Creating a competitive market in telecommunications

08 December 2016

By Pietro Crocioni and Maria Chiara Garbellini

Professor Martin Cave, Visiting Professor Imperial College Business School concluded the 2016 Beesley Lecture series on 24th November by chairing a panel of distinguished experts on competition and regulation in telecoms including Brian Williamson, Partner at Communications Chambers, Benjamin Wreschner, Head of Regulatory Economics at Vodafone Group, and Mark Shurmer, Group Director of Regulatory Affairs at BT. The panel addressed the theme of recent technological evolution in the telecoms sector and how regulation should adapt or respond to it.

Regulation can only be an imperfect proxy for competition and, therefore, it is essential that regulation does not replace competition, where it is feasible. The telecoms market is becoming more competitive over time. In particular, the UK is one of the most competitive environments in the sector on a number of indicators – e.g. lowest market share for the incumbent, largest e-GDP economy across the G20 in the last 5 years etc. Notwithstanding this, more regulation is emerging at different layers, such as Virtual Unbundled Local Access (VULA), dark fibre and access to ducts and poles. In a sector which in the last decades has experienced and is still undergoing dramatic technological evolution with new and better services being introduced, there is large scope for discussing the role of economic regulation in delivering better services for consumers. 

On the one hand there is a consensus that regulation is becoming unnecessarily complex, its future effects more difficult to predict and the risk of getting it wrong higher. As a result, regulation should only be introduced when necessary, tailored to sustain long term investment commitments (a difficult task when market reviews must take place every 3 years).

On the other hand, however, discrimination seems to be a persistent concern in the provision of access to the incumbent’s infrastructure. This raises the need for more regulation facilitating infrastructure competition, investment in FTTP or FTTC, and access to ducts and poles. The role of alliances in ensuring that entrants have a solid business case to invest in next generation networks needs also to be protected, alongside the establishment of a level playing field (in relation to access to exclusive content).

In July 2016 Ofcom consulted on proposals to legally (and no longer just functionally) separate Openreach. Only five days after this Beesley Lecture, Ofcom announced that it was preparing a notification to the European Commission to implement legal separation of OpenReach. This may or may not be part of the solution to some of the questions raised above and a potential push back to the advocates that technological evolution per se is enough to guarantee a level playing field in the sector. Ofcom concluded that the change was necessary, as BT still had an underlying incentive to discriminate against its competitors. In particular, Ofcom was concerned that demand is increasing at such a rate that greater investment is needed to meet future consumer demands for better quality of service and the latest ultrafast broadband technologies; but, it concluded, BT still has an incentive to discriminate against competitors and can act on it through the way strategic decisions are made about new investments by Openreach.

Will this additional remedy (if implemented) ensure that future network investment will better match consumers’ future demand for telecommunications access and OTT services? Or is it simply a way to achieve a particular market outcome? Ofcom recently stated that "a good long-term outcome would be to achieve full competition between three or more networks for around 40% of premises, with competition from two providers in many areas beyond that". However, this remains to be seen given that functional separation aims at making traditional passive access remedies more attractive and may discourage network roll-outs.

Pietro Crocioni and Maria Chiara Garbellini
Tel: 07843 372661 or 07841 789505

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