Business

Is liberalisation always good?

BY GARRY SINCLAIR

Friday, November 02, 2012    

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LET me use this opportunity to state unequivocally, telecommunications is not a simple industry. Having assumed responsibility for the LIME businesses in Jamaica, we recognised that despite liberalisation of the telecommunications market, unfair competition was still very pervasive and was still not being addressed by the existing legislation or regulations. In fact, mobile termination rates were very high and though there was some reduction in the on net rates, the cross network rates remained disproportionately high and above cost, for well over a decade.

On the other hand, the less competitive, though highly regulated, landline service has considerably lower rates than mobile but has long ago been overtaken by mobile devices, which have become the number one choice for communication.

When we look at Internet penetration, the competition that followed liberalisation has resulted in significant reductions in the consumer prices and higher speeds/more bandwidth, however, Internet penetration is still relatively low.

This scenario does stimulate the question: “Does market liberalisation always result in lower prices and better service for consumers?”

My view is obviously that it depends on many factors. This includes the type of market and the socioeconomic environment in which the market operates.

So, liberalisation ought not to be an end in itself. Simply allowing new entrants into what was formerly a monopoly market does not automatically mean that the resulting market structure will result in “lower prices” and “better services”. Instead, these outcomes are only sustainably achieved by the attainment of true competition within a market.

Since perfect competition will not naturally occur in a market, it is the legal and regulatory framework that will ensure a level playing field and afford competing companies the same opportunity to operate a sustainably profitable business.

An effective legal and regulatory framework ensures that dominant players are denied the opportunity to abuse such dominant positions to the detriment of smaller players, whether in the wholesale or retail markets.

Conversely, the absence of an appropriate legal and regulatory environment will compromise competition and without intervention from the legislators and regulators the market will suffer lessening of competition and perhaps a return to a monopoly state.

Liberalisation and the facilitation of true competition with effective regulation obliges operators to step up their game and innovate. However, the process of ensuring that there is a level playing field must continue to evolve if consumers are to experience lower prices and even better services.

Consequently, infrastructure sharing such as the co-location of cell towers will need to be regularised. This will ensure that competing operators are given equal opportunity to build out their networks across the country, especially given the scarcity of appropriate land and the potentially negative effect on the environment. I believe that mandatory sharing of cell towers will lead to better overall cell coverage and ultimately service to subscribers within the country.

I am pleased as well to see that the Local Number Portability (LNP) consultation process has started. LNP enables customers to choose service providers without the penalty of losing their number and it facilitates value and quality-based competition among operators. Consumers WIN! Benefitting from, improved quality of service, product and service innovation and lower prices.

I am, however, concerned with the allocation and assignment of electromagnetic spectrum. Spectrum makes the provision of wireless services used via your cellphone, tablet eg ipad, USB modems (called “dongles”) possible. An inadequate amount of spectrum or none of a particular type of spectrum results in poor service delivery or the absence of services required to improve productivity within the country.

The Legal and Regulatory framework needs to ensure that spectrum is assigned fairly to operators such that they can improve service delivery. The recent merger of Digicel and Claro, despite liberalisation, has resulted in LIME being locked out of competing for additional 850 spectrum, which we require to provide improved mobile broadband service to our customers. Consider what happened in El Salvador, that regulator required Claro to give up some of its assigned spectrum as a prerequisite to approving and merger between Digicel and Claro.

On the table is the proposed assignment of 700 spectrum for the provision of LTE services. LTE services will deliver “better” wireless broadband services that will better meet the needs of consumers. The appropriate policy making and consultation process must be put in place to ensure that all operators are able to compete fairly for the 700 spectrum.

Today we accept in principle that market liberalisation with the objective of promoting competition is best for consumers and companies alike. Such an approach should enhance consumer choice and incentivise companies to innovate and operate efficiently and effectively so as to win customers and remain in business.

Liberalisation is a necessary but insufficient step to achieving “lower prices” and “better services”. To achieve both of these desirable outcomes there must also be an appropriate legal and regulatory framework that facilitates true competition.

So…. we should consider liberalisation the highway, while a sound legal and regulatory framework are the critical road signs and traffic lights……with a sophisticated, technically competent, well-armed (with the proper legislative support) regulator as traffic cops. The operators should then be left to drive the vehicle of competition in a fair and transparent market and those able to provide value, service and innovation will survive.

The above is an excerpt from a presentation by Garry Sinclair, managing director of LIME Jamaica and Cayman, at the Office of Utility Regulation's 15th Anniversary Seminar under the theme: Monopolies, Markets, and Competition.

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