Eircom and Vodafone lash out at over-regulation

6 Apr 2005

The director of public policy and the director of strategy at Eircom and Vodafone have criticised over-regulation in the telecoms sector and warned that it could impact on established operators’ ability to innovative and offer new services.

Both operators, for different reasons, are embroiled in disputes with the Commission for Communications Regulation (ComReg), in Eircom’s case over the cost of local-loop unbundling and the failure to automate processes and in Vodafone’s over the onset of mobile virtual network operators (MVNOs) in the Irish market.

Speaking at yesterday’s First Tuesday event, entitled Strategic Review of the Irish Telecoms Sector, Vodafone strategy director Gerry Fahy hit out the current regime of ex-ante regulation that he believes interferes with existing operators’ ability to compete.

“There is no ongoing case for ex-ante regulation. It is ComReg’s job to facilitate spectrum management and number, and determine the future of the market. ComReg should resist the natural regulator’s temptation for market intervention. This will affect innovation and strangle investment,” Fahy warned.

Pat Galvin, director of public policy at Eircom, said that studying the future of telecoms in Ireland up to 2010 “raises fundamental questions about regulation”. Referring to research from Indepen and Ovum, Galvin acknowledged that the more platform competition in the marketplace higher rates of consumer take-up would occur. However, he warned of issues of low population density and scale that make Ireland a different market to the types of EU markets ComReg are basing much of their directives.

Warning of the “need to have intrusive regulation diminished”, Galvin described the changing landscape that Eircom is operating in. “There is a diminishing role for voice minutes with the advent of VoIP and as we progress the levels of fixed and mobile revenues will eventually equal one another. At present Eircom’s revenues are less than 50pc of the overall market.”

Galvin described a “disconnect” between existing regulation and the economic reality of the market and said that the telecoms sector in Ireland was regulated more than any other sector in the country. “We are the only company that faces daily, rigorous testing,” Galvin added warning that it was exceedingly costly in terms of the embedded administrative processes of complying with regulation.

While Galvin would not disclose how much money Eircom spends on regulatory compliance, he cited ESB’s recent disclosure that it has invested €170m in regulatory processes.

“We are complying with regulation set out five years ago. Is it tenable that the rules of five years ago apply now?” Galvin asked.

He said that Eircom is expected to invest in futureproofing the network needs of the Irish economy but warned that the regulator would need to understand the factors that would make it attractive for Eircom to invest in the market and at the same time attract the capital to make the necessary investment. It is understood that Eircom currently invests €200m a year in its network infrastructure. “There is a serious disconnect between regulation and the economic reality of the market,” Galvin warned.

“There are serious issues that will need to be addressed. The present ex ante style of regulation automatically assumes that Eircom is always guilty. This is fundamentally flawed and inhibits regulation.

“We would like to follow the lead BT has taken in the UK. Eircom is committed to doing so but under the current regulatory regime any advantage from investment is automatically handed to our competitors. Would you expect an ordinary entrepreneur to invest in something if that investment is made available to his or her competitors?

“We would say to ComReg stop applying ex ante regulation. The current concern is on consumer price, not on consumer value.

“There is a fundamental disconnect. We regard sectoral regulators as economic regulators – their fundamental responsibility is economic regulation. However, providing an incumbent with an incentive to invest raises huge issues. Regulation never reduces, it increases. That’s the reality and ultimately if affects the amount we invest,” Galvin warned.

Maintaining a stout defence, ComReg chairwoman Isolde Goggin reminded Galvin that Eircom is the dominant player with 80pc of the Irish market. “That is a very high market share and these companies are adopting a moral tone to there arguments rather than taking a rational economic assessment.

“However, ComReg is evaluating its future role in regulating emerging markets and there is certainly a question about the role for ex ante regulation going forward as technologies and markets converge,” Goggin said.

By John Kennedy