BEYOND PUBLIC PRIVATE PARTNERSHIPS :

PUBLIC PRIVATE INTERPLAY

José Luis Gómez-Barroso

UNED – Universidad Nacional de Educación a Distancia (Spain)

jlgomez@cee.uned.es

ITU Regional Experts Group Meeting for Europe

Increasing Role of Public Private Partnerships in the ICT EcosystemGeneva, 14-15 November 2012

Introduction

• Public activity in the telecommunications industry has experienced important transformations in the last decade:

► “reinvolvement” in infrastructure deployment

► “innovative” boosting measures

► decentralisation of some decisions

• Conceptually, even more important than the measures themselves is the fact that private agents often participate in their realisation and execution

• This collaboration will not be limited to establishing formal contracts but will be articulated in quite diverse ways

Introduction

Intervention in / control of telecommunication services has been in the agenda of every government during the last

century

√ √ What makes telecommunication markets “special”?

In market economies, the degree of state intervention (“the weight of the public sector”) is what differentiates ideologies (or

maybe it would be better to call them tendencies)

The debate comes back into focus in times of crisis

New spaces for public / private collaboration in next generation communications are emerging

Structure

• Conceptual framework: why public action in

telecommunications?

• Public activity in practice

► From the 1950s to the mid-1980s

► During the liberalising period

► The 21st century approach

• The place of the private sector

• Conclusions

Structure

• Conceptual framework: why public action in

telecommunications?

• Public activity in practice

► From the 1950s to the mid-1980s

► During the liberalising period

► The 21st century approach

• The place of the private sector

• Conclusions

A rationale for public intervention

Interference in free market activity

Existence of “justifying” circumstances

• Economic arguments Presence of “market failures”

► ► Characteristics of the good itself public goods, merit

goods, externalities

►► Market situation imperfect competition, information

failures, incomplete markets

►► Macroeconomic arguments (development, employment)

►► Equity

• Non-economic (“strategic”) arguments

Characteristics of the good

• Public goods Non exclusion, non rivalrous consumption

• Merit goods “Under-consumption”

Public judgment differs from private evaluation

• Externalities

√ √ “External” Reduction of transaction costs, alternative

to physical transportation ...

√ √ “Internal” (network-based activities)

►► Direct Usefulness linked to the number of users;

“call received” externalities

►► Indirect Services portfolio grows with the

number of users

Market condition

• Failure of competition

Natural monopolies?

Incumbent operators maintain very high market

shares Slow development of alternative networks

• Information failures

“Experience goods” (goods requiring a previous

experience)

• Incomplete markets

Lack of supply

Economic development

√√ Cause and consequence of the level of development

►► Productivity improvements

►► Efficiency growth

►► Better location decisions

►► Increase of competition

√√ Endogenous economic development

Equity

√ √ ”Basic social” goods

Connatural right to communication

√ √ Equal “base capabilities” ♦♦ employment opportunities

► ► Economic integration ♦♦ qualifying training

opportunities

♦♦ access to educational resources

♦♦ access to cultural resources ► ► Social integration

♦♦ development of shared values

♦♦ support of democracy itself

Structure

• Conceptual framework: why public action in

telecommunications?

• Public activity in practice

► From the 1950s to the mid-1980s

► During the liberalising period

► The 21st century approach

• The place of the private sector

• Conclusions

Structure

• Conceptual framework: why public action in telecommunications?

