Sector-specific regulation: transitory or ad infinitum? An international status report on regulatory institutions

In a prior study at the beginning of the European liberalisation process, the Ifo Institute analysed the organization of selected regulatory authorities. This report continues the earlier work with an international comparison of regulatory institutions. The influence of changing markets and increasing competition in telecommunications on the institutional structure of these authorities are analysed. The transition from monopoly market to a competitive market in telecommunications was fraught with problems. To solve these problems, independent regulatory authorities with the power to enact sector-specific regulations were set up in most countries for the purpose of overseeing the transition. In the Interconnection Directive, European authorities specified that sector-specific regulation would be a transitional measure. In the meantime, general economic conditions have changed drastically from the initial situation at the end of the 1990s: intense competition in all telecommunications markets, rapid technological development now characterize the decision-making environment at national regulatory authorities. The question arises as to whether these extremely dynamic and innovative processes in the telecommunications sector were accompanied by institutional adjustments of national regulatory authorities - adjustments that will eventually lead to market supervision by general competition authorities. This study will explore that question empirically as part of a review of institutions in eleven countries (Australia, Germany, Finland, France, Great Britain, Italy, the Netherlands, Sweden, Switzerland, Spain and Hungary). It will provide an overview of the current state of structures of international regulatory institutions for telecommunications markets against the background of competitive situation. The study examines the character of regulation and observable successes, e.g. the increasing number of competitors, market shares and falling prices. At the same time, it identifies new problem areas apparent in the regulated telecommunications sector: falling investment and lagging innovation in network infrastructure. Institutional theory is used to analyse the changes that have taken place. They impute a generally high level of inertia with public institutions and postulate that state institutions use increasingly detailed interpretations of their mission or additional areas of competence they have acquired as evidence of their necessity to exist. More than eighty annual reports were analysed for this study. Regulation experts were interviewed by telephone: employees of the regulatory authorities and ministries, as well as scientists well versed in matters of regulation. The interviews were based on a guideline developed by the Ifo Institute. The analysis concludes that despite a strong increase in the intensity of competition in telecommunications markets after ten years of complete liberalization, sector-specific regulation was not phased out in favour of general competition law in any of the European countries studied. Falling prices, an increasing number of competitors, and the incumbents’ loss of market share have led to reduced regulation in some areas, but any definite renunciation of regulation tied to success factors remains to be seen. On the contrary, ten years after the "transitory" introduction of regulation, structure-preserving behaviour e.g. an expansion in regulatory scope and responsibility, a boost in personnel, and higher budgets for the authorities in question can be observed. Against this backdrop, the initial objective of self-supporting competition and supervisory agencies that restrict themselves to control for and remedy abuse should not be abandoned.