Measuring institutional arrangements in telecommunications regulation

Ral Castro (raul.castro@econ.upf.es) Universitat Pompeu Fabra

June 2003

Abstract
There is a significant degree of regulatory fragmentation in telecommunications to the extent that in many countries at least a telecommunications or industry-specific agency (ISA) and the antitrust agency (AA) coincide in enforcing rules in this business. In order to have a measure of such institutional arrangements, the responsibility assigned to each agency in five different contexts of telecommunications regulation is defined and scored. The resulting database is analyzed with a hierarchical cluster procedures as well as consolidated into a new composite index using a factor analysis approach.

We thank Nuno Garoupa, Maia Gell, Iigo Herguera, Michael Greenacre, Albert Satorra and Walter Garca-Fontes for their comments. The usual disclaimer applies.

1. Introduction Separation or fragmentation of regulatory responsibilities among several regulatory agencies has become more frequent and significant in several sectors leading to more importance of coordination and institutional interface issues. This jurisdiction sharing is not new to the extent that it has been a common feature that industry-specific agencies (ISAs) enforce regulations over sectors that are also under the scrutiny of other more general agencies: environmental, labor and tax agencies among others. For example, the Food and Drug Agency, the American industry-specific regulator of the pharmacetical and agribusiness sectors share their regulatory responsibilities with the environmental agency. Similarly, the Federal Aviation Agency share responsibilities on merger review in the Aviation business with the Antitrust Division of the Department of Justice. However, the novel feature of the recent process in the telecommunications business is the overlapping scopes between the ISAs and the Antitrust Agencies (AAs) over common regulatory issues or closely related and interdependent issues Consequently, the task and agenda assignment becomes less clear and the decisions on what responsibilities are assigned to each one, the coordination schemes and leading roles to be set are relevant policy issues. Since the late 1980s and 1990s, the choice of what institutional arrangement should be used in telecommunications regulation became a relevant issue in the policy agenda. Firstly, the worldwide process of privatization and liberalization in telecommunications called for a reform of the regulatory framework to support the success of both processes. In most of the cases, the preference of industry specific regulation was renovated, although with the shift of regulatory responsibilities from central Government offices (Ministry Offices) to, more or less, independent telecommunications-specific agencies. Secondly, in some cases, the previous choice was reverted; either because no industry-specific agency is created with liberalization (New Zealand) or because years after their creation, the trend towards a larger involvement of generic regulatory frameworks is accelerated (Australia and the UK).

This paper presents the development of proxy indicators of the institutional arrangements in several domains of telecommunications policy and their aggregation in a single summary indicator. These indicators would be aimed to measure the degree of involvement of the telecommunications ISA with respect to the AA in telecommunications regulatory tasks. Institutional arrangements are only analyzed from the formal and normative structure, this is the arrangement model presented in the relevant laws (i.e. telecommunications act, competition legislation) and other normative rules. Despite its critical importance, this construction implies that arrangements on actual enforcement are not considered. The literature provides several references of analysis of institutional design in telecommunications regulation. Levy and Spiller (1996 and 1994) develop an extensive analysis on how telecommunications deregulation has evolved in five country cases: Argentina, Chile, Jamaica, the United Kingdom and Philippines, focusing on the institutional framework as explanation of the regulatory performance. OECD (1999) presents a large account of agreements and jurisdiction sharing between

telecommunications regulators and competition authorities in several OECD countries. OECD (2000) provides an overall picture of the responsibilities assignment among the agents involved in telecommunications regulation, using the OECD International Regulation Database. Other references describe institutional interfaces between regulatory institutions in the US1, the UK2, Australia3, New Zealand4, Germany and Switzerland5. Despite the scope of analysis of these references, almost all of them have a country case structure rather than a database one. Additionally, the literature on developing summary or composite indexes has been mostly developed for practitioner exercises. Boylaud and Nicoletti (2000) develops summary indicators of regulatory enforcement and market structure to use them and explanatory factors of market performance in mobile and long-distance fixed telephony services.

1 2

Shelanski (2002), Klein (1996), Spiller and Vogelsang (1999) and Bickenbach et al. (1999) 3 Chaves (1999) 4 Crandall (1998) 5 Knieps (1997):

Kauffman et al. (1999a and 1999b) provide aggregate indicators of governance 6 to be analyzed as determinant factors of development outcomes. In a survey review of governance indicators, Malik (2002) highlights that political institutional arrangements include voting rights, veto powers, institutional checks and balances, institutional fragmentation, among others. Bertola et al. (2000) highlight that the increasing complexity in institutional environment not captured by existing rankings of Employment Protection Legislation do not allow them to reflect the actual cross-country comparison. Similarly, references of developed database on regulatory issues have not provided a quantitative measure of the range of institutional arrangements and interfaces among the telecommunications regulator (ISA), the Ministry responsible for telecommunications policymaking and the Competition Authority (AA). Moreover, several of them value country cases with corner solution alternatives: regulations are enforced by only one institutions and no concurrence is considered. This paper addresses the problem of lack of literature based on describing statistically cross-country differences in their institutional arrangements in telecommunications regulations. A systematic framework based on a statistical approach instead of the standard descriptive exercises allows us to use it to produce more rigorous comparisons and generate analysis of its determinant factors. The paper presents in section 2 the scope of the information considered to build a database on institutional arrangements for telecommunications policy making and the methodology performed to do it. In section 3, we describe the proxies of institutional arrangements, their data collection and the definition of score assignment for each of them. Section 4 presents the result of a cluster analysis performed on the database of institutional arrangements described in section 3 in order to identify homogeneous groups of countries and similarities among arrangements in the considered regulatory domains. Section 5 describes the process developed to build a single composite index of such institutional arrangements. Finally, section 6 provides a discussion of the results and insights of further research based on them.

Voice and accountability, political instability and violence, government effectiveness, regulatory burden, rule of law and graft.

2. Methodology and definition of regulatory domains With this empirical analysis, we want to analyze the institutional arrangement built among the industry-specific agency (ISA), the telecommunications responsible Ministry and the antitrust agency (AA) when regulating the telecommunications business. We have built a scale intended to reproduce the differences in such institutional arrangement among 26 OECD countries7. As the regulatory process is not a unique entity but a set of distinct issues subject to review, monitoring and enforcement, there is more than one dimension required to understand how the responsibility allocation is. The period of analysis of institutions corresponds to 19988. The importance of this date is that by such moment telecommunications, all the countries of study were already or about to be liberalized, as well many of the incumbents were privatized. As such date also allowed having some degree of ongoing competition development and enforcement involvement of the analyzed agencies, the resulting data sample offers a significant level of variety. Additionally, beyond 1998 the European Union initiated a convergence process over its regulatory framework in telecommunications9, which makes such date a time limit for keeping the broadest variety of institutional arrangements across Europe. A substantive part of the database was built from the review of a quite extensive collection of country references and publications, including antitrust and telecommunications acts, regulations, agency profiles, as well as specialized news sources and case reviews 10. The procedure implied at least four stages; the first one is described in this section and the rest in the following:

United States, Japan, Germany, France, Italy, United Kingdom, Canada, Australia, Austria, Belgium, Denmark, Finland, Greece, Ireland, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, Czech Republic, Hungary, Korea. 8 Due to data availability in a few cases, some pieces of information corresponded to 1999 and 2000. 9 Nevertheless in the ealy 1990s the European Commision built a basic framework for enforcing competition rules in the telecommunications that were updated in 1998. See European Commision (1991 and 1998) 10 OECD (1999) offers a detailed compilation of country cases used to build the indicators of institutional arrangement between the ISA and the AA.

1. Preliminary review of country references on the models of regulation enforcement in telecommunications in order to clarify its institutional map. It included the identification of the regulatory dimensions in which the responsibility allocation is diverse enough, the arrangement models observed in each case in order to built the most adequate scale structure for those regulatory dimensions and the data sources that would help in building the database the most, among others. 2. Definition of scales for each of the selected regulatory dimensions in terms of clear concepts and arrangements associated each value of the scale. 3. Detailed analysis of country cases aimed to build the database of institutional arrangements. 4. Scoring All the actually considered variables are qualitative in nature and that required their conversion to scales of numerical codes with a common structure that were consistent with the highest possible involvement of the AA and the ISA as extreme values. Due to such qualitative nature, subjective judgment were required to collect and scoring pieces of information for each country into the different variables. There is a large set of regulatory fields in telecommunications that might be subject to different institutional arrangements among the considered agencies. As mentioned above, a preliminary list of such issues was considered to identify the set of domain in which crosscountry differences might be found more easily. The preliminary domains to analyze agency arrangements are defined as follows11: (i) (ii) (iii) Regulation of final prices Licensing regime, including issuing licenses and oversight of obligations Network interconnection, including the determination of prices and dispute resolution
11

As the first five domains are finally chosen for building a composite index and explaining institutional arrangements, they described in more detail bellow in section 3.

