It’s a story I’ve told before but when the Irish Government Minister announced the liberalisation of their telecoms market in the 90’s he remarked that it was ironic that his first action in deregulating was to create a regulator. He went on to say that the mark of a successful regulator was one that understood it was a project with a clear goal, and that goal was to reach a point where the market no longer needed a specific regulator. He closed by saying that in his experience regulators don’t live up to that ambition, instead they become embedded in the market and therefore become part of the problem.
While it may not be appropriate for the UK Government to preempt Ofcom’s Strategic Market Review, it would, in my mind, be appropriate for them to remind Ofcom of that Irish wisdom, and ask them to ensure that whatever conclusion they come to, Ofcom plans for a market that no longer needs them.
Doing this would refocus the debate from a distracting and premature argument about whether BT should be broken up to one about what kind of telecoms market the UK wants and needs.
Several years ago, Brian Condon described three market scenarios:
|A single, major infrastructure operator upon which a services market relies|
|A diverse array of infrastructure operators, tightly sewn together to create a single, functioning market|
|A diverse array of uncooperative individualistic operators|
At the moment the UK is drifting towards elements of all three – BT remains dominant, a number of the increasingly confident new operators are starting to cooperate, and there some loners who are going it alone.
Perhaps purist Darwinian free-market advocates might prefer that the Government allows these three groups continue to evolve until only the strongest survivor is left standing, but even this “do nothing” option will require a regulator to stay deeply embedded in the market, possibly for eternity, which is hardly a vote of confidence in a properly functioning free market.
If we think that telecoms naturally requires a monopoly of scale then Ofcom’s efforts should be on ensuring that BT becomes the sole marketplace over which everyone trades, and Government policy would be put in a position where it needed to support this by removing the current wave of encouragement for alternative operators. I doubt this has much political support on any front bench.
If we accept that “Big Me” is not ideal and want to maintain the concept of a functioning telecoms market then having isolated Islands of Connectivity is a bad thing. If that’s that case then Government policy and Ofcom’s regulations should be encouraging them to co-operate with the Patchwork.
And if a process of elimination leaves only the concept of a tightly knitted Patchwork of operators, big and small, then everything Government and Ofcom does should be focussed on developing that market. At the moment Ofcom is a bystander in the market – it’s not looking at what would make a market function efficiently and fairly for investors, service providers, customers or operators,
And I think it would be fair to say that while Government is supporting the development of market participants, little has done to support the development of the market itself. For example, Government support tends to limit its requirement for a functioning market to the State Aid rules to support open access, leaving it to the funded operator to work out how; there has been, for example, no formal support for the development of a marketplace which the operators Government is supporting could trade over.
So if we conclude that the shape of the UK’s market should be a dynamic and tightly knit patchwork, policy should be sharply focussed on ensuring that this new market develops to a point it can be self-sustaining, with sights set on a distant point where telecoms can be regulated alongside all other functioning markets, without the need for an embedded, specialist regulator. Even if this distant point is unachievable and theoretical, it must be better for everyone to have a market that needs ever lighter regulation.
Before we decide whether breaking up BT is a good thing or not, lets revisit that Irish wisdom – a regulator should be a project with a goal of reaching a point where the market no longer needs them.