Motivation

Model
Case references on telecommunications regulation
Final remarks and further research
Industry-Specific vs. Antitrust Agencies:
a contribution on the institutional arrangement
of telecommunications policy
Notas de presentacin
45 min de presentacin mximo y 15 min de preguntas. Tratar
de reducirlo a 35-40 min.
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Why is this important?
Institutional design and jurisdiction overlapping.
Dominance of Industry-Specific Agencies is being reviewed
Large discussion among practitioners.

1. Motivation
Why is this important?
Institutional design and jurisdiction overlapping.
Dominance of Industry-Specific Agencies is being reviewed
Large discussion among practitioners.

What is new on this exercise? (could be excluded if the model is not
present)
Institutional spectrum of choice between industry-specific and
generic (antitrust) agencies.
Regulatory fragmentation with overlapping capabilities and
jurisdiction
Trade-off Capabilities vs. Transparency
1. Motivation
Why choosing an I ndustry-Specific Agency (I SA) in telecoms?
Ongoing specific and prescriptive powers to face:
Technology and market complexity
Network specificities and first-mover advantages
Monopoly position and network access
Learning and decisions speed
Universal Social Obligations: public interests.
Path-dependence drives lock-in to institutions


Why choosing an Antitrust Agency (AA) in telecoms?
Revolving-door phenomenon
Homogeneous set of tasks
Larger jurisprudence (commitment, entry).
Easier decision monitoring
Policy Consistency (telecoms-IT-broadcasting convergence )
Case-by-case approach
Approaches that give explanations to this choice.
Coordination and competition of regulatory agencies:
Firm
Government
Regulator


2. Model
Firm
Objective Function:

Government


Regulator rationality constraint:
Regulator


0 > s
Symmetric I nformation
2. Model
q t
q t
2 2
1 1
) (
) (
: s constraint y rationalit Firm
0 0
0 0
>
>
{ }
( )
2 1
2 1
where
1 , dist. prob. a with
,
0 0
0 0 0
0
>

e
=
x x
q t U
0 > s
) ( ) ( s t q q S + 0
Firm rationality constraints:
Firm
Objective Function: Objective Function:

Government
Collusion-proof constraint:

Regulator rationality constraint:

Regulator rationality constraint:
Regulator
Revelation or incentive constraint:

0 > s
) (L R s >
) ( ) (
2 1
0 0 t t F >
q t
1 1
) ( 0 0 >
q t
2 2
) ( 0 0 >
) ( ) (
2 1
0 0 t t L >
Symmetric I nformation
Asymmetric I nformation
2. Model
q t
q t
2 2
1 1
) (
) (
: s constraint y rationalit Firm
0 0
0 0
>
>
{ }
( )
2 1
2 1
where
1 , dist. prob. a with
,
0 0
0 0 0
0
>

e
=
x x
q t U
0 > s
) ( ) ( s t q q S + 0
) ( ) ( ) ( ) ( F T L R s t q q S + 0
Monitoring mechanisms reduce output.
If regulatory costs too high, info rent for the efficient firm.
2. Model (cont.)
Monitoring mechanisms reduce output.
If regulatory costs too high, info rent for the efficient firm.
How high? No regulatory arrangement when
Regulation more likely under (i) larger innovation spillover
(ii) more agency transparency and (iii) larger sensitivity to
the firm and regulator transfers
2. Model (cont.)
How is the ISA?:
more effective regulator
harder to be controlled

2. Model.
Choice spectrum between industry-specific and antitrust regulation
' ' ' '
and
AA ISA AA ISA
T T R R > <
How is the ISA?:
more effective regulator
harder to be controlled

ISA or AA? Regulatory complexity-capabilities vs. capture-administrative control
ISA always chosen, when capabilities more important than capture.



1
' '
' '

= >
ISA AA
AA ISA
C
R R
T T

2. Model.
Choice spectrum between industry-specific and antitrust regulation
' ' ' '
and
AA ISA AA ISA
T T R R > <
How is the ISA?:
more effective regulator
harder to be controlled

ISA or AA? Regulatory complexity-capabilities vs. capture-administrative control
ISA always chosen, when capabilities more important than capture.