• Public activity in practice► From the 1950s to the mid-1980s

General framework

Rationale for public activity

Nature of intervention

The European example

► During the liberalising period

► The 21st century approach

• The place of the private sector

• Conclusions

General framework

• National markets

• (General but not global) Economic stability and growing demand

• Non-disruptive technological innovations

• Market economies

► Keynesian heritage

► Welfare state oriented policies

• Centrally planned economies ► Predominance given to material production Services

neglected

► The needs of private users were secondary

Rationale for public activity

• Characteristics of the good itself

• Market condition

Natural monopoly

• Macroeconomic arguments

Protection of the national industry (equipment providers)

• Equity

Extension of the service (sometimes more theoretical than real)

• Non-economic arguments

Strategic importance for national security reasons

Nature of intervention

Europe: from PTTs to the start of liberalisation

• PTT model► It was usual virtually since the start of the 20th century

► Public operators (as administrative bodies or, in some cases, public companies) provided the telephone, postal and telegraph services

► Regulatory functions were carried out from the administrative authority they were dependent on

• The first crack in this monolithic model was a decision taken by the Commission in 1982 by which British Telecom could not

prevent other competitors from sending telex

Confirmed by the European Court of Justice in

1985

Structure

• Conceptual framework: why public action in telecommunications?

• Public activity in practice► From the 1950s to the mid-1980s

► During the liberalising period

General framework

Rationale for public activity

Nature of intervention

The European example

► The 21st century approach

• The place of the private sector

• Conclusions

General framework

• Increasingly globalised markets

• Breaking technological mutations

• Neo-liberalism as the supporting ideology

• Government failures theory emerging

► Privatisation of public enterprises

► Liberalisation and re (not de) regulation Long-run

nature as well as “guided” liberalisation processes

• Fall of centrally planned economies

Rationale for public activity

• Characteristics of the good itself

• Market condition

Former monopolies network represents an “essential facility”

• Macroeconomic arguments

• Equity

• Non-economic arguments

Nature of intervention

The opening of the industry: general circumstances

√ √ Technological factors Digitalisation reduces networks costs,

eliminates capacity problems and reduces many of the scale

economies

√ √ Economic factors

► ► External Major companies demanded more flexible

scenarios

♦♦ Monopolies were prepared to admit changes given the basic service had reached a certain saturation

►► Internal

♦♦ Equipment providers were also showing their interest in accessing new markets

√ √ Political factors General trend towards deregulation,

liberalisation and economic globalisation

The opening of the industry: European specificities

• Structural weakness of the national markets

The creation of a Single European Market seemed as the most convenient decision to guarantee the continuity of a

technologically leading industry

• The European Community could not ignore the consequences of the policies adopted by the United States and Japan

• It was necessary to define a common position for international negotiations, especially as regards the GATT

Breaking up the national compartmentalization was trusted to allow operators to reach the optimal dimension for competing on a global

basis

The way to a deregulated scenario

1987 Green Paper on the development of the common

market

Initial competition Directives

1992 Review

Support from the White Paper on growth, competition and

employment

Support from the Bangemann Report

Regulations introducing greater levels of competition

Regulations completing the pillars of a deregulated scenario

1998 Complete liberalisation on January 1

The “1998 package” was focused on the creation of a new competitive market and on the rights of new entrants

A new variable: Information society policies

• Information society development policies did not take a central role in the public discourse until the early nineties

Response to the release of the US agenda for a G.I.I. in 1993

• The neo-Keynesian Delors’ White Paper (1993) stressed the urgency of developing a Pan-European information infrastructure

• Oppositely, the Bangemann Report (1994) starts from a clearly neo- liberal position, stressing the liberalisation of the telecommunications and the role of the private sector

In practice, the Bangemann vision won… to the extent that one can

question whether information society policies were not just the sugar

around a policy of telecommunication liberalisation

Structure

• Conceptual framework: why public action in telecommunications?

• Public activity in practice► From the 1950s to the mid-1980s

► During the liberalising period

► The 21st century approach

General framework

Rationale for public activity

Nature of intervention

The European example

• The place of the private sector

• Conclusions

General framework

• Open markets

• Convergence of economic/political ideologies

Cultural/religious aspects as marker of differences

• Rapid technological advances

• Decentralisation of political decision-making (combined

with transnational companies and institutions)

• Economic and geopolitical instability

• Change of paradigm

From industrial economies to information economies

• Persistent (socio-)economic crisis?

