The regulatory regime for the global telecommunications market is undergoing dramatic transformation. As more and more national markets become liberalized the traditional system of cooperating monopolies is breaking down. This increasingly market-driven approach is forcing new institutional arrangements for the regulation of international telecommunications as well as in standards-setting procedures.

A workshop on ‘Competition, Regulation, Standards and Trade Policy for Information and Telecommunication Services’ took place on 2/3 May at London Business School. The workshop was organized by Martin Cave (University of Brunel) and Paul David (All Souls College, Oxford) and formed part of the ESRC Global Economic Institutions Programme. Additional funding was provided by the Department of Trade and Industry, Coopers & Lybrand Deloitte and the London Business School Regulation Initiative. The workshop’s aim was to analyse the changes in regulation of telecommunications, resulting from developments in the general management framework of the world economy.

Martin Cave and Peter Crowther (Copenhagen Business School) address the question of the relative merits of regulation at national or European level in ‘Determining the Level of Regulation in EU Telecommunications: A Preliminary Assessment’. They argue that the criteria for making the choice are the standard ones of efficiency, equity, accountability and (in this case) consistency with the single market. As far as efficiency is concerned, the presence of externalities argues for a central solution. However, where implementation relies upon local knowledge, or where European level objectives are consistent with a range of member state policies (for example, over the extent of universal service obligations) there are arguments for assigning detailed decision making to more politically accountable national governments.

From an institutional standpoint, a number of theoretically possible regulatory frameworks are analysed, ranging from simple application on substantive Treaty rules to the creation of an independent European regulator. They argue that in many contexts a useful way forward may be the creation of informal expert ‘clubs’ consisting of both national and European representatives, seeking some form of policy coordination.

Peter Holmes (University of Sussex) presented ‘Telecoms and Competition Policy’ written with Jeremy Kempton and Francis McGowan (both University of Sussex) showing that the global telecoms industry has plunged from a system of national monopolies to one of global competition, with rules struggling to follow market trends. Increasingly, above all in the European Union (EU), competition rules rather than classical regulation are the legal framework. Such rules are still needed, as powerful operators can still abuse dominant positions both against users and to pre-empt new entry. But whereas any such abuses can be controlled within jurisdictions such as the EU or the USA, problems may arise from the unevenness of deregulation and different degrees of market liberalization exist in an incompletely globalized telecoms industry. Operators with ‘sanctuary’ markets in one territory can in principle cross-subsidize other markets, or abuse accounting rate mechanisms. Therefore in an increasingly globalized industry an agreement within the framework of the WTO on certain international competition rules (analogous to those existing at the EU level) is highly desirable. This is not only to stop anti-competitive behaviour, but also as a way of preventing undesirable unilateral action, notably by the US, which may become politically justified if there are no internationally agreed rules. Threats of such discriminatory action risk undermining the most favoured nation (MFN) principle embodied in the General Agreement on Trade in Services (GATS). The recent telecommunications negotiations, though still on hold, have shown that progress towards such an agreement is possible.

Eli Noam and Anjali Singhall (Columbia University) address the question ‘Supra-national Regulation for Supra-National Telecommunication Carriers?’. After analysing traditional regulatory tools implemented at the national level, they ask whether the emergence of transnational carriers of a traditional kind, or the provision of new services such as LEOs and Internet telecommunications pose fundamentally new problems. The authors conclude that current developments are too varied and unpredictable to justify a uniform system of supra-national regulation. If such arrangements were made, there would be a substantial risk of regulatory capture by established operators, with a consequent bias against new and innovative entrants. Instead, they favour the increasing use of market forces and arbitrage to police dysfunctional firm behaviour.

In the cases where this will not work, it is suggested that, rather than creating elaborate mechanisms of policy coordination, a variety of approaches should be adopted, some relying upon cooperation among users, some involving ad hoc collaboration of regulatory agencies, and others based upon the general application of equivalent standards of reciprocity – allowing access by one country to one another country’s markets. One of the benefits of this approach is that it will encourage policy innovation.

The final two papers address recent developments in standards-setting practices, and their implications for the global information infrastructure (GII). Paul David and Mark Shurmer (Brunel University and NERA) review the nature and economic significance of the activities carried on by standards development organizations (SDOs) focusing in particular upon the telecommunications and information technology standards-setting work of the government-created public and quasi-public institutions, and the international treaty organizations that constitute the formal standards sector. They document the current sources of tension and appraise various proposals for organizational reform. In the development of new telecommunications networks and services, they note that there are especially pressing needs for adaptations of inherited institutional mechanisms for technical coordination to provide inter-operability. Among the manifold sources of strain upon the old structure, those which seem at once most fundamental and potentially most threatening are the recently heightened industrial perceptions of the potential strategic value of standards as tools of business competition and national policy, and the incentives for ‘institutional by-pass‘ that have been created by the rapid proliferation of technological possibilities. The paper considers some alternative organizational models for negotiated standard-setting that might be able to withstand and better harness these forces for the continuing production of standards as public goods.

Lastly, in ‘Standards, Trade and Competition in the Emerging Global Information Infrastructure Environment’ Paul David and Ed Steinmuller (MERIT, University of Limburg) argue that, as a result of the decentralized manner in which it is being constructed, market-driven de facto standards and voluntary agreements on standards for technical compatibility are taking the place of the engineering decisions once made by public (and quasi-public) telecommunications network operators. Due to strategic economic behaviours on the part of private businesses and national governments, the goal of a fully inter-operable GII remains elusive. The Internet does not offer an entirely credible alternative model, as the standards that have facilitated its explosive growth are also contributing to serious congestion problems, and the solutions proposed point to the Internet's reintegration into the public switched telecommunications network. Technical standards will shape the GII's implications for international trade and competition, and thus raise important issues for regulation, competition and trade policy which are not yet adequately recognized.

The authors and editors are grateful to participants at the workshop, whose incisive comments and criticisms have considerably improved the papers. Not surprisingly, given the importance of the issues under discussion and the early stages of many of the developments analysed, unanimity has not been reached. We confidently look forward to further discussion of these issues by academics and policy makers at many subsequent workshops and conferences.

Papers can be found in a special issue of Telecommunications Policy edited by Dr Colin Blackman. He may be contacted at The Camford Group, 13 High Street, Cottenham, Cambridge CB4 4SA, UK, tel: (44 1954) 206236, fax: (44 1954) 206237, email: [email protected]