<strong>Competition</strong> <strong>and</strong> <strong>Regulation</strong> <strong>in</strong> <strong>Telecommunications</strong>is called <strong>the</strong> displacement ratio, namely “<strong>the</strong> change <strong>in</strong> <strong>in</strong>cumbent’s retailprices as access prices vary” divided by “<strong>the</strong> change <strong>in</strong> <strong>the</strong> <strong>in</strong>cumbent’s salesof access services to its rival as <strong>the</strong> access charge varies”. When <strong>the</strong> threeassumptions quoted above hold, <strong>the</strong>n σ=1, o<strong>the</strong>rwise σ
<strong>Competition</strong> <strong>and</strong> <strong>Regulation</strong> <strong>in</strong> <strong>Telecommunications</strong>In <strong>the</strong> three phases of liberalisation, <strong>the</strong>re are different challenges for <strong>the</strong> regulator. Inphase 1, classical regulation challenges are to be dealt with, i.e. achiev<strong>in</strong>gproductive, allocative <strong>and</strong> dynamic efficiency. Once competition is <strong>in</strong>troduced <strong>in</strong>phase 2, <strong>the</strong> regulator has to deal more with <strong>the</strong> behaviour of <strong>in</strong>cumbents <strong>and</strong>entrants toward each o<strong>the</strong>r <strong>and</strong> <strong>the</strong> abuse of market power by <strong>in</strong>cumbents, <strong>and</strong> <strong>the</strong>provision of “fair” access prices for entrants to non-competitive parts of <strong>the</strong> network.In phase 3, regulation becomes more light-h<strong>and</strong>ed <strong>and</strong> revolves around <strong>the</strong> fairdistribution of universal access obligations <strong>and</strong> <strong>the</strong> adherence to fair trad<strong>in</strong>gpractises, s<strong>in</strong>ce competition takes care of <strong>the</strong> o<strong>the</strong>r aspects of regulat<strong>in</strong>g price <strong>and</strong>entry.2.4 Convergence <strong>in</strong> <strong>Telecommunications</strong>Over <strong>the</strong> past decade, telecommunication has been subjected to a technologicalrevolution, decreas<strong>in</strong>g natural monopoly characteristics of <strong>the</strong> <strong>in</strong>dustry <strong>and</strong> creat<strong>in</strong>gnew markets <strong>in</strong> mobile telephony, <strong>the</strong> use of <strong>the</strong> Internet <strong>and</strong> wireless local looptechnologies.Whereas <strong>in</strong> <strong>the</strong> past, <strong>the</strong> market to be regulated was clearly def<strong>in</strong>ed <strong>and</strong> regulation ofplayers revolved more around technical regulation, today <strong>the</strong> market boundarieshave become blurred. <strong>Competition</strong> has <strong>the</strong> potential to decrease <strong>the</strong> need forregulation <strong>in</strong> some of <strong>the</strong> more competitive markets, but has <strong>in</strong>creased <strong>the</strong> potentialfor asymmetric regulation. Whereas <strong>in</strong> <strong>the</strong> past <strong>the</strong> emphasis was laid on efficiency<strong>and</strong> pr<strong>in</strong>cipal-agent problems of <strong>in</strong>duc<strong>in</strong>g <strong>the</strong> correct behaviour <strong>in</strong> regulated utilities,nowadays <strong>the</strong> problems lie more <strong>in</strong> <strong>the</strong> area of dom<strong>in</strong>ance of <strong>in</strong>cumbents, a lack ofmarket boundaries, <strong>the</strong> pace of technological change <strong>in</strong>fluenc<strong>in</strong>g cost <strong>and</strong> uncerta<strong>in</strong>tyabout future technologies.In <strong>the</strong> past, <strong>the</strong> more concentrated regulation of s<strong>in</strong>gle sectors was by nature def<strong>in</strong><strong>in</strong>g<strong>the</strong> rules of play <strong>and</strong> creat<strong>in</strong>g competitive environments. In <strong>the</strong> present context,however, competition agencies have ga<strong>in</strong>ed greater importance, observ<strong>in</strong>g <strong>the</strong>markets <strong>and</strong> act<strong>in</strong>g ex-post only if <strong>the</strong>re is evidence of anti-competitive behaviour.An example of classic sectoral regulation is that of OFTEL, <strong>the</strong> UK office fortelecommunications regulation. In Malaysia, on <strong>the</strong> o<strong>the</strong>r h<strong>and</strong>, regulation of <strong>the</strong>entire broadcast<strong>in</strong>g <strong>in</strong>dustry has been attributed a s<strong>in</strong>gle agency, deal<strong>in</strong>g with alltelecommunications <strong>and</strong> broadcast issues.25
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