Research Notes

Seven regulatory challenges for the telecom industry

In the telecom industry, regulation is not driven by market failure, but market success. In less than a generation, the telecom industry succeeded to connect nearly every person to a mobile phone and almost half of the world to the Internet. During this period, prices have fallen more than 90 percent while data volumes has increased thousands of times.

Strand Consult creates knowledge about telecom policy and regulation and how it impacts the industry in short, medium and long term. Based upon our ongoing research of the telecom industry around the world and our conversations with policymakers, we have identified the seven key challenges for the telecom industry. They are:

1. Operators stuck in old ways of doing things.

There has been a paradigm shift in the role of the policy function within the telecom operator. In the past, telecom regulation was made in a closed environment with operators, regulators, and politicians. Policy was made by actors who had knowledge of the area and worked closely together with national leaders with the goal of increasing competition and stimulating investment in infrastructure.  Telecom companies were in close dialogue with the national regulators and the politicians responsible for telecom policy. The dialogue was based on facts, and the parties shared common objectives. It was a matter of national pride and security to build great telecom companies, but today, these enterprises are derided in favor of foreign over the top (OTT) providers which offer little to nothing in the way of tax revenue, local employment, and local development. Today’s policy process is not only open and digitized, but is disrupted by a new set of actors. Moreover, internet companies such as Google and Netflix abuse the regulatory process to win favorable regulation, and work in concert with advocacy organizations and millions of activists coordinated with global digital software platforms.

2. New drivers of regulation.

Not only are operators subject to over the top competition from abroad, but foreign activists hijack the policy process. Activists are globally-networked and use sophisticated digital tools to manufacture a “public” in support of special interest regulation. Addressing this challenge effectively requires a new set of strategies, engagement with a new set of stakeholders, and greater coordination within the telecom organization.

3. Political capture of regulatory process.

Most political leaders do not understand the telecom industry and frequently undermine regulators’ independence.  It may be the case that the regulator has the right information and conclusion, but political leaders desire a different outcome. Political leaders may pressure or demand that the regulator deliver a certain policy or process, even if it is contrary to good practice. Some regulators fall prey to propaganda and participate in populism, undermining their own credibility in the long run, but winning politically in the short run. Another challenge is that regulators may have the authority and best intentions, but their efforts may fail to motivate local actors such as municipalities to behave in the public interest. Indeed almost a quarter of planned infrastructure is not deployed because operators can’t get building permissions and/or rental prices for land are too high. Regulators are in a position to play an important role to address these challenges, but need support of national and local leaders. All these actors need to work together but frequently lack the framework.

4. Few incentives and rewards for evidence-based decisions.

The evidence-based policy approach is frequently rejected for lack of skills, time, or interest. Regulators have limited time to review past decisions to see whether they were correct. The policy process rarely allows the necessary time to make informed assessments. Evidence can be inconclusive or contradictory to political goals, and there is pressure to deliver policy implementation and results within short time frames. Even if the regulator has the time, there are challenges to getting the right information including the cost, quality, and access to data. Whether the regulator has the skills to assess and interpret the data is also a question. As a result, it is not uncommon that operators face contradictory regulatory environment and changing expectations from regulators.

5. Technology outsmarts regulators.

Regulators are expected work with a long-time horizon when it’s difficult to know whether their decisions will be correct. This is further complicated as technology evolves and obviates regulators’ earlier information and objectives. Regulators are also limited in the time and budget to learn new skills. Many come to work with an academic degree in law or economics, but that expertise is not refreshed. As such, many are ill equipped to understand convergence and thus fall back on applying outmoded paradigms to dynamic markets. On top of the steep learning curve about technology, regulators must also master infinite industry details, such as the differences between consumer, enterprise, and wholesale markets, and the various permutations within each of these markets. It is for this reason that regulators are subjects to Hayek’s classic information problem; they can never know, understand, or absorb all the necessary in-formation they need to make informed decisions.

6. Populist policies have harmed many countries.

A number of regulators find themselves in the situations that their governments have implemented bad policy which regulators are now responsible to implement. Consider mobile roaming regulation in Europe which undermines the business case for MVNOs or net neutrality which was supposed to create innovation, but no country can point to a new app or invention as a result. Instead the largest American internet companies have even greater market share than before the very opposite of the promised outcome that net neutrality rules would create the next Google. Telecom policy is also compounded by the negative impacts of convergence for many countries, their inability to earn tax revenue from foreign internet companies, and the challenge to create favorable conditions for infrastructure investment. Regulators also find themselves targeted by activism funded by wealthy foundations and companies. Their public comment processes are captured by foreign activists.

7. Regulation deters product development and business innovation.

It is estimated that the regulatory approach of the prior decade in the US had deterred $30-$40 billion annually in new products and services, innovation, and business development.  Getting the right framework is of particular importance as we move toward the 5G and the Internet of Things in which prioritized services, flexible pricing, innovative solutions, quality of service, and advanced business models will be necessary to launch new products. Rules about privacy, big data, security, network management and so forth will impact to level of innovation and execution of new products and services.

These are just a few of the challenges, not just for operators, but for regulators as well. Smart operators will recognize that they are in the same boat as regulators and see how to make win-win scenarios with the authorities.

Strand Consult creates knowledge about telecom policy and regulation and how it impacts the industry in short, medium and long term. Our goal is not only to provide valuable research to the public domain, but to teach our customers how to use scholarly information so that they succeed in their political and regulatory goals. Strand Consult offers thought leadership to support a constructive dialogue with policymakers.

For more than 20 years, Strand Consult has held strategic workshops for boards of directors and other leaders in the telecom industry. With this new workshop concept, Next gen telecom policy and regulation: Workshop for leaders in the telecommunications industry we have consolidated our knowledge on global regulatory trends and the experience of operators worldwide and packaged it into a workshop for professionals with responsibility for policy, public affairs, regulation, communications, strategy and related roles.

If you would like to learn more about our Next gen telecom policy and regulation: Workshop for leaders in the telecommunications industry concept, please do not hesitate to contact us.