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Strategies for Effective Regulation

Strategies for Effective Regulation. APT Regulation Forum Phuket, Thailand, May 15-17, 2001 Peter Smith The World Bank. Overview. I. Context for Telecom Regulation II. Strategies for Success Regulatory Agency Agenda IV. Concluding Remarks. I. Context for Telecom Regulation.

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Strategies for Effective Regulation

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  1. Strategies for Effective Regulation APT Regulation Forum Phuket, Thailand, May 15-17, 2001 Peter Smith The World Bank

  2. Overview I. Context for Telecom Regulation II. Strategies for Success • Regulatory Agency Agenda IV. Concluding Remarks

  3. I. Context for Telecom Regulation • Part of larger package of sector reform to improve performance of sector • Monopoly vs. competition • Transformation of communications markets • New technologies Section I : Context for Telecom Regulation

  4. Regulatory Framework consists of several elements… • Communications legislation • Other laws and regulations • Licences • Regulatory Agency* Processes * Decisions Section I : Context for Telecom Regulation

  5. Elements of Telecom Sector Reformin Thailand Concession Conversion TOT / CAT Restructuring Regulatory Framework Foreign Ownership Universal Service Strategy NEW TELECOM MARKET STRUCTURE Section I : Context for Telecom Regulation

  6. Transition to new market structure Existing Market Structure New Competitive Market Structure TRANSITION Design, implementation, management, of transition Section I : Context for Telecom Regulation

  7. Managing the transition requires… • Consensus on objectives • Knowledge of national factors and international best practice • Agreement on policy guidelines • Effective co-ordination • Effective quality assurance • Timely implementation Section I : Context for Telecom Regulation

  8. Improve Sector Performance(Public Interest Perspective) • Lower costs / improved quality • More telephone lines to meet demand • Improved geographic access • Improved access for low income users • Improved access to Internet • More new services / Applications • Improve competitiveness of economy Section I : Context for Telecom Regulation

  9. Monopoly vs. Competition • Fundamental justification for regulation is existence of some monopoly • Leaves regulators with 3 basic choices: 1. Protect customers and new entrants from monopoly 2. Reduce scope of monopoly 3. Both (1) and (2). Manage transition to increased competition Section I : Context for Telecom Regulation

  10. Transformation of Communications Markets (1) • Large declines in transmission costs • Large growth in mobile telephony • Large declines in the cost of computing power • Huge growth in Internet • Increased potential for competition Section I : Context for Telecom Regulation

  11. Transformation of Communications Markets (2) • Changing demand structure • Convergence of services • * Between telecom and broadcasting • * Between telecom and computing • * Within telecom • Changing industry structure • * New entrants, and existing operators providing additional services Section I: Context for Telecom Regulation

  12. Cost of a three-minute telephone call New York - London (1990 dollars) Decreased Costs 250 200 150 100 50 0 1930 1950 1970 1990 2000 Section I : Context for Telecom Regulation

  13. 100 Pentium III 10 Pentium II Pentium 80486 1 80386 0.1 80286 8086 0.01 8080 8008 0.001 1980 1985 1990 1995 2000 1970 1975 Huge increases in information processing Millions of transistors per microprocessor Section I : Context for Telecom Regulation

  14. Rapid Growth of Internet 70 60 50 49 m (69.7%) 40 18 m (25.7%) 30 3.3 m (4.6%) (the first ten countries amount for about 2.3 m) Internet Hosts (millions) 20 10 0 Jan. Jan. Jan. Jan. Jan. Jan. US Other industrialized countries 00 95 96 97 98 99 Developing countries Source: Network Wizards, World Bank, 1999 Section I : Context for Telecom Regulation

  15. Role of Regulation in Transition to Competitive Market • Contain abuse of market power • Promote competition • Create favorable investment climate • Promote improved access to services • Promote introduction of new services Section I : Context for Telecom Regulation

