Full Deregulation in the UK Telecoms Market
From an Ofcom letter I just received with my phone bill:
‘…on 1st August 2006, Ofcom, the UK telecoms regulator, ended the formal controls on the cost of phone line rentals and calls from BT. This will leave all phone companies, including BT, free to set their own retail prices for consumers.’
Hoorah! It’s taken a long time, but it’s good to see Ofcom finally taking this important step towards maturity in the UK telecoms market. Less government interference in such a crucial technological industry can only be a good thing. Whether they will take the next logical step and dismantle the now redundant tax-funded part of their organisation remains to be seen.
Now here’s hoping for full and proper deregulation of some other utilities: post, water, gas, etc…
Hmm, thought I’d replied to this already.
As far as I know, the immediate first result of this is that BT has raised prices for the lowest price plan customers (whilst lowering them for the other plans). A good thing overall?
If post is deregulated then it will almost certainly mean the end of the universal delivery service, where everyone in the UK is reachable by post for a flat rate. Now I’m not a huge fan of our crazy postal service (any other countries in the world that charge for size as well as weight?), but I think this would be a bad thing.
I’m not a fan of planned economies generally, but I can see some uses for regulation. I’m not an economist though, so please enlighten me further if I’m talking nonsense.
andyp
8 Aug 06 at 15:08:33
Andy, thanks for your comments. Let me explain my rationale – and no, I’m not an economist either, so this is all derived from my amateur knowledge, and, ahem, minority political views (for the record, I’m a libertarian).
I don’t think it’s entirely surprising that BT have raised some prices – after all, the regulator had price caps in place previously, so this is only what we’d expect (in the short term at least). My argument is that the price caps distorted the real cost of those services. After all, if BT choose to provide a range of services, it’s up to them to distribute prices accordingly to cover their costs. If they wish to persue a particular business model, they can now do that freely (at least for retail customers). Perhaps this makes them more profit, but it may also encourage some customers to move to other providers. In other words, the market sorts it all out (Adam Smith’s ‘invisible hand’). BT’s perspective is just as important as the customer – to my mind, they should have a right to charge whatever they like, just as I have to a right to refuse to pay it.
Telecoms used to be seen by many as a natural monopoly (i.e. where it was inefficient, from the perspective of the whole economy, to have more than one supplier), but I think fewer people think that now, given how technology enables us to divvy up the network logically as well as physically. The jury is still out on other utilities, such as water and gas. I believe there’s a moral dimension to legally enforced monopoly too, but that’s another long discussion
I’m afraid I have to disagree with you on the postal service. Again, I feel it should be up to the post office (and the competitors that are now turning up) how to determine their price model. If they wish to subsidise expensive customers (outer Hebrides) with cheap customers (central London), they may, but they should also be allowed to do the opposite. After all, everyone knows living remotely ‘should’ cost more, so there’s no reason the cheap customers should have subsidise the others (as is effectively the case by having a regulated price model on a monopoly supplier). I don’t know the details of the regulatory model that’s coming with the Royal Mail privatisation, and I’m sure it will include controls on prices (similar to some of those just dropped by Ofcom), but I, for one, hope they don’t stay around for long.
To be clear, though, it’s not really provable what the most efficient way to do all this is, so I’m not sure an economist could tell you the ‘right’ answer. I’m sure there are plenty of them that agree with postal deregulation, and plenty that don’t. In my opinion there is a moral dimension too, but to be fair, that’s something that libertarians often call out that more pragmatic people don’t.
andrewferrier
8 Aug 06 at 18:08:33
hmm… well I guess my views are significantly coloured by my past history working for the PO… the concern isn’t so much about the cost of a universal delivery service (I have no major disagreement here), but more on the provision of the service, which might well be uneconomical in some areas.
andyp
9 Aug 06 at 17:08:04
I hope I’m understanding you
Isn’t the service already uneconomical to provide in those areas (e.g. Outer Hebrides) at the price of a first class stamp? That seems only logical considering that some places will be more expensive than others and a first class stamp will therefore be an average price to cover costs (a vast simplification, I realise). The cost of delivery remains the same, privitisation or otherwise, doesn’t it? (assuming process and technology is held constant)
What could change is the price charged – perhaps a flat rate would disappear. I think your original assertion isn’t that you wouldn’t like to see that happen. I don’t have any particular aversion to a flat rate (in fact it’s helpful for me as a customer of the post office) – what I do object to is the Royal Mail being forced to offer that and other competition being effectively outlawed (what if I send most of my letters to London and want to save money)? That’s why I think any move towards privitisation would be a good long-term step.
andrewferrier
9 Aug 06 at 17:08:42