A watchdog with absolute power cannot be right

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We have heard a lot from customers about what's wrong with the system for regulating privatised utilities. The complaint usually boils down to a relatively simple one - bills are too high, the service is lousy, profits are excessive and it is all the regulator's fault. For obvious reasons, the other side of the coin - what's wrong with the system from the corporate point of view - rarely gets much of a hearing. It is all very well going on about the sanctity of the privatisation contract, abuse of regulatory power and the like, but when the crux of the objection is to do with regulatory encroachment on the rewards of monopoly, as it usually is, there ain't going to be a lot of sympathy. BT's objection to "sweeping new powers" (BT's description) being demanded by Don Cruickshank, director- general of Oftel, seems to be a case in point.

What the regulator wants to do is replace the 76 specific clauses in BT's licence addressing anti-competitive behaviour with a catch-all measure that would allow him to act first and argue the toss later. The problem with the present set-up is that with every new case of monopolistic abuse, a specific licence amendment has to be designed to outlaw it. Until the change is made, which can often take some time, BT makes hay.

Furthermore, Mr Cruickshank argues, the proposed reform would only bring telecoms regulation into line with precedent for competition policy in much of the rest of Europe. On the face of it, all reasonable enough stuff, and not in truth particularly onerous. BT is not, for instance, being asked willingly to give up market share, as has occurred in some other industries.

On the basis of the proposals put forward in yesterday's statement of intention, however, BT may have a point. If BT's reading of the document is correct, Mr Cruickshank may indeed be going a step too far. He is, BT believes, seeking absolute power for himself; unless he takes leave of his senses, he will pretty much be able to do what he likes. Without proper checks and safeguards - and there are few enough of those in place for regulators anyway - that cannot be right.

Nor can it be right to deprive BT of the fruits of innovation in the manner proposed. What Mr Cruickshank seems to be asking for is that BT make available to all competitors any proposed new service and product sufficiently far in advance of launch to allow them to respond with their own offerings. Even for a dominant player like BT, this would be a law so draconian as to stifle all incentive to product innovation and invention. The result might well be less choice and product differentiation, not more. The regulator would also be able to ban a new product as anti-competitive, regardless of the investment already made by BT.

With the bit between his teeth, Mr Cruickshank shows no sign of backing off. In these circumstances, the argument will have to be decided by the Monopolies and Mergers Commission, for BT is in no mind to accept the regulator's demands. There is nothing wrong with a general prohibition on anti-competitive behaviour, but the MMC will need to balance this with adequate channels of appeal and new safeguards to prevent abuse of regulatory power. The demand for advance warning of product innovation is ludicrous and needs to be dropped altogether.