  16. II. Strategies for Success Need to avoid regulatory failure, e.g. • Prices too low or distorted for investment • Interconnection disputes prevent new investment • Radio frequency allocations prevent new investment • Lack of credibility leads to uncertainty and discourages new investment. Section II : Strategies for Success

  17. Strategies for Success • Group A: Basic • Group B: Optional

  18. Strategies for Success(Group A: Basic ) • Establish agency with firm legal foundation • Limit opportunity for Government intervention • Launch agency before privatization • Ensure financial and administrative autonomy • Appoint credible leadership … Section II : Strategies for Success

  19. Strategies for Success(Group A: Basic Steps contd.) • Hire competent staff... • Establish effective appeal process • Empower agency to enforce decisions • Set clear boundaries and links with other agencies/ministries Section II : Strategies for Success

  20. Strategies for Success(Group B: Optional) (1) Reduce need for agency decisions (2) Enhance regulatory credibility (3) Use resources effectively Section II : Strategies for Success

  21. (1) Reduce need for agency decisions • Prepackage regulatory rules (licence) including rules for interconnection • Reduce regulation in competitive markets • Focus on main operators • Keep operators obligations reasonable • Re-balance prices early Section II : Strategies for Success

  22. Pre-packaged regulatory rules(Elements of a licence for a main operator) • Network roll-out obligations • Price control • Interconnection • Prohibition of anti-competitive conduct • Requirement to permit re-sale for pay phones Section II : Strategies for Success

  23. (2) Enhance regulatory credibility • Give customers a voice • Adopt transparent processes • Harness public support • Consider international commitments (WTO) Section II : Strategies for Success

  24. (3) Use Resources Effectively • Put the operators to work • Outsource some functions • Adopt alternative dispute resolution mechanisms Section II : Strategies for Success

  25. Strategies for success – Summary Primary impact Secondary impact Enhance Regulatory Credibility Use Resources Effectively Measures Reduce Need for Agency Decision Accelerate Competition Pre-package Regulatory Rules Establish Rules for Interconnection Keep operators’ obligations reasonable Focus licensing on the main operators Rebalance prices early Reduce regulation as competition develops Adopt transparent process Harness public support Lock in principles through int’l commitments Outsource regulatory functions Adopt dispute resolution mechanism Put the operators to work Consider multisector agencies Create regional capacity

  26. III Regulatory Agency Agenda(Possible agenda items -- External) • Interconnection • Numbering plan and number portability • Extending universal access • Price structure / control • Billing accuracy • Anti-competitive conduct • Internet Section III : Regulatory Agency Agenda

  27. Regulatory Agency Organization • Functions / powers • Agenda Organization • Processes Structure • Resources • Outsourcing

  28. Internet: Regulatory Issues • Fair competition for Internet Service Providers vs. incumbent • Access and pricing for international links for ISPs • Internet access for the public • Internet content: national language and content; convergence with broadcasting • Electronic commerce Section III : Regulatory Agency Agenda

  29. IV. Concluding Remarks 1. Transformation of the sector 2. Mistakes to avoid Section IV : Concluding Remarks

  30. Transformation of the sector • Telecom regulation is no longer only about telephone service • Also about the platform and policies for information infrastructure Section IV : Concluding Remarks

  31. Mistakes to avoid (1) • Under-estimating the possibility of regulatory failure • Failure to adjust prices to provide incentive for investment • Relying too much on the incumbent operator for advice • Focusing too much on privatization rather than a complete package of reforms Section IV : Concluding Remarks

  32. Mistakes to Avoid (2) • Failure to develop modern telecom legislation • Relying too much on investment bankers for advice on market structure • Failure to give voice to customers Section IV : Concluding Remarks

  33. Mistakes to Avoid (3) • Failure to address interconnection issues effectively and early • Failure to ensure adequate regulatory capacity -- including for radiospectrum management Section IV : Concluding Remarks

  34. Strategies for Effective Regulation APT Regulation Forum Phuket, Thailand, May 15-17, 2001 Peter Smith The World Bank

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