Rationale for public activity

• Characteristics of the good itself

Telecommunications as a merit good

• Market condition

Non-fully competitive markets

• Macroeconomic arguments

Impulsion of a knowledge economy

• Equity

Fighting against digital divides

• Non-economic arguments

Nature of intervention

Broadband in information society programmes

• “eEurope An Information Society for All” was set out as a

basic piece of the so-called Lisbon strategy, targeted at turning the European Union into the most competitive and dynamic knowledge-based economy by 2010

As an enabler for that, a widespread availability of broadband access at competitive prices was deemed necessary

• All national programmes acknowledge the primary role of the market in broadband deployment…

…But they also admit the role of public policy in complementing the effective operation of the market

• i2010 and the Digital Agenda confirmed this line of action

Public funding of projects

• Any proposed measure has to be compatible with the Common market rules

► Article 107(1) of the Treaty of Functioning of the EU provides for the general principle of prohibition of State aid within the Community

► Article 107(3) of the Treaty of Functioning of the EU provide exemptions. Specifically, an aid that “does not adversely affect trading conditions to an extent contrary to the common interest” may be considered to be compatible with the common market

• The Commission has a positive stance regarding the application of the state aid rules to public funding for broadband

• Moreover, a part of the money comes from structural funds, wherever the conditions for their usage apply

Public funding of projects: Guidelines

Structure

• Conceptual framework: why public action in

telecommunications?

• Public activity in practice

► From the 1950s to the mid-1980s

► During the liberalising period

► The 21st century approach

• The place of the private sector

• Conclusions

Coming back from the extreme?

PPI beyond PPP

• Partnerships

► PPP refers to a contractual agreement formed between

a government agency and a private sector entity

► Under this model, the public and private sector agree to

jointly design, develop, and finance the project

• Interplay is more than that:

Any way of collaboration beyond formal agreements

Flexibility, given the growing complexity of the

problems and hence the increased resources required

New spaces for PPI: a scheme for those relations

• Subsidiarity posits a hierarchical relationship across

levels of social and political organisation

► Delegating responsibility should be done only when

lower levels of organisation are unable to meet the

challenge

• For the pragmatic logic, the private and public sectors

can be envisioned as poles along a continuum

► Privatisation and collectivisation represent movement

from one end to another

► Traditional public financing and provision of services

would be at one pole, and private at the other

A expanded catalogue of tools

Structure

• Conceptual framework: why public action in

telecommunications?

• Public activity in practice

► From the 1950s to the mid-1980s

► During the liberalising period

► The 21st century approach

• The place of the private sector

• Conclusions

Conclusions

Almost all the “justifying” arguments are, to a variable extent, applicable

The decision of adopting policies for generalising advanced telecommunication finds coverage in economic rigor

Finding coverage does not imply being forced to intervene

However, this intervention, should it be carried out, cannot be inconsistent with the assessment made of the analysis’ results

Portfolio of reasons that, duly valued and ordered, make up a solid base on which to base each action

Conclusions

• In practice, it is not easy to decide when advantages can be expected from collaboration between governments and for-profit enterprises

• Partnering can introduce greater complexity and it does not necessarily result in decreased regulation

• “Environmental” factors

experience, institutional conditions, general economic conditions,

input markets, basic industry conditions, and regulatory governance

condition the policies that are possible

and, thus, the results achieved !

Conclusions

• The approach for NGN being deployed in an inclusive manner will be dominated by a learning curve process in the use of public-private policy tools

“We’ve got to use everything that we’ve got”

• There is no single recipe for fruitful public-private collaboration

► Every community will have different economic and social requirements in relation to converged networks

A single policy will probably not work for every location

BEYOND PUBLIC PRIVATE PARTNERSHIPS :

PUBLIC PRIVATE INTERPLAY

José Luis Gómez-Barroso

UNED – Universidad Nacional de Educación a Distancia (Spain)

jlgomez@cee.uned.es

ITU Regional Experts Group Meeting for Europe

Increasing Role of Public Private Partnerships in the ICT EcosystemGeneva, 14-15 November 2012