How can ComReg achieve the right balance ... between light-handed regulation and ...

damien

Q.5 How can ComReg achieve the right balance, at the retail level, between light-handed regulation and the prevention of abuses of dominance? Can the availability of wholesale inputs on a nondiscriminatory basis allow the relaxation of retail regulation?

Q.6 Will substitution and convergence between fixed and mobile services reduce or eliminate the need for retail controls on a dominant operator?

Q.7 What, if any, retail controls should be applied to all operators providing voice services to consumers?

Much of the debate about the need for wholesale regulation centres about the idea of control points, or bottlenecks. In the ideal scenario, with infrastructurebased competition, no bottlenecks would develop. In reality, however, given the pace of technological change and the increasing convergence between telecommunications and media, it is likely that new control points will develop.

The implementation of next generation network architectures could potentially facilitate the creation of new control points, or allow existing ones to be manifested in different ways, where operators could leverage their control over certain aspects of network operation to limit another operator’s ability to compete. This is dealt with in more detail in Section 8. Furthermore, given the convergence between telecommunications and media, in next generation networks control points could be developed by non-network operators also – e.g. service providers, software vendors, content providers. Section 9 provides more detail on this.

4.4 Retail regulation
The new regulatory framework makes it clear that retail remedies should only be applied (a) where an operator has significant market power in a retail market and (b) where wholesale obligations would not result in the achievement of the objectives of the Framework Directive. In theory, the availability of wholesale inputs on a non-discriminatory basis to OAOs and to eircom’s own retail services should gradually erode market power at the retail level. In practice, eircom’s share of retail markets has remained high: 99% in lower level access, 77% in higher level access, 68% in international calls, and 87% in domestic (local and national) calls.

Detailed regulation of retail prices is difficult to get right in any industry, given the information asymmetries that characterise the relationship between the regulator and the incumbent firm. It is particularly problematic in the fast-moving communications sector, which is characterised by a high rate of technical innovation and by increased bundling of previously separate products. In order for consumers to be able to gain the benefits of innovation, operators – both incumbents and new entrants – need to be able to move quickly.

On the other hand, allowing a dominant operator the freedom to price as it sees fit at the retail level creates the possibility of a number of abuses, both anticompetitive and exploitative. This is recognised in the Universal Service Directive, which allows regulators to impose requirements “that the identified undertakings do not charge excessive prices, inhibit market entry or restrict competition by setting predatory prices, show undue preference to specific endusers, or unreasonably bundle services.” National regulatory authorities may impose retail price caps, measures to control individual tariffs, or cost-orientation obligations. It is clear, therefore, that the Directives foresee this type of problem arising from the unfettered exercise of market power.

Regulators therefore face a difficult task in balancing light-handed regulation and allowing the market to work, on the one hand, with protecting consumers against exploitation and competitors against abuse, on the other hand. It may be the case that regulation needs to be more finely tuned to take account of the different state of competition in different markets. It might be possible in the future, for instance, to remove pricing controls on local and domestic calls (as has already been done for international calls, with no apparent harm resulting to consumers), while retaining price controls on areas where eircom’s dominance is more extreme and where competition is unlikely to develop – for instance, in the lower-level retail access market. Regulation of call charges would then focus on the availability of wholesale inputs and the requirement, at the retail level, to provide clear and accurate information to consumers. While eircom’s market share in local and national calls is still such that their inclusion within the price cap of CPI-0% is a necessary measure to protect customers, this cap is viewed primarily as a safeguard measure.

The future shape of retail regulation will depend, to a large degree, on how competitive voice markets are. This, in turn, will depend on both the level of competition within fixed voice markets, and on the degree of convergence between fixed and mobile services. These trends are dealt with in more detail in Sections 7 and 9, respectively. In its current round of market reviews, ComReg, in common with other European regulators, has concluded that fixed and mobile voice are not in the same market, mainly because they offer different functionality and because mobile is much more expensive. As outlined in Sections 7 and 9, however, both fixed-mobile substitution (where consumers increasingly regard both types of call as interchangeable) and fixed-mobile convergence (where operators begin to offer packages which combine features of both services) are likely to increase in the future. If this happens, no single operator may be dominant on any voice market, and the need for operator-specific regulation (i.e. regulation which is based on a finding that an operator has dominance, or SMP, on a particular market) may fade away.

As outlined in Section 11, Government policy for social inclusion and the development of the information society is an influential factor in the telecommunications sector. Universal service in telecommunications is defined in the Universal Service Directive as “the provision of a defined minimum set of services to all end-users at an affordable price”. It includes the provision of access to the public telephone network at a fixed location, at an affordable price and is designed to ensure that all users are able to avail of telecommunications services, recognising their importance for participation in society. The scope of the Universal Service Obligation is due for review by the European Commission in 2005. It is difficult to predict how these requirements should or might evolve in the future. On the one hand, it might be considered that such facilities might best be provided by the market, in which case there might be no need for any further regulation specific to the telecommunications industry, over and above general consumer protection legislation applicable to all industries.

On the other hand, telecommunications is regarded as so fundamental to economic development, and access to telecommunications services by citizens as so vital for their participation in society, that it might be considered important to strengthen these obligations. In addition, the current regulatory framework and, in particular, the Universal Service Directive, also imposes certain requirements on all providers of publicly available telephone services. These include the requirement to provide consumers with a written contract stating terms and conditions, the requirement for tariffs to be readily accessible and clearly understandable, and the requirement to provide access to the emergency services, free of charge.