Regulating Electronic Communications for Growth in Emerging Economies

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A White Paper on Asymmetric Regulation of Electronic Communications in Emerging Economies by Gita Sorensen, Director - Berkley Research Group

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Regulating Electronic Communications for Growth in Emerging Economies

  1. 1. october 9, 2013 WHITE Paper Regulating for Growth: Asymmetric Regulation of Electronic Communications in Emerging Economies Prepared By: Gita Sorensen | Director GSorensen@brg-expert.com 44.778.900.4509 Copyright ©2013 by Berkeley Research Group, LLC. Except as may be expressly provided elsewhere in this publication, permission is hereby granted to produce and distribute copies of individual works from this publication for non-profit educational purposes, provided that the author, source, and copyright notice are included on each copy. This permission is in addition to rights of reproduction granted under Sections 107, 108, and other provisions of the U.S. Copyright Act and its amendments. Disclaimer: The opinions expressed in the BRG white paper are those of the individual authors and do not represent the opinions of BRG or its other employees and affiliates. The information provided in the BRG white paper is not intended to and does not render legal, accounting, tax, or other professional advice or services, and no client relationship is established with BRG by making any information available in this publication, or from you transmitting an email or other message to us. None of the information contained herein should be used as a substitute for consultation with competent advisors. Berkeley Research Group (UK) Ltd. | 15th Floor, 6 New Street Square | London, United Kingdom | EC4A 3BF
  2. 2. WHITE PAPER | BERKELEY RESEARCH GROUP Contents Contents ....................................................................................................................................................... i 1. INTRODUCING REGULATING FOR GROWTH ..........................................................................1 2. ASYMMETRIC REGULATION IN EMERGING ECONOMIES ..................................................2 2.1 Background of Economic Regulation in Electronic Communications ...........................................2 2.2 Regulatory Priorities of EEs versus DEs ........................................................................................3 2.3 Meeting the Regulatory Needs of EEs ...........................................................................................4 IS ASYMMETRIC REGULATION THE ‘RIGHT’ SOLUTION FOR EEs? IF SO, HOW 3. SHOULD IT BE IMPLEMENTED? ...........................................................................................................4 3.1 3.2 Market Power Analysis in EEs .......................................................................................................6 3.3 Asymmetric Regulation in Context ................................................................................................8 3.4 4. The Principle of Asymmetric Regulation .......................................................................................4 An Example - Call-Termination Markets .....................................................................................10 CONCLUSION ................................................................................................................................11 APPENDIX 1: DESCRIPTION AND DISCUSSION OF ASYMMETRY REGULATION OPTIONS A1 APPENDIX 2: OUTLINE OF ‘REGULATING FOR GROWTH’ INITIATIVE ................................... A5 REGULATING FOR GROWTH | i
  3. 3. WHITE PAPER | BERKELEY RESEARCH GROUP 1. INTRODUCING REGULATING FOR GROWTH Regulating for Growth (RfG) is an initiative to harness knowledge and experience in the communications sector to create a series of analyses and guidelines to assist practical and ‘fit-forpurpose’ regulation of electronic communications networks and services in emerging economies (EEs).1 The assumption that EEs simply ‘lag behind’ developed economies (DEs) in electronic communications infrastructure and services is no longer tenable. Even high-level analysis shows that needs and priorities differ substantially between the two groups, as does the administrative and legislative infrastructure available to implement and operate regulatory frameworks for the sector. It is often the case that EEs ‘leapfrog’ technologies, which may also make the application of DE regulatory solutions inappropriate. Why is regulation in EEs often based on models from DEs? Are those models fit for purpose in EEs? Or are they used because they provide a well-documented framework with precedents supporting decision making? RfG will examine a series of key regulatory building blocks originating from DEs (including licensing and allocation of scarce resources, application of asymmetric regulation, and regulation of access