Issues with Regulation

bealtine

While this is not directly related to Telecommunications, it does clearly demonstrate the failure of the system of regulation in Ireland.

First we had the Financial regulator "doing nothing" while bankers were obviously abusing the system, this was all well known at least 6 months ago. I knew the names of this "golden circle" last autumn and most of the details, yet the regulator did "nothing" even though they were told about it.Too busy munching smoked salmon sandwiches with those they are supposed to be regulating?

Here we have the CER artificially setting extremely high prices for some vacuous and illogical reason, considering their remit is to regulate for consumers and still say they are regulating for the benefit of consumers. How can they allow prices to sky rocket without being utterly embarrassed and not admitting they are worthless? Again because the higher prices simply mean more income for the regulator.

This is the essential failure of regulation here in Ireland, regulators who depend on those they regulate. They cannot possibly be considered independent while they depend on higher prices (which they set) for their income.
In common with ALL regulators they live in a dream world where they have totally ignored the basic tenets of regulation.

I, for one, would echo the calls for a complete overhaul in the regulatory system, especially Comreg.

http://www.rte.ie/money/2009/0218/energy.html


Competition between domestic electricity suppliers

ESB's monopoly on the electricity supply market in Ireland was officially ended in 2005, but it's only recently that viable competitors have started offering electricity to residential customers.

Airtricity, an independent supplier of electricity, has gotten back into the residential market recently, but today's entrance by Bord Gáis could really shake up the electricity scene.

There is some talk that Bord Gáis could sign up to a million customers; that is about half of the existing market.

ESB has welcomed the competition from Bord Gáis. It has been under intense pressure recently to lower its prices - some of the highest in Europe.

But ESB says that it cannot simply lower its rates, since they are set by the Commission for Energy Regulation.

How ESB prices are set

The Regulator says it sets the ESB's prices based on cost, and that its job as Regulator is to make sure the prices don't go too high, or too low. Michael Tutty, the Regulator, told RTÉ's News at One today that if prices drop below cost then that makes ESB are anti-competitive and will keep other players out of the market.

There are several steps that must be taken before ESB's electricity prices are set.

ESB first decides on the price it wishes to charge for the year ahead by looking at its costs. It estimates consumption and number of customers, how many staff it needs and so on, according to Paul Brandon, business information manager at the Commission for Energy Regulation. Generation cost (buying electricity from the wholesale market) makes up about 60% of the total cost of electricity. Between 20% and 30% goes to the cost of transporting electricity, and the roughly remaining 10% goes to billing costs, metering, administration and so on.

Once it has decided on its costs, ESB decides on a price for customers and brings the price it wishes to charge for the year ahead to the Regulator.

The Regulator examines that price carefully, and makes a final decision on what ESB is allowed to charge.

The Regulator will not have any say in the electricity prices charged by Bord Gáis, or any other independent supplier.

'We only regulate the old monopolies in the market,' says Paul Brandon. 'We are trying to bring in competition against those incumbent companies.'

If Bord Gáis is successful in taking a large chunk of the market, and other players also get involved, the Regulator could get out of the business of setting ESB's prices altogether, Brandon says.

'Radical overhaul' in energy regulation needed?

But not everyone believes the Energy Regulator is actually good for competition. The Regulator has been accused of benchmarking ESB prices artificially high, which means competitors can then charge more.

Last August, in response to high international energy prices, ESB's electricity prices were hiked by 17.5%.

Opposition parties have been particularly critical of the Commission for Energy Regulation.

'Currently the big players - the ESB in household electricity and An Bord Gáis in gas - have prices regulated by the CER, and as a result, we have some of hte highest energy prices in Europe,' Labour Party Spokesperson on Energy and Natural Resources Liz McManus said today, in calling for a 'radical overhaul' of energy regulation.

'Since oil prices tumbled last year, our energy prices have been kept artifically high because of regulation. It is clear that the ESB. . . could reduce prices but [is] prevented from doing so because of lack of action from government.'

Regulator reviewing prices

The Commission for Energy Regulation defends itself, insisting that ESB's prices are based on cost. The reason they are still high - even though international energy prices have dropped dramatically - is that energy companies hedge their fuel costs, says Brandon. This means they paid the much higher asking prices for fuel last summer, which is only now being sold to consumers.

He says that this system of hedging costs means that customers can be forced to pay more, but they are also protected when costs rocket. He says the lower international prices being seen now will definitely be passed on - it can just take some time.

Ireland's prices also tend to be higher than its European neighbours, according to Brandon, because of our reliance on imported fossil fuels. In Ireland, 90% of electricity is produced from imported fossil fuels, whereas many other European countries have nuclear power, hydro power or other alternative forms of energy.

