Called to account

I’m grateful to Roger Darlington for drawing my attention to the PAC's Report on Ofcom’s effectiveness as a converged regulator.  I’ve previously been a mite critical of the organisation, both for its value-for-money claims and – a related issue - for its tendency to be rather selective in its success stories.  The PAC effectively echoed both criticisms during its oral evidence session on 10^th December, with Stephen Barclay being particularly brutal on Ofcom’s efficiency claims.  For example:

“So, we have an organisation that spent £80 million on the merger, on being set up; the actual reduction in total spend is £70 million; and a fair chunk of that £70 million is being made up of the benefits of the merger, such as getting rid of properties, rather than what I would call traditional efficiency savings… You're dressing up merger benefits as efficiency savings and then you're double-counting them over the years compared to the methodology set out by the NAO”.

 

Ed Richards proved to be a pugnacious defender of Ofcom’s record (and arithmetic) but even he must have wilted a bit under the Committee’s relentless and forensic scrutiny.  After a particularly heated exchange, Barclay dealt a shuddering blow:

“Mr Richards, it's the role of the Committee to ask questions. I'm sorry if that upsets you”.

Ouch!

Welcome to my world

Don’t get me wrong: I have lots of sympathy for the folks at Nokia.  When your CEO publicly announces that the company has lost the plot strategically, it must be pretty disheartening.  And yet, there was something quite exciting about Stephen Elop’s admission of failure…

As someone immersed in the ‘science’ of economic regulation, I have increasingly felt that regulators and other competition authorities expend far too much energy on the ‘static’ aspects of market definition and assessment, and too little time on understanding the underlying market dynamics – where are the new sources of competitive advantage emerging?  Where and how is market power being exerted?

In fairness to Ofcom, the UK regulator seems to acknowledge the need for a new ‘toolkit’ in its assessment of the internet domain.  For example, its September consultation on Traffic Management and Net Neutrality devoted quite a bit of attention to the (relatively) new analytical concept of two-sided markets, and how this might challenge traditional notions such as ‘market power’.   But the Nokia story demonstrates that we’re only just beginning to understand how radically the economics of the communications sector have changed.

Net Chauvinism?

In an idle moment, I decide to re-examine the responses to the EC net neutrality consultation.   On the lookout for quirky ideas, I’m gratified  to see that my old friends at Virgin Media take a refreshingly parochial view of internet regulation

 “…we would caution against the potential influence of international perspectives on the matter..A situation in which the European policy debate is unduly influenced or prejudiced by developments in other territories must be avoided”.

God save The Queen.

It’s the economics, stupid!

Worrying signs from the UK’s broadband laboratory. It was always a concern that the coalition government’s policy response to a potential digital divide was to sponsor ‘superfast’ broadband trials in some rural communities dominated by sheep.  How would this help?

Well, a pivotal objective would be to see whether these islands of public sector investment could create a sustainable business model, i.e. one that is not dependent on ongoing subsidy.  And it appears that BDUK, the agency responsible for deploying broadband subsidies is indeed in search of a framework ‘for monitoring the progress and benefits of these pilots and subsequent broadband projects in order to inform the approach to wider roll-out of super-fast broadband’.  Sadly, however, the framework appears to have taken on additional baggage.  For instance, it now seems that a core objective of the pilots is ’to understand more specifically the associated economic, practical and regulatory challenges and constraints and help refine and inform future approaches to deploying super-fast broadband’.  Baa!

Cablegate – behind the scenes

Amid all the political controversy surrounding Ofcom’s assessment of the takeover of BSkyB, the regulator’s disclosure of internal communications (following a freedom of information request) throws up some delicious insights. 

One that amply demonstrates the sang froid of our regulatory regime is the point at which Ofcom was forced to change horses in its reporting line.  Following an exhausting exchange of e-mails about precisely how and when the report would be delivered to the Business Secretary, a low-key internal memo of 22^nd December signalled the reshuffle thus:  “As widely reported, we will now be submitting our report to DCMS. It is therefore unclear whether DCMS will take the same view on issues such as publication as BIS”.  (In fact, the report was delivered to DCMS on time, 31^st December, and is available here).

Another revelation was that Ofcom was able to recharge the cost of the exercise.  In the formal words of another e-mail: “This work constitutes a Public Interest Test under the Enterprise Act, and therefore the costs fall under the definition of orphan expenditure which must be funded by Government through Grant-in-Aid, rather than by Ofcom stakeholders.

And the cost?  A very reasonable £177k.