raise the
efficiency of telecommunications and maintain a basic telephone service.
Market
failure: General goals such as “universal
accessibility” cannot be enough to justify regulatory intervention when the
prevailing view relies on market forces to promote efficiency and innovations.
In this case, the strongest justification takes the form of “market failures”
and the regulator may intervene in order to facilitate competitive entry,
combat abuse of market power and redistribute benefit.
Actually, the
nature of the problems addressed depends on the structure of the telecom
services industry, the general economic, political and social situation and the
prevailing set of fundamental telecommunications policies, particularly those
concerning the roles of monopoly and competition. Accordingly, we may consider three
groups of countries: (i) full monopoly, (ii) partial monopoly and (ii) full
market system.
As some
countries have moved from one of these groups into another, the major problems
to be solved by regulators have changed. For example, as Mexico introduced
competition in cellular services and privatised its former state telephone
monopoly, Telmex, it has faced controversial issues concerning the
interconnection of different carriers' networks. In the United States, the
evolution of the telecommunication industry since the 1950s illustrates a gradual
transition from the first group via second to the last one: if in the beginning,
the regulatory policy concern was to assure the universal availability of
telecommunications services with reasonable rates, over the years, as
competition has developed, regulators become more confident about the provision
of different telecommunications services. Thus, a gradual relaxation and withdrawal
of some forms of regulation (notably controls on the pricing of services to
end-users) has been introduced. At the same time, new forms of regulation have
arisen from the need to solve new kinds of problems, concerning for example,
the terms of interconnection between different carriers' networks, or control
of the numbering plan in a multi-carrier environment.
In spite of variations of the regulator’s
mandate across each group of countries, some of his basic missions can be
defined as following:
1)
Promotion of “universal service” targeting low-income households, users in remote geographical
areas, or disabled persons. For example, in Argentina, this was done through
setting goals for the expansion of PTO networks; in the United Kingdom and
U.S., through imposing “lifeline” tariffs for low-income users.
2)
Protection of user interests.
3)
Change in the industry structure. The desired change is usually towards a more competitive industry
structure, but this mission can be far from "deregulation". For
example, in Japan, the Ministry of Posts and Telecommunications caused NTT to
maintain high charges between Tokyo, Osaka and some other major locations for
the initial period of competitive entry, to help new entrants gain a foothold.
4)
Movement towards a “no discrimination policy”
or “level playing field”. However, in this case,
the concern on the need to discriminate in favor of new entrants has to be
addressed (mission 3).
5)
Supervision of the dominant PTO in case of limited or absent competition. This can be done, for
example, through applying price-cap regulation like in Mexico.
6)
Stimulation of innovations. In many countries, the regulator is seen to anticipate
opportunities for innovations and creating a favourable environment for their
timely exploitation. For example, in the United Kingdom the pioneering action
of OFTEL in granting licenses for the Personal Communications Network (PCN) and
Telepoint (CT2); in France, current activity by DRG on PCN licensing; in the U.S.,
policy of granting "pioneer's preference" in the licensing of radio
frequencies to companies pioneering new service concepts and technologies.
7)
Management of common resources effectively.
8)
Stimulation of investments in the public
network.
9) Network interconnection. Open entry
requires interconnection. It is important to create favourable environment for interconnection
of new network operators and other providers of telecom services. However, the
more innovative the services of the new entrant, the tougher the problem may
become for the dominant carrier. This subject requires considerable study and
analysis, since it lies at the heart of the challenge of finding economically
efficient means of facilitating entry and promoting competition.
In practice, the regulator’s mandate represents
a mixture of these different concepts. Not only does the "mix" vary
from country to country, it also evolves over time. For example, in Canada,
telecom regulation has traditionally followed the mission of supervising the
dominant PTO. More recently, the mission of changing the industry
structure has emerged as a major thrust of Canadian telecom regulation
policies. A cellular duopoly was established and a second long-distance carrier,
now known as Unitel, was granted operating and interconnection rights to the
local telephone companies' networks. This consent was initially given only for
leased-line and packet-switched service, and not for switched telephony, but
Unitel is now licensed to provide a full range of long-distance services,
including voice services.
What to regulate?
