The OECD guidance on regulation

The OECD has published a draft recommendation on Regulatory Policy and Governance. They are seeking public comments by 1 July.

These documents become quite "dangerous", as in future domestic policy discussions the document will be cited as some kind of extra-territorial authority.

The document lists twelve recommendations. A flavour of them can be garnered from a sample;

1. Commit at the highest political level to an explicit whole-of-government policy for regulatory quality, with clear objectives and frameworks for implementation to ensure that, if regulation is used, the economic, social and environmental benefits justify the costs, distributional effects are considered and that the net benefits are maximised.

The Australian Government would argue that this is done through the deregulation function in the Department of Finance and the Office of Best Practice Regulation.

But let's unpack the OECD statement. It is no longer a simple CBA we are being asked to do before regulating. We are explicitly invited to consider social and environmental benefits as well as economic. We are invited to consider distributional impacts and that "net benefits" be maximised. Ultimately there is no "calculus" on which the three kinds of benefits can be computed and combined (short of the economic technique of determining the public's willingness to pay for the social or environmental benefit), and there is certainly no calculus to balance the net benefits against distributional effects.

The way we balance these things is actually called politics.

7. Develop a consistent policy covering the role and functions of regulatory agencies in order to provide greater confidence that regulatory decisions are made on an objective, impartial and consistent basis, and avoid the risks of conflict of interest, bias or improper influence.

This recommendation is very appropriate for Australia where we have a proliferation of "regulators" (e.g. ACCC, ACMA, APRA, ASIC, TGA) and no meaningful over-arching defining law to define "regulators". It does introduce the prospect that a new act be introduced, the Regulatory Agency Act, that would cover the formal parts covered by the CAC and FMA Acts, but could include generic rules of process. Individual regulators could be created under the provisions of that Act - in the process reducing a lot of duplicated pages in current enabling legislation.

I haven't yet read the OECD document in detail. I probably should - but my reading will be tinged by anger at the underlying principle that regulation is equated with economic loss.


Novae Meridianae Demetae Dexter delenda est

Facets of telco regulation

The CEO of ACCAN, Alan Asher, when discussing the status of telco regulation in Australia will at times note the lack of effective enforcement action by our regulators. Meanwhile Communications Alliance CEO Anne Hurley upset some of her members when in response to the Government consultation on Australian Consumer Law she suggested that the telco sector should only face one consumer regulator not two.

Today there is a report that one telco has admitted to the ACCC that its sales practices were likely to mislead customers, and that it had referred consumer debts to debt collection agencies while disputed over the "slamming" that had occurred.

The interesting point is that while these actions fall foul of the general prohibitions in the Trade Practices Act, they are each specificinstances of breaches of the relevant industry codes. In particular they are breaches of the Consumer Protection Code provisions on sales practices, complaint handling and credit management.

The question is why are the matters being dealt with by the ACCC under the general powers rather than the ACMA under the specific powers.

Meanwhile there are also a report of the ACMA prosecuting a telco over actions in breach of the Do Not Call register legislation when the same behaviour was dealt with under enforcement by the ACCC. Clearly in this case it is different aspects of the conduct being prosecuted - ringing the wrong people versus saying the wrong things.

Both cases involve a telco employing a selling agent, a case which always creates compliance challenges. In the latter case the telco claims it is being pursued over practices that it has fixed. It ultimately raises the question of how compliance programs should work and how much protection a firm should ge from them.

By their very natue sales activities are not directly supervised and "agents" (be they individuals within a sales organisation or a outsourced agency) can have incentives to "break the rules". As a consequence breaches are almost certain to occur - just as the law against fraud doesn't mean there isn't lots of fraud, or the law against theft doesn't stop lots of petty cash tins being light.

In those cases the enforcement action is usually brought directly on the contravening individual, but compliance with the TPA or telco codes is a responsibility of the principal not the agent.

It was in recognition of this fact that the ACCC played a leading role in the creation of an Australian Standard for compliance programs. The ACCC at least informally considers the approach to compliance in its decisions on whether to prosecute. I don't think the ACMA has developed as sophisticated a view. Certainly consumer advocates seem to be unaware of the distinction.

Ultimately the issue is how well you as a firm communicate the compliance message, train staff or agents on compliance and legal obligations, construct incentive schemes so that non-compliance can't be rewarded and finally manage the complaint process so that complaints that indicate non-compliance are aggressively used to identify "rogue" agents. It is unfortunately the latter that is most usually deficient with telcos all too often wanting to believe that the customer's claim of misleading conduct is just a cover for wanting to brake a contract.

Meanwhile in Europe regulators have taken decisve action on the latest source of mobile "bill shock" - high data roaming charges. Could Australia apply to be part of Europe for this?

Somalia calling

A colleague brought my attention to this item in The Economist.It is a story that claims that calls from mobiles in Somalia are cheaper and clearer than elsewhere in Africa, and attributes this to an absence of regulation.

This story may give comfort to anti-regulationists everywhere, were it not for the fact that at least part of the success seems to be due to the complete lack of the first tenet of anti-regulationists - that is property rights. If the telcos are not paying to put up towers they are not paying land rents.

The article also mentions that Somalia has had no government since 1991 and was "cut off for a while" before the mobile companies arrived. The CIA World Fact Book describes it as "the public telecommunications system was almost completely destroyed or dismantled by the civil war factions". So in those countries where regulation exists to deal with the market power of formerly government owned monopolies now have a different model to follow. Don't regulate - just have a civil war to destroy the incumbent's infrastructure.

You might think me strange - but I'll stick with the regulatory path.