Styles of Regulation

1.Self Regulation

Governments have historically assumed responsibility for regulating telecommunications services. In the early nineteenth century, some governments opted to appoint agencies to undertake regulatory activities where private operators existed, as in the United States and Canada. Other governments allowed their national or public operators to assume both operational and regulatory functions as in several European and African countries. This form of regulation could be described as self-regulation, since the national operator determined the policy and regulation which would guide its behaviour. In latter countries, self-regulation was conditioned by government oversight, for example ministerial guidance. Baldwin and Cave (1999:125) define self-regulation as the activity that takes place when “group of firms or individuals exert control over membership and their behaviour”. The promoters of self-regulation attest that self-regulation ensures reduced costs for formulation and interpretation of standards, and greater command over expertise and technical knowledge than independent agencies (See Ogus in a “Reader on Regulation” by Baldwin, Scott & Hood).

However the 1990’s witnessed unprecedented restructuring and reform in the telecommunications sector and regulatory environment. With the shift to competitive markets and increasing pressure from the European Union, several European countries opted to separate regulatory from operating functions. Countries in Africa in contrast experienced pressure from donor agencies operating at both the regional and national levels. Whilst only 12 countries had made the regulatory transition in 1990, within ten years the figure had risen to 96 and has gradually escalated since.

In the process different countries configured different regulatory models and types. With the increase in competition, several complaints on self-regulation surfaced. New entrants pointed to unfair procedures, where they were excluded from key regulatory decisions, non-existent enforcement or compliance measures and disjointed regulation, monopoly over information, limited accountability and exclusion of third parties in decision-making processes.

Whilst the former mode of regulation persisted in monopoly environments, and is seen as appropriate for matured competitive markets the next two forms of regulation are often used by regulators as tools to enhance competition in the sector.

2. Asymmetrical Regulation

Asymmetrical Regulation (AR): refers to the practice of imposing market constraints on an incumbent firm whilst not subjecting its competitors to similar constraints. It can assume different forms including; imposing pricing constraints, additional social obligations, and information disclosure requirements. Oftel applied AR to British telecom for several years. In the United States, competition in the telecommunications sector evolved under conditions of asymmetric regulation (Sappington & Wiseman, 1996). AR was used as an instrument to achieve two objectives. First, to prepare incumbents for competitive environments and based on the premise that monopolies subjected to rigors of the market place will eventually become viable competitors. Second, it could be used to protect and support new entrants against the established service providers. Several responses have emerged in relation to AR. Some have argued that it is effective in environments where the incumbent persists with anti-competitive behaviour or monopoly tendencies. Others have argued that it creates inefficiencies in the market by imposing lower prices, and facilitates illusory rather than real competition in the market (See Weisman, 1994) to the advantage of weak competitors are overly protected

It is not strategic for a regulator to introduce asymmetric regulation when privatization of the incumbent is imminent, as the value of the incumbent may be severely reduced in the process.