Sunday 5 February 2012

Contents of module

Section 3: Basic Principles

Fundamental Objective

The primary objective that countries have for introducing and encouraging competition in their telecoms industries is that this benefits the individual telecoms user and, by extension, benefits the economy as a whole.

Value of Competition

The question is raised as to how, and where, competition benefits the user. Some of the major benefits are generally accepted to be:

  • lower costs;
  • greater efficiency;
  • more innovation;
  • expanded supply; and
  • better customer service.

Each of these issues will be considered more fully later in this module.

Barriers to Competition

The introduction of competition is not a simple process, especially in an industry such as telecoms where the provision of service by just one supplier used to be the norm. There are many barriers to overcome. These include:

  • anti-competitive behaviour by existing players, especially by the previous monopoly supplier;
  • high market entry costs for companies who would like to participate;
  • government regulations, practices and costs;
  • regulatory uncertainty; and
  • vested interests concerned with maintaining the existing situation.

Regulators need to appreciate the forms in which barriers to competition manifest themselves and the manner in which they can be overcome. Again, this issue will be considered more fully later in this module.

Fundamental Concepts

When governments establish pro-competition policies, they usually do so on the basis of the following fundamental concepts:

  • Comprehensive Coverage
    The policies should ideally apply to all markets and sub-markets, with as few exceptions as possible.
  • Transparency
    The policies should be set out clearly and be readily available; in addition, decisions relating to the application of the policies should be accompanied by an explanation of how they were reached.
  • Competitive Neutrality
    Where government and non-government activities impinge on one another, the policies should be written so that the government activities are no advantaged or disadvantaged just because they are in the public sector.
  • Accountability
    Regulators making decisions on the application of the policies should be able to defend their decisions before an independent third party.

Implementation of Fundamental Concepts

The fundamental concepts above permeate the manner in which countries implement their pro-competition policies. Implementations usually contain the following:

  • placing reliance upon well-functioning markets and the role of competition;
  • adopting, maintaining and enforcing policies, especially trade policies, that encourage competition;
  • where government intervention is necessary, ensuring it is done so that:
    • there is minimum distortion to the competitive process; and
    • net welfare gains are clearly and explicitly identifiable
  • minimising uncertainty for business and fostering confidence in the fairness and predictability of the system;
  • reducing or eliminating government regulations that create or maintain barriers to market entry; and
  • reducing or eliminating government regulations that impede the ability of market players to compete through innovation and efficiency.

Most regulators tend to adopt some or all of the above Concepts when formulating pro-competition policies.

Case Study

Hong Kong’s Telecommunications Authority, Mr Anthony S.K. Wong, gave a presentation to the World Trade Organisation (WTO) in June 1999 outlining the situation in Hong Kong entitled Regulatory Framework for Telecommunications in Hong Kong

In his presentation, Mr Wong stated that in implementing fair competition the Hong Kong Regulator, OFTA, has two primary objectives. These are:

  • two specific conditions in the terms of the operators’ licences:
    • anti-competitive practices are prohibited
    • abuse of dominant position is prohibited
  • since there is currently no pro-competition law in Hong Kong, the Regulator enforces the fair-competition conditions.

Further Reading

Documents on the websites of most national regulators describe the competition policy followed by the country in question. One example is from Australia.

The document, titled What is Competition Policy? covers most of the issues common to similar policies in other countries.

Hong Kong’s regulator is the Telecommunications Authority, and his office (OFTA) provides extensive materials relating to developing telecoms competition in the territory. The ‘Competition Bulletin’ section of OFTA's website contains much interesting and relevant material.