The development of a successful restructuring plan for the communications sector requires a consensus about desired results. Piecing together a policy framework that will direct the restructuring process is a challenge akin to completing a puzzle. The pieces of the puzzle should be selected carefully to accommodate the characteristics of the country involved. Policies cannot -- or, at least, should not -- be assembled arbitrarily from the jumble that exists throughout the world.
One of the most frequently referenced features of a telecommunications market is "competition." Unfortunately, it also may be one of the most misused and least understood features. Experience appears to suggest that policies that encourage competition promote desirable results, including increased investment, reduced prices, greater diversity of facilities and services, innovative solutions to unmet market demands, and reduced burdens for government intervention. This is not to suggest, however, that markets simply can or should be thrown open and left unmanaged. In fact, one of the critical challenges of restructuring is to manage the development of a competitive market in a responsible way.
The discussion that follows explores the degree to which "competition" may be used or envisioned in different ways in the context of sectoral restructuring efforts. Section VII returns to some of these issues and examines what relationship (if any) there might be between competition and regulation -- concepts that frequently are considered to be incompatible.
Competition is sometimes referred to as a "goal" and at other times as a "tool" that can be used to achieve other goals. Is this a semantic issue, or is there a significant distinction to be drawn?
This distinction is seldom clear or readily defined. It does, however, exist, and an understanding of the distinction may be helpful in considering possible plans for sectoral restructuring. The struggle to define the concept of "competition" and its purpose appears particularly difficult in countries that are now trying to dismantle a long-standing centrally planned economy. Although "competition" typically is embraced as an immutable feature of sectoral restructuring, there appears to be confusion about what "competition" really means, in terms of its impact on the communications market. Consider the following:
Even when such a definition has been formulated, however, it may not be entirely clear whether competition is a "goal" or a "tool."
The significance of the distinction between a goal and a tool may be illustrated by the following example. Consider why there has been such a pervasive desire to establish "independent regulatory authorities" as part of the process of restructuring the telecommunications sector. As the European Commission has suggested, the separation of operational and oversight responsibilities probably is a fundamental feature of fairness in any market that involves multiple participants. If this is true, the question becomes what the regulator's "fairness" is to promote. One possibility is that the regulator will promote an environment of impartiality that encourages competitive market entry by new participants. In other words, the independent regulator will assuage fears that the state-owned former monopolist will receive favored legal treatment. Another possibility is that the independent regulator will promote public involvement in the regulatory process. Interested parties will feel more comfortable with a regulatory process that is not affiliated with a particular market participant, such as the state-owned telephone company.
These two possibilities alone, however, suggest several different approaches to the creation of an independent regulatory body. If competitive entry is desired, the regulator may not need an elaborate public decision making process. Why shouldn't the regulator simply make decisions after private consultation with the industry (as happens in the United Kingdom)? Is public decision making essential to the impartiality that will encourage competitive entry? Alternatively, if public participation is most important, there might be less concern about whether the regulator is able to respond promptly to the competitive demands of the marketplace.
This simple example suggests that an independent regulatory body must be a tool, not a goal. It is inconceivable that a policy maker would simply establish an independent regulator without regard to either its purpose or its function. The structure and functions of the regulator will be determined by the "goals" it is intended to promote.
Competition, by contrast, may be both a "goal" and a "tool." In some respects, it may be a goal in and of itself. A policy maker could conclude that if the market is competitive, a greater diversity of services and facilities will result, investment will increase, and prices will decline. Alternatively, one might take the view that competition is simply a tool that can be used to work toward other ultimate goals, such as achieving cost-based prices, more diverse sources of investment, or accelerated economic development and technological improvement.
In the end, it may be less important to be able to define the difference between a goal and a tool than to understand an obvious distinction that is fundamental to the restructuring process. Goals must be formulated and defined as clearly as possible. Tools can then be selected and used to pursue the goals. World experience in restructuring national telecommunications markets has produced an elaborate set of tools. If used purposefully, these tools can stimulate change and foster development. If used without a sense of ultimate purpose, these tools probably will yield disappointing results.
Whatever the role of competition in the process of sectoral restructuring, is it reasonable to expect that it is likely to be a central, or at least prominent, element of virtually all restructured communications markets?
This is a point of great debate.
Some contend that competition itself is an important, if not the paramount, objective of contemporary communications policy making. Open entry that permits entrants to respond to market forces, it is argued, will produce an efficient allocation of resources and allow competitors to devise solutions that will address differing market needs.
Yet many policy makers question whether their own markets can support competition. They contend that in a small market, multiple entrants will not survive; initial increased investment will slow as excess investment becomes apparent, consolidation will occur, and a reduced level of entry will result.20
A common reason for limiting entry is to create an attractive environment for privatization of all or part of a government-owned monopoly company. Though this rationale was evident in the United Kingdom, when British Telecom was first privatized, and more recently in Australia, as the government sought a buyer for Aussat Pty. Ltd., the general concerns of the national treasury should not be disguised as a telecommunications policy concern. The financial benefits of privatization may support general fiscal needs, but they are not likely to provide any direct benefit to telecommunications users.
Does this mean that competition simply is not appropriate for some markets?
Such a conclusion is not necessarily fair. Proponents of competition argue that the undesirable effects of some procompetitive policies do not reflect the failings of competition. Rather, they demonstrate the necessity for oversight of competition during transitional periods. Thus, for example, competitive entry that occurs in the absence of an effective and efficient policy to require the interconnection of separate networks may drive prices higher and end up depriving certain higher cost geographic regions of service. In other cases, the government may be encouraging competitive entry at the same time as it is requiring entrants to provide specific levels and types of service at certain prices. The requirements themselves may either undermine the financial viability of new entrants or stifle competitive entry altogether.
As a general matter, completely unfettered competition may not be possible, particularly if the relevant market has been noncompetitive for many years. The government will have to adopt some ground rules (such as rules to define the terms and conditions of interconnection) to ensure that competition yields a coherent, useful network arrangement.
Competition may be both a significant feature of a restructuring plan and a fundamental objective of that plan. It is not likely to be the sole or decisive objective, although it may be the most pronounced characteristic of the market.
This analysis suggests that competition will always make sense and should be incorporated, to some degree, in any restructuring plan. Is this a fair assessment?
The assessment is reasonably fair. In general, an open, competitive telecommunications market is more attractive than a market that is either reserved for a monopoly operator or subject to substantial legal and regulatory limits on entry. The reasons for such a preference include the following:
Many potential investors also argue against competition, or seek limits on competition, as a way of enhancing the reasonably anticipated return on their investments. The investor's argument against competition is examined in Section IX.