Effective regulators are normally associated with being independent to some degree. The rationale for establishing independent, often sector-specific, regulatory institutions is based on ensuring non-discriminatory treatment of all players in the liberalized market. At the outset of the transformation process the pre-existing monopoly structure allows for discriminatory behavior. The emphasis on non-discrimination arose from four sources which, in part, reflect different constituencies in the market. These four broad imperatives are to ensure that:
- Cooperation is enabled in a competitive environment to ensure that a level playing field exists between unequal entities in the marketplace;
- All equipment suppliers are treated equally where the market is dominated by a single buyer with strong pre-existing relationships with suppliers;
- All new entrants and investors in the telecommunications service sector are treated equally by the dominant competitor, who will be a supplier of inputs (e.g., interconnection) to the businesses of the new entrants; and
- All customers have a “voice” and their complaints and interests receive an adequate response.
Addressing non-discrimination involves building confidence in and the legitimacy of an “independent” regulatory institution. The central issue is establishing a functioning, enabling environment consisting of the regulator(s) and regulations that will attract sufficient and sustainable investment to satisfy existing demand, expand supply and introduce new services. Independence stimulates investor confidence and reduces regulatory risk.
The UN Task Force on Financing ICT supports the introduction of independent regulators, linking such independence to growth in the market. The Task Force has observed that: “The introduction and strengthening of independent, neutral sector regulation has helped to reinforce investor confidence and market performance, while enhancing consumer benefits.”[1]
Reinforcing investor confidence through an independent and effective regulator will attract private investment in the ICT sector. As detailed in the succeeding sections, independence, transparency of the regulatory process and regulatory policies that encourage competition are factors that influence the level of investment in ICTs.[2] An effective regulator results in less regulatory risk and increases the likelihood of investment in the sector. Figure 1 shows the relationship between effective regulations and investment. The higher score from the European Competitive Telecommunications Association (ECTA), the more effective the regulations are. As the figure below demonstrates, investments in telecommunications rise as the regulatory environment improves.
Figure 1. Relationship between Effective Regulation and Investment in Telecommunications
Source: Impact of Effective Regulation on Investment: an Investor’s Perspective, Zain Group citing the European Competitive Telecommunications Association (ECTA) which annually publishes a regulatory scorecard on the link between effective regulation and investment
ENDNOTES
[1] ITU, World Summit on Information Society, The Report of the Task Force on Financial Mechanisms for ICT for Development at http://www.itu.int/wsis/tffm/final-report.pdf.
[2] GSR 2009 Discussion Paper, Lynne Dorward, Impact of Effective Regulation on Investment: an Investor’s Perspective at http://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR09/doc/GSR09_Regulation-Investment_Dorward.pdf.
related content
Module 6, Section 5, "Elements for an Effective Regulator"