(iv)

Telecommunications antitrust enforcement, including merger review, abuse of dominant positions, among others;

(v)

Coordination

mechanism

among

the

considered

institutions

(telecommunications-specific regulator, antitrust agency and the Ministry); (vi) Service quality and standard regulation. Service quality in telecommunications is commonly a feature that many customers do not appreciate in detail or cannot enforce easily but do affect the performance and results obtained from them. Therefore, regulatory decisions usually include the definition of minimum standards for services (SLAs) as well as monitoring its fulfillment. Additionally, standard setting applies over equipment design, operating systems and network operations and interoperability. (vii) Radio spectrum management: radio spectrum is one key resource for network deployment and operation, more than rights of way. Due to physical constraints of radio frequencies, its regulation enforcement is focused on its usage fragmentation among different technologies, and operators, designing allocation systems and valuation. (viii) Numbering. Numbers in fixed and mobile networks are usually considered as public resources that identify each customer within the service context. Number scarcity and customer resistance to change drive regulation. Numbering regulations comprise allocation of number blocks and codes among operators, ruling the framework for number portability and its impact on carrier selection and funding management of such allocation system. (ix) Management of the Universal Service Obligations (USO) regime. USOs

consist of requirements on operators (usually the incumbent) to deploy a minimum level of their services that cover a significant fraction of society12. This regime management include (a) setting parameters or objectives to define the operator commitments behind the concept of Universal Service; (b) cost

determination and allocation of the operator's services and (c) a mechanism of funding service commitments. (x) Forbearance processes: this applies to those cases in which specific regulations over liberalized markets are formally subject to a review process that value the suitability of maintaining it when competition is significantly developed.. Building indicators for such regulatory domains that enable cross-country comparison required a simplification of the institutional setting among the ISA, Ministry and AA, focusing on few key factors to obtain as much relevant variance as possible across the data sample. As mentioned in the introduction, the definition dimension of the indicator scales was the allocation of leading roles or significant enforcement involvement of the institutions in each of the regulatory processes according to legislation, normative rules, among others13. Although enforcement and jurisprudence might seem more important than regulations per se14, formal institutional reform of regulation has been better defined than actual enforcement and easier measured. For these dimensions of institutional arrangement, a scale was built between values 1 and 3, such that it increases with the involvement degree of the ISA. The categories of involvement range between the lowest value (1) assigned to the regime with the largest involvement of the AA and the highest value (3) assigned to the regime with the largest involvement of the ISA. As each extreme value of the scales are defined by at least one country case observation, it implies the assumption that the country sample represents the

12

USOs regularly include a minimum percentage of total population that should have access to the ph one service or schools that should have access to internet. 13 For example, focusing on the regulatory structure (acting institutions) drive little variance in the 1998 OECD context. Therefore, the enforcement involvement approach already assumes a three-agency structure (ISA-Ministry-AA). Similarly, the benefit of a larger variance from focusing on actual enforcement arrangements rather than the formally defined ones had to be balanced with more subjective analysis and more frequent problems of data availability. 14 See Bertola et al. (2000).

whole population from which it is extracted15. For each variable, each country has only one observation16. Between those extremes, the scale middle value (2) includes shared responsibilities between the ISA and the AA, as well as leading-part roles or significant involvement of the Ministry responsible of the telecommunications business. Generally, this Government body has an institutional profile with less industry-specificity than the ISA, to the extent telecommunications in not the only object of its policy scope. For example, in Japan, Belgium, Greece, Mexico or Czech Republic, these ministries not only have responsibilities over telecommunications but also over either Post or Transport matters or both of them. In Ireland, Netherlands, or Hungary these institutions are also responsible of public services and enterprises (including water services). Moreover, in Spain and Denmark the responsible Ministry has jurisdiction on Research and Technology17. Finally, the responsible Ministry has a wider set of policy issues to oversight in the United Kingdom (Ministry of Trade and Industry) and New Zealand (Ministry of Commerce). On the other hand, its industry-specificity tends to be stronger than the AAs one, which by definition has a cross-industry jurisdiction. Therefore, in a scale with defined extremes based on their sector-specificity, a leading role of such Ministry is coherent with the intermediate point of the scale. As mentioned above, although the general approach for building the scales is clearly based on the degree of involvement of more industry-specific agencies with respect to the generic ones, the borderlines between the scale values (1, 2 and 3) come from a subjective judgment of each variable data.

15

This is not a too strong assumption, as 26 of the 29 country members of the OECD by 1998 are included in the sample. In 2000 the Slovak Republic entered the OECD. 16 Although it would be quite interesting to have observations of each country for more than one year in order to analyze the institutional trends in regulatory arrangements, as mentioned above this analysis is focused on one observation corresponding to 1998. 17 This is the current situation in Spain since 2000, as before that date the Ministry responsible of telecommunications was also of public infrastructure matters.

3. Choice of measures of institutional arrangements in telecom regulation When choosing regulatory domains for building a database of institutional arrangements, we faced two main drawbacks: data availability and some patterns of observations that showed little difference across countries. Chosen proxy variables correspond to enforcement fields in which the telecom-specific agency, the Ministry and the antitrust agency may have assignments and therefore with some degree of shared responsibility. Consequently, some regulations in telecommunications such as those on quality, technical and service standards18, USO, numbering and spectrum management have not been considered because they are almost fully enforced by the telecommunications-specific agency. Nevertheless, the regulatory issues actually included in this analysis represent a significant part of the policy agenda of regulatory agencies in telecommunications. Consequently, among the above domains, we have chosen five regulatory fields in which different jurisdiction arrangements are found among the OECD countries. Such arrangements among the telecommunications authorities (ISA and Ministry) and the antitrust agency become the partial components of the dependent variable used in regressions in Chapter 3. The regulatory issues corresponding to these five variables correspond to the regulatory regimes of (i) pricing, (ii) licensing, (iii) interconnection, (iv) competition policy in the specific context of telecommunications and (v) the coordination mechanism among the considered institutions. The description of each of them and their scale definition is presented bellow. The meaning of code values for these regulatory domains is described in Table 1. 1. Enforcement of price regulation: Despite its deregulatory process in the OECD area, telecommunications still have some form of price control or regulation. Prices are either cost-based determined or are adjusted through price-caps rules. Such regulatory regimes require enforcement tasks, which include cost determination and allocation, network and service modeling, determination of efficiency factors, and fulfillment of monitoring activities.
18

At the national level, standard setting in telecommunications is usually enforced by both an IndustrySpecific and a Non Industry-Specific. However, this domain was avoided as the later is National Standard Body rather than the Antitrust Agency. See David and Shurmer (1996)

10

Cases with a fully responsible ISA were assigned a value 3 of the scale. The nature of many of the required tasks and the speed needed in the decision-making (price strategies has a more short-term profile than merger or licensing ones) explains why this has been one of the regulatory domains that has been fully assigned more frequently to telecomspecialized regulators. In this type of arrangements are included the US, Germany, Italy, the UK, Canada, Mexico, among others. Value 2 of the scale corresponds to cases with jurisdiction concurrence between the ISA and the Ministry in price regulation. These cases includes arrangements in which the ISA have an advocacy role and the Ministry takes the decision such as Hungary and Korea, full responsibility assigned to the Ministry as in France and Belgium and concurrence arrangements between any of these and the AA such as Portugal, Denmark and New Zealand. Finally, value 1 of this scale corresponds to cases as Australia and Finland in which the AA assumes a leading o significant part in the regulatory process. 2. Enforcement of Licensing Regulation: In most of the telecommunications segments, firms have required a license to be issued in order to operate local and long distance services. This becomes a critical rule in the case of wireless network19 operations because of the well-known scarcity of radio spectrum. Enforcement responsibilities include determination of number of licenses when it is limited, design and management of auction processes, review of service proposals and analysis of ownership structures and the enforcement itself of the license commitments. In those cases with auctions involved, the public funding motivations require activities of economic and strategic valuation. The distribution of observations in the scale has implied that value 3 corresponds to cases with a fully responsible ISA of the issuing and oversight processes. Germany, the US, Sweden, Ireland, among others had this arrangement in place. Since in many cases Ministry has played a key role in licensing process, institutional concurrence, corresponding to value 2, is assigned to arrangements with the Ministry
19

Mobile, LDMS, W-LAN (or WiFi), Satellite services, among others.

