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TELECOM ECONOMICS - Power Play
In the first of a regular column for European Communications, Benoit Reillier looks at the role 
played by regulators and politicians in the rapidly changing telecoms arena
Regulation, public policy, competition law… it would be tempting to discount these notions in the belief that the communications sector has more to do with technological change, innovation and marketing than with politics and regulators.
All market participants, however, are playing a global game whose rules are being decided by Governments, regulators and competition authorities. In fact, a closer look suggests that the regulatory and competition framework, within which communications firms operate, may be more important than how well they ‘play the game’.
This is especially true in the telecommunications sector where incumbent operators were often deemed too powerful and subjected to heavy sector specific regulations. These rules were set by Governments and regulators in order to ensure the development of a competitive market while protecting consumers’ interests.
Enlightened strategy departments in many communications firms have been aware of the importance of regulatory affairs for quite some time now. As a result many heads of strategy have now taken on these added responsibilities (historically often left to legal or communications departments).
Indeed, shaping the debate and contributing to the development of a fairer and more efficient regulatory model is becoming paramount for operators’ future. In a market where time horizons for investment can be decades, regulatory visibility is critical. This is especially the case when existing infrastructures, such as the fixed copper networks that can be found in most countries, are showing signs of obsolescence. Indeed, when legacy infrastructures become a bottleneck, new multi billion dollar investments are required to upgrade as illustrated by the early roll out plans of new generation fibre networks in several countries.
The EU Commission has played a critical role in shaping the regulatory environment over the past decade. The Commission gives guidelines and tools (a framework) to National Regulatory Authorities (so called NRAs) as well as homework (market reviews to be carried out) and deadlines. It also reviews progress of its NRAs every year (implementation reports) to see if they have been good students or not. Those who have worked well are praised while other countries are named and shamed or encouraged to do better. Very much like a teacher, the Commission is also asking for new powers to be able to better discipline those who do not follow the rules.
Viviane Reding, the vocal EU Commissioner for the Information Society, is currently reviewing the telecoms regulatory framework that will apply to all member states over the next few years. If approved by the EU Parliament, the NRAs in each country will have to implement the new policies proposed. Some of these, like the addition of mandated functional separation to the toolbox of regulators, could result in operators having to split their operations so that the retail side of the business (that sells services) would become separate from the network infrastructure. Mandating such drastic measures would, of course, have far reaching consequences for the development of the market.
While these debates may seem remote, they will have a profound impact on the way in which the market develops; on the type of competition that emerges as well as on the levels of investments in infrastructure and services. Given the strong relationship that has been established by many economists between investment in communications infrastructures and economic growth, the stakes are high. Indeed it is not just about telecommunications but also about the overall productivity gains enabled by these new services.
So equipment manufacturers, consumers and operators alike all have a lot to gain from contributing to the regulatory process and shaping the debate. Best regulatory practice involves a period of consultation with stakeholders, and this opportunity to review the arguments and contribute to the debate shouldn’t be missed.
The challenges behind policies such as mandated structural separation, increased pan-European regulation and new generation networks are some of the critical topics to be addressed over the next few years… and as many opportunities to shape the debate.
Benoit Reillier is a London based Director of the telecoms practice of global economics advisory firm LECG. He can be reached at breillier@lecg.com.
The views expressed in this column are his own.
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