Stimulate competition in infrastructure instead of introducing regulation

Stimulate competition in infrastructure instead of introducing regulation

Tuesday, November 7, 2017 - The number of telecom operators in this country has increasingly been the subject of discussion in recent years. The government and regulator are of the opinion that there is a lack of competition. Flemish Minister for Innovation, Philippe Muyters, even suggested recently that the government should take the matter in hand and set up a new public company to develop its own fibre optic network to persuade existing operators to increase their investment.

Our previous blog post highlighted that the network quality is already more than acceptable in Belgium. In fact, we are a front-runner in terms of quality and coverage. We can justifiably be proud of our Belgian telecom infrastructure.

Beware of overregulation

However, the stringent regulations that apply in this country could easily jeopardise this leading position. The government requires operators to make their networks available to other players so as to promote competition. Orange, for example, has been providing TV and Internet services since last year by renting our cable network. The Belgian telecom regulator, BIPT, feels that these regulations don’t go far enough and maintains that Orange should also be able to provide landline services via the Telenet cable network, and that we should sell Internet and digital TV more cheaply and separately (rather than as part of a package).

However, BIPT and the government are missing an essential point in this. Telenet is a listed company which, just as any private enterprise, follows an economic model. If we make an investment, it obviously has to be profitable. If networks increasingly have to be shared with alternative players, operators will be less inclined to make significant investments in the long term, since no operator would want to invest millions in their network knowing that the competition can use the same network (cheaply). It follows that fewer investments will inevitably have an impact on the quality of the network.

Investment and innovation because of competition

Moreover, these same regulations will lead to other operators not being inclined to develop their own networks. If the government is keen on competition, there is a much better option. It would be preferable to encourage the competition to invest in infrastructure (e.g. uniform procedures for excavation works, avoiding tax on the telecom infrastructure) rather than subjecting established telecom operators to more stringent regulation. Various recent scientific studies have demonstrated that this has a beneficial effect on quality.

In terms of network infrastructure, competition has a definite positive impact on the level of investment (Cambini and Jiang (2009) and Briglauer, Cambini and Grajek (2015)). An econometric study shows that an increasing market share of own infrastructure entrants clearly leads to reduced prices and higher speeds; whereas entrants via resale have no impact on these parameters (Smith, Northall and Santamaría (2013)).rocède uniquement à de la revente n’a aucun impact sur ces paramètres (Smith, Northall et Santamaría [2013]).

A study by WIK-Consult at the behest of the British telecom regulator Ofcom even showed that competition, in terms of infrastructure, is the main motivation for investment in high-quality connections. In the short term, regulation did benefit consumer choice, but the coverage and take-up of high-quality connections did not improve.

It also speaks for itself that an alternative operator with an own network has much greater flexibility to differentiate its products. This makes it easier to compete on the basis of quality, which will inexorably lead to more choice and a better experience for the consumer.

Customer satisfaction is low in various sectors where services depend on a single infrastructure or network, e.g. the railways, gas, water and electricity. All the more reason to encourage new, alternative telecom operators to invest in their own infrastructures.

This is also in line with the European Commission’s policy, which aims to stimulate investment through the introduction of alternative networks alongside existing telecom networks. The Commission estimated that, to meet the 2025 connectivity objectives (including 100 Mbps – extendable to 1 Gbps – in every home), a 500 billion investment would be required, which will have to be funded mainly by the private sector[1]. Additional regulation would result in low performance networks. In a nutshell: competition between infrastructures should be encouraged rather than regulated.