11

issuing licenses for mobile operators only and the ISA issuing the rest of licenses as well as monitoring fulfillment in the whole industry (i.e. The Netherlands, Italy and Spain) or the Ministry is fully responsible of the issuing process and the ISA responsible of their oversight (i.e. Turkey, Finland, Norway, Korea). Finally, the largest degree of involvement of the AA in licensing (value 1) is given to cases in which the ISA and the Ministry share responsibilities with the AA. In particular, in Australia and New Zealand the former issue the license and the latter of the latter 3. Specific enforcement of the antitrust law in telecommunications. This variable corresponds to the enforcement of competition (or antitrust) policy in the specific context of telecommunications and mostly concerning the regime of merger control20. The importance of this variable is based on three arguments: (i) Most of telecommunications policy has been associated to competition issues, fostering competitive conditions in telecom markets, overseeing competitive strategies; (ii) Merger control is not a trivial issue for telecommunications policy, to the extent that mergers, acquisitions and strategic alliances have been specially intense in this business. In the late 90s there were almost no major operator that were not involved in a consolidation or collaborative process and a very large share of total number of agreement announcements involved telecommunications players; (iii) Competition policy and merger control is a field in which enforcement coincidence of the AA and the ISA is more easy to comprehend. The largest value (3) of the scale is assigned to those cases in which the ISA has a full or leading responsibility in the enforcement process. In these cases, the key factor for such responsibility allocation has been either exception regimes to the competition legislation applied to telecommunications or an explicit assignment of a telecom- specific role to the ISA. The case of the USA is particularly special to the extent that before 1996 the involvement of the AA was relative high and based on its key role in enforcing the Modified of Final Judgment (MFJ)21. With the enactment of the Telecom Act, a substantive
20

This is coherent with the large frequency and importance of mergers for current antitrust enforcement in telecoms markets. 21 The MFJ settled the major antitrust suit United States v. AT&T that established the divestiture of the AT&T and its split in seve Regional Bell Operating Companies with monopoly conditions in each regional case. This suit and regime enforcement was leaded by the Antitrust Division of the Department of Justice.

12

leadership was assigned to the ISA in competition matters. In Germany and Sweden, the ISA is the leading institution for merger review and cases of abuse of dominant position. In Czech Republic and Hungary the arrangement is very similar to the previous ones as in this cases the institutional profile of the AA did not seem to be strong enough to compete with the inheritance of a large involvement of the ISA. The middle value of this scale (value 2) is assigned to those cases with a significant involvement of the Ministry or that the ISA plays role as a industry-specific enforcer of merger rules defined under the AA oversight and guidelines. For instance, the British ISA, OFTEL (today OFCOM) has an explicit role on regulation of restrictive practices, when it is contemplated in the license contract. In Austria, Ireland and Spain the ISA plays significant role in the definition of operators with a significant market power for interconnection regulations. In Canada and Portugal, an ISA report must be considered in merger control cases. Finally, in Korea and Japan the Ministry actively participates in merger control operations. Those cases with a full or leading responsibility in the enforcement process allocated to the AA were assigned a value 1. Many of the cases tend to fit in this category, as the AA has traditionally assumed a leading role in competition policy enforcement, as well as its expertise degree on competition issues and analysis. In countries such as Australia, New Zealand, Italy Belgium, Denmark, Finland, Greece and Switzerland enforcement is almost exclusively assigned to the AA. In Mexico, Norway or Turkey such leading role allocated to the AA is combined with a light involvement of the ISA. 4. Enforcement of the Interconnection Regime: Interconnection transactions allow an operator to rent and use the network of another operator under conditions of network service provision. It allows operators that lack of a complete network to offer full telecommunications services. The interconnection regime is probably the most important regulatory chapter in processes of liberalization and competition development. Interconnection negotiations frequently tend to involve disputes due to the competitive nature of the relationship between the parties and the significant power that the network operator usually have. The condition of both operators as competitors in the downstream

13

market and one of them vertically integrated usually promotes disputes between them over these transactions in the upstream market, specially in the process to reach a first agreement. Therefore, regulatory frameworks use to have two stages of intervention that might or not be successive: dispute resolution and responsibilities of determination of transaction prices charged by the network operator. This variable scale assigns value 3 to cases in which the ISA has full power in enforcing interconnection regulations. For instance in countries such as the USA, Germany, France, UK, Canada, Netherlands, Spain, among others the ISA is actively involved in analyzing disputes over interconnection agreements, defining reference frameworks for contracts of those agreements or developing networks models for interconnection pricing. The middle value of the scale (value 2) is assigned to cases in which the ISA and the Ministry share jurisdiction. In Belgium, Czech Republic and Korea this implies that the Ministry has the jurisdiction over cost and price determinations and the ISA manages the process of dispute resolution. Similarly, value 2 is also assigned to cases in which the Ministry concentrates all responsibilities as in Japan. When the involvement of the AA is important, score one is assigned. For example in Italy, this implies that the AA has an explicit advising role, in Denmark, such role is activated by the determination that decisions might contradict competition framework. With a larger visibility, in Australia the AA is an "arbiter or last resort" with decision power and in New Zealand, the AA is fully responsible of dispute resolution processes. 5. Coordination mechanism between the ISA and the AA: it is referred to the intervention and participation mechanisms of the AA in the decisions of the ISA. Unlike the previous variables, this one does not correspond to a specific regulatory domain but to the degree of enforcement alignment between the institutions. We defined this coordination process among the involved agents (the ISA, the AA and the Ministry) based on three dimensions: a. Institutional communication, in terms of required or suggested schedule or frequency for communication and whether or not one of the institutions works as the unique point of announcement.

14

b. Participation in the decision process, including the requirement to include the opinion of the AA in decision making, with either a biding or non biding nature. Considering institutional competition among those agents and difficulties of a multilateral decision-making, formal and biding participation of the AA in the ISAs jurisdiction would imply a significant support to enforcement concurrence. c. Definition of a common enforcement framework through the development of guidelines or white papers for enforcing in the jurisdiction in which share responsibilities. Considering institutional differences of these institutions in goals, criteria and specialization patterns, such common framework helps their enforcement alignment. The highest score of the scale (value 3) corresponds to the cases in which the AA role in a coordination mechanism is not formally defined. The US case is quite illustrative on this respect: information sharing is, mergers reviews performed by both are independent (reports and processes might be duplicated). Institutional coordination is complicated by a multi-jurisdictional problem in antitrust and regulatory enforcement as in addition to the analyzed federal agencies, state agencies play key roles. Similarly, administrative procedure constraints limit capability of AA to transfer information to ISA and viceversa. In Ireland, the AA only participates through its own responses to public consultation processes asked by the ISA as any other agent, with no prior requirement or suggestion to submit such response. Similarly in Norway and Spain, institutional coordination is weak, unclear and non-formally defined, leaving common actions to short-term policy preferences. The intermediate score (value 2) corresponds to a formal but not binding of AA's advocacy role. In Italy and Mexico, the requirement of those non biding opinions is established by law, as well as that the ISA must notify the AA on competition law violations, whereas in France, the Autorit de rgulation des tlcommunications (telecommunications watchdog), has the option to consult the Competition Council. In Sweden when both agencies have overlapping jurisdictions, the framework provides the AA the leading role in its enforcement.

15

The lowest score of this variable scale (value 1) corresponds to those cases in which the role of the AA in ISA's matters is not only formally established through laws but also have a veto right because its opinion is binding and as well as enforcement guidelines between both agencies are established, as well as the identification one of those. In Germany, institutional advocacy role is quite significant as the Telecom Act explicitly establishes it, including that both agencies should hear to each other. In general competition issues, the AA has to be heard and there is enforcement concurrence in issues such as market definition and abuse of market dominant position. In Switzerland, coordination between OFCOM and the Competition Commission is formally stated for interconnection issues, particularly on deciding whether to assign a dominant position title to a particular operator. Additionally, it is established that the Competition Commission addresses its recommendations on the processes of enforcement and normative definition to promote competition. The British approach includes both informal consultation and consultations stated by law, development of common enforcement guidelines and statutory rules. Similarly, there exists common tribunal hearing appeals against decisions by the OFT22 and the ISA. Despite the involvement of the ISA in the merger review process, AA as the common point of notification. Similarly, in Australia the communications process is based on regular meetings, participation in decision making of the other institution is based on both institution sharing directors and a formal requirement to notify and consult the other institution. In the Netherlands, as OPTA (the ISA) enforces certain antitrust issues in the telecommunications business (i.e. abuses of dominant position), common guidelines are used to set a consensus on the interpretation of the antitrust law by the ISA and the AA. When an issue is outside of such framework, the ISA should reach a new cooperation protocol with the AA. The ICP (Portuguese telecom regulator) must have the Autoridade da Concorrncias (the AA) opinion before establishing an operator has a significant market power with respect to the interconnection regime. Table 2 provides indicators of description of the variable scores, the score definition assigned to each country case and the documental and database sources that support them.

