Climate change appears everywhere…

Is European telecoms regulation fit for purpose in the current recessionary climate?  Apparently not, according to my old chum, Richard Feasey, Public Policy Director at Vodafone.  Feasey’s thoughts are penned in a short paper for ‘Agenda’, the in-house journal of Oxera, the economic consultancy.  

To save you looking it up, the thesis of Feasey’s essay is that, even at this late stage, regulators need to adapt their policies to the changed market conditions the industry faces today.  He points out that the basis for our current ‘regulatory architecture’ was struck in the late 1980s and 1990s, a golden period for telecoms investment – a period when prices were still high and markets retained attractive opportunities to exploit efficiency gains and cross-subsidy. 

When the global financial crisis hit Europe in 2008, the initial reaction of policy-makers was to restate the importance of the telecoms sector to the broader European economy and to establish a new set of targets for it – in particular, the Digital Agenda targets for broadband penetration.  But no serious attempt was made to question whether the underlying policy framework was capable of delivering these new targets.  This has led to growing complaints from industry about the direction of European policy, e.g. 

• regulators placing too much emphasis on driving down consumer prices;
• regulators placing unrealistic expectation on market entry as a policy objective;
• regulators seeking ever-greater harmonisation of policy and prices at a time when the economic outlook among Member States is diverging sharply;
• regulators being required to undertake regular reviews of markets to assess and safeguard competition before investments have had time to pay back, thus creating uncertainty and undermining the investment climate.

Feasey therefore suggests that the European approach needs to adapt in a number of ways, for instance:

• Less focus on policy inputs such as the number of industry players, or market concentration, and more on outputs like market performance and the sustainability of competitors;
• Acceptance that, in some cases, oligopolistic competition may be the only way for markets to generate sufficient returns to fund major new investment in fixed assets;
• More tolerance of new models of competition like network sharing and co-investment.

Fundamentally, he argues that regulators need to accept that there is a tension between ‘policies aimed at delivering short-term gains for hard-pressed consumers and the long-term objectives of investment and European growth’. 

All of this is true (and kind of obvious). It’s maybe just a pity that the protest comes on behalf of the largest mobile network in the world.