The market for regulation

Citation

Blackman, C. (2002), "The market for regulation", info, Vol. 4 No. 1. https://doi.org/10.1108/info.2002.27204aaa.001

The market for regulation

The market for regulation

It used to be simple. The telecoms sector was predominantly run by largely state-owned and inefficient monopolies that regulated themselves. They had no incentive to innovate, did not respond to customer needs and were seemingly unable to recognize the growing importance of telecommunications and information to national and global economic development. The solution seemed obvious: privatize the state monopolies, liberalize the market and introduce competition.

But of course a competitive market would not magically appear overnight, since incumbents held such dominant positions through owning the infrastructure and the customers. Therefore a carrot and stick approach was necessary to govern the incumbents through, for instance, licensing, price controls and interconnection arrangements, administered by a system of independent regulation. As competition became established and markets began to operate effectively, such sector-specific regulation would gradually give way to general competition rules. A competitive telecoms sector, so the theory goes, would come to resemble a market like soap powder, for instance, and specific legislation for the sector would no longer be required.

Over the past decade or so, over 100 countries have followed the lead of countries such as the USA and the UK by introducing telecom reform and independent regulation, and many more plan to do so. But there are few signs yet that sector-specific regulation is giving way to competition law. Despite the undoubted improvement that liberalization has brought, Melody (2002) points out in his short article in this issue that the USA and the UK continue to strengthen their regulatory authorities. And New Zealand, famous for liberalizing without sector-specific rules, has recently established a telecom regulator. That's because, Melody asserts, it was simply unrealistic and naïve to expect telecoms to be monitored by competition authorities.

In his review of The Telecom Trade War in the last issue of info, Melody (2001) stated that:

… strengthened, independent regulators will be needed as competition will be the most important and potentially effective tool of regulation, but certainly not a substitute for regulation.

Contrast this with Spiwak's (2002) view, who responds in this issue. He believes that the notion that the purpose of competition is to help the government do its job better is perverse. Rather, narrowly tailored regulation should be a tool to help a competitive market develop and function effectively.

This is not just a quasi-academic spat; nor is it a semantic argument. It reflects a fundamental disagreement about the purpose of competition and regulation, and not just in the telecoms sector. Certainly the past two decades have shown us that introducing competition is more complicated and difficult and takes longer to establish in previously monopolistic markets than we thought. But the telecoms landscape has changed significantly and the lessons of the relatively light-handed approach to mobile telecoms seem clear enough.

But if the world we live in is more complex, then perhaps we need a more sophisticated approach to competition and the regulatory environment. In our pluralistic society, Paul Nihoul wonders whether regulatory bodies should be considered as entities offering "regulatory goods or services", and that these bodies could, therefore, be considered as being in competition with each other. It would be up to customers of these services to choose the best offer, and perhaps we would see these bodies adapting to their customers' needs. Nihoul draws an analogy between regulation and religion: "Syncretism is now the norm in religion, where everyone picks up pieces wherever they can in order to constitute their own religious environment". Thanks to communications technology, it is possible to envisage regulatory environments that are more complex than we have known before, allowing plurality to be introduced into the legal system. Can we imagine a world where firms and individuals are allowed to choose the regime – either specific regulation or competition law – under which they conduct business?

ReferencesMelody, W.H. (2001), "A case study of regulatory failure at the FCC", info, Vol. 3 No. 6.Melody, W.H. (2002), "A world dialogue on regulation for networks economies", info, Vol. 4 No. 1.Spiwak, L.J. (2002), "A response to Professor Melody's review of The Telecoms Trade War", info, Vol. 4 No. 1.

Colin Blackman