and interconnection) to ascertain whether they meet the objectives and priorities of EEs and are designed to be practical given the level of administrative infrastructure of EEs. RfG as an initiative involves a wide range of parties with different perspectives on the electronic communications sector and the need for regulation. Organisations provide expert resources and, in some cases, funding for RfG to review whether regulatory approaches in developed economies are suitable for use in emerging economies and, where they are not, proposing alternative approaches. RfG already has commitment to participate from a number of experts, providers, and regulators. We would welcome other organisations interested in participating. An outline of the RfG initiative is attached in Appendix 2 to this document. 1 In this paper the term emerging economies (EEs) is used loosely to incorporate many economies in Africa, Asia, South East Europe, South America, and the Caribbean. REGULATING FOR GROWTH | 1
  4. 4. WHITE PAPER | BERKELEY RESEARCH GROUP Please contact Gita Sorensen at gsorensen@brg-expert.com or +447789004509 to discuss how you could participate. 2. ASYMMETRIC REGULATION IN EMERGING ECONOMIES This paper is intended as an example of the kind of analysis the RfG initiative would undertake (noting that it is not a formal RfG paper and that it will most likely be incorporated into the initiative and further developed to provide more-specific guidance). The paper focuses on the subject of asymmetric regulation, questioning whether and how it should be applied in EEs and looking at the cost and time of applying asymmetry, as well as the regulatory risks of not doing so. It should be noted that although the term ‘regulation’ is used throughout the document, some components discussed (and potentially the changes considered) would require changes to enabling legislation and regulations. 2.1 Background of Economic Regulation in Electronic Communications Economic regulation in electronic communications2 originates from the desire to introduce competition into the provision of fixed telecommunications services and the operation of fixed telecommunications networks. This started around the 1980s. There was near-ubiquitous fixed network coverage in most DEs, and in many places the operator of that network was a state-owned monopoly. Previously, regulation had largely been limited to setting prices for telecommunications services. Regulation also applies to mobile networks and services and other electronic communications services. However, as many mobile operators built networks and offered services in different market conditions from those faced by fixed monopoly operators (many mobile networks were built with private funding and were subject to competition), the perceived need for regulation of mobile operators was substantially less. Additionally, the concept of universal service obligation has typically been associated only with fixed networks and services. 2 Including telecommunications and other networks and services provided electronically. REGULATING FOR GROWTH | 2
  5. 5. WHITE PAPER | BERKELEY RESEARCH GROUP During the 1990s, the European Commission (EC) drew up a regulatory framework for liberalisation (introduction of competition) of telecommunications in Europe (the Open Network Platform (ONP), introduced in 1998). The ONP framework’s primary focus was mandating interconnection and access conditions to fixed monopoly networks. Over the next 15 years, the EC regulatory framework evolved to address the increased market complexity caused by multiple market players and an ever-increasing set of services offered on electronic communications networks. 2.2 Regulatory Priorities of EEs versus DEs In order to understand what fit-for-purpose regulation for EEs looks like, one needs to understand and articulate the overall purpose of the regulatory intervention. Analysis at the group level for EEs and DEs requires generalisation across each group. Although individual economies may greatly differ, they tend to share certain characteristics, which we briefly outline below. As set out above, the main driver for regulation in the EU was to introduce competition in fixed services, as EU member states typically had near-ubiquitous state-owned fixed networks. Investment in alternative infrastructure was also an objective, but initially more important was the drive to improve efficiency of the incumbent network provider. There were typically few or no unserved geographic areas. It was expected that introducing competition, combined with improving efficiency of current provider(s), would reduce pricing levels and increase innovation and quality. In EEs, however, there is typically no ubiquitous network. Investment to improve coverage and availability of telecommunications services is therefore often a high priority. Nowadays, such investment often materialises as mobile rather than fixed networks, so the regulatory challenges are different from those faced (at least initially) in DEs. Affordability is often also a key concern for EEs, whereas this is a marginal issue in most DEs. Both groups, however, aim to protect the interests of users and citizens through encouraging sustainable competition and preventing abuse of market power. Both groups also look to the electronic communications sector to fuel economic growth. REGULATING FOR GROWTH | 3
