Booz Allen Hamilton: Towards More Effective Regulation

A recent analysis by Booz Allen Hamilton has determined that effective regulatory management is key to creating telecom markets that thrive. The success or failure of telecom sectors often hinges on the presence of effective regulatory frameworks and practices. Empirical evidence demonstrates that effective regulation encourages growth and investment in the telecom sector, promotes technological and service innovation, and is correlated with lower prices and greater consumer choice, leading to greater service penetration.

Issues surrounding telecom regulation are particularly important for countries in the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Middle East and North Africa (MENA). “Most countries in the region have made real strides in gradually liberalizing their telecom markets and introducing new technologies, but as a general rule, the observed approach to policy and regulation could still improve” says Bahjat El-Darwiche, a principal with Booz Allen Communication and Technology practice, based in the firm’s Riyadh office. “This would help reduce the regulatory uncertainty that can dampen investments and inhibit telecom sector development in the region.”

“One case study in an emerging environment showed that mobile investments were 25 percent lower, total cost of ownership 10 percent higher, and mobile market penetration 30 percent lower than they would have been had this market adopted a more effective regulatory framework,” adds El-Darwiche. “Numerous other examples of tactical or mis-adapted regulatory management destroying market value can be found around the world.”

“Effective regulatory management aims to establish adequate regulatory frameworks and mature regulatory practices that drive market development and optimize value creation in the long-term,” notes El-Darwiche. He explains that effective regulatory management is characterized by a holistic and strategic approach to policy and regulatory issues, long-term regulatory planning, and clear assignment and separation of policy and regulatory responsibilities. In other words, the effectiveness of regulatory management can be evaluated based on the extent to which it is strategic rather than tactical and customized to market conditions at hand rather than copied and pasted from other markets without due adaptation.

Effective Telecom Regulation Development Levers

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“All of the key stakeholders involved in the telecom sector—government, regulators, and operators—have distinct and important roles to play, and must embrace them fully,” says El-Darwiche. In examining the roles of these three main players, nine key regulation development levers are identified that can help enhance the growth of the telecom sector in the MENA region. Ultimately, it is the end-user who, if not the target of effective regulatory management, is the player most positively impacted by it, in the form of lower prices, more advanced technologies, and greater service variety.

The Role of Government

Ensure Regulatory Independence

Government works on the macro level to advance the telecom sector, the national economy, and society as a whole. “To fulfill their legal mandate more effectively,” says Fady Elias, a Booz Allen associate, based in the firm’s Beirut office, “governments typically empower regulators to achieve structural and financial independence. To achieve this end, government does not only issue a policy decision to create an independent regulatory agency, but also empower the agency to act independently and effectively.” The MENA region has achieved sensible progress; however, regulators in the region could further advance their political and financial independence.

Regulatory Independence Benchmarks –  MENA vs. Other Countries (2006)

Reduce Government Ownership of Incumbents

“On the other hand,” explains Elias, “regional governments could consider further reducing their ownership of incumbents to promote telecom sector investments.” Lower ownership does not prevent the government from guiding the sector toward a healthy development path. Although MENA countries began the liberalization of their telecommunications markets in the last decade, most have yet to reduce government ownership levels.

Government Ownership of Incumbent, (Selected Countries) (2006)