presentation for nera.pdf

• Motivation

• Model

• Case references on telecommunications regulation

• Final remarks and further research

Industry-Specific vs. Antitrust Agencies:

a contribution on the institutional arrangement

of telecommunications policy

Notas de presentación

45 min de presentación máximo y 15 min de preguntas. Trataré

de reducirlo a 35-40 min.

Poco académico: eliminar fórmulas y derivaciones matemáticas

Tal vez podría comentar sobre el modelo. No es seguro.

Debería organizar la sección empírica.

Why is this important?

Institutional design and jurisdiction overlapping.

Dominance of Industry-Specific Agencies is being reviewed

Large discussion among practitioners.

1. Motivation

Why is this important?

Institutional design and jurisdiction overlapping.

Dominance of Industry-Specific Agencies is being reviewed

Large discussion among practitioners.

What is new on this exercise? (could be excluded if the model is not

present)

Institutional spectrum of choice between industry-specific and

generic (antitrust) agencies.

Regulatory fragmentation with overlapping capabilities and

jurisdiction

Trade-off Capabilities vs. Transparency

1. Motivation

Why choosing an Industry-Specific Agency (ISA) in telecoms?

Ongoing specific and prescriptive powers to face:

Technology and market complexity

Network specificities and first-mover advantages

Monopoly position and network access

Learning and decisions speed

Universal Social Obligations: public interests.

Path-dependence drives “lock-in” to institutions

Why choosing an Antitrust Agency (AA) in telecoms?

Revolving-door phenomenon

Homogeneous set of tasks

Larger jurisprudence (commitment, entry).

Easier decision monitoring

Policy Consistency (telecoms-IT-broadcasting convergence )

Case-by-case approach

Approaches that give explanations to this choice.

Coordination and competition of regulatory agencies:

Firm

Government

Regulator

2. Model

Firm

Objective Function:

Government

Regulator rationality constraint: Regulator

0s

Symmetric Information

2. Model

qtqt

22

11

)()(

:sconstrainty rationalit Firm

21

21

where1, dist. prob. awith

,

xx

qtU

0s

)()( stqqS

Firm rationality constraints: Firm

Objective Function: Objective Function:

Government

Collusion-proof constraint:

Regulator rationality constraint:

Regulator rationality constraint: Regulator

Revelation or incentive constraint:

0s

)(LRs

)()( 21 ttF

qt 11)(

qt 22 )(

)()( 21 ttL

Symmetric Information Asymmetric Information

2. Model

qtqt

22

11

)()(

:sconstrainty rationalit Firm

21

21

where1, dist. prob. awith

,

xx

qtU

0s

)()( stqqS )()()()( FTLRstqqS

• Monitoring mechanisms reduce output.

• If regulatory costs too high, info rent for the efficient firm.

2. Model (cont.)

• Monitoring mechanisms reduce output.

• If regulatory costs too high, info rent for the efficient firm.

• How high? No regulatory arrangement when

Regulation more likely under (i) larger innovation spillover

(ii) more agency transparency and (iii) larger sensitivity to

the firm and regulator transfers

2. Model (cont.)

• How is the ISA?:

more effective regulator

harder to be controlled

2. Model. Choice spectrum between industry-specific and antitrust regulation

'''' and AAISAAAISA

TTRR




• ISA or AA? Regulatory complexity-capabilities vs. capture-administrative control

ISA always chosen, when capabilities more important than capture.

1''

''

ISAAA

AAISAC

RR

TT


'''' and AAISAAAISA

TTRR




• ISA or AA? Regulatory complexity-capabilities vs. capture-administrative control

ISA always chosen, when capabilities more important than capture.

• What about joint jurisdiction (regulatory separation)? Duplicative regulatory costs

+ improved administrative controls, Laffont and Martimort (1999).

