A global perspective on telecommunications
Ewan Sutherland
16 February 2004, London
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Communications Management Association A global perspective on telecommunications Ewan Sutherland 16 February 2004, London |
| introduction |
Good morning ladies and gentleman. It is a pleasure
to be in London today. I do not very often get to come over to the far end of the channel tunnel. I get to speak an audience of native English speakers, though sometimes it is claimed that people from Glasgow speak in a foreign or at least incomprehensible tongue. |
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| shooting the messenger |
One of the jobs that I am periodically assigned
is to be the messenger carrying the bad news, usually this is because
I have a return ticket to Brussels. I get to tell people that benchmarking
has discovered that their country has just been relegated to the sunday league
for its broadband performance or some equally cheerful story. Let me compare some islands off the coast of Asia with some islands off the coast of Europe. At the end of January one had some 14 million broadband lines, growing at about 400,000 lines month, ranging from 8 to 100 Mbps, at £20 to £30 per month. Nearly a million of those lines were Fibre To The Home (FTTH) at 100 Mbps. The other islands, with half the population, had 3 million lines, almost exclusively under 1 Mbps for about £15 to £30 per month. Disconsolate people could be found going from door to door begging friends and neighbours to apply for broadband in the hope of passing some obscure bureaucratic threshold. It is like rationing! Some people in the UK tell me it is due to tax breaks initiated more than a decade ago by the Japanese government. This suggests a remarkable foresight that did not stop the Japanese economy from nosediving for the intervening decade. The supposed tax breaks applied only to the core network and not to the local network. The argument does muddy the water and allows operators to appeal to the Chancellor of the Exchequer to soften his heart towards them. In reality what is required is competition, between infrastructure and between operators. This is something the recent report by the Trade and Industry Committee seems to have understood. One of the leading players in Japan is TEPCO, the Tokyo Electric Power Company using its skills in laying cables. It is the same position in leased lines, in mobile and in other markets, competition in the UK is weak. |
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| Lisbon goals |
Listening to the established operators, we are
constantly reminded that the new European legal framework is about cutting
back regulation. Usually they focus on retaining only those regulations
that would allow them an advantage over their competitors. These are people
for whom the idea of a level playing field is one under which their competitors
lie buried, preferably still alive. Regulations should be removed only when competition is working well. Yet it is not deregulation for its own sake. It is deregulation to achieve competition and to drive economic growth within the sector and throughout the economy. At the Lisbon Summit in 2000, the heads of government of the European Union, set themselves the daunting challenge that Europe would become: ... the most competitive and dynamic knowledge-based economy in the world capable of sustaining economic growth with more and better jobs and greater social cohesion.It is a point echoed by the Chancellor of the Exchequer in the European Economic Reform White Paper in 2002. Europe lags the USA in economic growth. A significant factor in this is the existence of barriers to the adoption of ICTs. Slower uptake of ICTs with slower adaptation of organisations means slower economic growth in Europe. We need to achieve much faster adoption of telecommunications and to do so we need to remove barriers. If we look at broadband, then Europe is demonstrably moving quickly. However, it is at widely varying speeds and none of them as fast as our competitors in Japan/Korea or even USA/Canada. There may be some consolation for the UK to know that it is ahead of Slovakia, Bulgaria, Greece and Turkey, but it is not creating a single market. We have fragmented markets for operators, for manufacturers and for service providers. We have failed to create a single market. There are no economies of scale in a market which is a Europe of the regions. We can and should have cultural and linguistic diversity on top of a single market in electronic communications. |
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| ex post & ex ante |
The traditional regulation of telecommunications was
ex ante, that is regulation before the facts. Whereas, competition law is ex post, that is after the facts. The attraction of ex ante, is that it is immediate, a summary form of justice, in the here and now. It has two underlying assumptions, that competition is working well and that competition law is a sufficient threat to ensure, in most cases, good behaviour. However, experience of competition law is that it works poorly in many high technology sectors. The obvious examples come from the computer industry where few survivors remain from the days of the dominance of IBM. The more recent history of the "browser wars" of Microsoft against Netscape show that judgements can come too late to save the litigant and even competition. In the case of "emerging markets" it is important to give competition a chance. It is equally important to have a realistic view of the power of incumbent operators to leverage control of an existing retail or wholesale market into a new market. The new telecommunications legislation takes us much closer to competition law, but retaining ex ante imposition. To highlight one change, it is that Significant Market Power (SMP) is brought closer to the definition of dominance and applies only in the specific market where it has been demonstrated. |
| European directives |
The United Kingdom has transposed the European
Union electronic communications directives with commendable speed. It
has been equally expeditious in implementing them. OFTEL found the mobile call origination market competitive this was despite the non-availability of 0800 numbers and the high charges for calling 800, once the 0 is stripped off. The long battle on fixed-to-mobile call termination has continued, with the comments last week from the European Commission on Case UK/2003/0040: The Commission would like to remind Ofcom that although 3G retail services might constitute a newly emerging market, which should not be subjected to inappropriate obligations, termination of voice calls on 3G networks is not as such to be considered as a novel service or a newly emerging market.If I was to offer a criticism it relates to the apparent refusal to act on international mobile roaming. OFCOM says it is waiting on the Competition Directorate-General. Meanwhile DG Competition has offered no timetable at all. It is the opposite of a Mexican stand off. Yet there is a legal obligation on OFCOM to undertake that market analysis. While this continues we must pay international roaming charges. My favourite example came last August in Heathrow where one operator was proclaiming the joys and cheapness of calling back to the UK in order to keep in touch with one's loved ones. I was going to New Zealand where the tariff was a modest £2.30 per minute at peak times and £1.90 off-peak. The old abuse on voice services has been extended to data services with prices for GPRS roaming at around £10 per Megabyte. In general the new regulatory process seems to have worked well in the United Kingdom. The implementation might be described a little mundane. For example, there could have been a more interesting approach to geographical markets, in a country that comprises so many evolving regions and nations. Perhaps market conditions are not the same in WC1 as in HS1, that is Stornoway. The recent consultation on business markets seems a little too idiosyncratic, too British in its approach. It will not be understood in the other member states. |
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| Conclusions |
The new legislation imposes an enormous burden
on all participants. The capacity of users, however well intentioned is
limited. We can do only so much in the face of the massive and overwhelming
force of the well established market players, that is of BT and the four
GSM operators backed by consultants, economists and lawyers. Their game
is simple, it is to deny, delay and degrade any extension to competition.
The incentives to suppress competition by pre-emption at the regulatory stage are enormous and the financial analysts in the City, in Canary Wharf and on Wall Street are warmly appreciative of their efforts. Consequently, we as citizen-consumers (not subject-consumers!) have to rely on parliament to set the correct policy objectives, to provide the best legal framework and to provide appropriate resources for agencies. To check it has the correct resources, we should be benchmarking OFCOM against the regulatory efforts of the operators. It would be neither proportionate nor rational to expect OFCOM to keep operators in line with a tiny fraction of the spending they have for regulatory affairs. Only then can we rely on OFCOM to look after the public interest. We have to use benchmarks against the world leaders to see how the UK performs. We cannot compare the more than six hundred pages of the Communications Act with other countries, nor does the mere consolidating of five regulators into OFCOM put the United Kingdom to the top of the class. We need to measure economic growth and the adoption of new electronic communications services to see how we compare with Japan, Korea and increasingly China |
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