Competition in Telecommunications Networks: Antitrust and Sector-Specific Solutions and Challenges for Developing Countries Malathy Knight-John Research Fellow Institute of Policy Studies Sri Lanka

Road map The importance of connectivity in the development process Necessary and sufficient conditions for improved industry (telecommunications) performance Parameters of regulation in network industries (telecommunications) Regulatory options for introducing and managing competition in telecommunications (competition law, telecommunications sector law, blurring of lines) Challenges for developing countries

Caveats Competition wherever possible; regulation where necessary Regulation FOR competition Bottom line: Improved industry performance (Increased investment flows, improved access, affordable tariffs, better quality of service)

Why connectivity is key Telecom infrastructure foundational stage in ICT value chains ICTs vital driver of technological change in infrastructure, financial, manufacturing, retail, media industries etc – and even in government services (e-government) Econometric studies indicate that telecom investment leads to economic growth ( Parker et al 1995, Hardy 1980, Cronin et al 1991, 1992, 1993 etc.) ICTs key component of knowledge economies/information societies Bridging the digital divide – key to economic and political power

Necessary and sufficient conditions for good telecommunications industry performance Clear policy guidelines backed by political will (policy predictability) Reforms to enhance industry performance  Ownership issues (from SOEs to liberalization & privatization)  Sequencing of reforms (competition before privatization, established regulation before privatization etc.)  Trifurcation of policy, operations, regulation  Unbundling of networks (e.g. long distance services from local loop: the classic AT & T/ MCI story) Pro-competitive regulation to parallel reforms

Parameters of regulation in a network industry (telecommunications) Incumbent advantages (control over essential facilities, vertical economies, control over network standards)  Challenge for regulators: a) differentiate “natural” advantages of economies of scale and scope from anti-competitive practices b) implement asymmetric regulation without unfairly handicapping incumbents Non-contestable segments of the network (LL?) Social “legacies” (cross-subsidization: rural/urban; USOs) International commitments (e.g. commitments to the GATS Reference Paper)

Competition law vs. sector-specific regulation: issues and challenges Competition law: (e.g. New Zealand: the Telecom New Zealand/Clear Communications case)  Replicability of this model in developing countries?  “General purpose” nature vs. the need for sector-specific technical expertise (e.g. interconnection issues, allocation of frequency spectrum etc.) Telecommunications law: (e.g. Hong Kong)  Regulatory capture  Technical “tunnel vision” could preclude impacts on broader allocative efficiency/social welfare Concurrent jurisdiction {e.g. UK, South Africa, Japan, Sri Lanka}  “Passing the buck” (Sri Lanka)  Forum shopping (merge appellate powers - UK)  Duplication of regulation (clear demarcation of role of competition authority and sector regulator – South Africa)

Challenges for developing countries Policy consistency and predictability (backed by demonstrated political will) – vital for attracting FDI (WDR, 2005); coherent directives for regulation and competition Political economy of reforms – privatisation bundled with exclusivity provisions and weak regulation is a source of continued rent extraction; huge rents in the telecom industry produce significant resistance to reform and competition Policy legacies imposed on regulators – (contradict objectives of facilitating competition) – exclusivity provisions, cross subsidies (without transparent accounting separation). Regulatory governance –workable independence (operational independence), financial independence (funds from diverse sources), transparency (annual reports/bulletins), professionalism (salaries at mark-up over regular government scales), revolving door provisions, performance accountability (procedures for removal if performance below par), legitimacy in the eyes of key stakeholders Managing interface between competition authority and sector-specific regulator – (turf issues, duplication and over-regulation, passing the buck – all hazardous to FDI) Technical issues – LLU, vertical separation, interconnection regime/charges Convergence regulation {e.g. UK, Malaysia, Australia, SL (?)} – Economies of scope and scale, scarcity in regulatory expertise, regulatory capture