I thank the Chairman and members for the invitation to address the joint committee. I have circulated to members a number of slides which I will address briefly to allow time for questions and answers.
I will begin by outlining for the committee my background and experience. I am a utility regulator rather than a financial expert and my experience in the past ten years has been in the area of telecommunications regulation. I was a director of ComReg for seven years and subsequently completed a PhD in telecommunications regulation. Since leaving ComReg I have worked as an adviser to a number of regulatory organisations, governments and the European Commission. I am currently working for PricewaterhouseCoopers as a regulatory and telecommunications strategy adviser. I stress that the views I express to the committee are based on my research and experience of the economic regulatory sector, as opposed to the financial regulatory sector. I apologise in advance if the slides have a slant towards telecommunications regulation but I hope the information I provide can also be applied to other economic regulators in the energy and transport sectors.
The areas I intend to address include value for money, measuring effectiveness and efficiency of utility regulators, roles and functions and opportunities for merging regulators. I also wish to spend some time discussing governance structures for regulators and who ultimately regulates the regulators, in other words, issues of accountability and independence. In regard to each topic, I will recommend certain changes to the present regime to provoke debate and questions among members.
In regard to value for money, effectiveness and efficiency, a key distinction can be made between an effective regulator and an efficient one. Research has highlighted that an effective regulator is able to reach its goals, which typically comprise prices in the market or levels of competition. An efficient regulator achieves these goals at the lowest possible cost. Unfortunately, there is limited academic literature on how this problem should be approached. Independent regulatory agencies have only been in existence in Ireland for the past ten years and academics have not yet put their minds to the questions of regulatory effectiveness or efficiency. As Minister for Finance, the Taoiseach in 2007 launched an examination of the role of economic regulators in the Irish context but unfortunately a report has not yet emerged from this exercise.
Although studies have also been carried out on energy regulators, I shall focus on two studies which look at how the Irish telecommunications regulatory regime has performed in terms of value for money. The European Competitive Telecommunications Association, ECTA, which represents alternative operators in Europe, surveys European telecommunications operators and regulators and publishes a regulatory scorecard. In 2008, this scorecard concluded that ComReg had a strong regulatory framework in terms of an effective legislative basis, procedures and policies. However, they found that the impact on the market was weak. The extra study does not look at the cost efficiency side. It does not look at regulators in terms of what they cost, their staff and their budgets. The UK normally tops this regulatory league table and has a positive regulatory regime — most market outcomes there are neutral. In terms of effectiveness and efficiency, this study shows a bias towards more regulation rather than effective regulation. One of the issues is, despite the practices, procedures and regulatory regime that are in place relating to telecommunications regulation, market outcomes are very weak.
I will now address a second study that was carried out by a number of academics, one of whom is a regulator in Italy. It compares the cost of regulators, including the cost of staff, with market outputs and it took account of the price of a typical call in a certain market and the level of competition there. For example, the study looked at outputs such as the cost of a three-minute call and the level of market share of alternative operators. This was seen as a way of gauging the effectiveness of the regulatory regimes in certain countries and it directly relates to the cost of effort. The issue was whether regulators had an impact on their markets, given the work they did, and Ireland came 15th of the 18 countries measured. This implies that the efforts of ComReg are less effective and efficient than most of the other regulators involved. The study measured more dynamic market outcomes, including broadband and investment, and in this regard Ireland came 18th of the 18 countries measured. In terms of broadband take-up and investment performance, ComReg was deemed least effective at moving the market forward.
I will now put forward a number of recommendations to improve this situation. Regulators should be obliged to present fully costed work programmes for consultation annually and these should be scrutinised by the Oireachtas committee and by stakeholders in the sector. In a way, work programmes are already published by regulators and budgets are published on websites, but it is important that regulatory impact assessments should form part of such programmes — expected market outcomes should be quantified.
