Regionalisation vs Nationalisation

Regional or Geographical based regulation is becoming a new trend in the industry. Spain's Telefonica and UK's regulator OFCOM are, among others, discussing, promoting and introducing the concept of a de-averaged regulatory policy.

Let me explain the concept.

From one side regulators recognize the fact that under competitive and revenue maximization pressures there are certain areas of a country where one provider of communication services is more than enough or where it is not economically sound to enter the regional market. For example, the cost of full unbundling in disperse populated regions might be able to sustain no more than one competitor at the same time.

On the other side Operators face competition in highly density cities and are willing to invest only in regions where they are getting a higher than average RPU. This competitive logic would leave some distant regions behind the center increasing the digital divide in the nation. Telefonica & Friends are leveraging their bargaining power with the NRA requesting regulatory holidays for services deployed in regional areas to promote investment competition.

What to do?

There are two basic concepts to analyze here. Social benefits and cost causation. We are all aware that every state should promote an economic environment that maximize consumer benefits and (here) reduce the digital divide between centers and peripheries. This policy objective would suggest that either we have to put an obligation on the USO provider to provide a minimal set of services or we promote the deployment of advanced technologies in rural areas via special regulatory tools, for example de-averaged wholesale tariffs. Here we come to the next concept, the cost causation principle. We are aware that rural areas bear a higher portion of costs, building and managing a network costs more there than in dense populated areas. We are also aware than just a few competitors will come to the sparse populated regions, it's too expensive to build for a few customers. Why not promote competition in the cities, with low wholesale rates for access to the network while, permitting the incumbent operator to continue its monopoly in less developed areas? It can achieve the policy objectives.