Re-Inventing Regulation in the Era of Convergence

World Telecommunications Day Forum

Kuala Lumpur, 18 May 1998

Dr Terry Cutler


Charles de Gaulle - the French resistance fighter and the shaper of post-war France - is reputed to have said: The art of statesmanship is to recognise the inevitable and to make it happen. I think this piece of wisdom can help us in our artwork for new regulatory frameworks in an era of convergence.

The art of policy making in Cyberspace is to accept that the information revolution has happened, and to go on to shape this new global commonwealth of information on the basis of enduring social and community values and of economic equity.

The challenge for us would-be industry leaders in 1998 is to recognise the imperatives of the new global information economy, and to stake out our role in this new world. Whether or not our felloe citizens enjoy the social and community benefits now becoming available, depends on how we engage with this new economic order: whether we are active participants in change, or spectators and perhaps victims of change. This choice holds true for both companies and countries. To strike an ominous note for my Government colleagues, there will be regulatory winners and losers.

Today the right question is not how to regulate convergence. The right question today is how convergence changes regulation and the role of regulators.

Most of us here from industry know all too well that the era of convergence has changed all the rules of our industry and businesses. We are in the middle of a process - for some of us a process that has been going on for quite a while, for others one that is just starting - of re-engineering our businesses for the new industry environment. The message for Governments and regulators is that they are not immune from the same imperatives for change.

Reinventing regulatory frameworks in an era of convergence is all about re-defining national competitive advantage within a global information economy, the digital economy. It is all about the sort of restructuring that the IMF ought to be focusing on: how countries can restructure to participate in the new sources of wealth creation and of economic growth.

A recent report from the US Department of Commerce highlights what is happening to our economies. This report shows that, even within the constraints of the existing and largely outmoded statistical frameworks for national accounts, at least one third of the United States' economic growth currently is driven directly by the IT&T sector. If the indirect impacts of the convergence industries are taken into account then I would guess, very conservatively, that already some two-thirds of net economic growth is being driven by the emerging information economy. No wonder that both the OECD, with its talk of "next generation regulation", and Alan Greenspan of the Federal Reserve with his focus on new economic drivers, are telling us that the future is happening now. No wonder that the key agenda for Clinton's principal domestic policy adviser, Ira Magaziner, is electronic commerce.

There are four basic survival rules for this policy journey into our digital future, for re-inventing regulation.

Survival Rule Number 1: Synchronisation.

Policy making must get into step with the realities of global industry restructuring. This means throwing out a lot of textbooks and regulatory manuals. (We cannot afford a lot of regulatory Don Quixotes tilting at illusory windmills).

Survival Rule Number 2: Having a destination

Regulation is never an end in itself. If desired outcomes can happen without regulation, don't regulate. A regulatory framework is all about the national goals - the destination - which are not likely to happen if we do nothing: national goals such as a strong and comprehensive industry capability (particularly in the arena of new application services), goals for widespread access to service benefits, for consumer confidence in service delivery, and for the nurturing of local information resources and cultural representation.

Survival Rule Number 3: The right tool kit

Traditional regulatory spanners and welding guns simply do not fit the new digital business systems of convergence. Regulating convergence means pointing a laser beam at the new bottlenecks on the industry circuit board.

Survival Rule Number 4: Keep moving.

The speed gauge is important. A lot of the regulatory framework will be about speeding up the pace of change, to close the gap between present capabilities and desired national outcomes.

What are some of the road checks for whether or not we are on the right track with our regulatory approaches? We are on the wrong track if:

1. ...the regulatory framework is service or technology specific

At present in Malaysia there are some 80 licence categories for different services and facilities: we start to get it right when we can count on one hand (being truly digital!).

2. ...we haven't drawn up new generation reasons for intervention

If there is not a demonstrable net benefit, do not intervene. When in doubt, set a sunset on provisions. In general I believe the only rationale for intervention is about systematic market failure or market gaps, but including market failure in the broader sense that the sum of market activity does not add up to national and community expectations.

3. ...our policy framework is not global in orientation

Convergence is a global marketspace, and we quickly need to internationalise regulatory frameworks. We still have to put a lot of effort into thinking through what this is going to mean in practice.

4. ...the style of our regulation hasn't changed

Old sector regulation was like a command economy, where regulators tried to micro-manage everything the industry did (from the sourcing of supplies to the setting of prices). Key words were control and monitoring. The new emphasis is on enabling and facilitating. It is about creating regulatory incentives for desired market outcomes, recognising that capital and skills are now footloose and not tied to country markets.

5. ...we don't have different job specifications for regulators

Mobilising the sector calls for statesmen and generals, not staff sergeants and military police. The leadership profiles of the people driving the convergence companies have changed dramatically over the last decade: similar change is needed amongst our regulators. For a different job, we need different people.

and we are on the wrong track if:

6. ...transitional arrangements become an alibi for no change.

Transitions should lead us somewhere, and interim arrangements should not become a tool for keeping us where we are now. We need to remember to keep our eye on the speed gauge.

The stakes are high, but so are the opportunities. Steve Case, the chief of America Online, was recently reported as saying that the information economy is now big enough to matter, but still small enough to shape. This is not a bad slogan for our task of reinventing regulatory policy frameworks.

Through its foresight and its pioneering initiatives with the Multimedia Supercorridor, Malaysia has put itself into a position of global significance in the convergence era. Effectively implementing its new policy and regulatory framework will help shape this new global information economy. A lot of countries are closely watching Malaysia's initiatives, many with considerable envy, and some with the hope that poor execution will bring down the vision. For myself, I genuinely believe that what is happening within Malaysia can have a disproportionate impact on our futures in the convergence era. But Malaysia does need to put in place the right regulatory framework as travel insurance, and it will need a regular road check each World Telecommunications Day.