22

Office of Fair Trade

16

4. Clustering institutional arrangements Before considering to build a composite index from the considered domains of institutional arrangements, data is used to produced a meaningful classification of countries and the regulatory domains. Such classification would help to perform a preliminary analysis country differences in their institutional arrangements on certain telecommunications regulatory domains. Consequently, countries and institutional arrangements in regulatory domains would be evaluated in terms how easy build relatively homogeneous groups and group differences might be contrasted with other characteristics for an initial comprehension. Country and regulatory domain grouping was performed through a Cluster Analysis approach. This procedure groups those country observations with a high association among themselves and very low with other countries23. Clustering algorithm performs an overall minimization of differences between each country observation and hypothetical group means applied to all country observation (this in on the five regulatory domains) and possible groups or clusters24. Table 3 shows the dendrogram or tree diagram that corresponds to the path to build country clusters. Our country sample is presented vertically such that they are closer to those cases with which grouping occurs earlier. As the horizontal scale measures the height stage in which countries are merged, the lower the height of such merger the stronger the association between those countries and more likely they are included in the same cluster25. From the topology of the dendrogram, based on the chosen best cut we have highlighted four clusters. From the top to the bottom of the diagram the first cluster26 merges two homogeneous groups and Italy in a relatively late stage, so their overall similarity should not be very high. This cluster countries are characterized by large degree of involvement of
23

Everitt et al. (2001): At each stage the methods fuse individuals or groups of individuals which are cl osest (or most similar). 24 See Berlage and Terweduwe (1988) for a cluster analysis application to a country classification based on their development degree. 25 This type of dendograms are also know as Espaliers. 26 Denmark, Switzerland, Italy, Australia and New Zealand.

17

the Antitrust Agency in most of the considered domains, specially in competition policy, interconnection issues and the process of coordination with the ISA. The second cluster is the largest one27 and combines several pairs and trios that generate a relatively homogeneous group. Except from Mexico, Korea and Japan, it is mostly comprised by EU countries or in a waiting list to enter into the EU. Although the third cluster is the earliest to merge, its three affiliates 28 merge relatively late compared with other countries, which implies their similarities are not too high. However, they coincide in assigning a large involvement to the Ministry in Pricing issues that is balanced by a leading role of the ISA in Licensing and Competition Policy enforcement. Finally, the forth cluster include six countries29, five of which have very similar patterns of institutional arrangement and merge with Germany in a late stage. This cluster have the largest involvement assigned to the ISA in the considered regulatory domains, except from some shared enforcement with the AA of Competition Policy in Ireland and Spain and more formal involvement of the AA in ISA issues in Sweden and Germany. Despite differences in institutional arrangements between countries from the third and forth cluster are significant, they offer the most similar pattern among the four clusters due to their coincidence in the role of the ISA. Although we have worked with a limited number of variables (regulatory domains), a Cluster Analysis was also performed at the variable level. It is aimed to assess whether or not their content differences is also reflected in the pattern of association among their institutional arrangements. For example, differences of cost analysis for final and interconnection pricing with respect to assessing unfair competition and merger issues and with respect to institutional coordination might determine weaker associations between those regulatory domains in a Cluster Analysis.

27

Greece, Norway, Austria, Mexico, Netherlands, United Kingdom, Turkey, Korea, Japan, Belgium, France and Finland. 28 Portugal, Czech Republic and Hungary 29 Ireland, Spain, United States, Canada, Sweden and Germany

18

Results in Table 4 show a node that confirms a clear cluster of institutional arrangements in enforcing Pricing, Licensing and interconnection regulations, whereas arrangements in Competition Policy and Institutional Coordination have weaker associations between them and the referred cluster. Nevertheless, within such cluster, arrangements on Pricing regulation are more similar to Licensing than to Interconnection regulation. It might indicate that seniority of Pricing and Licensing regimes is more powerful in determining their institutional arrangements than the content coincidence of Pricing and Interconnection in performing cost analysis and price determination.

5. Building a composite index Each of the regulatory domains explained above provides a great deal of information for understanding the differences in institutional arrangements for telecommunications regulation and consequently they are used in Chapter 3 as individual dependent variables in the regression analysis. Nevertheless, they are relatively too focused on specific issues to provide a overall valuation of the institutional framework. A general valuation would be important not only as any other average tend to be, but specially due to the interdependence that agents in telecommunications face in their decisions between one of those domains and the rest. For example, the size of investment of a mobile operator in building its own network would be affected by the regulatory framework in interconnection issues, including its institutional arrangement: who, how and with whom takes key decisions. In this regulatory domain, several tasks may affect significantly the economic and strategic valuation of such investment, however the institutional arrangement in other close domains such as competition or licensing would also affect. Therefore, a general picture of how such institutional map is defined is critical for certain decisions. The result of the definition process of institutional arrangements and scale codes described above, as well as data processing and scoring is a matrix of countries with their corresponding values in each of the five variables. From this data and in order to have an unified measure of the institutional arrangements, in addition to the referred five separate domains of institutional arrangements (pricing, licensing, competition policy,

19

interconnection and institutional coordination), a composite index was built from the consolidation or aggregation of them. The alternatives of aggregation are several. The ranking-of-ranking procedure would imply ranking the country sample in each of the domains and the overall index would be obtained from averaging those rankings30. Grubb and Wells (1993) and Kodak and Kermes (1996) have used it in labor and product regulation enforcement. Similarly, the OECD employment Outlook (1999) used a weighted averaging based on the subjective assessment of experts with respect to the differential importance of the issues subject to aggregation. Malik (2002) highlights three techniques as references for aggregating indicators: Unobserved Components, Latent Variable and Principal Components. We have based this exercise on a factor analysis approach (Principal Components). This procedure allowed to decompose the data variance into a limited number of components or factors that are latent and hypothetical constructs around which variables (institutional arrangements in different regulatory domains) are ordered and consolidated. Similarities in the pattern of correlations are used to group variables to those hypothetical factors that, because of such variable composition, should be conceptualized for being meaningful. This statistical procedure would allow to consolidate five variables or arrangement domains into a single composite index capturing as much as possible of the variance of country observations in those indicators. The underlying factors account for the patterns of collinearity among the chosen regulatory domains and allow to merge them with a certain combination of weights. The ''shape'' of those weight combinations help to define what is being captured by each factor to the extent that variables are more related to one factor than to the rest of the others. As a result, each regulatory domain is weighted according to its contribution to the overall variance in the institutional arrangement data. As the importance or weight assigned to each regulatory dimension is provided by its own responsibility on

30

See Bertola et al. (1999)

20

the data variance, it makes the index a proxy of the cross-country difference of institutional arrangements across the OECD31. Nicometti et al (1999) develops a interesting reference for building a composite index of regulatory indicators from the factor analysis framework. Their indicators corresponded to three domains: state control over business enterprises, barriers to entrepreneurship and barriers to international trade and investment. In addition to Cluster Analysis, Berlage and Terweduwe (1988) uses Factor Analysis for identifying key performance variables for building country classifications. Their classification is referred not only to country scores in each of the two obtained factors, but also to a composite index. In both papers, it is highlighted the strength of this data-based approach in terms of its lack of arbitrariness for bundling variables. This analysis factor analysis was performed through principal components analysis (PCA) based on the procedure of SPSS software. The data reduction nature of factor analysis allows it to reduce the original variable set to a fewer number of factors. The number of factors should the smallest with a significant percentage of explanation of the data variance. Consequently, in case PCA is significant to this data, the chosen variables do not measure five different independent domains but fewer underlying constructs of the analyzed domains of institutional arrangements. The upper section of Table 4 identifies several factors (or underlying components), ranking them based on their percentage of explained variance32 (see second column). This table is divided in three sections: one for identification of eigenvalues of each factor or component and their degree of variance explanation, the other two sections correspond to highlighting the choice of the main components and their conversion into rotated results. The standard procedure to that choice of the main factors is given by 1 (the unity) as the cut-off eigenvalue above which factors are selected. However, in order to ensure at least two factors and the second factor has an eigenvalue very close to 1, the latter is chosen with an
31

From Green (1997): The use of principal components is an attempt to extract from the X matrix a small number of variables that, in some sense, account for most or all of the variation in X. 32 As expected, five components or factors (same number as the variables or regulatory domains) are identified as with the fifth one the data variance is fully explained by those factors (e.g. no more than five factors are required to fully capture variance of five variables).