  6. 6. WHITE PAPER | BERKELEY RESEARCH GROUP Based on this high-level comparison between the key priorities of the two groups of economies, it seems that both overlap and significant differences exist. 2.3 Meeting the Regulatory Needs of EEs In addition to specific priorities for regulation such as coverage and affordability, EEs need practical and realistic legislative and regulatory frameworks, proportionate to the level of administrative infrastructure in place and to the availability of specialised skills to implement the regulations. For example, the EU regulatory framework assumes the existence of competition legislation and authorities and the availability of established procedures for dealing with anticompetitive behaviour. This is often not the case in EEs. Regulatory legislation and structures should be designed therefore to focus on key priorities and operate resiliently within the existing administrative and legislative infrastructure. The complex regulatory frameworks often imported from DEs are not designed for either those priorities or the administrative infrastructure. This should be considered in the context of the costs and benefits of applying asymmetric regulation, especially the complex process of market and market power analysis. 3. IS ASYMMETRIC REGULATION THE ‘RIGHT’ SOLUTION FOR EEs? IF SO, HOW SHOULD IT BE IMPLEMENTED? 3.1 The Principle of Asymmetric Regulation Central to many regulatory frameworks is the concept that regulation should only be imposed if and when a provider (of network and/or services) enjoys a position of market power. Market power means that a company is in a position to cause significant harm to either competitors or users/consumers by abusing that power. Some operators are therefore subject to more regulatory remedies than others (i.e., asymmetric regulation). The underlying rationale for asymmetric regulation is that regulation will be imposed only when it is needed to prevent market failure. Reasons include: regulatory intervention changes market dynamics and therefore causes market distortion; regulation costs money; regulation is time-consuming; and REGULATING FOR GROWTH | 4
  7. 7. WHITE PAPER | BERKELEY RESEARCH GROUP unless the regime is transparent and predictable, regulation can cause market uncertainty and increase risk. In order to apply asymmetric regulation, it is critical to first determine who has market power in which markets. Asymmetric regulation therefore relies on market power analysis. The ONP framework used a simple rule to determine whether a provider had market power—any provider with more than 25 percent market share in a predefined market had market power and therefore should be regulated to prevent abuse of such power. Over time, as markets have become more complex through market entry and competition, this approach has been refined (and made considerably more complicated) into one that requires regulators to first define markets where regulatory intervention could be justified (‘relevant markets’ susceptible to ex ante regulation) and then establish whether a provider(s) hold(s) a position of market power. If so, the potential market failure caused by an abuse of such market power is identified, and remedies are designed to prevent that (or those) market failure(s). This process is set out in the EC market review guidelines,3 and it took some EU regulators more than two years to complete the first time. Thus, it is considered complex even in EU member states with welldeveloped administrative infrastructures. Asymmetric regulation requires detailed analysis to define ‘relevant markets’ susceptible to ex ante regulation4 and the subsequent analysis of providers in these markets to ascertain whether one or more provider(s) enjoy(s) a position of significant market power (SMP).5 If SMP is found, then the underlying ‘market failures’ leading to the SMP position need to be identified, and remedies need to be designed to prevent the abuse of that SMP. 3 European Commission, “Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services,” 2002/C 165/03 (July 11, 2002), accessed at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2002:165:0006:0031:EN:PDF 4 Regulatory intervention to prevent abuse of market power, rather than ex post intervention to punish or remedy abuse that has taken place. 5 SMP is defined by the European Commission as ‘a position where an undertaking has the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers.’ REGULATING FOR GROWTH | 5
