Regulatory Intervention in the ICT Sector

Two types of regulators are usually distinguished:

the economy-wide competition regulator and

The industry-specific regulator. The former uses competition law to regulate all the sectors in an economy or country, while the latter regulates a particular sector alone. The economy-wide competition regulator should perform the following tasks, among others:

Apply competition policy evenly across all sectors, particularly where it concerns mergers, and horizontal and vertical integration.

Resolve disputes via the courts when complainants present complaints to the competition authority/commission.

The Telecom-Specific Regulator in a Competitive Market
While the economy-wide competition authority oversees all sectors in an economy and promote an effective competitive economy to the benefit of consumers and the economy, there are numerous reasons why a telecommunications –specific regulation is beneficial to the telecom sector. Some of these reasons are

The need for sector-specific technical expertise to deal with some key issues in the transition from monopoly to competition (e.g. network interconnection, anti-competitive cross-subsidisation)

The need for advance rules to clearly define an environment conducive to the emergence of competition, and not just retrospectively apply remedies to “punish” anti-competitive behaviour or restructure the industry

The need to apply policies, other than competition-related policies, that are perceived important by national governments (e.g. universal service policies, national security and control policies); and

The need for ongoing supervision and decisions on issues such as interconnection, quality of service, and the establishment and enforcement of licence conditions, particularly for dominant operators (Intven, et al 2000. 5-4)

The industry specific regulator is expected to:

Determine the size of the telecommunications market by providing licences for the purposes of delivering telecommunications services.

To foster healthy relations between the different service providers by overseeing interconnection agreements so that service providers have equal access to the network provided by the dominant operator.

To resolve disputes and maintain a level playing field or regulate for fair competition so that the dominant operator does not abuse his or her dominance in the market place.

To meet public policy goals so that consumers are protected against high prices, poor quality of service, inadequate infrastructure, limited services, unsafe equipment and neglect by the service providers.

To address consumer complaints and solve them amicably.

To ensure efficient use of the frequency spectrum and space for the provision of information technology services.

To encourage investment, innovation and optimum growth of the sector (or related sectors) and operators’ performance.

To administer the numbering plan so that there are sufficient numbers available.

To monitor compliance with national and international telecommunications equipment suppliers and service providers.

In some countries, including European countries, both models are used. In the case of South Africa, all South African telecommunications issues are referred to the industry specific regulator, the Independent Communications Authority of South Africa (ICASA). In South Africa there is also the Competition Commission, which also resolves competition disputes in Communications and other industries. ICASA and the Competition Commission signed an agreement of understanding about regulating the sector. The agreement is based on the fact that ICASA can approach the Competition Commission (and vice versa) when such a need arises so as to solve a problem amicably. The commission can do the same should such a need arise. In Europe, the Competition Authority has often intervened and overtaken national regulators in issues related major merger cases.

In a competitive environment, competitors who lodge disputes with regulators or competition authorities but are not happy with the decisions made by the regulators on that problem, may forward the complaints to the courts. South Africa has seen Telkom (the public telecommunications operator) taking the former regulator, the South African Telecommunications Regulatory Authority (SATRA) and the present regulator to court, mostly about pricing issues. The regulator has viewed some of Telkom’s price increases as too high and opposed such increases. In 2001 and 2002, Telkom challenged these oppositions in court.

Courts do not always solve these disputes either, as we saw in the NextCom and Cell C debacle in South Africa. SATRA had recommended to government that Cell C should win the third cellular licence in South Africa. However, another bidder for the licence, NextCom, opposed this recommendation and felt they deserved to win the licence. NextCom consequently took SATRA and the minister to court. After various court hearings, the court did not solve the matter but both NextCom and Cell C announced that they had reached an out-of-court settlement that satisfied both parties. The court’s understanding of industry-specific issues is limited and their intervention is not necessarily effective in view of all the related delays and high legal fees. Sometimes companies need to solve their own problems without wasting the taxpayer’s money in courts.
The most important purpose of regulation is to promote and protect the interests of the telecommunications consumer. This is by deploying various methods including universal service, developing new infrastructure, reducing tariffs, proper monitoring and moderating of the negative effects of competition. With privatisation, different types of networks can essentially carry the same kinds of services, and a competition act is an effective starting point for regulating the newly privatised services and the sector as a whole.

