More Legal Certainty in an Uncertain World

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• More Legal Certainty in an Uncertain World
• Alexandre de Streel
• University of Namur
• Symposium on the Future of Telecoms Regulation
  2006
• Amsterdam, 2 November 2006

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1. Some problems to date

• Lack of legal certainty (and multiplication of
  appeals)
• Is there any entry assistance (infant industry)?
• How to deal with emerging markets?
• Similar issues dealt with differently in the
  Member States (WLR, VoIP, cable)
• And gap between (deregulatory) rhetoric and
  (regulatory) practice
• Increase of wholesale regulation (WLR, naked DSL,
  SMS, intal roaming)
• Making competition happen, and not merely letting
  it happen
• Enhanced consumers protection Europe by results
• No more clear road towards deregulation
• Implicit paradigm shift from the original sin to
  the insufficiency of antitrust remedies
• Some incumbents lobbying has backfired.

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Rely increasingly on competition rules
Pro-competitive sectorial telecoms Laws
Competition Law
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2. Some causes of the problems

• No clear objective
• Stimulate broadband as in i2010 Action Plan
  (industrial policy) or just ensure markets are
  functioning properly (neo-classical model)
• Antitrust hybridisation does not evacuate policy
  choice and may create additional difficulties
• A regulatory model that is not enough emancipated
  from antitrust law
• Complex test for regulation 3 steps (three
  criteria test, market definition, dominance
  assessment) to answer 1 question (where sector
  regulation has an added value compared to
  antitrust law?)
• Institutional failures
• Inefficient check and balances (NCA, Appeal
  bodies, Commission)
• Adversarial model and not enough commitment
  devices

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3. SolutionsRationale for legal certainty

• Protect investment and solve the time consistency
  problem of the regulator
• Ex-ante, NRAs do not have incentive to regulate
  to stimulate investment
• Ex-post, NRAs have incentive to regulate to reap
  off the benefits of investment
• Central Banks literature
• Alleviate multiplication of appeals, and increase
  in regulatory costs
• Difficult in the sector with uncertain evolution
• BUT particularly important as the focus shift
  towards more investment
• Guash and Spiller (1999) a lack of credibility
  may increase utilities cost of capital up to 6
  percentage basis points
• Cf Telstra

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3. SolutionsSubstantive issues

• Clarify objectives
• Long-term interests of end-users see Section 152
  AB (1) of the Australian Trade Practice Act 1974
• To be translated in a management plan for each of
  the 25 NRAs
• Clarify the threshold for regulation
• 1. Entry barriers Non-transitory, non-strategic,
  mainly of economic nature (advocacy for legal
  barriers) and very high
• Or some types of network effects plus elements
• 2. Dynamic correction Assess whether the market
  delivers the benefits of the Schumpeterian
  creative destruction
• Emerging markets link between regulation and
  financial risk
• Recast remedies towards deregulation
• Outside of the box technological (multiple SIM),
  tariffs conventions (wholesale BaK, retail RPP),
  quasi-structural (separation)

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3. SolutionsInstitutional issues

• Strong National Regulatory Authorities, with a
  dynamic view of the markets
• Important bargaining power
• Regulate by contracts
• With efficient checks and balances
• National Competition Authorities
• National appeal, as the protector of the legality
• Control should be marginal
• by knowledgeable judges
• No systematic suspension
• European Commission, as the protector of the
  European interest
• Control should be limited to European interest
• Commission should be accountable (transparency,
  motivation, judicial review)

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3. SolutionsNew sequence of analysis

• NRA start by analysing a cluster of markets
• NRA identify the welfare problems on the basis of
  the two criteria test
• NRA propose some remedies, explaining how it will
  solve the problem and try to reach a settlement
  with the operators
• If possible, the settlement should be endorsed by
  the European Commission
• If not possible, the NRA should impose dynamic
  remedies for a stable period of time
• Such remedies may be blocked by the Commission

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4. Hypothesis for discussion

• Rely more on regulation by contracts
• that should be endorsed by the European Commission