  8. 8. WHITE PAPER | BERKELEY RESEARCH GROUP 3.2 Market Power Analysis in EEs Despite the differences in priorities identified above, it is difficult to see why the rationale behind asymmetric regulation (reducing regulatory intervention to where it is required, and thus reducing market distortion, costs, and time) is not valid in both groups of economies. The benefits of asymmetric regulation seem clear. However, it is important to look also at the costs. Asymmetric regulation requires market reviews, and the most significant regulatory cost of asymmetric regulation is likely to be the market review process. It would be possible to estimate the costs of the market review process in a number of EEs and, from that, a cost range for the process. This paper, however, takes a more qualitative approach. Four potential methods of performing a market power analysis have been identified, and relative benefits and costs/risk have been estimated for each on a scale of 0 to 10 (see Figures 1 and 2). I have considered the following factors: a. Cost of implementing the option b. Time to implement c. Regulatory risk of implementation (including both over- and under-regulation of providers with and without SMP) The options are:6 1. Using market share thresholds to determine whether a provider has SMP 2. Setting market share bands for presumption of SMP, and performing limited additional analysis to test presumptions 3. Developing a reduced set of analyses to be performed across all markets, independently of market shares 4. Performing the full EU market analysis process 6 The four options are described in more detail in Appendix 1 to this paper. REGULATING FOR GROWTH | 6
  9. 9. WHITE PAPER | BERKELEY RESEARCH GROUP The basis for comparison (Option 0) is a situation where no market analysis is undertaken, and providers are subject to full regulation as though they had been found to have SMP. 7 The relative risk/cost/time levels would be likely to change with market conditions. For a market with a single significant fixed operator and two mobile operators of similar size, the relative costs/risks and benefits could look as illustrated in Figure 1.8 10 8 6 Risk Cost 4 Time 2 0 Option 0 Option 1 Option 2 Option 3 Option 4 (Figure 1 is illustrative only) This illustration reflects that there is some (although only moderate) risk of over- or under-regulation if everyone is subject to full SMP regulation, but that due to the limited complexity of the market, the risk could potentially be reduced substantially through relatively limited market analysis to achieve asymmetric levels of remedies. Full EC market reviews may be unlikely to reduce substantially that level of risk whilst substantially increasing the time and costs of the process. In a market with several fixed and mobile operators of different sizes, the graph could look as follows: 7 This option could be modified to include a minimum-size/turnover threshold for certain regulation to apply so that very small providers would not be caught. 8 Please note that the graphs are intended to be illustrative only. The crossover point should not be interpreted as favouring a specific option. REGULATING FOR GROWTH | 7
  10. 10. WHITE PAPER | BERKELEY RESEARCH GROUP 10 8 6 Risk Cost 4 Time 2 0 Option 0 Option 1 Option 2 Option 3 Option 4 (Figure 2 is illustrative only) In this scenario, the increased market complexity would cause a substantially higher risk of over- or under-regulation if full SMP regulation was applied to providers, and that risk could be substantially reduced through market analyses. The risk levels of options 3 and 4 are equal in this illustration due to the assumption that there is a limited amount of reliable data, and therefore increased analysis may not increase the accuracy of the outputs. In addition to the factors included above, a further factor is significant in many EEs—the lack of reliable data. In all economies, regardless of how developed they are, it is hard to obtain the information required by the regulator to perform reliable market reviews. In EEs, the systems used by providers may retain even less data, and this presents a significant risk factor to performing detailed market reviews. The risk of over- or under-regulation for all options 1 through 4 therefore may be higher than indicated above. 3.3 Asymmetric Regulation in Context Remembering the regulatory priorities of EEs of affordability and attracting investment to build infrastructure and develop services, the benefits of asymmetric regulation should be considered alongside other aspects valued by potential investors. These would include regulatory certainty and transparency. The burden of more regulatory controls (e.g., imposing SMP-style regulation on all licensees or choosing a lower-cost option for determining SMP) may be outweighed by benefits of certainty and transparency of how regulatory decisions are made, and what those regulatory decisions will be. REGULATING FOR GROWTH | 8
