There is general agreement amongst regulators that sustainable competition in telecommunications is one of the best ways to ensure that consumers receive the benefits of lower pricing, product innovation and improved service. To ensure effective competition, regulators have developed a number of complex ex-ante rules and costing methodologies to help identify abuses of significant market power (SMP) such as excess profit taking or predatory/anti-competitive pricing.

Many of these rules were initially developed in a pre-digital monopoly environment. In that environment, huge capital costs and economies of scale created substantial barriers to entry, and the resultant risks of SMP abuses were high. Technological change has reduced many of these barriers to entry in retail markets, to the point that today, application-based services over-the-internet (OTT) can replicate virtually all telecommunications-based services delivered to end users.

There is a strong case to be made that where there is effective competition, regulation, in particular, ex-ante economic regulation, is not required. This logic underpins the significant steps now being taken by the Federal Communications Commission (FCC) to deregulate the US telecommunications market.

Even with OTT, there are strong counter arguments to suggest that there are still residual barriers to entry in the access component of the telecommunications network, and that these residual barriers may limit competition. In the fixed market, the most significant barrier still remains the enormous capital costs of replicating the access network to connect all residences and businesses to telecommunications and the Internet. And even though wireless is an increasingly valid, or arguably even better alternative to fixed service, limited spectrum availability reduces the number of infrastructure-based competitors, raising concerns about oligopoly pricing in some markets.

There are no more monopolies in telecommunications, but residual SMP in access, as measured by market and revenue share remains a strong indicator of potential for abuse by dominant providers. Even in the face of OTT competition in retail, it can remain reasonable to apply ex-ante rules to dominant carriers in the access market where there is evidence of SMP.

However, no matter how sophisticated the rules and tests to address abuse of SMP in access, these can ultimately prove ineffective without adequate authority from governments allowing regulatory bodies to enforce compliance and adequately penalize anti-competitive behavior.

Problems that may undermine effective regulatory enforcement can involve (1) lack of legal authority to compel the release of costing information from carriers, (2) insufficient penalties to incent compliance and (3) lack of transparency around the political or legal process for reviewing and varying regulatory decisions.

In markets where governments continue to control or hold significant investment in dominant operators, such as in some countries in the Middle East, the negative impact of the challenges mentioned above can be magnified, particularly where political interventions lack transparency. Delay, insufficient political support for adequate enforcement, or an absence of transparency in over-turning regulatory decisions not only reduce the benefits of competition, but also send negative signals to investors.

Sending negative signals to investors may be increasingly problematic for jurisdictions looking to digital strategies to promote economic growth. As countries pursue strategic opportunities to leverage ICT, the importance of creating an environment conducive to attracting investment grows in importance. It is well understood that investors hate uncertainty, so it becomes critical to address any lack of regulatory transparency or perceptions of political interference in order to attract sufficient capital for large infrastructure deployments.

Jurisdictions hoping to accelerate the transition to an ICT-based economy will have more difficulty attracting new investment if the enforcement of market rules is not transparent or conducive to investors being able to earn a fair return on their investment. Countries that support regulatory bodies in effectively reducing anti-competitive behaviors are more likely to achieve their digital economy objectives than those that do not. And that can become a competitive advantage for the country as a whole.

Finally, while regulators do not make laws or make political decisions, they can still be an effective part of the process to transition to a digital economy. Regulators can take steps to initiate formal discussions around rules of procedure such as disclosure of information, confidentiality and timeliness of decision-making. They can also seek input on other changes to law or regulations regarding enforcement and fining powers in order to increase transparency and competition in the market-place. As a first step to improved transparency, government should encourage the regulator to publicly report back to government with recommendations for change.

To discuss these topics and more with the author of this article and your regulatory colleagues from across the Middle East region, attend the Neotelis Best Regional Practices Workshop for Middle East Regulators to be held in Dubai from 04-08 March 2018. For more information, please see the brochure on next page, visit our website at www.neotelis.com/ser-p/en_Best_Regional_Practices_Workshop_for_Middle_East_Regulators_march_2018 or contact Neotelis at training@neotelis.com.