From the above discussion we can summarise the attributes of a regulator into the following points:

First, the telecommunications and/or ICT regulator is responsible for regulating the activities of the service providers (providers of fixed line service and mobile phone services) for the provision of improved services in the market. That is, those setting and enforcing the rules of the telecommunications sector should not also be providing telecommunications and ICT services; other players should perform the latter. Otherwise it is difficult for other players to have confidence that the regulator is not serving its own interests as provider of services when making regulatory decisions. In the old South Africa, i.e. before 1994, Telkom used to provide services and regulate its own activities. This is unacceptable and was changed after 1994 with the establishment of the regulators. These regulators were the South African Telecommunications Regulatory Authority (SATRA) and the Independent Broadcasting Authority (IBA), which merged in 2000 as a result of converging technologies, to establish the Independent Communications Authority of South Africa (ICASA). You can read more about this merger process in Lesame (2000), listed in the recommended study material at the end of this module. You can also study the article by Kekana (2001) in this regard.

Second, the regulator must be independent of other interests in the telecommunications sector. This will ensure that participants in the market will have confidence that the regulator is pursuing broad social and economic interests rather than narrower sectional interests of particular organisations or individuals. This means that decisions of the regulator should not be influenced by the government, the service providers or any other sections of society. The regulator should be left free to perform their functions without interference from other parties. Addressing the International Telecommunications Union (ITU) Africa Telecom conference forum in 2001, the chairman of ICASA, Mandla Langa said that regulators need more independence and funding than they are getting. This means therefore, that, even the regulators themselves feel they are neither independent enough, nor well enough funded to carry out their duties and activities efficiently and speedily, hence Langa’s comments. At the same ITU Telecom Africa conference (2001), Samarajiva (2001) made similar comments about the need for regulators to be more independent, and be funded more.

Third and most importantly, the regulator must also be independent of political interests and thus the government. This, however, is easier said than done, because it is difficult for the regulator to be independent of government especially when the regulator is appointed by government, attached to a government department, or funded by that government.

Fourth, the regulator must conduct its activities in an open and transparent manner. Although documents must be accessible to the public, some companies have argued that proprietary information should remain confidential. However, what constitutes ‘proprietary’ information can be subjective and could be used as an excuse by companies not to disclose information - this may enable competitors to compete more efficiently. For example, information about interfaces for interconnection is often described as ‘proprietary’ when in fact it is not. Information about bidders for an operating licence should be made public, for example, so that the public should also judge for themselves how the winner of the bid is awarded the licence.

The regulations used to monitor the communications industry should meet the following tests:

Create dynamic competitive markets that deliver economic benefits to consumers.

Maximise access to a diverse range of communications and/or ICT services.

Deliver choices to consumers and value for money or high-quality ICT services.

Ensure consumer protection from abuse from service providers in the form of high tariffs.

Improve regulatory independence for policy-makers and operators (Ekpo, 2001).

Samarajiva (2001) states that regulation is not about perfection. In a perfect world, regulation would not be necessary; the markets would be perfect and so would government. But we live in a world where all markets are imperfect, particularly the markets in the telecommunication sector. Markets that are characterized by tight oligopoly structures are likely to exist in the foreseeable future; because markets are rife with bottlenecks and the need for essential facilities; and oligopolists make continual efforts to extend market power from one segment to another.

Government is far from perfect, but it will definitely intervene when markets do not work so that the markets should serve the public. Claims of deregulation and continuing government intervention in the telecommunication and ICT sectors are, however, to be expected. The form of intervention is what is open to choice by that government, depending on a country’s telecommunications needs.

The ultimate objective is sector performance: that is, all those who desire services based on the telecommunication infrastructure should have access to them at affordable prices, adequate quality and choice; socio-political objectives such as universal access and contribution to disaster preparedness and management should be facilitated. South Africa, for example, has 112 emergency numbers for all disasters and emergencies, which people can telephone for assistance, respectively. The short experience with liberalization has demonstrated that multiple, rival suppliers with incentives to innovate are more likely to produce these outcomes than private or government-owned monopoly suppliers. Effective regulation, or government intervention that is certain and fair, is necessary for the productive co-existence of rival suppliers in these highly imperfect markets.