ISA has advantages under large cost duplication and smaller improved transparency

1''

''

ISAAA

AAISAC

RR

TT


'''' and AAISAAAISA

TTRR

• Pure industry-specific and pure antitrust regimes are almost inexistent

• Exposure to new entry increases regulatory intensity. Consistent with

(1-x) and

3. Case references on telecommunications policy

Telecoms in Europe

Phase 1: Monopoly Phase 2: Monopoly & Competition Phase 3: Competition

Regulatory

Intensity

Time

Air s

ervi

ces

Busi

ness

Telec

omm

unicat

ions

Ship

ping s

ervi

ces

Non-r

eser

ved

postal

ser

vice

s

Residential

Telecomm

unicationsElectricityG

as

Railw

ays

(passenger)

Reserved postal services

Water

Railw

ays (freight)

Review of EU network industries

from Bergman et al. (1999)

Intermediate arragements


AA-ISA differences in expertise and transparency

WHICH COUNTRIES?

WHY?

HOW?

Key factor: sector

specificity + complexity

EU Japan

South East Asia Latin-America

Small involvement of AA

Weak institutional linkage.

Intermediate arrangements


ISA-AA differences in expertise and transparency

Key factor: sector


Key factor:sector vs.

competition specificity.

Criteria misalignments

ISA ass umes the

antitrust model

Explicit codes of

interaction Small involvement of AA



EU Japan

South East Asia Latin-America United Kingdom

Brazil European Commission



Key factor: sector


EU Japan





ISA ass umes the

antitrust model

Explicit codes of



United Kingom


Key factor: competition

specificity and Adm. controls

(Public sector contracts)

Law and innovation

Court involvement self-regulation

institutions

New Zealand Australia




Key factor: sector


EU Japan





ISA ass umes the

antitrust model

Explicit codes of



United Kingom


Key factor: competition

specificity and

administrative control

Law and innovation

Court involvement Public sector

contracts and

self-regulation

United States

New Zealand Australia

Italy




4. Concluding remarks

• Key driver of institutional design:

Government perception of AA’s transparency advantages vs. ISA’s

expertise advantages.

• Case review:

Regulatory reforms respond to such differences.

Some cases respond to changes in the assumed advantages of

each agency.

Limitations and further steps of research:

• Government benevolence.

• Exogeneity of Government auditing costs.

• Specialized regulators with scope overlapping.

• More detailed case studies.

Australian and New Zealand cases are similar to the extent that there are no telecom-specific regulator in place and the AA

leads the overview of the business. Their main difference is that Australia mantains telecoms-spoefcific rules (enforced by

the AA), including price regulations, while New Zealand only have antitrust legislation as the legal reference

One example of how the competence issue is present is that when coordination systems are put in place (formal or

informally): the AA is ussually assigned the tasks associated to (product and geographic) market definition and dominant

position and in many cases the whole merger review as well

The more recent the reponsibility assigment the more likely that the AA has a larger reponsibility due to convergence issues

Areas of problem: abuse of dominant position under a almost monopoly positon. Difficult to know what is the fair price

level and what the efficient level of cost is

Differences of enforcement approach: AA is more consumer oriented whereas the ISA is more producer-oriented (is it real?

Does the ISA have consumer protection objectives?)

The main objection to full assigment of telecos overview to the standard antitrust enforcement has been its lenghty process:

the length of the NZ Telecom/Clear interconnection dispute is considered as very expensive to the competitive process.

One ultimate reason to support the ISA is tht there are public interest behaind regulation which go beyond or even contradict

competition policy and they should preveal or at least should be balanced with the competition objectives.

Another reason for prefering the ISA is that there are competitive and economic conditions of markets (i.e. Network

specificities, dominant positions in the access to essential facilities) that require “ongoing specific prescritive rules” which

the AA ussually dislikes

The problem of AA’s with prescriptive rules and power is related to their preference of negative prohibitions rather thatn

positive regulatory decisions

It would be interesting to consider in which cases the regulatory design was a consequence or a anctecedent of the new

regulatory regimes and legislations

presentation for nera.pdf

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