The provision and use of telecommunications
services may be regulated in the following ways:
1)
licensing carriers;
2)
establishing and supervising technical and
operational standards and practices for network operations by carriers;
3)
overseeing the quality of service provided by
carriers;
4)
regulating the pricing of telecom services,
either by controlling telecom operators' rates (tariffs) in detail or by
applying some more general form of control such as a price-cap;
5)
setting the terms (administrative, financial and
technical) for the interconnection of different carriers' networks, including
the "access" pricing charged by one carrier to another, where there
are multiple carriers and one carrier needs to interconnect with another's
network;
6)
controlling type approval of customer premises
equipment (CPE) and its attachment to the public network;
7) controlling the numbering plan and related matters.
The decision on "what to
regulate" has substantially varied in various countries since it depends
on what outcomes are to be achieved. For example, in “full monopoly group”
countries (e.g. Spain, Italy and the majority of developing countries), the
regulator's goals will imply that:
·
supervision of the monopoly PTO's technical
standards and practices may be unnecessary;
·
price regulation will be necessary and
important;
·
licensing new carriers and regulation of network
interconnection is not relevant.
At the other extreme, in a highly
competitive group countries (e.g. U.S. long-distance telephone service), the
regulator’s goals will imply:
·
regulatory control of some technical and
operational matters is essential since effective competition requires extensive
interconnection of different carriers' networks;
·
price regulation may become unnecessary, at
least in some segments of the industry;
·
licensing function may be unnecessary or
minimal;
·
rules concerning the interconnection of
different carriers' networks are of critical importance.
But what if a
government chooses not to regulate at all? Experience suggests that this
decision is too illusory: in the unregulated or self-regulated monopoly,
someone must determine whether or not the monopoly is acting in the public
interest, and intervene if it is not.
These
considerations, among others, have led the countries of the European Community
to collectively enact EC legislation requiring the establishment in each
country of an explicit regulatory process for telecommunications and a
regulatory body to implement that process which is separate from operational
PTO organisations, even in those countries where national legislators have
chosen to maintain a monopoly of basic fixed voice services.
How to regulate?
Regulator with a defined mission can fulfil
it using widely differing regulatory approaches. Actually, there are basically two
kinds of choices that must be made to define regulatory approaches:
1.
How far the regulator will exercise control,
and how far the regulator will act "by exception." To what extent will certain matters (e.g. "access
charges" for interconnecting) be controlled by the regulator, or will the
regulator only intervene "by exception" when a particular regulatory
case requires this? In the case of access charges, for example, U.S. practice
involves continuous and mandatory control of access charges for fixed-service
carriers. In the United Kingdom, by contrast, the regulator does not
automatically exercise control over these charges, but may exercise the power
to determine the charges if the various carriers fail to reach agreement.
2.
How far the regulator controls outcomes
directly, or indirectly. For example, if one goal
of regulation is low prices for service, will the regulator control prices
directly, or seek to influence prices indirectly by promoting an industry
structure that is considered to be favourable to achieving low prices? Or, to
take another example, will the regulator directly impose particular targets for
network expansion and modernisation, or rely on the effect of a general
framework of incentives designed to encourage carriers to pursue these goals?
In this context, let’s consider one of the
most fundamental issues about whether or not the regulator should intervene to
promote innovation. There are three different views on this matter:
1.
“Regulator as Patron”: the regulator identifies the promising innovation, and takes steps
to ensure that the organisation most likely to implement it is not only authorised,
but have priority access to the resources necessary to implement the
innovation.
2.
"Pro-active Removing of Obstacles": the regulator does not "pick winners" in this way, but
nevertheless actively seeks to ensure that regulation itself does not impede
promising innovations and to act pro-actively to provide an environment that is
favourable for innovation.
3. “Arm's Length Approach”: the regulator’s
role is minimised in decision-making about innovation, and the regulator will
respond to innovation initiatives from the PTO or other interested parties
(e.g. telecommunications users, resellers or providers of value-added
services). This may occur if the innovation needs the regulator to take
specific actions before it can proceed.
Although these
approaches are different, they are not clear-cut alternatives. There are many
intermediate approaches between them. In table 1, the main advantages and
disadvantages of these tree alternatives are presented.
Concluding all
above, we can say that establishing proper regulatory institutions is an
important precondition for successfully restructuring the telecommunications
sector and increasing the involvement of private initiatives and market forces.
Three basic questions are to be addressed at the outset - why, what and how to
regulate – in order to settle the main two principal issues: how to ensure a
proper interface between the regulated and competitive parts of the
telecommunications, and how to encourage the innovative forces in the sector.
Table 1 Advantages and Disadvantages of the Broad
Regulatory Alternatives Concerning Innovation
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