Speech by Anne Lambert, Director of Operations

Introduction

Over the last 2 days there has been much discussion about the new world of "cyberspace". Major challenges ahead for all of us. Consumers, industry and regulators. Regulation is only one element of the total picture. But it is an important one. And one that very appropriate we discuss now as the Council and Parliament debate the new regulatory framework.

So I’ll try to set out a few thoughts on the regulator’s role. What should we as regulators be trying to achieve? What tools do we need to do this? How should we go about our tasks? And how must we change? I hope this might also be of use to those of you who are going to be active in setting our new legal framework.

The task of the regulator is not an easy one! We face many challenges – some of which have already been illustrated during the previous discussions.

First, we are seeing step changes in the technology. We are now in the transition phase from traditional narrowband to the broadband world. Convergence is happening. Broadband will undoubtedly come. But it requires massive investment. It is also technologically complex. Not a matter of flicking a switch and broadband arrives over night. I do not know how long it will take. But I do know that for the next 1, 2 or maybe a few more years, many consumers will still be using narrowband. So regulators need to ensure their demands are met while seeking to encourage the broadband world.

Markets are changing. Previous demarcations are breaking down. Convergence means that it is no longer appropriate to talk of telecommunications and broadcasting as separate sectors. And several markets, for so long defined by national boundaries, are now starting to become international.

As regards the industry players, the pace of change is accelerating. Companies unheard of a few years ago are now familiar household names. And the old players are also changing.

Much of this is to be welcomed. But some changes pose distinct challenge for the regulators. In the early stage of liberalisation, the task was to hold back an all–powerful incumbent to enable new entrants to flourish. But in the UK at least this has now changed. In some, though not all, sectors of the market other operators and service providers are proving highly capable.

As a result, the incumbent has to compete harder than ever before. The competitors still want help from the regulator. But the incumbent wants freedom to compete. The challenge for the regulator is to hold the ring in a way that benefits the consumer. We have to remember that most still get their services from the incumbent. So we do not want to prevent the incumbent from innovating. Equally, the longer-term interests of the consumer are best served by competition. So we must act to ensure that competition can flourish.

And of course consumer demands are changing. Consumers want the new services. And soon. They also want lower prices. They also want basic telephony services of high quality and at low prices. And why not? The challenge for the regulator is to take account of demands of all consumers.

Lastly, we have the challenge of changes to our powers. The legislators are keeping us busy both at EU level and at national level in seeking to change the legal framework. We at Oftel welcome this and are we hope playing a constructive role. It is vital that our powers are kept up to date.

Faced with these challenges, how does the regulator find a way through?

A key element is clear objectives. These must be clear not just to the regulator but to market players, investors and to consumers. A predictable regulatory environment is important. We at Oftel issued our strategy in January. We have set ourselves 4 key objectives. First, effective competition. This, we believe, is the best way to deliver benefits to consumers. Second, adequate protection for consumers. Competition should do most of this. But there will remain areas where regulation may be needed. Most obvious are the interests of vulnerable consumers. Also fair allocation of numbers where competition alone will not suffice.

Third, we want to ensure that consumers have the information available to make informed choices. Otherwise competition will not work properly. And finally we seek to prevent, through our enforcement action, anti-competitive behaviour. Taken together we call this approach "competition plus".

Of course, in future our objectives will be set in the new EU framework. But I am glad to say that Oftel’s current objectives seem very much in tune with the Commission’s proposals in the draft Framework directive. It is important that all EU Regulators are working toward the same objectives. Equally it is important that we can be judged by how we achieve these objectives.

The objectives in the new framework will set out what Regulators should be seeking to achieve. But Regulators also need principles setting out how we should regulate. Here are some ideas, from Oftel’s experience.

Proportionate regulation is our overriding principle. Cannot over-emphasise this. If we over-regulate, we deter investment and stifle innovation. Consumers will be worse off. And Europe will be worse off as funds for investment go to more profitable opportunities elsewhere in the world.

But if we under-regulate then competition may be hindered and consumers will also suffer. Getting this balance right is the most important task faced by regulators. It is particularly difficult in fast –moving markets.

And I don’t claim that we will get it right every time. But there are some basic rules. Regulators must be clear as to the objectives. We must be rigorous in our assessment of competition. If competition is not effective then regulators should not hesitate to act firmly. But action must be proportionate, adjusted to the level of competition and benefits should exceed the cost. And if competition is effective, then we should be prepared to withdraw from regulation.

Again, getting the right principles into the new EU framework is vital. Important for regulators in navigating a path through the challenges. Important for consumers so they know what they regulator is doing. Important for industry so they can plan their business and their investment. And we regulators should be held to account if we don’t follow the principles.

So much for the principles. Regulators also need the tools for their role. This slide lists my view of the essential tools for regulators. And which I hope will – where appropriate - be incorporated in the new EU Framework. Overall I believe that the drafts from the Commission, while no doubt they can be improved, are very much on the right lines. Here are some thoughts, which I hope legislators may find of use.

