Telecom markets are fast changing. Telco profitability and ROCE have been spiraling downwards over the years. Gone are the days when a single player had control over the last mile or the telco infrastructure in a market. On the other hand, hyperscalers and tech firms are building telco infrastructure (such as submarine, inter-country / intra-country connectivity using either leased or their own fiber) to help drive down costs and drive vertical integration of their services. There are also a growing number of UCaaS (Unified Communications as a Service) players that are providing cloud based services. In the light of this changing context and industry structure, how should the regulations and licensing for the communication services evolve?
My colleague Wennie and I recently spoke to Tanya Tang, Partner (Chief Economic and Policy Advisor) at Rajah & Tann Singapore. Tanya has extensive competition and regulatory experience from her prior work at the then-Infocomm Development Authority (IDA) of Singapore and also the then-Competition Commission of Singapore (CCS). We discussed the five regulatory themes relevant for communications and tech ecosystem players, during which Tanya shared her perspectives:
Shifts required on the regulation front
There should be a shift from facilities-based competition to services-based competition. Facilities-based competition was initially rolled out to encourage telcos to focus on building infrastructure to give consumers greater choice of providers. However, more emphasis should now be placed on ensuring diversity of services for consumers.
Individual operators are encouraged to leverage existing infrastructure instead of building them individually - infrastructure sharing allows for more and smaller individual players to participate and create diverse services. Infrastructure sharing, however, will give rise to natural monopoly; and challenge remains in ensuring effective competition and equivalent access to multiple operators providing services to customers.
Addressing inefficient infrastructure monopolies
Ex-ante regulation needs to be put in place to ensure open access, incentives, and pressure to invest. While the Governments may create Public-Private Partnership (PPP) projects to have some degree of intervention and financing to ensure that common infrastructure is well-maintained, the infrastructure operator’s continuity/eligibility needs to be subject to competitive tender and meeting important milestones.
Untangling and making regulations less burdensome for telcos
While ex-ante regulation is important if there is bottleneck infrastructure and high barriers to entry, regulation should be proportionate and relaxed accordingly when there are sufficient market forces at work to allow competitive outcomes. The relaxation of regulations where warranted will give operators more incentives and room to invest and innovate.
Framing the net neutrality in preparation for network slicing
While there should not be any blocking of websites and internet content, there should be scope for Internet access Service Providers (ISPs) and telecom network operators to offer differentiated quality of services. Having the space to offer differentiated services (i.e. different packages and price points) incentivizes competition, hence innovation. However, there should be minimum levels of safeguard to ensure access for all users. As an example, Singapore has taken a balanced policy approach towards net neutrality by prohibiting ISPs and telecom network operators from blocking legitimate internet content or imposing discriminatory practices that will render legitimate Internet content effectively inaccessible. While minimum safeguards have been put in place to require ISPs and telecom network operators to comply with competition rules, meet minimum Quality of Service standards, and disclose to end users their network management practices, ISPs and telecom network operators are allowed to offer specialized or customised access plans so long as they comply with these minimum safeguards.
Improving collaboration between the regulators and telcos
Information asymmetry is usually the culprit for inefficiency. Operators having more information than the regulators, coupled with regulators often having to respond to market developments after they occur, means that the latter are constantly playing catch-up.
Information asymmetry can be addressed by promoting trust between regulators and operators. Operators are more likely to provide information to the regulators if they trust that regulators will not misuse the information for the operators’ detriments. On the other hand, regulators can allow the industry to self-regulate (with monitoring) whenever possible and to propose voluntary codes of practice without the imposing of heavy penalties when the codes fall short.
With more engagement and information, regulators can make more informed policies that benefit the industry. In the long run, regulators and operators generally share common interests. Regulators can work towards giving operators the assurance that operators could meet policy outcomes without bearing unnecessary burdens.