The central functions of regulators should be examined. Regarding value for money, a number of areas, including ICT, finance and human resources, are shared among regulators but there is no reason these cannot be managed in the same way as in Departments. In terms of cost base, this would allow regulators to concentrate on the key activities assigned to them through legislation. The expert skills held by regulators could be recognised by using them in advisory roles. Regulators can act as policy think tanks and this is what happens in the Danish market; the Danish regulator acts as a key advocate for ICT policy. In many countries such activities by regulators require funding from central government. For example, in the Netherlands the telecom regulator receives between 5% and 10% of its budget from central funds. However, this activity would ultimately bring about a cost saving as the expertise used by the regulator could also be used by Departments and would advance studies in a more effective way. For example, a next generation network study is going on at the Department of Communications, Energy and Natural Resources and both the Department and ComReg have issued consultations but it would make more sense if there was only one consultation with both the Department and ComReg putting forward policy and regulatory options at the same time. This would also save the industry money in terms of responding to consultations.
Moving on from the issue of value for money, I want to address the roles and functions of regulators, particularly the merging of regulators. The next slide shows the number of regulators we have in the economic regulatory sector. Concerns were raised in 2004 regarding the cost and lifespan of regulators. The Enterprise Strategy Group report commented on this, as did the better regulation White Paper, which called for the ongoing assessment of the need for sectoral regulators. This issue has been debated in this committee. There is an ongoing need to ensure regulators reflect the markets they regulate. In this regard, attention must be paid to technological changes. There are several proposals for merging regulators. Slide No. 8 shows a regulatory merger map which, if one looks from left to right, shows the ground proposals for how regulators will be merged. Concerning aviation, I am not aware of any plans to change the existing status of the aviation regulator. The taxi regulator will be merged within a larger Dublin-national transport authority. The energy regulator was discussed as part of a network regulator in the enterprise strategy group report. It may be better to have a super regulator with responsibility for energy and telecommunications. At present ComReg and the Broadcasting Authority of Ireland are two separate regulators. It has long been proposed that this does not make sense in terms of the market; that the two overlap and that there is convergence in the market which they regulate. The McCarthy report proposed that ComReg and the BAI, as that body is now constituted, should merge. There are clear synergies in spectrum policy and broadcasting remit, and the markets they regulate are converging. Although there are no firm proposals in place in terms of trends within the European market, it would make sense to see these regulators merge. This has been the case in the UK with Ofcom, and also with the Italian regulator.
I have some points about the super-regulator as discussed previously. There are a number of positives in this regard. It would be a network regulator covering energy and telecommunications. The argument advanced by the enterprise strategy group stated that the number of legal resources would be deeper and the ability of a large organisation to lobby heavily for its own agenda would be diminished by having a larger regulator. There are negatives, however. A larger regulator may be slow to respond and may find that issues are difficult to deal with on a prompt basis. There are models in existence, however. The German regulator, for example, is a postal communications and energy regulator. We need to look at this matter when we examine what might be the best regulatory structure to emerge when we are merging regulators.
Slide No. 9, which is floated in terms of roles and functions, looks again at governance of regulators. This is an issue which has not really been discussed in much detail. Normally the regulators are single-person or multi-person authorities and can be part-time or full-time. There are several governance models which have been applied in a number of jurisdictions around Europe and elsewhere. The approach in Ireland has been to adopt a three-person commission model, particularly for utility regulators. In some cases, all three persons have been appointed. In the case of the energy and communications regulator, five or six years ago there were two people in charge but now there are six. The argument put forward is that the issues the regulators are dealing with are more complex but the six commissioners are also supported by a layer of senior directors and experts within their team. I believe the single CEO and regulatory board which has been proposed for the recently established BAI is probably the most common structure. Two thirds of telecom regulatory authorities, most notably Ofcom in the UK, comprise a board with a single CEO. The Broadcasting Act is a good way in which to bring forward the CEO and large board model, particularly if a merger is to be proposed between the BAI and ComReg. A large board also mitigates the risk of regulatory capture which can occur if a small number of regulators and a small number of people in the industry are interacting.
