Should you really kick a regulator which is scared to do its job?

I do not always agree with Ian Grant but some of his recent posts illustrate why Ofcom really does need a good kicking – or should we instead stop kicking and give it the confidence to turn on the wolves and defend the sheep – as it was supposed to. Perhaps I was wrong.

I have commented before on the disparity between the priorities stated on the Ofcom website and those in the legislation which created it . Ian Grant’s commentary on the deeper problems beneath the recent price changes revealed in the CSMG report which was part of the supporting evidence for that price review are most apposite.

Is, however, a good kicking really the answer?  In my “kicking blog”  I referred to the module on regulatory economics at the London Business School in the early 1970s. Some of the other “lessons” from that module concerned “regulatory capture” (because regulators are commonly staffed by technical experts from those they regulate) and the way they can be intimidated by incumbents with bigger and better paid legal departments and budgets – unless robustly supported at the political level by business customers and consumer groups.

The Conservatives had such points in mind when Oftel was created. So too did the politicians who scrutinised the legislation to create Oftel. But it is something else to provide the regulator with ongoing support over time. Hence the drip drip erosion of Ofcom’s attention to fostering genuine competition in favour of, for example, the legal games on local loop unbundling to save the bondholders of NTL and Telewest, who were so ably represented by Lord Carter in his pre-Ofcom days. 

I therefore have more than a little sympathy for a regulator faced by incumbents with the temerity to sue the Commission in order to protect themselves from effective competition (the Birmingham State Aid case). I do not, however, believe Ofcom will ignore the points Ian found in the CSMG report. I suspect they were made to help give Ofcom the political support it needs to do its job.

But how many of the business users who need rapid and effective action (if they are not to have to relocate outside the UK) will actively lobby their MPs in support?

Will the Broadband Stakeholder Group or the CBI act as an umbrella for such lobbying?

I expect the businesses most affected to move instead to where they can get the connectivity they need – offshore if necessary, Shoreditch if they can afford the rents. Thus they will be marching in the opposite direction to that sought by a Government which wishes to encourage growth in those areas which have persistant of high unemployment because they have poor communications: road, rail, air or fibre. 

I expect the BSG to organise further worthy activity on topics such as valuations for business rates:disproportionately important though the uncertainty when it comes to discouraging investment by potential competitors to BT and Virgin.

On the action to be taken with regard to business rates I disagree, however, with Ian. Trying to get rid of business rates at a time when the Chancellor is desperate for revenue is not the answer. It would be far more effective to demonstrate, (in court by actions supporting by a critical mass of those affected if this is necessary), that the correct valuation, in accordance with basic principles behind business rates, is negligible. The reasons for not taking this approach do no credit to those concerned.

I do agree with Ian, however, on the importance of business rates: if we want pension funds and long term investors to help build the utility communications infrastructures that BT and Virgin and the others who believe in quadruple play regard as boring.

I have been trying to work out why the management of BT and the investment analysts of players like Macquarrie have such different views over the attractiveness of shared utility infrastructure ownership and operation as opposed to integrated communications and entertainment operations.

Then it dawned on me.

The latter pay salaries and bonuses akin to those of the Media World (e.g. ITV or the BBC) while giving similar (i.e. little or no) return to investors. Media lawyers and consultants also comman much higher fees. The salaries for running infrastructure operations are, by comparison, mundane unless, as in the case of British Gas, you also supply the content.

No wonder the tail wags the dog.


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