21

eigenvalue of 0,95 (see first and forth column). In addition to such criteria, factor choice might correspond to those that (i) ''individually contribute to the explanation of the overall variance of the data by more than 10 per cent; (ii) and cumulatively contribute to the explanation of the total variance of the data by more than 60 per cent.''33. The first two factors in Table 4 fulfill these two additional criteria. The explanatory power of those factors account for 70% of the data variance. In spite the third factor would add more than 12% of variance explanation, it would be suitable to avoid making the composite index unnecessarily complex, using three factors instead of two. Hamilton (1992) completes the set of criteria to choose the adequate factors based on its factor interpretability. For this, rotation process is used in order to provide a more interpretable set of factor loadings34 and weights of each variable or regulatory domain on each factor and evaluate whether each factor interpretation makes sense or not35. Columns 7 to 9 show that the resulting simplification of both factor variable compositions increases the explanatory power of the second factor with respect to the first one, obtaining a more balanced structure of latent factors. The resulting structure of factors from column 7 is shown in the Rotated Component Matrix in bottom of Table 4. Weights of each regulatory domain in both factors are presented in columns 3 and 6 respectively and are obtained from the sum of the squared factor loadings. The difference of variable weights between both factors gives indications for their interpretation. The first factor is mostly referred to the enforcement arrangements in which (industry) specialized regulation has been traditionally involved in: pricing (38,6%) and interconnection (37,3%). Consequently, the second factor is basically referred to concepts in which other agents had greater visibility by 1998: the AA in Competition Policy (51.6%) and the (telecommunications) Ministry in Licensing matters (32.1%). Note that institutional coordination is equally important to the first and the second factor: 16.6%

33 34

Nicometti et al. (1999). Berlage and Terweduwe (1988) use 90% of common variance as the critical value. Factor loadings provide the correlation between a variable (regulatory domain) and any of the factors extracted from the data 35 Rotation process identifies a new set of factors with the same fitness degree of the original factors but with a clearer interpretation because their variable composition more simple: leading variables are made more relevant and insignificant ones are made less important.

22

and 13.7% respectively, which is consistent with its interface nature among the regulatory institutions. The degree of explanatory power or communality that the resulting composite index have with respect to each domain of institutional arrangement can be obtained from the sum of the squared factor loadings of each variables (sum of columns 2 and 4 in the Rotated Component Matrix). For example, Competition Policy is the variable with the best explanatory degree due to the combination of both factors: (0.03)2+(0.92)2= 0.838 followed by the dimensions of Pricing (0.76), Interconnection (0.72) and Licensing (0.66). On the other hand, such composition profile of both factors makes the resulting index offer a worse representation of the variable Institutional Coordination (0.54). A third stage of the procedural approach for building a composite index of the institutional arrangements is the evaluation of the data adequacy for performing factor analysis. Table 4 presents two indicators associated to this issue. As factor analysis requires a certain degree of collinearity or common variance among the analyzed institutional arrangements, the intercorrelation matrix should be a non-identity one and both adequacy indicators are based on determining whether or not the data matrix is factorable in that sense. The Kaiser-Meyer-Olkin measure compares the Pearson and the partial correlation coefficients. The smaller the partial correlation ones, the more likely that variables share a common factor and the larger the KMO measure. Therefore, the larger the KMO measure (closer to 1) the better the data adequacy level for Factor analysis. According to Kaiser (1974), the result in Table 4 of 0.741 is a middle point between a middling and meritorious level. Similarly, Bartlett Test analyzes the null hypothesis that the intercorrelation matrix is based on noncollinear variables. Obtained results (2 = 28.625 and = 0.001) indicate that the correlation matrix is not an identity one, which implies that the factor analysis is an adequate procedure to assess this data set. For building a composite index of these five regulatory dimensions two methods are considered: one based on a weighted average method and the other on the factor scores.

23

Both resulting composite indexes are presented in Table 5. On the left hand of the table, it is shown the calculation based on a weighted index uses the weights obtained from the squared factors presented in Table 4, which allow to differentiate the importance of each of the five dimensions in the information provided in both cases factor 1 and factor 2. Consequently, a first pair of weighted indexes is obtained for each factor consolidating the five variables but with its own weight pattern. Finally, a single index is obtained in a second round using the percentage of variance that is explained by each factor. Reflecting the scale structure of the variables, this weighted index has a minimum value of 1 and maximum of 3, corresponding the highest value to those countries with the largest involvement of the ISA. On the right hand of Table 5, factor scores directly obtained from the factor analysis procedure can also be used as a composite index of the institutional arrangements and reflecting the variance of the data structure as the weighted index does. Factor scores are linear combinations all variables (regulatory domains) weighted by the (standardized) factor loadings of variables in each of the two factors. The results are standardized measures with a mean of 0 and a standard deviation of 1, computed from the factor score coefficient matrix. As expected, the smaller the value the larger the global involvement of the AA in telecommunications regulation matters. The comparison of both index calculations show a large degree of consistency in terms of the ranking structure. In most of the cases, country positions maintain positions that are relatively the same: (i) 10 of 26 countries keep exactly the same ranking positions; (ii) other 14 countries move their ranking position one or two steps and (iii) only Japan and Mexico are moved three steps. Additionally, both approaches allow similar balanced distributions of countries below and above their average levels. The resulting composite index based on factor scores is compared with three other measures associated to the institutional framework and presented in Table 6 and their respective correlations with the composite index. Pearson coefficients were computed for index values and Spearman coefficients for ranking levels. As no measure of institutional arrangements between regulatory agencies is available, none of the above are significantly comparable with the obtained results in this paper. However, although only one of the 24

correlations is statistically significant, signs reflect their consistency as indirect proxies or determinants of the institutional arrangement choices. The first index comes from Henisz (2002) and measures Political Constraints faced by political actors in terms of the extent to which a change in the preferences of any one actor may lead to a change in government policy and based on the number of independent branches of government (executive, lower and upper legislative chambers) with veto power over policy change. The positive correlation sign indicates that institutional arrangements with a large involvement of the ISA in telecommunications regulation corresponds to institutional frameworks with relatively weak political constraints, which is the context associated to an agency relatively hard to be controlled. Moreover, its

Spearman coefficient for ranking levels was statistically significant at the 10% level. The second index measures the degree of Regulatory Discretion from Johnson et al. (1998) and Kauffman and Sachs (1998). It is based on business survey responses to the questions on how precise regulations are: the more vague and lax the regulations, the higher the index value. The positive correlation sign with the composite index indicates that large involvement of the Industry-Specific Agency in telecommunications policy tends to be accompanied by a large degree of regulatory discretion which is very consistent with the vaguer rules and larger discretion that such agency usually have in enforcing rules. The third index measures the degree of regulatory and administrative opacity by Nicoletti et al. (1999). It is a composite index of two dimensions: the Licenses and permits system (existence of silent is consent principle and one single contact point for asking for information and issuing the license) and communication and simplification of procedures (difficulty for external agents to obtain relevant information, right to appeal, transparency requirements, efforts to reduce regulatory burden and licenses, among others). The negative sign of its correlation coefficients with regulatory institutional arrangements indicate larger involvement of the AA tends to be accompanied by more opaque frameworks. In principle, we would expect a positive correlation sign in case such index would actually behave as a proxy of institutional arrangements. Nevertheless, it seems to be more a proxy of conditions of regulatory transparency and those are expected to have a negative effect on the

25

involvement of the ISA. Consequently, it might help to confirm the robustness of the resulting composite index not as a proxy but as a determinant.

