Regulated competition (and the fallacy of picking winners).

Just back from yet another extended break and my first conundrum is the regulatory view of the competitive process.  Let me explain…. 

The first thing that comes to my attention is the latest broadband pronouncement from Neelie Kroes on how she sees the promotion of competition – in her words, “to reward those who relentlessly focus on consumer needs”.  Isn’t there a danger that this consumer-centric idea might actually distort the competitive process?  Take, for example, the decision by European regulators to favour service competition, rather than infrastructure competition, in the latter part of the 20^th century.  This certainly promoted market entry, and was presumably aimed at meeting consumer needs, but how sustainable was the competition it spawned?  According to ECTA's recent pronouncement, such competition can be remarkably fragile: “It is time for a wake-up call. The liberalisation experiment which Europe began in the late 1990s is close to failing because regulatory rules are not supporting the business case for even leading telecoms competitors.” 

So continued regulation is necessary to support the competitive process… Is that really a step forward for ‘consumer needs’?  By contrast, let’s look at Ofcom’s proposal to vary one of the mobile operator’s spectrum licences in order for it to deploy LTE and WiMAX technologies.  Surely a ‘slam-dunk’ for consumers…?  In reality, however, the licence variation might tilt the competitive playing field in a number of important ways – so much so that a competitor has argued:

“This is an extraordinary step for a National Regulatory Authority to take, given its duty to promote competition…Any such proposal must raise prima facie competition concerns...” 

Without reaching judgement on that particular issue, it demonstrates that the pursuit of competition in telecoms markets is a far more complex challenge than the simple maximisation of consumer needs.