The performance of imperfect markets can be improved through government intervention; it can also be worsened. Good government intervention, in the form of regulation that creates conditions of certainty, that is, conditions that are fair, and facilitate competition, can improve performance. Good government intervention also promotes investment in the telecommunications and ICT sector. Bad government intervention in the form of regulation that increases uncertainty, and that favours the incumbent operator can hinder competitive forces. Bad government can exacerbate the imperfections of telecommunication markets. The challenge in designing and operationalizing regulatory mechanisms is to ensure that good outcomes are produced, and that the probability of bad outcomes or ‘regulatory risk’, is reduced. It is important that regulatory agencies be adequately protected from government interference, especially where government as a whole works poorly and is unlikely to yield certainty and fairness. The regulator should also engage in good governance and not abuse regulator funds. That is important not only for the purpose of improving sector performance, but also in terms of addressing the problem of investor perception. If investors believe, rightly or wrongly, that regulatory risk is high, they will not invest in a country or will factor the risk into their investment decision. In the former case, sector performance will suffer from the lack of capital for network rollout and improved quality and choice. In the latter, the yields from privatization and licensing will be much reduced and investment will be biased toward the short term and the high yield, thus negatively affectingly sector performance. All investors demand value for their money and would like to gain returns for their investments within the expected years.

Good Governance by Regulators
Independent and effective regulation cannot be seen in isolation from the larger context of of governance. Independence requires continuous maintenance and reinforcement. In addition to the formal safeguards, for independent action by regulators, it is essential that regulatory agencies continually build and reinforce their legitimacy by practising good governance on a continuous basis. Regulator legitimacy can also be achieved through effective communication of claims based on expertise, transparency and attention to the public interest. Concrete steps to build and reinforce legitimacy on a day-to-day basis should be taken by regulatory agencies to engage in accountable and effective governance essential to satisfy the needs of current and potential users of telecommunications and ICT services.

Ekpo (2001) stresses the importance of the regulator maintaining clarity, certainty, professionalism, consistency and a strong desire to bring about and promote competition in the market. These are the values that always assure consumer confidence and welfare. Regulators should also not be handicapped by a lack of financial and human resources. The big challenge for regulators is how well they manage the (sometimes) conflicting demands of introducing new entrants to markets, sustaining them against established players and also creating avenues for providing access to new services and technologies.

One of the pitfalls of fair and transparent regulation is in the licensing process. Increasingly, the seriousness of a country’s reform efforts is measured by the manner in which licences are issued. In recognition of this, auctions of licences and radio spectrum have become the preferred method of issuing new licences in some countries. Well-organised auctions are a highly transparent method of licensing, particularly when the proceeds of such auctions are ploughed back into the sector. Unfortunately, this does not always happen. The Nigerian Constitution, for instance, requires that such income be shared between the various governments of the Federation, thus drastically reducing the funds that may be returned to the regulator for development purposes or for investment in the state telecommunications carrier when it is privatised.

Whatever the domestic situation, auction rules should avoid the use of discretion and should instead be unambiguous and firm. Such rules should in addition provide a solid platform to defeat vested interests, while making the licensing process so transparent that any resort to court will be defeated without delay. Be that as it may, Africa does not have a tradition of consumerism, which may be good for operators but not so good for bridging the digital divide. As long as people continue to think it not worthwhile to complain about poor service and bad behaviour, they will not get value for their money with certain service providers. This creates a need for a particularly strong independent telecommunications ombudsman, perhaps connected with, but distinct from, the telecommunications regulator.

It is important that regulatory agencies be adequately protected from government interference, especially where government as a whole works poorly and is unlikely to yield certainty and fairness. The regulator should also engage in good governance and not abuse regulator funds. That is important not only for the purpose of improving sector performance, but also in terms of addressing the problem of investor perception. If investors believe, rightly or wrongly, that regulatory risk is high, they will not invest in a country or will factor the risk into their investment decision. In the former case, sector performance will suffer from the lack of capital for network rollout and improved quality and choice. In the latter, the yields from privatization and licensing will be much reduced and investment will be biased toward the short term and the high yield, thus negatively affectingly sector performance. All investors demand value for their money and would like to gain returns for their investments within the expected years.