8 Comments

1. 

   Divakar Goswami

   August 16, 2006, 8:41 am

   Some may say that price regulation by ACCC is too intrusive but the regulator’s job is definitely is not to keep share prices of an operator up! Rohan has a nice quote I heard a few days ago on the purpose of regulation in relation to maintaining operator’s profitability, which I dont recollect now. The regulator may be held responsible for the health of the telecom sector generally, but not of one company.

   Having said that, I hope that ACCC followed due process and conducted credible/defensible cost calculations to justify the price that they set, because Telesstra would probably appeal this decision. What is remarkable, is that the regulator is able act against Telestra, a company where the Australian govt owns the majority shares. It highlights the importance of keeping the regulator independent of the policymaker. I doubt such an action can be carried out in other countries where policy and regulatory functions haven’t been seperated. (There are always exceptions to the rule, like Singapore) For example, I doubt that the Indonesian regulator would be able to a) force local loop unbundling of PT Telkom, government-owned incumbent, b) set access charges that negatively impacts PT Telkom’s bottomline in the face of government’s disapproval.

2. 

   Sandhya Herath

   August 16, 2006, 9:20 am

   I do not know whether we convey the wrong message by repeatedly saying regulators job is NOT to keep the share prices of an operator high.

   I am sure Divakar will agree with me that for any regulator, an operator is a key stakeholder. So the regulator does have an interest to keep the share prices of the operators high. The regulator always prefers a healthy telecom market.

   Therefore, what we should emphasise is that the regulator should NOT SHOW ANY PREFERENCE for Operator A over Operator B.

   Otherwise, I do not think regulators should put their hands unnecessarily to control the profits of an operator.

   During the so-called License Raj in India – prior to 1992 -the government indirectly controlled the profits of the private firms by putting restrictions not only for the prices, but also for the quantities of the goods/services they produced. What we do not want is that.

   The regulators duty is to ensure a free market. As Adam Smith has correctly noted more than two centuries before, in a free market, it is not possible for anyone to earn super normal profits.

   Let the market take control. Regulator should intervene only when it is essential.

3. 

   Divakar Goswami

   August 16, 2006, 9:38 am

   Sandhya, I don’t think effective regulation can happen with the regulator keeping an eye on operators’ stock prices every time they enforce a regulation or pass a decision. When that happens, the literature says that regulatory capture has occured–this is when the regulatory agency becomes dominated by the interests of the industry that it regulates.

   Where is consumer interest in your scheme of things?

4. 

   Sandhya Herath

   August 16, 2006, 10:14 am

   Divakar,

   Correction. I never said the regulator need to keep an eye on the stock prices an operator.

   On the contrary, what I meant was the regulator should not worry too much about the share prices of any one operator, which is obviously not his job. (Sorry, if the above post conveyed a wrong message.)

   If any one operator fails it is not the concern of the regulator.

   On the other hand, if ALL the operators were to fail it is the concern of the regulator. (And of course, the concern of the consumers.)

   So the regulator should try his best to see the industry as a whole survives and grows, while not particularly worrying about individual players. In other wrods, the regulator has an obligation to protect the industry he regulates. (not individual operators)

   The best way he can do is to ensure a fair and competitive market.

   If he does that the consumers will automatically benefit. Free market (against controlled market) is the best thing the government/regulators can offer to consumers.

5. 

   ivap

   August 16, 2006, 8:10 pm

   It seems to me that the discussion is assuming ACCC (Australian Competition and Consumer Commission) to be the telecoms regulator ACMA (Australian Communications and Media Authority). May be I’m mistaken and the ACCC is considered to be the regulator in your context.

   The ACCC is an independent body created by the government to promote competition and fair trade in the market. It has a particular interest in maximising fair and equitable access to infrastructure services. From it’s website

   The ACCC promotes competition and fair trade in the market place to benefit consumers, business and the community. It also regulates national infrastructure services. Its primary responsibility is to ensure that individuals and businesses comply with the Commonwealth competition, fair trading and consumer protection laws.

   The ACCC is the only national agency dealing generally with competition matters and the only agency with responsibility for enforcing the Trade Practices Act and the state/territory application legislation.

   I’m not sure how much of the bun fight involving Telstra vs. Government vs. The Rest you are aware. Things have really heated up over the last 6 months between these parties concerning the construction of the FTTN/FTTH network. The announcement should be seen in the context of this bun fight.

   The government wants the FTTN network built around Australia and for it to provide access to other carriers/ISP. Telstra only wants to build it around the major cities and wants to charge a connection rate suitable for them and are refusing to go ahead until the access charges to the network are agreed upon. The problem for the government is, as long as it is the major shareholder if Telstra only builds FTTN in the major cities there is going to be a huge electoral backlash in the bush voter base. Telstra would ideally like the government to split it in half and fully privatise the non-infrastructure part of the business while keeping the rest and getting the government to build the network. Meanwhile the remaining carriers and ISPs, led by Optus, are proposing a second FTTN network but are hedging their bets on being able to use Telstra’s network if all goes well.

   In what can only be seen as a play at forcing the governments hand, a few days before this decision by the ACCC Telstra announced that it was shelving its plans to construct the FTTN network. Part of the issue is of course the usual problem within Australia when it comes to infrastructure and ROI. I.e. A country the size of a continent populated by only 20mil and spread across large distances. Also known as the “Tyranny of distance” problem amongst policy wonks.

   I’m not sure exactly how long Telstra intends to keep this up because they have just initiated the prototyping/initial phases of overhauling all their backend OSS/BSS IT systems/services using SOA in preparation for provisioning high-speed Layer4 IP services. This is supposed to be finished by December so interesting times ahead.

   Divakar :

   I hope that ACCC followed due process and conducted credible/defensible cost calculations to justify the price that they set, because Telstra would probably appeal this decision.

   I believe this is the case. The ACCC always makes a big deal about this. In addition the ACCC is open to litigation if it makes a mistake.

6. 

   Divakar Goswami

   August 16, 2006, 9:20 pm

   Ivap, thanks for a very lucid explanation of the issues involved in this decision. I indeed confused ACCC with the regulatory agency. Wow, things are indeed different from what they appear to be on the surface.

7. 

   Sriganesh Lokanathan

   August 17, 2006, 10:22 pm

   Thanks to all especially Ivap for a most elucidating disucssion.

8. 

   Sriganesh Lokanathan

   August 17, 2006, 11:44 pm

   In a related story, the German regulator is expected to rule in September whether Deutsche Telekom (DT) can bar competitors from its planned 3bn Euro highspeed broadband network. The underlying issues it seems is whether the \”esssential facilities\” doctrine is applicable for this new network. DT claims it is a new service and thus cannot be forced to share this network with competitors.

   I can see DT\’s point of view on this. Forcing DT to share this new network reduces the incentives for DT to set up such a network, and I could argue dampens growth as competitors can avoid investment by just piggy backing over competitors networks. However given that DT is also partly owned by the German Government, there is a public service conflict that arises.

   Have to keep on eye on this story as it evolves.

   The International Herald Tribune article can be found at http://www.iht.com/articles/2006/08/16/business/telekom.php