Yes, we do need a harmonised framework. As I’ve already remarked, national boundaries are becoming less important – though they do still remain in several areas. The Single Market requires that regulators work within a common framework.

On the other hand, competition is developing at different rates in the different member States. So national regulators need to be able to adjust their regulatory action to reflect this. Flexibility for NRAs according to agreed criteria within an agreed framework is what is required.

Regulators must have power to regulate where competition is not effective and where normal competition law is not yet sufficient. This is my most serious concern with the Commission’s proposals. I think that, under the current proposals, there could be cases where regulation is justified but the powers are lacking. I am referring, of course, to the problems with joint dominance. But I hope that this be remedied during the legislative process.

In such a fast-moving area, neither the legislators nor us regulators can possibly predict all the circumstances where we need regulation. All I can predict is that there will be new services and issues arising during the lifetime of the new framework that none of us can now predict. I think it is safe to say that access to the consumer – the last mile or kilometre – is going to be key. But we don’t know now where problems will arise.

So what we need is a harmonised but generic approach. That is, an approach which applies consistent principles across the converged world and so gives consistency and coherence for industry, investors and consumers. But also an approach which is capable of being applied to a range of technologies and circumstances.

And of course regulators need powers to enforce the rules. We can have splendid rules. But unless we have powers to enforce them, they are useless. Details are largely a matter for national law. But speaking from Oftel's experience, I can say that the compliance function is not only very important but also, just at present, very active.

Finally, we need skilled staff. An increasing challenge for the management of regulators is how to recruit and retain the skilled staff we need.

Of course, the main task for regulators is not making the rules, but applying them once legislators have decided. Having played a part in both processes (that is the making of rules and applying them in practice) I think I can speak from experience. And in my view, applying the rules is even more difficult than making them. Applying the rules in such a way as to achieve the objectives that are set for us is an immensely skilled task.

This slide sets out just a few of the areas where there are difficult issues. Saying that a dominant operator must provide a specified service at a specified price is the easy part. Often the most difficult is the non-price aspects. Is the dominant operator behaving in a reasonable way? Is it devoting sufficient resources? And, to take an issue that is current in the UK, are the terms of the contracts between the parties fair?

To take another example. Making a rule preventing undue discrimination is straightforward. But applying it in practice is not. Discrimination can arise in many ways – not just in prices and quality of service but also in the information that is made available and when.

I make these points not to get sympathy for regulators but to illustrate the challenges we face. And also to suggest that there are limits to the role of the regulators. We cannot do it all. If we have to decide every clause of contracts and every detail of the process, it will inevitably be delayed. It may also be bogged down in legal disputes. What we need is a Partnership between the regulator and the industry and consumers. In the UK we call it co-regulation. The regulator holds the ring. We have the powers and are prepared to use them where necessary. But industry and consumers are prepared to put in considerable effort and resources to help the process and sort out the problems we all face.

One of the themes of this conference has been change. And regulators too must change. First, we need to be able to act more quickly particularly to resolve disputes. The market does not wait for regulators. Equally in accordance with the objectives and principles. And we must act transparently. Yet consultation can, inevitably, this can slow the process.

Those of us who hitherto have focussed on telecommunications must ensure we can take a view of the whole converged market. Convergence is here. We must either deepen our co-operation with other regulators or we must combine regulatory bodies.

Competition law is going to play an increasingly large role. We at Oftel are fortunate in having both competition powers and the powers of a sectoral regulator. There are clear benefits in relying more on competition law. It brings sectoral regulation more into line with normal horizontal law and it encourages compliance by the companies. But at present not clear that competition law is yet fully equipped to tackle some of the key regulatory issues.

And last but not least, we must deepen our international co-operation. This is the way to cement the single market and also to ensure that we all learn from best practice elsewhere.

My final slide is a few thoughts on the future for regulation and regulators. As I’ve said if there is effective competition, then regulators should withdraw. So, logically, if we achieve our objective of effective competition, our role should be greatly diminished. And in some areas I think we are well on the way to this.

However it won’t necessarily be a smooth path. As competition intensifies, so we may - somewhat paradoxically – find that in some area there is an increased role for the regulator in resolving disputes. Currently we are seeing some examples of this in the UK. But I hope it is only temporary. And that firm regulatory action now will enable us to get competition and withdraw later.

I’d like to end with 2 questions, which will determine the pace to which regulators such as Oftel reduce their activities. Do consumers, industry and legislators want us to disappear? That is a question that I cannot answer. But I get the feeling that some find it easier to have a regulator than not. Abolishing regulators may be difficult. In the UK I don’t see many calling for us to disappear. Rather it seems we are getting many calls for us to be given new tasks.

Second, a prior condition is that competition law is sufficient to tackle any problems. Again, I’m not sure this is fully proven. Competition in telecomms is relatively recent. We simply don’t yet have the body of case law that gives us confidence we can rely on it. It may come. I hope it does. But we need it before we can with confidence remove all regulatory powers.