The Regulator was not scheduled to look at ESB's prices again until October 2009, but as wholesale prices have continued to stay low, and as Government has increased pressure to drop prices, the Regulator has decided to review prices. The results of that review are due out shortly (probably next week), and comments will be accepted from the industry and consumers. A new reduced price could then be announced in March.

Taoiseach Brian Cowen and Energy Minister Eamon Ryan have mentioned price drops of at least 10%, but the Regulator is not committing yet to any specific price reduction.

watty

Since Bord Gais is probabily no more efficient at billing, uses the ESB meter readers, suppliers the same electricity on same network as ESB and is a sister semi state who is CER and the Government trying to fool?

This is not competition but inefficient duplication of billing of the eaxct same service.

DSL bitstream is not at all competition for similar reasons and the arguement that LLU is competition or leads to competiton in IMO bogus. THERE ARE NO EXTRA innovative services for LLU. People don't want "extra services". They want working real broadband, electricity that stays on and doesn't brown out, water out of tap that doesn't need boiled. Sewage removal that dosn't give swimmers e-Coli or Typhus and phones that work. They don't want punative fixed charges that are up twice comparable countries with better infrastructure. (Those guys obviously do manage investments and repairs at a lower line rental)

There is no real electricity competition, and logically there should not be at the retail level. Maybe some competition on supply is possible. So you need better regulation.

Only Fibre, decent fixed wireless and Cable is competition for DSL. eircom should simply be regulated better and the others too in areas where there is a monopoly. Pretence that you can have "competition" on a single shared infrastructures to the home (water, sewage, gas, phone lines or electricity) was always and is increasingly shown to be a delusion. That's why good regulation to enforce investment, innovation, maintenence and retail prices is needed. There has never and is yet little incentive for eircom to fix line faults quickly nor offer more than a basic DSL.

Have real inforced penalties
Have free unlimited dialup with no limits or charges if a line fails DSL
Have 1/4 line rental if a line fails DSL

lets have real regulation FOR the LONG term value of consumer rather than doctrinaire theories of consumer advantage of hypothetical competition which is in fact an illusion.

This Bord Gais announcement shows how failed the Competition and Regulatory model is for Ireland fixed infrastructures.

The PPP roads and tolls is another piece of related stupidity. We pay road tax according to size of car/truck/lorry.

Let's get some sharks as regulators.

clohamon

You say you want a complete overhaul in the regulatory system.

Look at Comreg; what its supposed to do

1. Grind the teeth of the incumbent
2. Allocate radio spectrum
3. Set the price of stamps.

The first function it will not, cannot and no longer has the funds to do. The other two provide enough work for one clerical officer on a job-share.

So do we need a regulator?

Advantages of a functioning regulator.

1. Lower costs/prices due to a competitive market.
2. Product innovation due to a competitive market.

Disadvantages

1. Overhead: Cost €20M+ pa. Staff : 120
2. Lack of skilled personnel in a small country.
3. Reinventing the wheel (in terms of regulatory practice)
4. Two margins. wholesale and retail.
5. Irish constitution guarantees access to the courts, therefore any enforcement regime, appeals panel etc. can be frustrated by the cost and delay of the high court
6. All the expertise (such as it is) drains from the department to the regulator so that policy formation becomes very weak.

In my view, for a country this size, a state owned neutral network would on balance provide better universal services at lower cost than a privatised and regulated market, overhauled or not.

watty

Sure they have funds, so mauch that they give away €70M surplus most years.

Thraktor

For reference, here are Comreg's current sources of funding:

Licence fees: 60%
Spectrum fees: 16%
Contributions from regulated telecom operators based on turnover: 20%
Financial income (e.g. Investment/Deposit): 4%

Source

clohamon

watty wrote: »

Sure they have funds, so mauch that they give away €70M surplus most years.

I don't think in reality that the income from license fees etc. is theirs to spend as they like. I suspect Dept. of Finance have that surplus earmarked already, if it comes in under budget because of a frolic in the high court, someone will get a thick ear.

bealtine

Thraktor wrote: »

For reference, here are Comreg's current sources of funding:

Licence fees: 60%
Spectrum fees: 16%
Contributions from regulated telecom operators based on turnover: 20%
Financial income (e.g. Investment/Deposit): 4%

From Comreg's own financial statements for 2007:

Levy 9,692,000 down somewhat from before : 10,063,000
Licensing Fees 21,453,000
Spectrum Income 52,000,000
Other Income 1,890,000

So I wonder what the true percentage is?

bealtine

clohamon wrote: »

You say you want a complete overhaul in the regulatory system.

Look at Comreg; what its supposed to do

1. Grind the teeth of the incumbent
2. Allocate radio spectrum
3. Set the price of stamps.

Well that's what Comreg *say* they do, however the reality is very different.
Consumers are an annoyance as they have really important things to do
like ignoring consumers and making up excuses for why our infrastructure
is in such a bad way. All that excusifying is very hard work...

