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The cost of telecoms regulation: is it too much to pay?

In larger countries it is often possible to justify such large budgets when they are spread over the population that is benefiting…smaller countries usually cannot make such claims, and the situation can be further exacerbated when the anticipated economic, and particularly financial, benefits are not (yet) being realised.

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To ensure that the often-cited benefits of telecommunications liberalisation can be realised – lower prices, improved access, a key driver of economic, social and national development – in most countries worldwide some degree of telecommunications regulation has been implemented. In those that have only recently introduced regulation, and smaller developing countries in particular, the urgency for the desired outcomes of telecommunications often overshadows the effort and costs required to achieve those goals.

In the first instance considerable resources are used to establish the appropriate enabling framework, and to operate the office of the regulator. Thereafter regulatory costs can increase dramatically, especially when highly contentious issues such as competition, interconnection, numbering and spectrum require resolution, and external expert assistance must be secured. In countries where the expenses of the regulator are met directly by the government, the government is often keen to use whatever fees that are collected from licensees towards other initiatives. These situations frequently lead to tension between the regulator and the government, and to questions about whether the perceived returns of telecommunications regulation are indeed worth the cost.

In a sample group of telecommunications, competition and multi-utility regulators total expenditure ranged from approximately USD1.8 million in Jersey, to over USD205 million in the UK. Further, staffing and administration costs accounted for, on average, about 50% of total expenditure, but ranged between 20% (Oman) and 86% (Bahrain), with up to an additional 40% spent on suppliers/consultancy services, as shown in Exhibit 1. Note that the telecommunications role within the sample regulators varies from country to country.

Exhibit 1: Key expenditure elements for selected regulators for 2007/08 [Source: regulators’ websites]

Exhibit 1: Key expenditure elements for selected regulators for 2007/08 [Source: regulators' websites]

In larger countries it is often possible to justify such large budgets when they are spread over the population that is benefiting: lower per capita regulatory costs tend to be experienced in more populous countries, as generally reflected in Exhibit 2. On the other hand, smaller countries usually cannot make such claims, and the situation can be further exacerbated when the anticipated economic, and particularly financial, benefits are not (yet) being realised.

Exhibit 2: Per-capita expenditure for regulation in selected countries [Source: regulators’ websites]
Exhibit 2: Per-capita expenditure on telecoms regulation in selected countries [Source: regulators' websites]

In order to carry out their responsibilities, regulators tend to avail themselves of documentation, decisions and methodologies from other jurisdictions: to augment their understanding of an issue, to explore options for its treatment, and/or to ascertain what might be the most frequently adopted practice. Given that regulators regularly examine how other countries have handled a particular issue and may occasionally adopt a similar approach, some policy makers contend that more is better: that a regulator can rely almost exclusively on information from other jurisdictions, thereby “not re-inventing the wheel” and reducing its operating costs. However, such an approach requires careful consideration to ensure that the integrity of a regulatory machinery and the quality of its decisions are not undermined.

Firstly, the circumstances in each jurisdiction are unique, so direct adoption of overseas experiences is not always appropriate. In many instances the local context is critical to the approach that must be implemented. Depending on the subject, important factors that will affect regulatory decisions (and which could be key points of differentiation) would include:

  • current national and sector policies
  • legal and regulatory framework
  • the country’s location, topology, and geographic area
  • population
  • population density and spread
  • degree of urbanisation
  • level of socio-economic development
  • degree to which economies of scale is experienced
  • level of income.

Secondly, and for various reasons, regulators seldom publish full and unabridged documentation of all inputs into a process, particularly internal documents. As a result, the complete context, inputs and reasoning that support those decisions are not always clear. Furthermore, telecommunications issues are often complex and may have implications on trade, as well as regional and international obligations to which a particular country has acceded. As a result, it is entirely likely that there will be an incomplete and possibly inaccurate understanding of important drivers for decisions made in another country.

Finally, regulators are frequently required to demonstrate that their decisions are well considered, taking into account the interests of all affected parties, and based on sound reasoning. With a wholesale adoption of approaches from other jurisdictions, the rigour that the regulator is expected to apply might not readily occur. Also, depending on the gravity of the issue, industry players may be offering their own views, which the regulator may be required to consider, and they will be closely scrutinising the outcomes with the intention of litigating if there are questions about the integrity of the process that has been implemented.

In light of these considerations, it ought to be accepted that the administrative costs for a regulator will always be high. Though it might be possible to minimise some of that expenditure by relying on practices that have been implemented in other countries, that can only be done to a point. Since telecommunications issues are often complex, there will always be a need for expert assistance. Regulators may either retain the requisite skills and expertise in-house, which will be a considerable expense for services that might not be needed on a continuous basis, or ensure that they are in a position to secure those capabilities as and when required, which may offer greater budgetary control.

October 2009


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