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Malathy Knight-John Research Fellow Institute of Policy Studies Sri Lanka

Competition in Telecommunications Networks: Antitrust and Sector-Specific Solutions and Challenges for Developing Countries. Malathy Knight-John Research Fellow Institute of Policy Studies Sri Lanka. Road map. The importance of connectivity in the development process

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Malathy Knight-John Research Fellow Institute of Policy Studies Sri Lanka

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  1. Competition in Telecommunications Networks:Antitrust and Sector-Specific Solutions and Challenges for Developing Countries Malathy Knight-John Research Fellow Institute of Policy Studies Sri Lanka

  2. Road map • The importance of connectivity in the development process • Necessary and sufficient conditions for improved industry (telecommunications) performance • Parameters of regulation in network industries (telecommunications) • Regulatory options for introducing and managing competition in telecommunications (competition law, telecommunications sector law, blurring of lines) • Challenges for developing countries

  3. Caveats • Competition wherever possible; regulation where necessary • Regulation FOR competition • Bottom line: Improved industry performance (Increased investment flows, improved access, affordable tariffs, better quality of service)

  4. Why connectivity is key • Telecom infrastructure foundational stage in ICT value chains • ICTs vital driver of technological change in infrastructure, financial, manufacturing, retail, media industries etc – and even in government services (e-government) • Econometric studies indicate that telecom investment leads to economic growth (Parker et al 1995, Hardy 1980, Cronin et al 1991, 1992, 1993 etc.) • ICTs key component of knowledge economies/information societies • Bridging the digital divide – key to economic and political power

  5. Necessary and sufficient conditions for good telecommunications industry performance • Clear policy guidelines backed by political will (policy predictability) • Reforms to enhance industry performance • Ownership issues (from SOEs to liberalization & privatization) • Sequencing of reforms (competition before privatization, established regulation before privatization etc.) • Trifurcation of policy, operations, regulation • Unbundling of networks (e.g. long distance services from local loop: the classic AT & T/ MCI story) • Pro-competitive regulation to parallel reforms

  6. Parameters of regulation in a network industry (telecommunications) • Incumbent advantages (control over essential facilities, vertical economies, control over network standards) • Challenge for regulators: a) differentiate “natural” advantages of economies of scale and scope from anti-competitive practices b) implement asymmetric regulation without unfairly handicapping incumbents • Non-contestable segments of the network (LL?) • Social “legacies” (cross-subsidization: rural/urban; USOs) • International commitments (e.g. commitments to the GATS Reference Paper)

  7. Competition law vs. sector-specific regulation: issues and challenges • Competition law: (e.g. New Zealand: the Telecom New Zealand/Clear Communications case) • Replicability of this model in developing countries? • “General purpose” nature vs. the need for sector-specific technical expertise (e.g. interconnection issues, allocation of frequency spectrum etc.) • Telecommunications law: (e.g. Hong Kong) • Regulatory capture • Technical “tunnel vision” could preclude impacts on broader allocative efficiency/social welfare • Concurrent jurisdiction {e.g. UK, South Africa, Japan, Sri Lanka} • “Passing the buck” (Sri Lanka) • Forum shopping (merge appellate powers - UK) • Duplication of regulation (clear demarcation of role of competition authority and sector regulator – South Africa)

  8. Challenges for developing countries • Policy consistency and predictability (backed by demonstrated political will) – vital for attracting FDI (WDR, 2005); coherent directives for regulation and competition • Political economy of reforms – privatisation bundled with exclusivity provisions and weak regulation is a source of continued rent extraction; huge rents in the telecom industry produce significant resistance to reform and competition • Policy legacies imposed on regulators – (contradict objectives of facilitating competition) – exclusivity provisions, cross subsidies (without transparent accounting separation). • Regulatory governance –workable independence (operational independence), financial independence (funds from diverse sources), transparency (annual reports/bulletins), professionalism (salaries at mark-up over regular government scales), revolving door provisions, performance accountability (procedures for removal if performance below par), legitimacy in the eyes of key stakeholders • Managing interface between competition authority and sector-specific regulator– (turf issues, duplication and over-regulation, passing the buck – all hazardous to FDI) • Technical issues– LLU, vertical separation, interconnection regime/charges • Convergence regulation {e.g. UK, Malaysia, Australia, SL (?)} – Economies of scope and scale, scarcity in regulatory expertise, regulatory capture

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