They seem to regulate *for* the industry rather than for consumers.
Which is the point of the RTE piece.

Thraktor

I'd be interested to know in what ways (if at all) people think that competition can actually be effected in the broadband market in Ireland? Personally, while I know that the state would have to play a larger role in provision (or at least regulation) than it does now, I'm always skeptical of a single nationalised telecoms provider taking over. Eircom was hardly a model company pre-privatisation, after all.

As far as I can tell, the only aspect of broadband provision where it would be unreasonable to expect effective competition between providers is the installation of last-mile infrastructure. Real competition in this realm would require hugely expensive duplication of infrastructure between providers, and more providers would actually mean higher, rather than lower costs to the consumer.

However, it is perfectly reasonable to expect that providers could compete over backhaul provision and actual service provision (ie basic internet, IPTV, VOD, etc.). Hence, would it be possible for the government to provide the basic last-mile infrastructure, and let service providers compete over the rest?

I'll admit that my theory isn't very well thought through (particularly from a technical viewpoint), but it'd be interesting to get a bit of feedback on it from people who know the industry and technology better than I do. Basically, what I would propose is that the government installs a fiber-optic cable from the local cabinet to every home/business in the country. There would be six (let's say there are six operators) high-capacity links back to the exchange, then, one for each operator. Each operator has equipment in the exchange connected to their own backhaul.

When a customer wanted to sign up for broadband from an ISP, the provider would install an ONT on the customer's premises, then connect up their fiber cable at the cabinet to the ISP's switch/router. If a customer wanted to change ISPs, they would either simply be switched over at the cabinet, or, if the new ISP was using a different fiber technology, have a new ONT installed as well. Either way they would use the same fiber cable as before.

The advantages, as far as I can tell, from such a system would be numerous. First off, there would be actual competition between ISPs, as customers would have the choice of multiple operators and could switch for the cost of an ONT installation (which I would imagine ISPs would subsidise to attract customers).

Secondly, the platform would be (sort of) technology independent. Obviously all connections would be fiber, but the actual transmission tech used on the fiber could differ from one ISP to the next. This means that ISPs could start upgrading to 1Gbps, 10Gbps, etc. without any additional infrastructural investment from the government. The government-owned part of the network (the last-mile fiber) would be effectively future-proof.

The ISPs fees for use of the infrastructure (effectively the rent of using the exchanges, cabinets and last-mile fiber) could be auctioned off before-hand, with an upfront payment from auction-winners. This would provide funds towards the installation of the last-mile fiber, although whether it would go anywhere near covering costs I have no idea.

Of course, there are also a number of considerable problems inherent as well. For instance, the system would require an individual fiber cable to be installed from the cabinet to each house. This would be quite a bit more expensive than a PON-based solution, although that would tie the connection to a particular ISP. It would also probably be quite expensive to install a new cable to a newly-built house.

Also, there would be little indication beforehand as to whether the auction could raise enough funds to cover the government's costs, particularly at times like these when telecoms companies would have difficulty finding credit to pay for such fees upfront. Of course, I'm sure that the expense would be worth it to the government in the long term anyway, but that would be difficult to convince people of when the budget deficit is as large as it already is.

Any feedback (particularly why such a scheme wouldn't work) would be appreciated.

Fogmatic

What Eircom & the regulators don't seem to consider is that long-term value for the consumer (to quote watty), and long-term value for the provider and the state, could go hand in hand. Why can't modern politicians see beyond their noses? (Sorry, I don't have a punchline).

Thraktor

In any properly competitive industry the interests of the companies should be the same as the interests of the consumers. In fact, the job of a regulator is supposed to be to ensure that the competitive interests of the providers are as closely aligned to the consumer's interest as possible.

bealtine

Thraktor wrote: »

In any properly competitive industry the interests of the companies should be the same as the interests of the consumers. In fact, the job of a regulator is supposed to be to ensure that the competitive interests of the providers are as closely aligned to the consumer's interest as possible.

Which is why we have the highest line rental and the highest energy prices?
Not to mention the Financial De-Regulator.
In some misguided pursuit of a jaded and outdated regulatory mindset...
Welcome to the 1980s:)

Thraktor

bealtine wrote: »

Which is why we have the highest line rental and the highest energy prices?
Not to mention the Financial De-Regulator.
In some misguided pursuit of a jaded and outdated regulatory mindset...
Welcome to the 1980s:)

Now, now, Bealtine, I said that's what a regulator's supposed to do, not that it's in any way comparable to the actions (or inactions, as it were) of our own crop of regulators in this country.

d'Oracle

Lets not forget the taxi regulator......