  11. 11. WHITE PAPER | BERKELEY RESEARCH GROUP Regulatory certainty requires a clearly defined framework, preferably one that is used in a region or a group of countries such that a body of precedents is developed to assist both regulators and providers in anticipating regulatory decisions and reducing legal challenges. No such consistent framework and body of precedents exists for EEs; this is often cited as one reason for using the established DE frameworks such as that of the EU. It is hoped that RfG will assist in the creation of a more fit-for-purpose framework and body of precedents for EEs. A representative of a large regional9 provider and investor commented: Despite fixed networks being far from ubiquitous in emerging markets, the regulatory frameworks being applied remain essentially similar to those of the European Market with robust ex-ante regulations and loosely applied ex-post regulations often not supported by appropriate competition frameworks and competent competition authorities. The existing ex-post competition assessment and adjudication processes take too long and as consequence those affected by anti-competitive activities, either price or nonprice, have been materially and in some cases fatally damaged before any corrective actions are taken… It is essential that emerging markets recognise the need to streamline the regulatory approach; to recognise the need to consider how best to ensure investor confidence and stability in the regulatory framework; and to reduce the total tax and fees burden levied on the sector. Adjustments in these areas will yield significant benefits not least of which will an improved probability of achieving digital agenda aspirations within an appropriate timeframe and at retail prices that remain affordable to the masses and not just the elite. Bashir Gwandu, former regulator of Nigeria and current chair of the Commonwealth ITU Group and the ITU Radiocommunications Advisory Group, adds, “Effective regulatory strategies for the developed world are in most cases not as effective in the developing world in view of the differences in the level of education, rights awareness, and existence of established and well-tested legal system that protect citizens from abuse of market power.” He further states, 9 Across Africa, the Middle East, and Asia. REGULATING FOR GROWTH | 9
  12. 12. WHITE PAPER | BERKELEY RESEARCH GROUP In some EEs, where smaller niche operators have been licensed, is not only the national dominant operator that can abuse market power. It could be a small operator that might be dominant in a small geographical area where other operators do not have coverage. In such cases when regulating we apply rules across the board and not only to the national dominant operator. So, the techniques used in the developed world whereby dominance is first identified before applying specific regulatory mechanism may not necessarily provide the desired and timely results. Additionally, whilst regulation should provide certainty to large investors and current network operators, it is important that the electronic communications sector provide a fertile platform for local initiatives from small- or medium-sized entrepreneurial companies [inset quotes from smaller operators and incubators]. Juliey Nomah, chairperson of the African Incubator Network, says, “When competition is introduced, it is critical that careful thought is given to the controls on licensees to prevent abuse of dominance and to ensure that the market provides opportunities for innovation by smaller companies. This should be enshrined in the telecommunications sector policy and in the licensing terms for network and service providers.” 3.4 An Example - Call-Termination Markets A further example of how emerging markets may differ from developed markets is in the presumption of SMP in termination of calls to directly connected customers. Regulators in the EU have worked for approximately 10 years with the presumption that network operators have SMP in the market for terminating calls to their directly connected customers—simply because one can only call a person by using the network that person is connected to. In many emerging markets, however, customers own and can be reached on two or even three phones. This can be caused by market situations, such as a lack of interconnection between networks or on-net pricing that makes it attractive for people to make only on-net calls, even if it means having several network subscriptions and phones (or phones with dual SIM card slots). This particular market condition could challenge the REGULATING FOR GROWTH | 10