6. Discussion and further research Cross country analysis of the resulting index of institutional arrangements in telecommunications regulation indicates that there are no geographical patterns to portrait overall institutional arrangements in telecommunications. Unlike results from other references36, It is quite difficult to find an affiliation pattern or proximities among them that explain their similarities in institutional arrangements in telecommunications regulation. Despite the ongoing convergence in several issues by 1998, EU countries do not have the same pattern of involvement of regulatory agencies in telecommunications policy. In cluster analysis, EU countries are distributed among the four identified clusters (although 8 of the 15 countries are located in the second cluster). However, on the factor analysis-based index EU countries tend to have a value above the sample average, which means an involvement degree of the ISA larger than several other countries. Only Finland, Denmark, Italy and Belgium have more explicit involvement of the AA. Spain, Ireland and Sweden had the largest degree of ISA involvement in the European context. Common law and Anglo-Saxon countries did not have a homogeneous pattern either. Moreover, they almost define reference points of the scale: the extremes and the average of the sample. New Zealand and Australia (first cluster) consistently assign the AA a key role to play to the extent that they are also worldwide reference cases. In the middle point, the British case (second cluster) explicitly promotes a case of regulatory separation and close coordination. Finally, the US, Ireland and Canada (forth) correspond to highly responsible specialized regulators.

36

Nicometti et al. (1999) at least differentiate a cluster of English-speaking country group from another one with continental European countries.

26

Finally, similar heterogeneity might be found among Scandinavian and South European countries: Italy and Denmark coincide in the first cluster, Greece, Norway and Finland in the second cluster, Portugal is the only EU country in the third cluster and Spain and Sweden coincide in the forth cluster. Comparing results of variable cluster analysis and variable composition of factors from PCA it is confirmed that arrangements in Pricing and Interconnection regulation have strong similarities (allocated in the same cluster and factor) as well their differences with respect to the arrangements in Competition Policy. Nevertheless, Cluster and Factor Analysis do not coincide with the associations of arrangements in Licensing and

Institutional Coordination issues. Further research would be required to analyze what have determined country choices on such institutional arrangements, as no apparent explanations based on geographical or overall institutional affiliation would provide enough help. The development of above indicators allows to measure cross-country differences in the institutional arrangements between agencies involved in telecommunications regulations. Its immediate effect would be the possibility to develop in Chapter 3 the required analytical exercises on the explanations of such institutional arrangements. Similarly, definition of further indicators of institutional arrangements based on actual enforcement rather than legislation would offer a very useful measure of actual interaction among regulatory institutions beyond Government and Parliament choices. This would be more important to analyze recent developments of institutional interfaces since legal frameworks were set in the late 1990s.

27

7. References Berlage, L. and D. Terweduwe (1988), ''The classification of countries by cluster and by factor analysis'', World Development, Vol. 16(12). Bertola, Giuseppe, Boeri, Tito and Cazes, Sandrine (2000): Employment protection in industrialized countries: The case for new indicators. International Labour Review. 139 (1). pp. 59-72. Bianchi and Richeri (1999): "Pecularities and fist steps of the Communications Authority in Italy". Communications & Strategies, 34, p. 231 Bickenbach, Frank, Kumkar, Lars and Soltwedel, Rdiger (1999): "The New Institutional Economics of Antitrust and Regulation". Keil Working Paper. N 961 Borucki, W., Hruby, Z. Schmideg, I., Pogorel, G. (1999): "EU Telecom Regulation in Accession Countries". Communications & Strategies. 34, p. 253 Boylaud, Olivier and Nicoletti, Giuseppe (2000): ''Regulation, Market Structure And Performance In Telecommunications''. Economics Department Working Papers No. 237. OECD. ECO/WKP(2000)10. Bler, Stefan (1998): Regulatory reform of telecommunications in Switzerland. Telecommunications Policy. 22(8). Pp. 671-680 Cave, M. and Williamson, P. (1996): Entry, Competition and Regulation in UK Telecommunications. Oxford Review of Economic Policy. 12(4) Chaves, Bruno (1999): "Incentive Structures and Dispute Resolution Devices in the Telecommunications Industry". Centre d'Analyse Thorique des Organisations et des Marchs Working Paper. pp. 99-03 Crandall, Robert (1998): "New Zealand spectrum policy: a model for the United States?". Journal of Law and Economics. 41, p. 821-840

28

CMT (1999): Informe Anual Crandall, Robert (1998): "New Zealand spectrum policy: a model for the United States?". Journal of Law and Economics. 41, p. 821-840 CRTC (1998): Telecom Decision CRTC 98-17, 1 October 1998 Danish Parliament (1998): Act on Competitive Conditions and Interconnection in the Telecommunications Sector. No. 860 of 4 December 1998. David, Paul and Shurmer, Mark: Formal standards-setting for flobal telecommunications and information services. Towards an institutional regime transformation?

Telecommunications Policy. 20(10) Ersoy, E. (2000): New Turk telecoms board seeks UMTS licensing power". Total Telecom. 17 August 2000 Everitt, Brian S., Landau, Sabine and Leese, Morven (2001): Cluster Analysis. 4th edition. Oxford University Press. European Commision (1998): Notice of 31 March 1998 on the application of the competition rules to access agreements in the telecommunications sector (OJ C265, 22.8.1998, p.2) European Commision (1991): Guidelines on the application of EEC competition rules in the telecommunications sector (OJ C 233, 6.09.1991). Greene, W. H.: (1997): Econometric Analysis. Prentice Hall. Hamilton, L. C. (1992): Regression with Graphics. Duxbury Press. Henisz, W. J. (2002). "The Institutional Environment for Infrastructure Investment." Industrial and Corporate Change. 11(2): Hungarian Communication Authority (2000): "Hungarian Telecommunications Regulatory Environment and Authority". Blue Paper

29

International Telecommunications Union: Regulators Profile - Austria Italian Government (1997): Presidential Decree no. 318/97 Johnson, Simon, Kaufmann, Daniel and Zoido-Lobatn Pablo (1998) Regulatory

Discretion and the Unofficial Economy. American Economic Review, 88(2). pp. 387-392. Kaufmann, Daniel, Aart Kraay and Pablo Zoido-Lobaton (1999a). ''Governance Matters''. World Bank Policy Research Department Working Paper No. 2196. Kaufmann, Daniel, Aart Kraay and Pablo Zoido-Lobaton (1999b). Aggregating Governance Indicators. World Bank Policy Research Department Working Paper No. 2195. Kaufmann, Daniel and Sachs, Jeffrey (1998). Determinants of Corruption, Harvard University Press. Kaiser, H.F. (1974). An index of factorial simplicity. Psychometrika,39, 31-36 King, S. and Maddock, R. (1999): "Light-handed regulation of access in Australia: negotiation with arbitration" Information Economics and Policy 11(1999), p 1-22 Klein, Joseph (1996): "Antitrust Law as a Regulator of the Rapidly Transforming Telecommunications Market". Communications & Strategies. 23, p. 209 Knieps, Gnter (1997): "Phasing out Sector-Specific Regulation in Competitive Telecommunications". KYKLOS. 50(3), p. 325-339 Korea Fair Trade Commission: Exemptions and Exceptions to Competition Policy and Law in Korea Levy, Bryan and Spiller, Pablo (1996): Regulations, Institutions and Commitment: Comparative studies of telecommunications. Cambridge University Press.

30

Levy, Bryan and Spiller, Pablo (1994): The Institutional Foundations of Regulatory Commitment: A Comparative Analysis of Five Country Studies of Telecommunications Regulation. Journal of Law, Economics and Organizations. Malik, Adeel (2002): State of the Art in Governance Indicators UN Human Development Report Office Occasional Paper. 2002/7 Massey, Patrick and Shortall, Tony (1999): "Competition and Regulation in Public Utility Industries". Competition Authority Discussion Paper. 7 Nicoletti, G., Scarpetta, S. and Boylaud O. (1999). ''Summary indicators of product market regulation with an extension to employment protection legislation''. Economics Department Working Papers, OECD. ECO/WKP(99)18 Norwegian Parliament: The Telecommunications Act of 23 June 1995. Amended latest on 25 March 1999, in force as of 30 April1999. OECD(1999): Antitrust Report of Austria 1997-1998 OECD (1999): ''Relationship Between Regulators and Competition Authorities''. Best Practice Roundtables. DAFFE/CLP(99)8 OECD (1999): OECD Communciations Outlook 1999 OECD (2000): ''Telecommunications regulations: Institutional structures and

responsibilities''. DSTI/ICCP/TISP(99)15/FINAL Office of Economic Competition (1999): The Competition Policy Position of the Office of Economic Competition on the Key Issues of Telecommunications Market Liberalization. Omura, Tatsuya (19997): "Japan's stumbling policy for competition in the

telecommunications industry". Telecommunications Policy. 21(2), p. 127-141. Prosperetti and Cimatoribus (1998): Andante ma non troppo: Telecommunications liberalisation Trends in Continental Europe" Communications & Strategies. 31

