Meeting Economic Goals

1 Substituting for Market Failure Caused by Information Asymmetry

Healthy relations between operators and regulators are essential for the effective performance of the market and are often characterised by symbiotic relations between participants. This is true for the telecommunications market, where service providers are dependent on effective regulation in the era of competition and regulators are dependent on obtaining accurate data in order to make informed decisions, withstand scrutiny in court, benchmark, and more importantly to account for the decisions they make. In the telecommunications environment, information is critical for determining tariffs and price caps, network size as well as market performance.

The telecommunications market is particularly information intensive, and operators are reluctant to divulge information which may be used against them by their market opponents. They may also resist divulging information to the regulator on the pretext that the information is market sensitive. Regulators can respond in different ways to this resistance. Often it is best to allay the fears of operators by allowing for confidentiality and clear administrative procedures. Increasingly regulators have also opted to develop security measures in their communications systems, including the establishment of remote hard drives to protect market information. Where operators are especially resistant, regulators can impose penalties to ensure greater cooperation and information disclosure.  One only has to review regulation in the United Kingdom to observe the effective use of penalties against dominant players.

2 Substituting for Market Failure through Allocation of Resources

Operators focussing on the profit margin, often attempt to develop a monopoly over scarce resources, such as, frequency spectrum (See Module of frequency spectrum), numbers, rights of way and space. Some licenses can also viewed as scarce resources, if regulators limit the number of players they permit to enter the market. Regulators can circumvent monopoly behaviour by allowing for equal access to scarce resources in a transparent manner.

The importance of the management of scarce resources can be demonstrated in the numbering environment. In the past, traditional operators determined the numbering scheme. However in the era of competition it becomes difficult to depend entirely on the dominant operator to distribute numbers especially in instances where they resist competition.  For new operators entering the market to succeed efficient and reliable number allocation becomes necessary. Whilst the ITU continues to manage the reservation, assignment, and use of numbering resources at an international level in the instance of country codes, at the national level regulators need to:

1. develop a flexible and expansive numbering plan to assist new operators,

2. allocate numbering resources (reserving the primary assignment of blocks of numbers and freeing secondary and tertiary assignments)

3. ensure consistent management of resources (including monitoring capacity shortages).   In the process they need to consider that numbers should be easy to remember, they should not change frequently and numbering schemes must support equal access. Regulators also need to ensure that they obtain the authority to reclaim unused numbers. 

Access to numbers is not an automatic right. In some countries such as Denmark, applicants must provide a description of the intended use of the numbers, number series, network addresses and five year plans for the development of their telecommunications services (ITU,2002).