  13. 13. WHITE PAPER | BERKELEY RESEARCH GROUP presumption of SMP in call-termination markets, unless the market condition is considered temporary due to other market failure(s). 4. CONCLUSION Although this paper has only touched on some of the challenges in developing a specific element of a regulatory framework suitable for EEs, it has also clearly identified that simply ‘downsizing’ or even copying frameworks from more DEs (such as the EU framework) will not likely be a suitable solution. Useful guidelines exists for regulators and providers in EEs (including the ICT Regulatory Toolkit, published by the ITU and infoDev),10 but as these guidelines and toolkits do not articulate how best to meet the specific needs of EEs, it can sometimes be difficult to determine which parts of the toolkit to apply. It appears that substantial benefits could result from more in-depth analysis of how best to meet the needs of EEs, and this paper is intended to be an initial step in that process. With the involvement of a wide range of parties (including governments, regulators, academics, current and future providers, and investors), we at Berkeley Research Group hope to initiate an effort to crystalise the specific needs of EEs through the RfG initiative. RfG should articulate an approach for a practical and ‘fit-for-purpose’ regulation that regulators and governments can refer to alongside other frameworks when introducing or updating electronic communications regulation. 10 infoDev and International Telecommunications Union, ICT Regulation Toolkit, accessed at: http://www.ictregulationtoolkit.org/en/index.html REGULATING FOR GROWTH | 11
  14. 14. WHITE PAPER | BERKELEY RESEARCH GROUP APPENDIX 1: DESCRIPTION REGULATION OPTIONS AND DISCUSSION OF ASYMMETRY OPTION 1: USING MARKET SHARE THRESHOLDS ONLY TO DETERMINE WHETHER A PROVIDER HAS SMP This option would require a relatively small amount of market data (revenues and customer numbers by service line) and could be done relatively quickly. Below I explore the potential risks of this option. In markets with only a small number of providers, and where historically one provider was a monopoly, this approach could be appropriate. However, many EEs, as described above, are often characterised by a single historic monopoly in fixed services with only limited geographic coverage and subscriber numbers, whereas there can be two or more mobile providers with substantially higher coverage and higher subscriber numbers. As the regulatory framework would need to address the market situation across all electronic communications, the SMP test would need to be flexible enough to address both fixed and mobile market conditions. Supposing that a market share level of 40 percent11 was to be set as the threshold for SMP, it is possible that both mobile providers and the incumbent fixed provider would fall into that category. This result may be acceptable for the fixed provider in a relatively static fixed market. But if the two mobile providers compete strongly, it is possible that neither of them hold SMP in a specific relevant market. This could result in over-regulation of the mobile providers. In more complex market situations, heavy competition from market entrants could pose significant competitive constraints on a large incumbent provider and therefore reduce the larger provider’s market power. As market structures become more complex with an increased number of providers, and where markets experience rapid growth, the simple market share test will likely become gradually less useful. A threshold of 25 percent, as used in the ONP framework, would increase the risk of over-regulation, 11 The European Commission framework (2002) says that a market share above 40 percent can create a presumption of SMP, although all other tests still need to be performed to establish that. It also says that a market share above 50 percent would almost certainly result in an SMP finding. REGULATING FOR GROWTH | A1
  15. 15. WHITE PAPER | BERKELEY RESEARCH GROUP but that could, from a consumer protection perspective, be considered more acceptable than risking under-regulation. OPTION 2: SETTING MARKET SHARE BANDS FOR PRESUMPTION OF SMP AND PERFORMING LIMITED ADDITIONAL ANALYSIS TO TEST PRESUMPTION The principle behind this idea is to create upper and lower thresholds below and above which it is very unlikely that a provider will or will not enjoy SMP. The band therefore would identify providers that may have SMP and for which more detailed analysis would be required. These limits could be perhaps 35 percent and 60 percent12—analysis could determine the optimal levels, or the level could be left variable for each regulator to determine (through open consultation). Therefore, the additional tests required below and above these thresholds would be limited. Market shares falling between these thresholds would require more tests, which could be ‘tiered’ so as to reduce overall effort and time consumed. This option would require more data than the simple market share test, but the process could be run sequentially (so that the data collection to perform the required analyses would be undertaken after the initial market share analysis and targeted at markets where providers fall into the middle bracket of market shares), rather than needing to collect information from providers up front. The costs of this analysis and the time required to perform it would be higher than for the simple market share test. Whilst not including the full EC framework tests for all market situations, this option seeks to reduce costs and time, as well as the risks of over- or under-regulation. In markets experiencing significant growth (and thus change), such as in many EEs, market shares could change relatively quickly. Therefore, even with the more detailed additional analysis in the middle category, there remains a risk of over- or under-regulating as a result of reduced analysis. In my view, however, that risk would be substantially reduced relative to option 1. 