Regulation of telecommunications restricts competition and willingness to invest

- researcher warns against stagnation in Swedish telecom market Mattias Ganslandt, economist at the Research Institute of Industrial Economics in Stockholm (Institutet för näringslivsforskning), states in a new research report that today’s sector-specific regulation of the Swedish telecommunications market does not benefit either competition or willingness to invest. Among other things, he says that regulation of access to the fixed network can be replaced by regular application of general competition law.

Deregulation to replace sector-specific regulation, by applying competition law as it is applied to Swedish business and industry in general, would most likely be the most beneficial policy that can be implemented in order to stimulate willingness to invest in the Swedish telecom market and, in the long term, create a new and modern telecom infrastructure in the country. If the current practice of preliminary regulation remains in specific sectors, it will lead to stagnation, writes Mattias Ganslandt in his report.

“In sectors where regulation has been discontinued, such as the mobile telecom market, there is a strong willingness to invest. We are currently making a billion-kronor investment in Sweden to improve mobile coverage even more, all over Sweden. However, where preliminary regulation is still being applied in specific sectors, market players are more interested in living off their old assets, such as copper cable and cable TV networks, than in investing in new infrastructure for the future. In our opinion, it is necessary to recreate a willingness to invest in the Swedish telecom market,” says Marie Ehrling, head of TeliaSonera Sweden.

Mattias Ganslandt also says that telecom policy objectives, alongside direct consumer benefits, can be met more efficiently with other political instruments than sector-specific regulation. Goals related to social policy, regional policy and cultural policy, which are not fulfilled in a market with well-functioning competition, can be achieved, for example, by means of subsidies or procurement of services in the public sector, writes Ganslandt.

“With today’s cost-based rules and regulations, there is no incentive for building new infrastructure in sparsely populated areas of Sweden. The cost is enormous and the customer base is small. It is no coincidence that there is also a lack of competition in rural areas for such basic functions as food, petrol, postal services, and bus and train transportation,” says Marie Ehrling.

“Yet many people expect TeliaSonera, which is a privately owned company, to have the obligation to invest in sparsely populated areas – just because of our past history as the government-owned Swedish Telecom Administration (Televerket). Of course rural areas in Sweden need good communications, but they can be best solved by buying these services in the open market, or they can be satisfied by other types of agreements that also create business incentives in sparsely built-up areas of the country,” ends Marie Ehrling.

About the report: “Electronic Communications – Competition in the short and long term” (Swedish: Elektroniska kommunikationer – konkurrens på kort och lång sikt)
Mattias Ganslandt’s research report is an analysis of sector-specific regulation of electronic communications in Sweden. The report, which gives both fundamental and practical views of such regulation, was prepared in the spring of 2006 and was commissioned by TeliaSonera.