The Challenges in Fiji’s Interconnection Approach.

The Challenges in Fiji’s Interconnection Approach.

Recently, the chairman of the Commerce Commission (CC) released the new interconnection rates for our Telco’s that will need to be implemented effectively. This will allow for further reductions progressively. The process has been anticipated by consumers; the telecom firms have absorbed the price control in a very diplomatic manner at the same time, trying to maintain their market share and analyzing forecast penetrations. Also noting that any negative comment or compulsive action may send wrong messages to their customers, which can result in losing them.

As I had mentioned in my earlier comments, our telecom industry never ceases to amaze me with its development. Ever since the deregulation of this industry, the players, the consumers and the institutions involved are becoming very paradoxical if I may say. Always trying to venture into processes and actions that still need to be proven scientifically whether the options are viable or not. First the deregulation without an independent regulator, then the understanding between the regulator and the CC and now the CC control of prices against the individual pricing strategies.

As advised by the Chairman, the approach used is to support investment and competition. While the objective is not debatable, the methodology used is insensitive to regulated firms. Enormous pressure being given to telecom firms who may have a different retail pricing strategy compared to the intended cost based interconnection rates that the Commission is divulging into.

Who should be talking to who?

The challenge is that in our telecom industry, stakeholders come with preconceived ideas and with gigantic expectations. The commission has had a paradigm shift from the traditional return on investment regulatory approach to cost based approach; the investors demanding a return on equity regardless of low or high marginal cost, the consumers demanding a cheap calling rate, and the telecom firms caught in the middle wanting to retain customers on one hand but have to deliver the equity return on the other and at the same time have to adhere to the heavy hand of pricing control. Shall we leave the price control to the market to determine? That should be something we need to explore. Traditionally, deregulation and regulation accompanied each other. However, the CC should moved towards a diminishing regulatory market intervention. Maybe too soon for Fiji; but it is always good to think towards that.

The second challenge is the relationship and the understanding between the regulatory, the market changes, and the technology advancement. This relationship needs to be ‘moisturized’ by economic concepts to keep the whole deregulation and interconnection machinery a viable one. With this, the CC should be updated and compatible to changes in the industry. Since the Telecom Authority of Fiji is still to be seen; the CC has to do all these.

On that same token, investors or shareholders need to be considerate especially with the shift of the CC to the cost based approach. In a spontaneous approach done by CC, the shareholders and the firms need to re-adjust and modify business models moving from return on equity to a more softer approach especially new entrants with high cost of start up capital. While this could be amicable between the management of the firms and the shareholders, optimistic directors are always expecting unrealistic returns.

Impartiality Role of the Commerce Commission

Finally, in a matter of independence, the CC should always be reminded of its role as the Chairman had said to promote competition and efficiency. The correlation between rate of teledensity and the rate of GDP growth is something that need not be the expected to be true here given the composition and nature of our economy and few other things which I will not go deeper into.

It is always difficult to measure the parameter of independence of such institution according to World Bank Economist, Scott Wallsten. As the regulator is a government entity, the CC is also subject to political influence. As an Economist, it is my desire that my economic objectives should not be anyway interfered by social or political interests. Wallsten discovered through an empirical analysis from primary data collected by the International Telecommunication Union from member countries, that generally there is a negative coefficient on the variable indicating the regulator’s claim to be independent of political power. He went on to say that there is a difference between being independent from short term political and being just independent at all.