In countries where the incumbent telecommunications operator is government owned, it may be challenging for the regulator to be independent, or to be perceived as independent. Entrants may have little confidence that their interests and those of their customers will be given due weight.
Key questions for entrants and the government are whether the regulator will have sufficient influence over the state-owned provider to:
- Effectively mandate access to the state-owned provider’s network, and
- Be able to enforce terms and conditions for access that will allow equally efficient new entrants to compete.
Recent research has concluded that in the European Union, regulatory outcomes tend to favour government-owned incumbent operators.[1] This favouritism is largely mitigated when the regulator is independent from governmental interference. This requires:
- An arm’s length relationship with political authorities, and
- Organizational autonomy, such as earmarked funding and exemption from restrictive civil service salary rules. Without organizational autonomy, political actors may influence decisions indirectly, for example by threatening the regulator’s funding.
Regulatory independence can be difficult, or even impossible, in some countries. Even where formal structures separate regulators from political authorities, Ministers may seek to use their personal influence to affect regulatory outcomes. Where this is the case it may be better, in designing the regime, to explicitly recognise the role of Ministers in decision making. For example political decisions should be explicitly made by policy makers. These would include:
- Decisions to proceed with liberalization, which involve trade-offs between maintaining the value of the state-owned company on the one hand, and introducing effective competition on the other,
- Decisions to rebalance retail tariffs, or otherwise remove implicit subsidies.
ENDNOTES
[1] See, for example, Geoff Edwards and Leonard Waverman, “The Effects of Public Ownership and Regulatory Independence on Regulatory Outcomes,” Journal of Regulatory Economics, Vol. 29, No. 1, 2006, pp. 23-67.
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Legal and Institutional Aspects of Regulation