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Why Regulate Utility Services like C&W? PDF Print

Printed in the Business Monday newspaper on September 20th, 2010

Utility companies provide services that are necessary and important to the general public. The supply of electricity, telecommunications and water fall into this category.

So why are these industries often regulated and treated different from other industries such as manufacturing or food processing? Why do regulatory organisations such as the Fair Trading Commission exist? There are several reasons for this - the main one being the importance of the service both to the consumer and to the economic welfare of the county as a whole.

Economic regulation is primarily concerned with the control of rates and service and is not intended as a means to micromanage the particular utility. Cable & Wireless (Barbados) Limited’s (C&W) services are regulated under the price cap system and rate of return regulation is utilised in setting the rates for the Barbados Light & Power Company Limited (BL&P). As the electricity sector also moves towards reform in respect of third party generation and supply of electricity from renewable sources it is expected that regulation will continue to play a vital role in the reform of the electricity sector.

Regulation may either be the responsibility of an agency within or external to a related government ministry and may either be sector specific or multi-sector such as the Commission which regulates electricity and telecommunications services. The rates of the other utility companies – water and sewerage, natural gas and transportation services – are set by the Barbados government.

Public utility regulation demands the adoption of several legal and economic concepts. In Barbados the formation and administration of the Commission is governed by the Fair Trading Commission Act and its regulatory authority is given by the Utilities Regulation Act with support from the Utilities Regulation (Procedural) Rules.

The Utilities Regulation Act specifies that the Commission establish the principles for setting rates; determine the standards of service supplied and carry out periodic reviews of the rates and standards of service. The Act, in reflecting the public interest objective of regulation, also states that the Commission, in determining standards of service, should ensure that consumers are provided with universal access to the regulated services and in Barbados there is both easy access to and adequate supply of the electricity and basic telephone service.

One may however ask a further question – Is there a basis for regulation if the utility is no longer a monopoly but operating in a competitive environment? Is regulatory intervention still necessary? The answer is yes. It has been shown that regulation is needed as we seek to have a telecommunications market that is truly competitive. Even with several service providers in the sector the incumbent may still hold a very dominant position especially with regard to its existing facilities and customer base.

The existence of several service providers does not mean that there is effective competition, as prices or rates may still be influenced by the actions of the dominant provider. The objectives of regulation also include ensuring that there are no disadvantages or discrimination to new companies intent on entering the market as it relates to interconnecting with the dominant provider and sharing of facilities when applicable. Regulation is therefore still required in order to move towards effective competition.

Barbados liberalised its telecommunications sector in 2003 and opened it up to competition, removing barriers to the entry of new operators. There are now a number of service providers who are licensed to supply a range of services.

The level of competition in these various services however is not the same. The Telecommunications Act states that the Minister responsible for telecommunications designates the services which the Commission has the authority to regulate. The Telecommunications Act also states that the Commission regulates the rates of those telecommunications services where there is either only one provider of that service or that government’s analysis of the sector and operations of the relevant service providers reveals that either there is a dominant provider or the market is not sufficiently competitive.

In accordance with these provisions, the telecommunications services that are designated to be regulated by the Commission are Domestic Voice (including residential and business access and value added services); International (including fixed outgoing calls and international cards). Other regulated services include those related to interconnection charges, leased circuits and international simple resale.

Under the Telecommunications Act the public interest aspect of regulation is further enforced through the provisions which place an obligation on C&W to provide universal service as it has been designated as the Universal Service Carrier. This obligation currently relates to ensuring that all residents have access to reliable and affordable basic telephone service on an equitable basis. In view of the many developments in the telecommunications sector, and the use of more advanced telecommunications technologies, there have been discussions on redefining this concept of universal service to include island wide accessibility and availability of broadband internet services.

In promoting competition the Commission is responsible for establishing the appropriate interconnection framework through the review and approval of reference interconnection offers and interconnection agreements always having regard to protecting the interests of consumers. The Act therefore seeks to remove any barriers to entry and to promote competition. All carriers are obligated under the Act on request from another carrier to provide interconnection to its network.

Regulation will continue to be relevant to the telecommunications sector and as the industry evolves, this will be managed by revision of the regulatory framework when necessary.

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