Rethinking the Regulatory Framework
Competition has been the key pillar of free and open markets since ancient times. The Roman records of 50 BC indicate that legislators used regulations and policies to control price fluctuations and keep a check on unfair trade practices. Any violations were severely punished, in some cases even with death. At the time the rules were primarily focused on goods, trade, transportation, and tariffs. Ever since, through the middle ages in Europe and Asia, kings used their bully pulpit to punish monopolies.
The English common law doctrine of restraint of trade became the precursor to modern competition law. This grew out of the codifications of United States antitrust statutes, which in turn had considerable influence on the development of European Community competition laws after the Second World War. Increasingly, the focus has moved to international competition enforcement in a globalized economy. Modern competition law begins with the United States legislation of the Sherman Act of 1890 and the Clayton Act of 1914. While other, particularly European, countries also had some form of regulation on monopolies and cartels, the U.S. codification of the common law position on restraint of trade had a widespread effect on subsequent competition law development.
Telecom and wireless industries are amongst the most regulated industries. While the degree of regulation can be debated, the fundamental tenants of looking at Competition in these markets are decades’ old. In the US, The Communications Act of 1934 and the Telecommunications Act of 1996 have defined the competitive framework for the industry. Similar frameworks exist in other markets though US is considered more progressive amongst the western nations. Some of the underlying premise of communications and how the markets compete have been steadily changing over the past couple of decades. As digital has become the defining light of the economy and job creation, it is time to revisit some of the premises that might not hold true anymore.
In the digital economy, the competitive landscape looks quite different. It was easier before when regulators had to only look at intra-segment competitive scenarios. For example, for telcos, the prime concern has been competitive forces within that specific segment. As industries converge and collide like media, broadband, and telecom, the purview of the regulators has expanded but largely the framework to evaluate competition is still the same one. There is too much focus on the “access” layer and not much on the “platform” and “applications” layers. The digital economies are seeing more vertical mergers than horizontal mergers which is what the old regimes were designed to monitor.
The markers for evaluating competition also need a rethink. The primary vehicle to evaluate competition has been the concentration metric in the form of Herfindahl-Hirschman Index or HHI. It focuses on the market share concentration in a market. It is largely proving to be inadequate. Market share doesn’t equate to market power especially in a converged digital market.
We have been studying the shifts in the wireless industry under the 4th Wave and Connected Intelligence frameworks for over 5 years and it has become apparent that the regulatory frameworks around the globe need a rethink of how we define markets, how we structure regulatory bodies to monitor competition compliance. The data show that the market power is moving away from the traditional access layer to the application layer at a very fast pace. New areas are coming into the market and regulators who are generally behind on the curve don’t have the tools and resources to analyze and prepare for the future. The regulatory bodies do excellent work in fostering competition and avoiding abuse of power but perhaps a new framework is needed that is focused on the digital market as a whole rather than just pieces of it, separately. This paper explores the notion of a Digital Commission, why it is needed and how to think about competition in domestic and global markets going forward.