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Banded Forbearance

Different approaches to price regulation, or in this instance, tariff regulation, have been adopted by regulatory authorities in different countries. In some instances, the operator identified as the company having Significant Market Power (SMP) is subject to tariff regulation, using methods such as rate-of-return-based, or price-cap, regulation; other operators, on the other hand, are allowed to implement tariff plans without gaining any prior approval. While this type of “asymmetric” regulation has been implemented in several countries, it is resource-heavy and requires complicated calculations being made on a relatively regular basis (inappropriate in today’s fast changing telecom environment).

On the other side of the spectrum are countries such as India, for example, which exert complete forbearance from tariff regulation. This stance has seen its many rewards, with India exhibiting some of the lowest tariffs in the world, a feat captured by the high scores it received on the tariff regulation dimension of Telecom Regulatory Environment (TRE) assessment conducted in 2007. Nevertheless, this type of full forbearance requires very high levels of competition to be present, a feature rarely seen in smaller, less advanced telecom markets.

In this regard, LIRNEasia proposes a new type of regulatory instrument called “banded forbearance” whereby operators, including the SMP, are allowed to introduce tariff plans and structures without gaining prior approval, given that tariffs fall within some pre-determined upper and price bands, as set by regulator. This type of price regulation has the potential to simplify telecom regulation to a level that can be implemented effectively by countries with limited capacity, for example, micro states.

This type of innovative regulatory instrument involves the following steps:

  • Defining a benchmarking methodology such as an adaptation of the OECD basket methodology, including peer countries and weights;
  • Defining a band of allowed variance above and below, what is likely to be a moving benchmark (driven by prices changes and exchange-rate movements), within which prices will be fully forborne; and
  • Specifying competition-related criteria that will be used to evaluate price movements above the upper band and below the lower band

LIRNEasia intends to further develop this innovative tool for tariff regulation, through a series of presentations to regulatory agencies and publications in peer-reviewed journals. Presentations on benchmarking regulation have already been made to National Regulatory Authorities (NRAs) and papers presented at international conferences.

Papers and presentations for download:

Banded forbearance: A New Approach to Tariff Regulation” Paper presented at the International Telecommunications Society (ITS) 17TH Biennial Conference, Montreal, Canada, June 24-27, 2008.

Intelligent Regulation” Presentation at an Expert Forum on ICT Sector Indicators and Benchmark Regulation for SAARC Regulatory Authorities, Changi Village, Singapore, 14-15 June, 2008.

The Use of Benchmarks in Regulation” Presentation at the 12th Executive Course on Telecom Reform, Changi Village, Singapore, 10 – 14 June, 2008

Role of benchmarks in the regulation of partially competitive markets” Presentation at the Benchmarking and Regulation Workshop, Malé, Madives, 6 December, 2007

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