31

Shelanski, Howard (2002): "From sector-specific regulation to antitrust law for US telecommunications: the prospects for transition". Telecommunications Policy. 26(2002), 335-355 Shelanski (2002): "From sector-specific regulation to antitrust law for US

telecommunications: the prospects for transition". Telecommunications Policy. 26(2002) 335-355 Spiller, Pablo and Vogelsang, Ingo (1999): "The Institutional Foundations of Regulatory Commitment in the UK: The Case of Telecommunications". Journal of Institutional and Theoretical Economics. 153(4): 607-629 Tovar, Ramiro (1997): "Policy reform in netowrks infrastructure. The case of Mexico". Telecommunications Policy. 21(8). Pp. 721-732

32

Table 1

33

Table 2
Description of institutional arrangements: concepts, sources and basic indicators Pricing
(mean = 2.42 / = 0.64)
United States Japan Germany France Italy

Licensing
(mean = 2.35 / = 0.63)
ISA with full responsibility
1, 2 1 ,2

Competion Policy
(mean = 1.73 / = 0.83)
ISA with leading responsibility
1, 5, 6, 11

Interconnection
(mean = 2.35 / = 0.78)
ISA with exclusive powers
1, 2, 5, 6, 11

Institutional Coordination
(mean = 1.89 / = 0.82)
Unclear or weak coordination2, 5, 6, 11, 32, 33 Formal advocacy role + guidelines6 Formal advocacy role + guidelines2, 6, 37 Formal but non binding advocacy role2, 6 Formal but non binding advocacy role2, 6, 20, 21 Formal and binding advocacy role2, 6, 32, 33,34 informal advocacy role2, 6 Formal and binding advocacy role2, 6, 23,32 Formal but non binding advocacy role Formal and binding advocacy role Formal and binding advocacy role2, 6 Formal and binding advocacy role Unclear or weak coordination Unclear or weak coordination26, 38 Formal but non binding advocacy role2, 27 Formal and binding advocacy role2, 6 Formal and binding advocacy role2, 6 Unclear or weak coordination6 Formal and binding advocacy role2, 6 Informal advocacy role2 Formal but non binding advocacy role2, 6

ISA with full responsibility

Ministry decides + ISA advices1, 35 ISA with full responsibility1 ,2, 37 Ministry decides + ISA advices1, 2 ISA with full responsibility1 ,2, 21

Ministry decides (ISA advises)1, 2 ISA with full responsibility1, 2, 3 Ministry issues + ISA oversees1, 2, 3 Ministry issues + ISA oversees1, 2, 3, 21 Ministry issues it. ISA+Ministry oversees it1, 2, 33, 34 ISA with full responsibility
1, 2, 4

Ministry with large responsibility1, 2 ISA with leading responsibility1, 5, 7 Under concurrence, ISA has leading role for some issues as a specific enforcer 1, 2, 7 AA with full responsibility1, 2, 7 Under concurrence, ISA has leading role for some issues as a specific enforcer 1, 2, 7 Under concurrence, ISA has leading role for some issues as a specific enforcer 1, 2, 8 AA with full responsibility1, 2, 6 AA with full responsibility9, 10 AA with full responsibility1, 6 AA with full responsibility1, 2, 6 AA with full responsibility1, 2 AA with full responsibility1, 2 Under concurrence, ISA has leading role for some issues as a specific enforcer 1, 2 AA with full responsibility1, 2 AA with full responsibility1, 2 AA with full responsibility1, 2 AA has the leading role under institutional concurrence 1, 2 Ministry with large responsibility1, 2 Under concurrence, ISA has leading role for some issues as a specific enforcer 1, 2 ISA with leading responsibility6 AA with full responsibility1, 2, 15 AA with full responsibility1, 2, 18 ISA with leading responsibility ISA with leading responsibility
1, 2, 16

Ministry with exclusive powers1, 2 ,35 ISA with exclusive powers1, 2, 7 ISA with exclusive powers1, 2, 7 Concurrence ISA/AA6, 20, 21 ISA with exclusive powers1, 2 ISA with exclusive powers
1, 2

United Kingdom ISA with full responsibility1 ,2 Canada Australia Austria Belgium Denmark Finland Greece Ireland Mexico Netherlands New Zealand Norway Portugal Spain Sweden Switzerland Turkey

ISA with full responsibility

1 ,2

AA with full responsibility1,2 ISA with full responsibility1 ,2, 9 Ministry decides + ISA advices1, 2 Concurrence of ISA/AA1, 2 AA with full responsibility1,2 ISA with full responsibility1 ,2 ISA with full responsibility1 ,2 ISA with full responsibility1 ,2, 27 ISA with full responsibility1 ,2 Concurrence of ISA/AA1, 2 ISA with full responsibility
1 ,2

Ministry issues + AA oversees1, 2 ISA with full responsibility1, 2, 9 Ministry issues + ISA oversees1, 2 ISA with full responsibility1, 2 Ministry issues + ISA oversees1, 2 Ministry issues + ISA oversees1, 2 ISA with full responsibility1, 2 Ministry issues + ISA oversees1, 2 Ministry issues + ISA oversees1, 2 ISA issues it / AA oversees it1, 2, 36 Ministry issues + ISA oversees
1, 2

AA with exclusive powers1, 2, 6, 21, 23 ISA with exclusive powers1, 2, 9 Concurrent jurisdiction of Ministry/ISA1, 2, 24 Concurrent jurisdiction: ISA and AA, with significant role of the AA6, 25 ISA with exclusive powers1, 2 ISA with exclusive powers1, 2 ISA with exclusive powers1, 2 ISA with exclusive powers1, 2, 27 ISA with exclusive powers1, 2, 28 AA with exclusive powers1, 2 ISA with exclusive powers
1, 2, 29

Concurrence of ISA/AA1, 2 ISA with full responsibility1 ,2, 12 ISA with full responsibility1 ,2 Ministry decides + ISA advices1, 2 Ministry decides + ISA advices1, 2
1, 2

ISA issues it / ISA oversees it1, 2 Ministry issues + ISA oversees1, 2, 3 ISA with full responsibility1, 2 ISA with full responsibility1, 2 Ministry issues + ISA oversees1, 2, 19 Ministry issues + ISA oversees Ministry issues + ISA oversees Ministry issues + ISA oversees
1, 2

Concurrent jurisdiction: Ministry/ISA/AA1, 2 ISA with exclusive powers1, 2, 7 ISA with exclusive powers1, 2

Concurrent jurisdiction: Ministry and ISA1, 2, 15, 22 Formal and binding advocacy role2, 6, 15, 37 Concurrent jurisdiction: Ministry, ISA and AA1, 2,
22

Formal but non binding advocacy role2, 6 informal advocacy role16 Formal but non binding advocacy role2, 6,16

Czech Republic Ministry decides + ISA advices Hungary Korea

Concurrent jurisdiction: Ministry and ISA Concurrence Ministry/ISA/AA

30

1, 2, 22

Ministry decides + ISA advices Ministry decides + ISA advices

1, 2, 16

1, 2, 16

1, 2, 16, 17

1, 2

1, 2

Ministry with large responsibility

20 21

1, 2

Concurrent jurisdiction of Ministry and ISA

1, 2, 31

Formal but non binding advocacy role2, 6

1 2 3

OECD International Regulation Database OECD (2000): ''Telecommunications regulations: Institutional structures and responsibilities''. Mimeo

Italian Government (1997): Presidential Decree no. 318/97 Bianchi and Richeri (1999): "Pecularities and fist steps of the Communications Authority in Italy". Communications & Strategies, 34, p. 231 OECD (1999): OECD Communciations Outlook 1999 OECD King, S. and Maddock, R. (1999): "Light-handed regulation of access in Australia: negotiation with arbitration" Information Economics and Policy 11(1999), p 1-22 Belgian Institute for Postal Services and Telecommunication (1999): Annual Report 1999 Danish Parliament (1998): Act on Competitive Conditions and Interconnection in the Telecommunications Sector. No. 860 of 4 December 1998 Massey, Patrick and Shortall, Tony (1999): "Competition and Regulation in Public Utility Industries". Competition Authority Discussion Paper. 7 Tovar, Ramiro (1997): "Policy reform in netowrks infrastructure. The case of Mexico". Telecommunications Policy. 21(8). Pp. 721-732

