The Internet and the Telephone Business – The Role of Regulation

By Andre Griffith
Our article on the effects of the Internet on the traditional telephony in Guyana provoked some strong responses especially as regards the reactions of the local provider to the threats posed to its interests by Internet Café operations.  Many persons have expressed to me privately varying forms of outrage at some of the actions taken by GT&T in relation to the voip services.  I have been at pains to point out to them, that outrage at the provider is misplaced.  Any business faced with a threat to its viability has to react and such reaction is bounded only by legal restrictions as may exist and the access of the business to the material, financial and organisational resources necessary to give effect to its action plan.

I proposed some technology-based interpretations of the contract between ATN and the government of Guyana that were motivated by my interests as a member of the consuming public and a captive customer of the utility.  It is my view that contrary to me, the management of the utility have an obligation to interpret the terms and conditions of that contract in the manner that is most advantageous to their principals.  Where then is the solution?  The solution lies in the framework for regulation.  GT&T enjoys a de jure monopoly in certain areas such as that for fixed line services, while despite competition from entities of dubious regulatory status, it enjoys a de facto near monopoly in practice on Internet service provision.  In the area of cellular, there is competition for local services, however access to its fixed line subscriber base and to overseas services gives it some considerable market power.  These are conditions of near monopoly, and where monopoly, or dominant carrier status exists, the answer has been regulation.  Conventional wisdom is that the natural tensions between the rational profit maximising objections of the monopolist or dominant firm and the interests of consumers is moderated by regulation.  If there is an overwhelming feeling that the interests of consumers are not being well served, then in my view this must lead us to question whether the regulatory mechanisms are functioning properly.

With respect to telecommunications in Guyana, the regulatory regime comprises a number of offices and entities the more important of which are The Minister of Telecommunications, the Director of Telecommunications, The National Frequency Management Unit, and the Public Utilities Commission.  In examining the creation of these offices and entities under the telecommunications Act of 1990, one is inevitably led to the conclusion that the creation of these offices was driven more by a desire to conclude the privatisation of the then Guyana Telecommunica-tions Corporation, rather than by a philosophy or set of guiding principles concerning the provision of an essential public service.  This seeming lack of guiding principles or philosophy will be addressed in a subsequent article.  In the interim, we briefly examine the differing roles of these offices and entities with a view to illustrating how their effectiveness could have an impact on the performance and behaviour of service providers.

Ministerial responsibility for telecommunications is currently held by His Excellency, President Jagdeo after being held for a number of years by the Honourable Prime Minister.  We would expect that as normal, strategic and policy matters relating to telecommunications would be developed in the office of the minister based on the overall policy direction of the Government.  This policy role ought not to be underestimated, since an important part of policy making will be determining the structures that will be put in place to manage the sector as well as determining the resources that will be allocated.  Apart from the strategic and policy roles, the Minister has the statutory authority to issue licences and to revoke same if he determines or is advised that either is justified.

Under the law, minister’s principal adviser is the Director of Telecommunica-tions.  It is here perhaps that weaknesses in the regulatory environment may be discerned.  The portfolio of Director of Communications was created by the Telecommunications Act of 1990, but was only filled in 2007.  The non-encumbrance of this position for close to two decades, despite any unofficial arrangements that may have existed, must, in my opinion, have limited the effectiveness of the overall regulatory regime.  As it is, even though the current office holder is able and well-qualified, the arrangements surrounding resources have been allocated to her office are not commonly known, thus we are unable to determine whether the Director has the necessary administrative, technical and financial support to effectively discharge her responsibilities.

The third major component in the regulatory regime is the National Frequency Management Unit.  This unit was spun off  from the Guyana Telecommunications Corporation and established as a separate public corporation under the public corporations act prior to the privatisation of GTC.  With respect to this entity again, the matter of resources and encumbrance of critical offices arises.  I remember once having to outsource the job of checking the spectrum to find the source of interference on frequencies licensed to the company I was working with, in the face of the lack of facilities on the part of the NFMU.  The head of the NFMU is now an old veteran in the position, however, at the time of his assumption of the portfolio, the learning curve to assume statutory responsibilities must have been immense.  It is interesting to note that the elevation of current office holder was occasioned by the departure of the previous office holder to join the management team of Cel*Star (do we remember them?).  Interestingly enough, there was a parallel situation some years earlier when the brilliant Commissioner of Inland Revenue was recruited by GT&T.  This just goes to illustrate that regulation is not only a matter of lawmaking and rule making, but of ensuring that we can attract and retain the capacity to effectively administer the regulatory regime.

The final component institution that we look at is perhaps the most important and this is the Public Utilities Commission.  Whereas in many jurisdictions, there may exist separate commissions for regulation of telecommunications, electricity, water, transport and other public services, our PUC covers all public utilities and this makes a certain amount of sense given our lack of resources.  However, it seems to me that with respect to either the allocation of resources to the PUC (or the utilisation of resources by that body) we have crossed the very fine line between thrift and parsimony.

Two examples suffice.  With respect to the commissioners, only the Chairman’s position is a full-time one.  Secondly, the PUC recently advertised for a staff position of engineer, the requirements for which position were restricted an engineering degree and two years experience (such experience being not necessarily in the area of utilities).  This engineer is required to review capital plans for all the utilities in order to advise the commissioners on their soundness presumably for the purpose of advising on the likelihood of being able to meet performance targets and for the purposes of establishing reasonable bases for rate-making.  Apart from the fact that this means that the incumbent has to span a number of distinct, engineering disciplines including telecommunications, civil, mechanical, and power engineering, the likelihood of even the most brilliant of graduates amassing the necessary experience in two years to challenge the old hands in the utilities in even one of these disciplines is remote.

To round out this discussion, we recall that the rational behaviour of the service providers will be to maximise benefits to their shareholders.
We pointed out the conventional wisdom which says that in monopoly situations (or situations where there are dominant firms), regulation substitutes for delivering the public interest results that we expect from competition.  In our next article we will develop some specific proposals for strengthening the hand of the regulators and perhaps levelling the scales in some measure.

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