BUSINESS TECHNOLOGY MEDIA COMPANY
Companies
Sectors

Seven regulatory challenges for the telecom industry

Read time 5min 00sec
Strand Consult says that in the telecom industry, regulation is not driven by market failure, but market success.
Strand Consult says that in the telecom industry, regulation is not driven by market failure, but market success.

Strand Consult believes global telecoms players will face seven key regulatory challenges this year, including that technology is outsmarting regulators.

"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%, while data volumes increased thousands of times," says Strand Consult.

However, the industry still faces many difficulties, it notes.

1. Operators stuck in old ways of doing things

The first challenge is that many operators are still stuck in old-fashioned ways of doing business.

"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," Strand says.

"It was a matter of national pride and security to build great telecom companies, but today, these enterprises are derided in favour 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 digitised, but is disrupted by a new set of actors. Moreover, Internet companies such as Google and Netflix abuse the regulatory process to win favourable regulation, and work in concert with advocacy organisations and millions of activists coordinated with global digital software platforms."

2. New drivers of regulation

Not only are operators subject to OTT competition from abroad, but foreign activists hijack the policy process, Strand says.

"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 organisation."

3. Political capture of regulatory process

A major challenge, according to Strand, is that most political leaders don't understand the industry and frequently undermine regulators' independence. It could be that the regulator has the right information and conclusion, but political leaders desire a different outcome.

"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."

Regulators' efforts sometimes also fail to motivate local 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."

4. Technology outsmarts regulators

Strand says regulators are expected to 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".

On top of the steep technology learning curve, 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."

5. Few incentives and rewards for evidence-based decisions

The evidence-based policy approach is frequently rejected for lack of skills, time, or interest, Strand suggests. Regulators have limited time to review past decisions to see whether they were correct.

"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."

Strand says that 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 a contradictory regulatory environment and changing expectations from regulators.

6. Populist policies have harmed many countries

A number of regulators find themselves in a situation where 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 [mobile virtual network operators] 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."

7. Regulation deters product development and business innovation

Strand says it is estimated the regulatory approach of the prior decade in the US had deterred between $30 billion and $40 billion annually in new products and services, innovation and business development.

"Getting the right framework is of particular importance as we move toward 5G and the Internet of things in which prioritised 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 the level of innovation and execution of new products and services," the group concludes.

See also