Prosperett i and Cimatoribus (1998): Andante ma non troppo: Telecommunications liberalisation Trends in Continental Europe" Communications & Strategies. 31
4

22

CRTC (1998): Telecom Decision CRTC 98-17, 1 October 1998 5 Shelanski (2002): "From sector-specific regulation to antitrust law for US telecommunications: the prospects for transition". Telecommunications Policy. 26(2002) 335-355 6 OECD (1999): ''Relationship Between Regulators and Competition Authorities''. Best Practice Roundtables. DAFFE/CLP(99)8
7

23

24

25

Prosperetti and Cimatoribus (1998): "Andante ma non troppo: Telecommunications liberalisation Trends in Continental Europe" Communications & Strategies. 31
8

26 27 28

CRTC (1998): Telecom Decision CRTC 98-17, 1 October 1998 International Telecommunications Union: Regulators Profile - Austria OECD(1999): Antitrust Report of Austria 1997-1998

Commision of OPTA (1999): Determination of the preliminary tariffs for interconnection and special access that are to be applied by KPN Telecom B.V. from 1 July 1999 until 1July 2000. OPTA/IBT/99/8000
29 30

10 11

Norwegian Parliament: The Telecommunications Act of 23 June 1995. Amended latest on 25 March 1999, in force as of 30 April1999.

Klein, Joseph (1996): "Antitrust Law as a Regulator of the Rapidly Transforming Telecommunications Market". Communications & Strategies. 23, p. 209
12

Office of Economic Competition (1999): The Competition Policy Position of the Office of Economic Competition on the Key Issues of Telecommunications Market Liberalisation
31 32

Ley de Liberalizacin de las Telecomunicaciones, 12/1997.

Korea Fair Trade Commission: Exemptions and Exceptions to Competition Policy and Law in Korea

13

CMT (1999): Informe Anual Ley General de Telecomunicaciones, 11/1998.

Chaves, Bruno (1999): "Incentive Structures and Dispute Resolution Devices in the Telecommunications Industry". Centre d'Analyse Thorique des Organisations et des Marchs Working Paper. 99-03
33 34

14 15

Bickenbach, Frank, Kumkar, Lars and Soltwedel, Rdiger (1999): "The New Institutional Economics of Antitrust and Regulation". Keil Working Paper. N 961

Bler, Stefan (1998): Regulatory reform of telecommunications in Switzerland. Telecommunications Policy. 22(8). Pp. 671- Spiller, Pablo and Vogelsang, Ingo (1999): "The Institutional Foundations of Regulatory Commitment in the UK: The Case of Telecommunications". Journal of Institutional and 680 Theoretical Economics. 153(4): 607-629 16 Borucki, W., Hruby, Z. Schmideg, I., Pogorel, G. (1999): "EU Telecom Regulation in Accession Countries". 35 Communications & Strategies. 34, p. 253 Omura, Tatsuya (19997): "Japan's stumbling policy for competition in the telecommunications industry". Telecommunications Policy. 21(2), p. 127-141. 17 Hungarian Communication Authority (2000): "Hungarian Telecommunications Regulatory Environment and Authority". 36 Blue Paper Crandall, Robert (1998): "New Zealand spectrum policy: a model for the United States?". Journal of Law and Economics. 41, p. 821-840
18

Turkish Competition Authority: "About the Turkish Competition Authority". In http://www.rekabet.gov.tr/ Ersoy, E. (2000): New Turk telecoms board seeks UMTS licensing power". Total Telecom . 17 August 2000

37 38

Knieps, Gnter (1997): "Phasing out Sector-Specific Regulation in Competitive Telecommunications". KYKLOS. 50(3), p. 325-339

19

Such lack of coordination changed dramatically in 2002 with the signature of the Co-Operation Agreement betwee the Competition Authority and the Commission for Communications Regulation December 2002

34

Table 3

* * * * * * H I E R A R C H I C A L

C L U S T E R

A N A L Y S I S * * * * * *

Dendrogram using Average Linkage (Between Groups)

Rescaled Distance Cluster Combine

C A S E Label Denmark Switzerland Italy Australia New Zealand Greece Norway Austria Mexico Netherlands United Kingdom Turkey Korea Japan Belgium France Finland Portugal Czech republic Hungary Ireland Spain United States Canada Sweden Germany Num 11 22 5 8 17 13 18 9 15 16 6 23 26 2 10 4 12 19 24 25 14 20 1 7 21 3

10

15

20

25

+---------+---------+---------+---------+---------+

35

Table 4

* * * * * * H I E R A R C H I C A L *

C L U S T E R

A N A L Y S I S * * * * *

Dendrogram using Average Linkage (Between Groups)

Rescaled Distance Cluster Combine

C A S E Label PRICING LICENSIN INTERCON COMPET COORD Num 1 2 4 3 5

10

15

20

25

+---------+---------+---------+---------+---------+

36

Table 4
Total variance explained
Initial Eigenvalues Extraction Sums of Squared Loadings Rotation sums of Squared Loadings % of the % of the % of the Total Acumm % Total Acumm % Total variance variance variance Component 1 2.57 51.40 51.40 2.57 51.40 51.40 1.89 37.88 2 0.95 18.92 70.32 0.95 18.92 70.32 1.62 32.44 3 0.62 12.39 82.71 4 0.46 9.19 91.90 5 0.40 8.10 100.00 Extraction method: Principal Components Analysis. Kaiser-Meyer-Olkin Measure of sampling adquacy Bartlett test of Sphericity Aproximate Chi-Square df Sig. 28.625 10.000 0.001

0.741

Rotated component matrix

Factor 1 Pricing Interconnection Inst Coord AA-ISA Competition Policy Licensing 0.855 0.840 0.560 0.027 0.377 Squared Factor 1 0.732 0.706 0.314 0.001 0.142 % 38.6% 37.3% 16.6% 0.0% 7.5% Factor 2 0.170 0.112 0.472 0.915 0.722 Squared Factor 2 0.029 0.012 0.222 0.837 0.521 % 1.8% 0.8% 13.7% 51.6% 32.1%

37

Table 5

Composite index of institutional arrangements (weighted index) Australia New Zealand Denmark Finland Belgium Turkey Italy Switzerland Japan Korea Hungary Netherlands Mexico Portugal France United Kingdom Greece Norway Austria Czech republic Germany Ireland Spain Sweden United States Canada 1.000 1.217 1.593 1.598 1.610 1.763 1.775 1.799 1.847 2.000 2.032 2.033 2.185 2.188 2.205 2.270 2.338 2.338 2.373 2.578 2.695 2.763 2.763 2.847 3.000 3.000

Composite index of institutional arrangements (factor scores) Australia New Zealand Finland Belgium Denmark Japan Turkey Italy Switzerland Hungary Korea Netherlands France United Kingdom Portugal Mexico Greece Norway Austria Czech republic Germany Sweden Ireland Spain United States Canada -1.610 -1.286 -0.788 -0.708 -0.619 -0.500 -0.460 -0.381 -0.375 -0.289 -0.252 -0.140 -0.008 0.068 0.081 0.108 0.355 0.355 0.441 0.536 0.610 0.857 0.897 0.897 1.105 1.105

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Table 6
Ranking of institutional framework measures
Institutional arrangement a
United States Canada Ireland Spain Sweden Germany Czech republic Austria Greece Norway Mexico Portugal United Kingdom France Netherlands Korea Hungary Switzerland Italy Turkey Japan Denmark Belgium Finland New Zealand Australia Pearson coef. Spearman coef.
a b

Political Constraint b
Belgium Czech republic Italy Japan Finland Denmark Australia Norway Turkey New Zealand Spain Canada Sweden Ireland Switzerland Germany Hungary Austria Portugal Netherlands United States France Greece Mexico United Kingdom Korea .-275 0.175 -0.375 0.06

Regulatory opacity c
Korea Japan Belgium Sweden Switzerland Turkey Finland Germany France Denmark Ireland Mexico New Zealand United States Czech republic Greece Australia Netherlands Norway Spain Portugal Italy Austria Canada Hungary United Kingdom -0.234 0.251 -0.302 0.134

Regualtory discretion d
Norway United Kingdom Germany Canada France Netherlands Sweden Denmark United States Austria Japan Ireland Portugal Belgium Mexico Czech republic Hungary Italy Greece

0.258 0.318 0.267 0.27

Calculated in this paper From Henisz (2002) c From Nicoletti et al. (1999) d From Johnson et al. (1998) and Kauffman and Sachs (1998)

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