ITS Biennal Conference September 4-7, 2004 Berlin 1 Power and discretion in independent regulation. The Portuguese case. João Confraria School of Economics and Business Catholic University of Portugal

ITS Biennal Conference September 4-7, 2004 Berlin 2 1.Independence 2.Sources of discretionary power 3.Accountability rules 4.Efficiency of current arrangements? 5.Conclusions

ITS Biennal Conference September 4-7, 2004 Berlin 3 1.Independence of the Regulator From Operators From the Government

ITS Biennal Conference September 4-7, 2004 Berlin Commission Directive on Competition in Telecommunications Services –Member states should ensure that from July 1991 the grant of operating licenses the control of type approval and mandatory specifications, the allocation of frequencies and surveillance of usage conditions would be carried out by a body independent of telecommunications operators –Amended Framework Directive (1997), the new Framework Directive (2002) and the Postal Directive (1997) extended the idea of independence from telecommunications and postal operators to most of the regulatory functions in telecommunications and postal markets.

ITS Biennal Conference September 4-7, 2004 Berlin 5 Independence Postal Directive, postal services –Each member state shall designate one or more national regulatory authorities for the postal sector, legally distinct and functionally independent from postal operators Framework Directive, electronic communications networks and services –Member states shall guarantee the independence of national regulatory authorities by ensuring that they are legally distinct from and functionally independent of all organizations providing electronic communications networks, equipments or services –Member states that retain ownership or control of undertakings providing electronic communications networks and/or services shall ensure effective structural separation of the regulatory function from activities associated with ownership or control.

ITS Biennal Conference September 4-7, 2004 Berlin 6 Independence of the regulatory agency in Portugal 1989 Independence from the government in specifically designated areas Independence from operators

ITS Biennal Conference September 4-7, 2004 Berlin Independence of the Portuguese Regulatory Agency (in telecommunications and postal markets) Independence of members in the Agency´s Statutes...Members of the board of administration are independent in the exercise of their functions, and are not subject to instructions or specific guidelines....guidelines from the government Additional conditions of independence –Financial autonomy –Greater flexibility and administrative procedures than the civil service –Restrictions to firing the members of the Board –Restrictions to eligibility to members of the Board

ITS Biennal Conference September 4-7, 2004 Berlin 8 IncumbentsEntrants Electronic communications Scope for independent action from the government Independent Not independent

ITS Biennal Conference September 4-7, 2004 Berlin 9 2. Discretionary power

ITS Biennal Conference September 4-7, 2004 Berlin 10 A myth? Political decisions are taken by governments and parliaments Decisions are implemented by Independent Regulatory Agencies on a (strictly) technical basis The case of central bankers?

ITS Biennal Conference September 4-7, 2004 Berlin 11 Sources of regulatory discretion Allocation of scarce resources to competing objectives stated in law Definition of technical rules – potential industrial policy implications Potential inconsistency of different political objectives –Promotion of entry and safeguarding universal service –Promotion of entry and efficiency in case of inefficient entries –Promotion of investment and access to incumbent networks Implementation of objectives stated in law –Principles of cost orientation of prices Criteria for evaluating efficient or reasonable costs –Prohibition of cross subsidization Asymmetries of information and imperfect information –Information as a source of power –The regulator has to decide on investments to acquire information in a given period What is the utility function of the regulator? More information may decrease the scope for discretion

ITS Biennal Conference September 4-7, 2004 Berlin Accountability

ITS Biennal Conference September 4-7, 2004 Berlin 13 Stake holders Government Parliament Courts Consumers Firms... European Commission Access of government and parliament to independent technical advice –The regulator is the advisor to the government on communications policies The nature of appeals and admnistrative courts Limitations of Portuguese framework Recent trends to include specialist advice in cases at administrative courts A peculiar institution –The Advisory Board of the Independent Regulator and its relations to the government The possibility of ex ante reversal of decisions by the European Commission but

ITS Biennal Conference September 4-7, 2004 Berlin Are these arrangements efficient?

ITS Biennal Conference September 4-7, 2004 Berlin 15 Potential efficiencies of current institutional arrangements Efficiency reasons for a separate bureaucracy –Regulatory agency subject to rules more flexible than the civil service –Greater flexibility in labour contracts Joining the regulatory and policy advisory functions in one agency –Avoids duplication of costs –Decreases scope for bureaucratic conflicts between different state organisations Ex ante reversal of decisions by the EC saves time and money Regulatory discretion is necessary given the nature of the problem –Difficult to find enough political consensus on some objectives lead to ambiguous formulations in law –The nature of the problem implies suggests that some regulatory discretion may be useful Effective competition Efficiency, Reasonable costs Cost oriented prices

ITS Biennal Conference September 4-7, 2004 Berlin Conclusions

ITS Biennal Conference September 4-7, 2004 Berlin 17 Scope for improvements in institutional design –Accountability rules vs. Government and Parliament –Appeal procedures –Involvement of other stake holders in regulatory supervision Trade –off in independent regulation –Regulatory discretion necessary to achieve “first best” allocations –“First best”allocations impossible to attain because of distortions resulting from bureaucratic behaviour resulting from......regulatory discretion