In slide No. 10, I move to the issue of accountability. In this area there has been a growing phenomenon in the past ten years whereby this regulatory model has seen independent regulators that are separated from Government. "Independence" implies there can be political interference, particularly if the regulatory entities are State-owned, and therefore it is important to have independence. Studies conducted in recent years have shown that Irish regulators are very independent. Gilardi in 2003 showed that when we are creating regulators here we have created them in a very independent way. Independence creates a number of issues, however, with regard to accountability and delegated authority. How do we ensure that regulators respond to issues of policy and to organisations such as this committee or the Dáil? We must recognise that, in reality, no regulator is truly independent — no regulator should be truly independent. A number of studies in the United Kingdom have shown that regulators tend to come from a particular group of people who are either from the public sector or former civil servants who are aware of how to negotiate and operate within the government sector. Regulators, particularly in this case, are very aware of their responsibilities in terms of policy and where they fit within the organisational structure of government.
A number of regulators are subject to policy decisions and directions and in a number of areas actually co-operate with their parent Departments in terms of secondment. In the context of the national broadband strategy, for example, ComReg seconded a number of staff to the Department. This is obviously very good in sharing expertise between the Department and the independent regulator but it shows that the independence is in many ways not as clear-cut as one might assume from looking at the legislation.
One of the areas it is important to examine, as an example, is spectrum policy. The sale of spectrum licences to mobile wireless companies is a lucrative source of funding for government and in many jurisdictions the power to allocate licences is kept by the Minister or the government. In Ireland the power is shared between ComReg and the Minister. ComReg is the independent regulator and its objectives are to promote, not to distort, competition, yet it proposes to auction all mobile phone licences when they come up for renewal. The existing operators in the market do not have the option to have their licences renewed. Their licences finish at the end of 15 years and are not being rolled forward. Instead, the regulator is negotiating renewal terms and, effectively, asking the operators to bid by auction for their business.
The auction process will raise revenue for the Government but it will distort and destroy competition and investment because operators will not be sure they will have a licence to operate beyond the licence expiration date. When representatives of ComReg appeared before the committee recently, they listed as an achievement the amount of money ComReg had raised from spectrum fees for the State. This is obviously good for the State in raising much needed funds but in terms of independence, is ComReg's role not to assert the need to have effective competition and a lack of distortion in the market? That example shows that independence is sometimes blurred; therefore, we must examine accountability in that regard.
There are a number of typical accountability measures in place. I will not go through them in detail but concern persists that existing accountability measures for independent regulators do not promote their effectiveness or efficiency. A number of these measures are useful in explaining what the regulator has done, in terms of annual reports and whether the regulator has spent its funding properly in terms of audited accounts and strategy statements but they do not necessarily promote the idea that the regulator needs to be accountable for its effectiveness and efficiency.
I wish to make a number of proposals relating to effectiveness and efficiency and put forward a number of ideas which I believe would promote more transparency and accountability for regulators and those who deal with them on an ongoing basis. In addition to the provisions discussed in the earlier slide, the publication of the work programme I mentioned and the full costing of that programme on an annual basis would allow the people dealing with the regulator and those interested in the regulator's priorities to understand where the funding is going and what priority the regulator is giving to various issues. It should set out particular metrics relating to effectiveness, for example, what the regulator expects the market outcome to be if the regulator is introducing a particular measure or scrutiny of the industry. It should state whether it will have a particular effect in the market. An annual statement of performance assessing that impact and whether it has happened should also be published by the regulator at the end of every year.
A final point should be made about utility regulators. They are temporary institutions. They were created to facilitate market opening and allow competition to emerge and small operators to gain access to what were formerly State-owned assets. As they are temporary institutions, there must be a continuous review of sunset provisions. Then we need to think about the role of these regulators and their continuing contribution. If they have residual roles should they be passed to the Competition Authority or a super regulator as their remits become narrower?
I am reminded of what Etain Doyle, the first director of telecommunications regulation, used to say. She said that as a regulator if she was doing her job properly, she would do herself out of a job. I thank members for their attention and I welcome their questions.
