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Explaining institutional arrangements in telecommunications regulation: an empirical analysis ITS 15th Biennial Conference Raúl Castro.

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Presentation on theme: "Explaining institutional arrangements in telecommunications regulation: an empirical analysis ITS 15th Biennial Conference Raúl Castro."— Presentation transcript:

1 Explaining institutional arrangements in telecommunications regulation: an empirical analysis ITS 15th Biennial Conference Raúl Castro

2 ...a context to motivate a research Banking Agribusiness Energy Aviation Pharmaceuticals

3 ...a context to motivate a research Telecoms: telecoms agencies (plus ministries) and antitrust agencies –In early ’90s, among Canada, France, Germany, Japan, Mexico, New Zealand, Spain, UK and US, only the UK and the US did not have a Ministry office as telecom regulator. By 1998 it changed... –US: (a) before ’82, leading FCC; (b) after AT&T, leading Antitrust Division; © after ’96 Telecom Act, the FCC strikes back... –New Zealand and Australia: leading antitrust agencies –Italy: agency with broad jurisdiction over telecom, internet and broadcasting –The UK : OFTEL becomes a (telecom) antitrust agency –EU: (recent) movement towards the British model

4 Concluding remarks Key drivers of institutional design (jurisdiction arrangements) from Castro (2001):2001 Government perception of Antitrust Agency’s (AA) transparency advantages vs. Industry-Specific Agency’s (ISA) expertise advantages. Safeguards against capture and competence weakness Empirical analysis: Institutional arrangements in key issues are consistent with the competence- transparency interpretation More jurisdiction to the AA (reduced AA’s competence weakness) when: (i)faster AA procedures, (ii)market complexity is competition-based, (iii)Government can enforced ad-hoc rules on incumbent and (iv)larger country corruption perception More jurisdiction to the ISA (reduced ISA’s transparency weakness) when (i)legal and procedure safeguards against capture are in place, (ii)when the AA discretion is excessive.

5 Why allocating more regulatory jurisdiction to an Antitrust Agency (AA) in telecoms?: ISA vs. AA: reasons to choose Transparency! Revolving door phenomenon [ Eckert (1981), Laffont and Martimort (1998), Heyes (1999) ] Easier monitoring its decision due to: (i) more homogeneous set of tasks [ Dewatripont, Jewitt, and Tirole (1999) Cook (2001) ], (ii) larger jurisprudence, (iii) existing know-how is more “available” to newcomers (iv) easier-to-be "caught" instruments [ Tiller (1998) ] Policy Consistency [ Laffot and Tirole (2000) ] Why allocating more regulatory jurisdiction to an Industry-Specific Agency (ISA) in telecoms?: Competence / expertise! Ongoing specific and prescriptive powers to face: (i) technology complexity, (ii) network specificities, (iii) dominant position in network access [ Cave (1997) and Bergman et al (1999) ] Better equipped to face information asymmetries [ Van den Bergh and Camesasca (2002) ] Organizational balance

6 Alternative explanations in the literature Importance of monopolistic (network) bottlenecks, interconnection and unbundling issues and asymmetric regulation: Knieps (1997) Shelanski (2002) Credibility: signal to market players of credible commitment with a certain policy line Levy and Spiller (1996) Gilardi (2002) Stern and Trillas (2002)...drive more jurisdiction to the ISA...drive more jurisdiction to the AA Regulatory intensity Cave (1997) Bergman et al (1999) Importance of Universal Service Obligations (USO’s) Green and Teece (1997) Scott (1998), Laffont and Tirole (2000)

7 Empirical Analysis. Basics Data: 26 countries of the OECD area. Year: 1998 (’97-’99)*.*...composite index (factor analysis) ** Explained Variables: [New measures of] Institutional arrangements among the ISA, Ministry and AA in 5 regulatory issues… Pricing Licensing Interconnection Telecom-specific merger review Coordination: involvement of AA in ISA’s decision making? …and their consolidation in a... Units Of Measure: Scale values of institutional arrangements increase with the ISA involvement. Medium value correspond to a leading Ministry.

8 Empirical Analysis. Basics Explanatory Variables: Regression analysis on several proxies of 1.competence and transparency conditions associated to the AA and the ISA. 2.Control for alternative explanations: Credibility, importance of social goals and regulatory intensity. ** Econometric Tools: 1.Ordered logit was used to analyze the (ordinal/discrete) variables; 2.OLS was used to analyze the composite index. 3.Additional regressions with robust errors

9 Empirical Analysis. Results Competition development: mkt shr growth Competence variables variables AA discretion to appove (otherwise) illegal mergers Price transparancy Country corruption level Context variable AA-type variable ISA-type variable Political Constraints: # Gov branches with veto power Control variables Composite index OLS (-) (+) (-) Intercon Ordered logit (-) (+) Coord Ordered logit Telecom merger review Ordered logit (-) (+) (-) Importance of USOs: formally structured USOs? Regulatory intensity Composite index w/ control variables OLS (+) (-) (+) (-) * * Licensing Ordered logit (-) (+) (-) (+) (-) (+) (-) Pricing Ordered logit (-) (+) (-) statistically not significant with robust errors Antitrust speed Enforc. Procedures: penalties directly enforced? (Per se) unfair competition prohibition Golden share Price info verifiability Interconnection transp.: publishing requirement Transparency variables

10 Policy implications Competition development drive regulatory reforms......in the jurisdiction allocation and not only in the instrument mix (European) institutional convergence in regulation among countries should assign enough national discretion......institutions should evolve according to their institutional endowment, market conditions. Institutional convergence (ISA’s towards an AA-type), require Foreclosure (complete substitution) to be discussed......if Ofcom has to be a telecom-Competition Commission, why separate institutions?

11 Empirical Analysis. Results with robust errors *

12 Endogeneity Per se prohibition of unfair competition (Discretionary) exceptions in merger review AA’s discretion to enforce penalties Reverse causation: Do institutional arrangements determine these variables?...no, they don’t seem to overall antitrust frameworkoverall institutional issues It is previous to the analysis date (1998) forward planning of regulatory activities Country corruption perception ‘95-’97 market entry speed of telecom newcomers transparency conditions for final and interconnection prices telecommunications legislation Back

13 Basics of the Model Back

14 Composite Indexes of institutional arrangements Back

15 Institutional arrangements in telecom regulation Back

16 Composite Indexes of institutional arrangements Back


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