Regulatory Certainty v. Regulatory Advantage…

I was reviewing Hutchison 3G UK Ltd’s response to Ofcom’s Spectrum Trading Consultation and had the following thoughts:

* ‘3′ paid significant sums in the UK’s 3G auction in 2000, and now doesn’t want any changes (related to spectrum management) that would otherwise upset its expectations. That’s an understandable and reasoned position.

* For similar reasons, the BBC doesn’t want any significant changes in the Charter or license fee scheme.

These players (one somewhat new, one very established) are in different areas regulated by Ofcom, but have a similar mission: maintaining barriers to entry for would-be competitors. They seek, of course, to build or foster the most formidable barriers to entry - those that are maintained and enforced by the coercive power of the regulatory scheme.

The lesson for Ofcom here is to apply very strict scrutiny to claims made by powerful players in these industries that hold their positions, at least in some measure, due to some degree of exclusivity conferred or supported by regulation. In the case of broadcasting, the BBC has exclusive access to the license fee. In the case of wireless telephony, ‘3′ is one of a limited number of companies with exclusive access to large swathes of radio spectrum.

I’m not claiming that there is anything sinister going on here. We should expect these companies to vigorously protect their positions in the marketplace and, to some degree, to compete before the regulator for benefits. I’m also not claiming ‘3′ is wrong to be concerned about spectrum trading, or that the BBC does not have good reasons to think it is exclusively entitled to the proceeds of the license fee. The burden here belongs to Ofcom. The regulator needs to find the appropriate balance between: (i) having policies that allocate scarce resources where appropriate based on regulations that are understandable and predictable; and (ii) ensuring that those allocative policies do not inadvertently work to limit competition.