12 The intention would be to set the limits to capture the vast majority of potential SMP providers, but at the same time limit the more detailed analysis to only where it is needed and has the greatest risk of market failures resulting from over- and under-regulation. REGULATING FOR GROWTH | A2
  16. 16. WHITE PAPER | BERKELEY RESEARCH GROUP OPTION 3: DEVELOPING A REDUCED SET OF ANALYSES TO BE PERFORMED ACROSS ALL RELEVANT MARKETS AND ALL PROVIDERS, INDEPEDNENTLY OF MARKET SHARES This option takes away the reliance on market share as thresholds for presumptions and level of analysis require. It could still include some ‘soft thresholds,’ such as those in the current EC framework, but all markets and providers would be subject to the same level of analysis, in principle. The number of parameters and level of analysis undertaken would be lower than prescribed in the EC market review guidelines in order to achieve a reduced time and resources burden on regulators and providers. Defining the parameters to include in this analysis would need to be based on empirical data and handson knowledge of market dynamics in EEs. A focus on parameters for which reliable data is most likely to be available could be a useful starting point, as the availability of reliable and comparable data is often a significant issue. Designing analytical tests that require data that is difficult to retrieve and audit can lead to the results being challenged, and specifying significant data-collection requirements can impose a significant resource and monetary burden on providers, so it should be considered carefully. However, there is the risk of not identifying the correct parameters to enable robust analysis and decision making. There is also a risk of not being able to collect the necessary data, and that the data collected may not be sufficiently reliable to perform the necessary analyses. Additionally, as complexity increases, the risk of incorrect implementation of the prescribed analyses increases for this option over and above the first two options. It is not obvious that the risks are higher for under- or over-regulation. The increased complexity of the analysis also increases regulatory uncertainty and could impact negatively on investor confidence. OPTION 4: APPLYING THE EC MARKET REVIEW GUIDELINES IN FULL The European Commission has already described this option in substantial detail, but it is worth looking at the risks of using this option in EEs. REGULATING FOR GROWTH | A3
  17. 17. WHITE PAPER | BERKELEY RESEARCH GROUP If applied by experienced practitioners using accurate and reliable data, this option should reduce the risk of over- or under-regulation. However, given the difficulties in getting the necessary data and history of many EU regulators finding the analysis difficult to perform, it is arguable that the risk of over- and under-regulation could increase. In my analysis, I have assumed that the risk remains unchanged from option 3, with the additional data and analysis outweighing the other risks. REGULATING FOR GROWTH | A4
  18. 18. WHITE PAPER | BERKELEY RESEARCH GROUP APPENDIX 2: OUTLINE OF ‘REGULATING FOR GROWTH’ INITIATIVE Regulating for Growth (RfG) is an initiative that aims to identify areas in which regulatory objectives and priorities differ between developed economies and emerging economies, to the extent that regulatory approaches in developed economies may not be suitable or fit for emerging economies. It is the intention that RfG should to attract a wide representation of stakeholders to participate in the initiative in order to ensure that the approach taken is balanced and representative. RfG will identify a series of topics for which a subgroup will take the responsibility to produce analysis in accordance with a standard format outlined below. The outputs produced should be a set of guidelines with underlying supporting analysis. The guidelines should be authoritative, yet informal—not formal recommendations. They should carry weight because of the broad representation in the group that developed the guidelines and provide a policy reference framework for all stakeholders (governments, regulators, investors, providers, and consumers). They would be intended as guidance to supplement the application of (for example) the World Bank ITC Toolkit and regulatory frameworks such as that used in the EU. It is hoped that the outputs will sit alongside other resources including the Regulatory Toolkit, prepared for the World Bank and the ITU. The outputs would be freely available to all interested parties under a ‘no liabilities’ principle. PROJECT SCOPE Initial topics identified to be covered include: 1. Defining Policy Objectives and Regulatory Priorities for Emerging Economies 2. Investment/Coverage Incentives 2.1. USO scope and funding REGULATING FOR GROWTH | A5