What about joint jurisdiction (regulatory separation)? Duplicative regulatory costs
+ improved administrative controls, Laffont and Martimort (1999).
ISA has advantages under large cost duplication and smaller improved transparency
1
' '
' '

= >
ISA AA
AA ISA
C
R R
T T

2. Model.
Choice spectrum between industry-specific and antitrust regulation
' ' ' '
and
AA ISA AA ISA
T T R R > <
Pure industry-specific and pure antitrust regimes are almost inexistent
Exposure to new entry increases regulatory intensity. Consistent with
(1-x) and
3. Case references on telecommunications policy
Telecoms in Europe
Phase1: Monopoly Phase2: Monopoly & Competition Phase3: Competition
Regulatory
Intensity
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Review of EU network industries
from Bergman et al. (1999)
Intermediate
arragements
3. Case references on telecommunications policy
AA-ISA differences in expertise and transparency
WHICH
COUNTRIES?
WHY?
HOW?
Key factor: sector
specificity + complexity
EU
Japan
South East Asia
Latin-America
Small involvement of AA
Weak institutional linkage.
Intermediate
arrangements
3. Case references on telecommunications policy
ISA-AA differences in expertise and transparency
Key factor: sector
specificity + complexity
Key factor:sector vs.
competition specificity.
Criteria misalignments
ISA ass umes the
antitrust model
Explicit codes of
interaction
Small involvement of AA
Weak institutional linkage.
3. Case references on telecommunications policy
EU
Japan
South East Asia
Latin-America
United Kingdom
Brazil
European
Commission
ISA-AA differences in expertise and transparency
Intermediate
arrangements
Key factor: sector
specificity + complexity
EU
Japan
South East Asia
Latin-America
Key factor:sector vs.
competition specificity.
Criteria misalignments
ISA ass umes the
antitrust model
Explicit codes of
interaction
Small involvement of AA
Weak institutional linkage.
United Kingom
Brazil
European
Commission
Key factor: competition
specificity and Adm. controls
(Public sector contracts)
Law and innovation
Court involvement
self-regulation
institutions
New Zealand
Australia
3. Case references on telecommunications policy
ISA-AA differences in expertise and transparency
Intermediate
arrangements
Key factor: sector
specificity + complexity
EU
Japan
South East Asia
Latin-America
Key factor:sector vs.
competition specificity.
Criteria misalignments
ISA ass umes the
antitrust model
Explicit codes of
interaction
Small involvement of AA
Weak institutional linkage.
United Kingom
Brazil
European
Commission
Key factor: competition
specificity and
administrative control
Law and innovation
Court involvement
Public sector
contracts and
self-regulation
United States
New Zealand
Australia
Italy
3. Case references on telecommunications policy
ISA-AA differences in expertise and transparency
Intermediate
arrangements
4. Concluding remarks
Key driver of institutional design:
Government perception of AAs transparency advantages vs. ISAs
expertise advantages.
Case review:
Regulatory reforms respond to such differences.
Some cases respond to changes in the assumed advantages of
each agency.

Limitations and further steps of research:
Government benevolence.
Exogeneity of Government auditing costs.
Specialized regulators with scope overlapping.
More detailed case studies.
Australian and New Zealand cases are similar to the extent that there are no telecom-specific regulator in place and the AA
leads the overview of the business. Their main difference is that Australia mantains telecoms-spoefcific rules (enforced by
the AA), including price regulations, while New Zealand only have antitrust legislation as the legal reference

One example of how the competence issue is present is that when coordination systems are put in place (formal or
informally): the AA is ussually assigned the tasks associated to (product and geographic) market definition and dominant
position and in many cases the whole merger review as well

The more recent the reponsibility assigment the more likely that the AA has a larger reponsibility due to convergence issues

Areas of problem: abuse of dominant position under a almost monopoly positon. Difficult to know what is the fair price
level and what the efficient level of cost is

Differences of enforcement approach: AA is more consumer oriented whereas the ISA is more producer-oriented (is it real?
Does the ISA have consumer protection objectives?)

The main objection to full assigment of telecos overview to the standard antitrust enforcement has been its lenghty process:
the length of the NZ Telecom/Clear interconnection dispute is considered as very expensive to the competitive process.

One ultimate reason to support the ISA is tht there are public interest behaind regulation which go beyond or even contradict
competition policy and they should preveal or at least should be balanced with the competition objectives.
Another reason for prefering the ISA is that there are competitive and economic conditions of markets (i.e. Network
specificities, dominant positions in the access to essential facilities) that require ongoing specific prescritive rules which
the AA ussually dislikes

The problem of AAs with prescriptive rules and power is related to their preference of negative prohibitions rather thatn
positive regulatory decisions

It would be interesting to consider in which cases the regulatory design was a consequence or a anctecedent of the new
regulatory regimes and legislations