How to regulate a telecoms market

18 October 2002

An accountant by training, Sir Bryan Carsberg has worked in business, government and education. Practical and pragmatic rather than rule-driven and ideological, Carsberg can say surprising things about the role of an effective telecoms regulator.

'The idea that you should limit competition in networks seems to be the most sensible approach,' he says. 'I would not open up a network to full competition straight away.'

This is a timely message for Saudi Arabia's telecommunications sector. In 2001, the Saudi Communications Commission was set up to regulate the local industry. Saudi Telecom, the state-owned services monopoly, will soon float shares for the first time.

'Saudi Arabia is liberalising at the right time,' Carsberg says. 'The lessons of privatisation elsewhere are there to see. One of the things that has happened worldwide is that people have over-invested and they have developed their networks to the point where there is excess capacity. This is the sort of thing that can happen with competition. So I think a sort of gradualist approach works quite well with one competitor as far as the network is concerned.'

But when it comes to services, Carsberg is a firm advocate of letting the market rip. 'Liberalisation is all about improving value for money for customers,' he says. 'Promoting competition is the best way of doing that. The energy and enterprise you get from a good market far outstrips what any regulator can do. Making competition work is the main goal.'

The initial regulatory challenge is making sure that the dominant supplier does not abuse its position. 'You have to supervise the dominant supplier's operations to ensure there is no cross-subsidising, which involves charging high prices in monopoly areas and subsidising activities where there is competition to keep new entrants out,' Carsberg says. 'In networks, you have to make sure that competitors have fair access on fair prices and fair terms to the network of the dominant provider. The key aim is to make sure that new operators can connect to the network of the previous monopoly on fair terms without delay.'

Carsberg advises against the regulator getting involved in detail when seeking out cross-subsidisation. 'The approach that I think works is to set down the accounting principles to be used,' he says. 'What you are looking at is the different operations of the dominant provider so that each one is paying its way and not more. Use the auditors of the firms in question to get at the financial figures. You only get into detail where the accounts suggest there are issues.'

Carsberg is a cautious critic of the trend in the UK and elsewhere for the regulator to engage in micromanagement. 'Some of the things I am seeing coming out of Oftel suggest it is going into too much detail,' he says. 'The aim of the regulator is to be cost-effective and to regulate what really matters. The policy should be to avoid detailed regulation.'

This advice extends to prices. The initial Oftel approach was to set a limit on prices based on inflation and to allow BT, the dominant UK operator, to decide how this was to be distributed across various services.

The regulator also needs ministers who will refuse to interfere on behalf of operators - a challenge for the Arab world where the discretionary powers of government are regularly exercised. 'Make it clear in the legislation that it is the regulator who acts and that it is independent of ministers,' Carsberg says.

Now active in business, Carsberg is conscious of the hammering investors in the telecoms sector have taken in the past two years. 'It is a tough market and it would be foolish to deny it,' he says. 'But that does not mean you have to stop investing. Choose your area and do your business plan carefully.'

In North America and Europe, network overcapacity and the massive burden of paying for the third generation of mobile telephone licences are the principal burdens on the telecoms sector. 'But in a new situation like Saudi Arabia, there is no oversupply in the domestic market,' says Carsberg, adding: 'It must be a good opportunity.'

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