End specialist mobile telecoms regulation

The report identifies a number of specific examples of a heavy-handed regulatory approach, including:

  • Micro-management of customer service: Ofcom is asking operators to gather and publicise information of no interest to customers
  • Efforts to improve price transparency on national numbers that may lead to Ofcom setting the price of individual calls
  • Slow regulator reaction over misselling complaints – industry self-regulation reduced complaints by 95% while Ofcom were still drafting their consultation
  • Attempts to reduce the time to port a number between operators to less than 48 hours, even though this timescale is satisfactory for consumers
  • Demanding mobile providers deliver 100% mobile coverage across the UK, even though this would take resources away from investment in new technology and improved services.

The report sets out a series of recommendations which emphasise the ample opportunities for Ofcom to withdraw from detailed regulation. With this goal in mind the report recommends that the regulator should prepare a timetable for phased regulatory withdrawal across the sector. In this context, it is important to note that the recently strengthened EU Consumer Rights Directive provides an unprecedented opportunity to wind up sector-specific consumer rights regulation and replace it with a set of robust consumer rights based on the new EU Directive.

Accordingly, the report calls for a systematic toolkit to be developed in order to stimulate greater competition and ensure that consumers enjoy similar rights across a raft of sectors, such as energy, telecommunications and water services. This should be a welcome development for consumers who should find such an overhauled system easier to use and consistent across the entire range of goods and services offered in the UK retail market.


altIn a new study published this week the Adam Smith Institute’s Senior Fellow Keith Boyfield argues that regulation of mobile telephones in the UK is far too detailed and cramps innovation. It needs to be rolled back to allow this highly successful industry to adapt to the next wave of technological change. The report, entitled Regulating Mobile Phones: A fresh look, published by the European Policy Forum, points out that the mobile sector is characterised by a wide raft of suppliers who have delivered consumer satisfaction rating of 94% - far higher than other markets such as rail, water and energy. They have also provided tremendous value for money: prices have tumbled by 17% a year over the last five years.

Why then is Ofcom, the sector regulator, showing increasing signs of wanting to tighten its regulatory hold on the mobile telecoms market? It is currently in the middle of a Mobile Sector Assessment exercise aimed at reviewing its whole approach to regulation. However, there are few indications that it is seeking to withdraw from regulatory intervention in the market.

Keith’s study identifies a number of clear disadvantages in Ofcom’s current approach and the damage to the market caused by unnecessary regulation. Ofcom’s micro regulatory management has limited innovation by reducing competitive advantage; it has further limited the incentive to invest in new products and services. Ofcom’s regulatory approach has tended to focus too much on the concerns of a few voices rather than the bulk of consumers. As a result, overall costs – and prices – are higher than they could be if market mechanisms were unshackled. ‘Relations between the sector and the regulator do not reflect the achievements of the market’, says Keith. “Increasingly regulation is a hindrance to the consumer. The pace of technological change in the sector is not slowing down, providers must continue to adapt. Heavy-handed regulation weakens incentives for investment and opportunities for innovation.’

He adds, ‘Ofcom needs to adopt best practice in regulation – which is to step back where competition is delivering for the consumer. Regulation will always be a second-best approach to meeting consumer needs. Successful sectors often outgrow the regulator. We no longer have specialist regulation of fixed line telecoms, the time has come to withdraw from mobile specialist regulation as well.’

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Blog Review 782


Strange really, incumbent politicians seem to be the only people who don't want to see market structures brought into politics.

If the economy is recovering now and we haven't spent the stimulus, then it can't be the stimulus which is recovering the economy, correct?

A more considered and lengthy consideration of the same problem.

Price discrimination is a quite wondrous thing.

Forget the policy for a moment, wouldn't you like a politician with this sort of comeback?

The truth about technical analysis.

And finally, Netsmith never needed this. Who hands in essays anyway?

UK Water – The moment of truth beckons


altIn recent days, the major quoted water companies – Northumbrian, Pennon (South West), Severn Trent and United Utilities (North West) – have announced their full-year results for 2008/09.

Whilst there were few surprises, there were concerns on several fronts. The recession has reduced metered consumption by industry, a factor that adversely affected Severn Trent in particular. Moreover, higher energy and pension costs have also reduced the sector’s profits.

The reality, though, is that - like Banquo’s ghost - these results were overshadowed by Ofwat’s forthcoming five-year regulatory review.

On 23rd July, Ofwat will make its eagerly awaited announcement about the financial projections for the water sector during the 2010/15 five-year period.

Central to Ofwat’s calculations will be the projected capital expenditure total, which is likely to be close to £20 billion – an increase on the current five-year investment cost.

For investors, the most critical figure will be Ofwat’s assumed range for the Weighted Average Cost of Capital (WACC), which is key to determining financial returns.

In the 2005/10 period, Ofwat assumed a 5.1% post-tax WACC, which was widely regarded as generous; it has been a central pillar in sustaining water sector valuations subsequently.

Previously, Ofwat had promised a ‘far lower’ WACC this time round. However, the credit crisis and a fundamental re-alignment of bond yields - notwithstanding massive UK gilt issuance plans - have made the task of setting a five-year WACC very challenging.

Arcane though the arithmetic may seem, water consumers are directly affected by Ofwat’s forthcoming decisions – they will set water charges for the next five years. With the exception of 2000/01, domestic water charges have risen almost inexorably since privatization in 1989.

Hence, there are many interested parties waiting on Ofwat’s 23rd July announcement.

