It's the Regulator, Stupid!

Dear Noel,

Now that Isolde is in the chair of ComReg, I am taking the liberty to talk more freely about things.

One of the remaining dark secrets of this sector is the answer to the question:

"Who is responsible for our Broadband and Internet disaster?"

Many vague answers have been given, not least by ComReg:
– the timing of the dot-com crash (as if the failure of some Californian company to sell enough cat litter online had any impact specifically towards our country)
– the downturn of the telecoms boom (as if that impacted solely on Ireland)
– the missing cable competition in Ireland (as if not other countries without cable competition, like Denmark and Japan had not risen to the top of the league)
– Eircom's greed and short term profit thinking (as if incumbants in the rest of the world had not had the same intentions)
– our special demographic and geographic conditions (as if not all other countries had their own specific detrimental conditions to overcome)
– privatisation of Eircom (as if this had impeded other countries' broadband development)

Of course ComReg won't speak the answer, nor are other State bodies like Forfas or the Information Society inclined to do so, but it will not stay a secret forever:
The main cause of our failed Internet and Broadband development is regulatory failure.
As long as we do not acknowledge this fact, we will not be very successful to overcome the problems we are in.

This is a serious suggestion, touching the foundations of ComReg. We at ComReg have made the fox guard the henhouse, the goat weed the garden. We at ComReg did it for reasons and in ways that are perfectly explained by Sean Mac Cann's article about the role of sectorial regulators.
Please take the time to read Sean Mac Cann’s enlightening piece about regulation. It is from his legal webblog http://www.maccann.com. With permission of the author I quote the main arguments here. While Sean Mac Cann discusses the more general issue of single vs. sectoral regulation, the cause of our failed Communications regulation is compellingly elucidated.

Yours

John

P.S.: Noel, when will you stop selling the MAN's as an alternative to opening the incumbent's last mile network by regulatory means? They simply aren't.
They aren't an alternative for anything. There is as much need or use for Metropolitan (!) fibre rings around small towns (!) as would be for dual carriage way rings around them. But that story is for another day.



From Sean Mac Cann's weblog:

"The current fragmented approach to regulating militates against good decision making ever happening, for four reasons:

1. LACK OF ACCOUNTABILITY AND SCOPE FOR BUCK-PASSING.
This is mainly in relation to the Competition Authority ("CA") vis-a-vis the rest. Since the main underlying thrust of all sectoral regulators is to free-up competition, where does the CA's role start and end? When I worked in the former ODTR (now ComReg), it was never clear, for instance, whether ComReg or the CA should initiate a cross-subsidisation investigation. Result: regulators dither and new businesses die.

2. DEFERENCE.
A sectoral regulator, with nothing but sectoral expertise, instinctively defers, in technical and operational matters, to the former incumbent. It's hard for them not to - very often, a new regulator will know far less about a particular industry than the former incumbent. An unhealthy relationship can develop. I've seen at first hand how a former incumbent can bog issues down in a lot of red-herring minutiae - there will always be "unfortunate technical reasons" that they "understand better than everyone else". The problem is that a sectoral regulator is awed by this degree of nit-picking experience; and defers to it. This in practice always means favouring doing nothing, just in case. A regulator who was bullish in pursuit of clear principle and less inclined to waste time in rambling sub-committee debates would get better results. Paradoxically therefore, less understanding might be more, not less, useful. Sectoral regulators, as a consequence of their much-vaunted sectoral expertise, are too nervous and too easily swayed by b/s technical sub-committee "arguments" ever to achieve anything bold or decisive.

3. REGULATORY CAPTURE.
A sectoral regulator affords too much weight to the former incumbent's opinions. The ingrained mindset becomes one whereby the sectoral regulator instinctively feels that the former incumbent's opinions always amount to 50% of the argument and all the other players together account for the other 50%. In other words, in effect, the former incumbent has the psychological equivalent of weighted voting rights. This means that ten new players can say one thing, the former incumbent will say another; and, instead of the regulator feeling that this is a ten votes to one situation, will feel instead that there is a "deadlock". This is a fact of life with sectoral regulators and is their most serious built-in flaw. There does not have to be any kind of corruption or improper influence; but, from the perspective of other players in the market, the effect is analogous to regulatory capture by the former incumbents. A single regulator would see each former incumbent as just another company to be regulated, and would be far less in awe of them as a result.

4. POLITICAL INFLUENCE.
This happens. It does not have to be inappropriate. It's not a question of political capture. Sectoral regulators, without being leaned on by anyone, instinctively look over their shoulders continually - aware that their existence hangs on the whim of a particular Department, they tend informally to wash their decisions through a political filter of nervous expediency. It's relatively easy for a powerful incumbent and a particular Department to hold sway over a narrow sectoral regulator, without actively needing to try to do so. Sectoral regulators do not have a big picture mindset. By contrast, a unified regulator plays in a wider game, and would be less inclined to let one rogue sector upset a larger plan. Simply, as a consequence of their wider responsibilities and duties, they'd more inclined to stand up for themselves and to take robust decisions.

If my experience has taught me anything, it's that laws that are forced to operate in a debilitating structural context will fail."