  19. 19. WHITE PAPER | BERKELEY RESEARCH GROUP 2.2. License restrictions (limitations to types of services or types of infrastructure that can be built and operated under specific licences—general licences versus silo licences) 3. Asymmetric Regulation 3.1. Market failures and remedies 3.1.1. Access and interconnection 3.1.1.1. Impact of new technologies? 3.1.2. Retail 3.1.3. Consumer protection 4. Allocation of Scarce Resources 4.1. Spectrum 4.2. Numbers and names 5. Fees and Charges 5.1. General fees 5.2. Spectrum 5.3. Taxes 6. Compliance 6.1. Incentives 6.2. Penalties Each task should result in a paper that: 1. Identifies objectives and priorities of the activity in developed economies (DEs) 2. Reviews these against outputs from task 1 (Defining Policy Objectives and Regulatory Priorities for Emerging Economies) 3. Reviews DE regulations against EE objectives and priorities REGULATING FOR GROWTH | A6
  20. 20. WHITE PAPER | BERKELEY RESEARCH GROUP 4. Discusses regulatory options 5. Presents case studies and outcomes 6. Presents quantitative analysis of options, where appropriate 7. Provides guidance on regulatory options for different market conditions We envisage that the work will be done in phases. Task 1 should precede all other tasks, as it will inform all tasks and subtasks. STRUCTURE AND PARTICIPANTS Two levels of participation are envisaged:  Sponsors will contribute financially to the organisation of the initiative and to specific analysis required to support the work of the subgroups. Sponsors will also contribute resources and expertise to participate in subgroups (travel costs should be covered by the participants themselves).  Participants will contribute resources and expertise to participate in subgroups (travel costs required should be covered by the participants themselves) and data, where applicable and under confidentiality agreements, to support the analysis. It is expected that work can be done using telephone and email to avoid or at least minimize travel costs. OUTLINE PLAN AND TIMING Recruitment of sponsors and participants: October 2013 Kickoff for task 1: November 2013 Official launch at IIC 2013 Task 1 outcome announcement: Q1 2014 Subsequent tasks to be completed by August 2014 REGULATING FOR GROWTH | A7
  21. 21. WHITE PAPER | BERKELEY RESEARCH GROUP Final outputs and one-day workshop: IIC 2014 ORGANISATION Overall Management: BRG Steering Group: Sponsors and two to three participants (one standalone operator and one regulator as minimum to ensure cross-representation) SG Tasks:  Formally approve scope and formulate more detailed task descriptions  Develop delivery timetable to meet main milestones, as set out above  Allocate tasks to working groups (and participate in these)  Approve budget for academic work  Sign off outputs  Manage external communications and ensure coverage, as appropriate Working Groups All sponsors and participants plus analysts. A WG would typically have two to five members WG Tasks:  Provide detailed specification of each task (and subtasks)  Collect data from all members of the initiative (if confidential, then this could be done by BRG and/or academics)  Undertake activities 1 through 5 and 7 set out above in description of what RfG papers should cover. (sometimes with contribution from analysts)  Specify and manage analysts and other contributions from external parties  Complete and sign off outputs for review by SG REGULATING FOR GROWTH | A8
  22. 22. About Berkeley Research Group Berkeley Research Group, LLC (www.brg-expert.com) is a leading global expert services and consulting firm that provides independent expert testimony, authoritative studies, strategic advice, data analytics, and regulatory and dispute support to Fortune 500 corporations, government agencies, major law firms, and regulatory bodies around the world. BRG experts and consultants combine intellectual rigor with practical, real-world experience and an in-depth understanding of industries and markets. Their expertise spans economics and finance, data analytics and statistics, and public policy in many of the major sectors of our economy, including healthcare, banking, information technology, energy, construction, and real estate. BRG is headquartered in Emeryville, California, with 25 offices in the United States, Australia, Canada, Latin America, and London, UK. www.brg-expert.com

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