With the emergence of next-generation networks (NGN), regulators must decide whether to implement an ex post regulatory model or maintain ex ante regulation.
Ex ante regulation refers to the process of establishing specific rules and requirements to prevent anti-competitive or otherwise undesirable market activity by operators before it occurs. Ex post regulation, which relies primarily on competition law, involves establishing few or no specific preventive rules in advance, but instead remedying and punishing market failure or anti-competitive behavior after it has occurred.
|Pros and Cons of Ex Post and Ex Ante Regulation
|Avoids distorting investment incentives by eliminating price regulation. Price regulation has the effect of capping positive returns from the NGN operator’s investment, while leaving investors fully exposed should the investment be unsuccessful.
|Without an obligation on the dominant provider to offer competitors wholesale products, they may not be available to competitors. As a result, competition in NGN services in the future may only exist between operators that own their own infrastructure to the end user’s premises.
|Time-limited forbearance or regulatory holiday
|Delivers incentives to NGN operators that control bottlenecks by offering them monopoly rents for a period of time, after which regulation would apply or be enforced to protect competition.
|Creates uncertainty as the payback periods for NGN investments are long. Time-limited forbearance of three to five years generally would not be sufficient for recuperation of the investment.
|Ensures the continued progression of service-based competition models, allowing current competitors to use new NGN bottleneck facilities.
|Incentives for efficient investment in NGN deployment may be distorted and incumbent operators may abstain from committing to such deployment. Depending on the level of mandated network access, it may dampen competitors’ incentives to invest in their own infrastructure.
|Phasing out of existing ex ante obligations
|As in the case of permanent forbearance, it avoids distorting investment incentives; however, it allows the regulator more control over the process, as it is directed only at specific segments where facilities-based competition exists. If accompanied by the threat of reinstating ex ante regulation, it allows regulators to intervene where market forces cannot deliver effective facilities-based competition.
|Eliminating the requirement that incumbent operators offer their competitors wholesale products runs the risk that such competition may not arise spontaneously. However, this may be remedied with the threat of ex ante regulation.
As in the case of forbearance, the phasing out of existing ex ante regulations may lead to markets where the only competition in future NGN services will be between facilities-based perators that own their own infrastructure to the end user’s premises.
|Source: ITU, adapted from U.K. Office of Communications, Regulatory Challenges Posed by Next-Generation Access Networks. 2006, pp 22-24.
In certain countries, regulators have required incumbent operators to provide their competitors with mandatory access to their networks through means such as local loop unbundling, wholesale access, and resale. (See table.) With the transition to NGN, the issue is whether these new IP-based networks, which will require significant investment by the incumbent operators, should be subject to the same access obligations currently being imposed on other parts of their network.
In considering the issue, regulators are assessing the level of competition in their markets to determine if a shift towards an ex post model could sustain existing levels of competition and enhance consumer welfare. At the same time, regulators are also debating whether leaving such networks free from ex ante regulation will lead to greater investment in NGN, which in turn could lead to the emergence of new services and markets.
Excerpted from Chapter 9, “Enabling Environment for NGN,” Trends in Telecommunication Reform 2007, International Telecommunication Union, September 2007.