Effective competition needed in telecommunications

By Randy Howard

REAL and effective competition is still sorely needed in the telecommunications marketplace if the FTC is to be successful in achieving its stated goal of reducing rates for consumers.

According to Chris Halsall, Director of the independent consultant group Ideas 4 Lease, without true competition in the market, the Price Cap Mechanism (PCM) will not benefit consumers unless it is applied more broadly and appropriately.

He was making this point given the fact that the Barbados Fair Trading Commission (FTC), which acts as the regulator, tends to argue that once policies or legislation exists that allowed for competition in the provision of a particular service, then there was no need for them to regulate activity in this area.

“One thing I would argue is that the Commission and the Ministry have made a mistake on, is that as soon as there is the opportunity for competition, they deem that the market has been liberalized and, therefore, there doesn’t need to be any regulation.”

He stated that this is “erroneous”, arguing that “as long as a company enjoys let’s say 40 per cent market share, that it should be regulated. This means that in a duopoly situation such as we have here in cellular, you would have, yes, competition, but you would still have regulation, because there’s no reason why, for example cell phone rates shouldn’t be dropping.”

The Commission argued that their decision to continue the PCM for another period, was made based on their determination that they had achieved the majority of the objectives set out in the 2005 Price Cap Decision.

Weighing in on Objective D, that of allowing efficiency gains to be passed onto consumers through reduced prices of telecommunications services, Halsall stated that the FTC indicated that they would be dissolving Basket 3, of the original plan, and transferring the services previously categorised in that basket into Basket 4, which is unregulated.

Under the current Price Cap plan, Basket 3 includes International Telecommunications services of Fixed Line International calls, 1-800 numbers, International Leased Circuits, and Talk Away Discounts, the services that the FTC now argues are subject to competition.

“They say that because of the development of the in-direct access, equal access, and two-stage dialing policies, there is now competition”, therefore they don’t need to regulate.

This too he argued is erroneous, stating that “until you have significant actual competition, then there’s still a need for regulation.”

He made the point that despite the existence of these policies, “Cable & Wireless are refusing to deliver the circuits required for competitors to be able to offer two-stage dialing, indirect access, and equal access services.”

He further stated that “TeleBarbados, Sunbeach, and Blue Communications are all ready and able to offer alternative long-distance calling services today, after considerable investment by each company.”

From this we can clearly see that the policy and legislative infrastructure is there, however, this process is still being hampered, therefore, real and effective competition does not actually exist. What exists is only the potential for competition, as a result, rates are not being driven down, because there is no competition to initiate this, and as a result of this recent alteration of baskets, there no longer exist a regulating force.

Objective E was related to the fostering of competition within the telecommunications market, and Halsall quickly took issue with this, stating that the “PCM is not designed to foster competition, it’s very specifically designed for markets that do not have competition.”

He therefore argued that this objective is misplaced, and that “competition is fostered through legislation, and the liberalization of markets.”
The Director went on to make the point that “there’s no harm in having a price cap on a market that has competition.”

The PCM, he stated, is designed to instil into a market that does not have competition, the dynamics, or as close as you can get to a market place with competition. At the end of the day the prices are going to reduce, and one has to become more efficient to be able to sustain profitability.

Therefore, if you have a price cap on a particular service, then companies are forced to offer services at a certain rate or below. They will compete and prices will come down over time. Having the PCM in place does not inhibit this process, what it does do is force the rates to come down a certain amount, or, at least, prevents them from increasing at an unreasonable rate – all depending on the X-factor applied.

The provider of an unregulated service is therefore able to move their rates arbitrarily in any direction, and this is possible for those items that will be now categorised in Basket 4, within which as indicated before, no real and effective competition actually exists.

Published in the Barbados Advocate Business Monday, 2008.02.11. Reprinted with permission.

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