Tax rises to come


People are understandably angry about the MPs' expenses scandal, which has been dominating the headlines for the past few weeks. However, it is arguable that the sums in question are, in the grand scheme of things, pretty minor, and that people's fury would be more rationally directed elsewhere – like, for instance, at the raft of tax rises which have come in this year, or are set to come in between now and 2011. This is where the real theft is going on:

  • The uniform business rate – which constitutes a major burden for many struggling businesses – has just gone up by 2%. It was originally going to rise by 5%, but the chancellor has agreed to let businesses spread the additional 3% over the next two years.
  • Taxes on alcohol and cigarettes went up by 2% in April, while fuel duty is set to rise by 2p per litre in September, and then by 1p per litre above inflation in April 2010.
  • VAT is due to rise from 15% back to 17.5% at the end of the year.
  • From April 2010, people earning between £100,000 and £150,000 will see their personal allowance phased out, effectively creating two narrow income bands (£100,000–106,475 and  £140,000–146,475) where tax is levied at 60%.
  • Also from April 2010, a new 50% tax rate will be charged on incomes over £150,000.
  • In April 2011, the higher rate (40%) tax relief on pension contributions will be abolished, and employee and employer National Insurance Contributions will both rise by 0.5%.

Of course, these are just the tax rises they've been honest enough to tell you about, and given the dire state of the public finances, it could get much, much worse. The government is planning to borrow £175bn this year and £700bn over the next five, to add to the £1.5trn of government debt we already have. The upshot of all this is made clear by the National Institute of Economic & Social Research, who say that without spending reductions, the basic rate of income tax would have to go up by 15% to get government debt below 40% of GDP by 2023.

Socialists highlight "offensive" candidates


An article published recently on Euractiv reports the Party of European Socialists' publication of a list of 12 "conservative, liberal and right wing" candidates who are "at risk of being elected" to the European Parliament.

To quote: "The list contains candidates who, it is claimed, variously deny that the holocaust ever happened, dispute the existence of climate change or hold 'other offensive or absurd' views."

Now, leaving aside the fact that mature adults should be free to vote for whoever they choose in a democratic election, it is undeniable that the vast majority of people would indeed find holocaust denial offensive. But what I find far more disturbing is this easy conflation of holocaust denial with questioning of the received wisdom on the drivers of climate change. It has become the norm now for sceptics to be labelled as climate change deniers, in an attempt to place them outside the pale.

However, on this as so many other issues, it is ironic that the only directly elected institution in the EU is so far out of step with the views of those who it purports to represent. This is one of the reasons why many voters are Eurosceptics. The benefits of a single market, free movement of citizens and an unprecedented era of cooperation between countries who were regularly at war with each other are very real but often taken for granted. More visible, unfortunately, are things such as the CAP, the unaccountable and Byzantine Brussels bureaucracy and the continued progress of a highly precautionary environmentalist agenda which does little for European citizens while stifling innovation and growth.

Martin Livermore is the Director of The Scientific Alliance

Broadband throttling


altIt would seem that BT broadband users might actually be getting less download speeds they thought they were. Long suspected by many of their customers, it seems BT does not actually give the correct speed for their cheapest packages the BBC reports. The BBC is irked because its affecting their iPlayer, paid for by a licence fee that should mean it can be accessed easily.

BT is not alone:

Mr Weller, from uSwitch.com, said BT was not the only internet service provider trying to cope with growing demand by throttling back speeds.

I am not surpised. I use two 7mbs lines, one in central London and one in Maine USA. They seem to have rather different actual speeds. At least users now know that their suspicions look to be well founded.

Blog Review 781


Netsmith's not all that sure that those coming out of the rubble of communism quite understand contracts yet. You have to take the rough with the smooth.

The difference between cap and trade and carbon taxes explained with an added bonus. Why politicians will choose the worse option.

Placing the blame for the financial crisis right where it arguable should be: with government.

GM hasn't been brought down by that crisis: people have been predicting it for at least 20 years.

How the campaigns starting against the e-cigarette show that the smoking ban wasn't about second hand smoke at all.

Rather, it all seems to be about allowing the prodnoses and killjoys to control the populace.

And finally, a new way to get rich.


Privatize universities


altSir Roy Anderson, Rector of Imperial College London, said the top UK universities, including Oxford and Cambridge, should be freed from state control and allowed to charge students more than the current £3,145 capped fees, and to attract more international students to boost their income.

Why stop there? Before 1919, all UK universities were independent. They should be again. Britain has four universities in the world's top ten, but the league tables are dominated by America's independent universities like Harvard, Yale, CalTech, Chicago, MIT and Columbia. And while we are slipping, America's colleges are rising. They are taking the best brains, and the best students, and are pulling in more cash to fund their teaching and their research. Thirty US universities have endowment funds of over £1bn. Only Oxford and Cambridge come close, but Harvard has five times more cash in the bank than either of them.

But that's how the US system works. The real cost of a university education is not £3,145. It's more like £40,000. And some US universities do indeed charge that amount of money. But they use their endowment funds to make sure that bright students who can't afford fees on that scale are given scholarships so they can get the education anyway. Students are admitted on merit, but supported according to their needs.

As Professor Terence Kealey, head of the (largely) independent Buckingham University, says in an Adam Smith Institute Briefing, that is what should happen in the UK. Instead of subsidizing universities, we should subsidize needy students, so that anyone who is capable of doing well at university has the opportunity to go. I would tell Sir Roy and his colleagues to charge whatever they like – £40,000 if that it what their product actually costs – provided that they make sure no needy student is turned away. Yes, some of the money that is currently doled out to the universities by the Higher Education Funding Councils could be used for those scholarships. Otherwise, the universities will have to go out and raise the money for scholarship funds themselves.