Europe's Internet Troubles
Internet access is one of the main drivers for economic and social development. No wonder that the wide availability of broadband access, as one of the main indicators of technology advancement of the economy, is shaping the agenda of governments. Everyone demands broadband access.
However, Europe is lagging behind other developed countries and is barely above OECD average. And the proposed liberalization could actually make matters worse by failing to completely privatize providers--turning over both ownership and control to free enterprise--at all levels. Instead the effects of price control could kick in and make it impossible for private enterprise to meet the terms that regulatory agencies are demanding. The result will be a further slipping. FULL ARTICLE
Comments (7)
Whilst this is a great article illustrating the innevitable consequences of price controls, I think the author is possibly wrong in suggesting that the EU has imposed price a "ceiling" in this market. They aim to achieve lower prices, not by mandate but rather through the forced introduction of competition.
Published: December 4, 2007 10:24 AM
Forced competition is no more competition than forced charity (welfare) is charity.
The common (spoiling) thread here is force. It turns virtuous processes into cruel, destructive lies.
Published: December 4, 2007 12:39 PM
Whilst I am in full agreement with N. Joseph Potts, we cannot call this a proper case of a mandated price "ceiling" because no operators will not be forced to sell their product at below market rate.
As long as there is "sufficient" competition in the market, operators will be able to charge whatever they can.
Published: December 4, 2007 2:12 PM
Simon,
How can governments create competition? What is sufficient competition? Problem: What if company A wants to compete with company B for the same customers, but cannot compete in price? What do you think the CEO of company A is going to do, knowing that government wants to guarantee "competition"? Obviously, ask government to impose a price FLOOR on the service with the justification that government wants to "motivate" true competition. There is no other way of achieving the result without price floors or ceilings, Simon, unless government could magically conjure company C, D, F, et cetera.
Published: December 4, 2007 8:48 PM
for what it's worth, australia has had a similar regime, post-deregulation. our anti-trust "watchdog" (accc) has mandated a price for wholesalers' access to the last mile via the ex-monopolist telstra.
the public understands that replicating the copper network would not be worthwhile, and the expectation is that the ex-monopolist will milk its natural advantage for all it can. this makes intervention politically attractive. personally i think that were no government action taken, and the ex-monopoly telco were to raise prices too aggressively, there would be a migration from fixed lines to mobiles. indeed, many people have already let their landline lapse and only have cell-phones. also, at some price satellite/wireless services become competitive. the question is how much prices would have to rise before competitive market pressures kick in. politicians are too scared to let the chips fall where they may. there is another political complication in that rural areas, in a completely unfettered market, would face steep price hikes, or no service at all. country electorates, though sparsely inhabited, are important to winning government. hence the regulatory interference.
Published: December 4, 2007 9:00 PM
Francisco Torres,
Doesn't having a price "ceiling" go against their stated aim: "A Single European Information Space offering affordable and secure high bandwidth."?
Besides, it is not clear that the EU would use price "floors" to maintain competition. They will use the mechanism of "functional seperation" on companies that gain too much market power.
I suppose that could have a similiar effect to price floors though because it would prevent any company getting into a position whereby it could leverage economies of scale to lower it's price below that of it's competitors.
Published: December 5, 2007 3:30 AM
Doesn't having a price "ceiling" go against their stated aim: "A Single European Information Space offering affordable and secure high bandwidth."?
Simon, a price ceiling is a cap on a price (which can be lower than the market price), so I do not understand your question.
Besides, it is not clear that the EU would use price "floors" to maintain competition. They will use the mechanism of "functional separation" on companies that gain too much market power.
Simon, ask yourself how a company can gain "too much" market power (allowing for the sake of argument that there is such a thing), if not by underbidding their competition. The only way a government (or any other violent entity) could impose such a "functional separation" is through forced division of a company, which will by consequence raise prices of the provided service (as the costs increase due to a separation), or by price floors that limit how much a company can underbid their competition. Both cases have the same results - which means the EU would be relying on direct or indirect price floors. Different paths, same result.
I suppose that could have a similar effect to price floors though because it would prevent any company getting into a position whereby it could leverage economies of scale to lower it's price below that of it's competitors.
Exactly. Which means that governments can only in the end affect the price of goods or services when trying to do the "good" thing. Again, unless governments can conjure up brand new and aggressive companies offering competitive services...
Published: December 6, 2007 9:05 PM