National Regulatory Authorities (NRAs)

We could think of various institutional answers to the question of who supervises compliance with competition rules in liberalized markets and executes sanctions in case of non-compliance. The EU member countries largely opted for the US model and mandated NRAs with tasks reflecting regulation-for-competition. A common characteristic of NRAs, distinguishing them from NCAs, is their sector-specific responsibility.⁹⁶ The main argument for not establishing cross-sectoral NRAs or delegating powers to NCAs is that each infrastructure sector possesses very special characteristics, i.e. market structure or technology, and thus individual regulatory challenges. Hence, NRA officials should be experts familiar with sector peculiarities and prepared for coping with corresponding problems, i.e. in case of a dispute between the incumbent and a market entrant.

NRAs possess own powers and responsibilities given under public law, are organizationally separated from ministries and neither elected nor managed by elected officials (Thatcher 2002c: 956). According to conventional wisdom of the regulation literature, they are not exposed to the direct influence of politicians or government officials and constitute independently acting bodies instead (Doern and Wilks 1996; Gilardi 2002;

Levy and Spiller 1996; Majone 1997; Thatcher 2002b; Thatcher 2002c, among others).

96 In the regulation literature, NCAs, NRAs and financial regulators are sometimes subsumed under the term

‘independent regulatory agencies’. We should avoid the latter term for two reasons and use ‘national regulatory agencies’ instead. First, the level of independence of these agencies can vary considerably across countries and sectors and range from pure formal or rhetoric independence to full material independence. The prefix ‘national’ is much more neutral and, hence, more adequate. Second, we should reserve the term

‘regulatory agency’ or ‘regulatory authority’ for bodies that enforce competition on a sector-specific basis.

As outlined above, general competition authorities and NRAs posses a fundamentally different logic of regulatory intervention, although in some cases NRAs are also responsible for enforcing competition policy ex post, i.e. in the electricity sector.

Almost all NRAs in infrastructures are newly created entities and not just transformed successors of already existing agencies. They are usually equipped with their own expert staff which grants them some independence from the know-how of ministry officials. In addition, NRAs can use their individual sources of finance which range from fees for licence and spectrum allocation, over contributions from operators to government appropriations. Many sector regulators are headed by a board of directors that makes decisions according to the rules of a collegial body.

NRAs primarily function as a referee to secure the politically and economically desired level of competition in a market. In order to make appropriate use of their competencies, NRAs are equipped with various executive, judiciary and in some cases even legislative powers. At the basic level, they monitor market transactions and function as a consultative body by providing information, collecting data and investigating cases of irregular market behaviour. NRAs are usually entitled to settle disputes between market participants, mainly in the field of network access. A further intervention power of NRA’s is their competency to take binding decisions, i.e. to issue sanctions against the violation of sector rules. These decisions range from penalties for price discrimination or interconnection restrictions to the revoking of licences for insufficient service quality or unlawful business practices. Finally, some authorities even posses quasi-legislative powers, i.e. the adoption of a code of conduct that imposes certain regulatory rules on the industry.

In addition, NRAs deal with consumer complaints.⁹⁷

Information, experience, flexibility and responsiveness are factors considered to be elementary for efficient and effective infrastructure regulation. While the first two factors refer to sector specific knowledge, the latter two describe the ability of the regulator to rapidly adjust rules and instruments to the challenges of the environment, i.e. technological change or economic developments. In both cases, NRAs are said to be better prepared than ministries in terms of resources, experience and knowledge. The role of the ministries remains important, however. They continue to function as recourse authority, final decision-maker or legislator. Indeed, supposedly powerful and influential NRAs are often

97 OFCOM, the British communications NRA, for instance, deals with around 80.000 consumer complaints every year.

more materially dependent on executive bodies and politicians than we would assume (Tenbücken and Schneider 2004).⁹⁸

The decision to create NRAs can be regarded as an institutional prerequisite for market opening and effective competition. Regulation-for-competition might function like a self-stimulating process: the entry of new companies improves the information available to NRAs, which implies that the latter are no longer dependent on information provided by the monopolist. This offers the possibility of ‘yardstick regulation’. The result is greater independence based on a better mixture of incentives and risk sharing (cf. Shleifer 1985).

This in turn could stimulate more effective and competition-oriented regulation. However, it could also be that NRAs try to curb competitive developments at a certain point. Leading NRA officials could to try to expand their own powers as far as possible, because they are aware of the fact that an end of ex ante sector regulation would automatically mean a responsibility transfer to the NCA, which would at the same time constitute the end of the sector regulator itself.

Another important aspect as regards the delegation of regulatory powers from the state to NRAs is the creation of confidence on the side of the public and trust on the side of the regulatees. Governments might want to demonstrate ‘credible commitment’ to objective and fair regulatory intervention and are therefore willing to delegate important powers to independent experts (Majone 1997: 152-155).⁹⁹ A credible regulatory model might support the attraction of foreign direct investment. This however requires transparent legislation and rule-making as well as substantive restraints on the regulator’s power, formal or informal restraints for changes of the regulatory system, and institutions which can enforce these restraints (Levy and Spiller 1996: 1).¹⁰⁰ Governments unwilling or

98 British OFCOM or Dutch OPTA, for instance, both possess a medium level of independence although they are often praised as the prime examples of powerful NRAs in the telecommunications sector.

99 NRAs can obtain a certain “legitimacy through more transparent and pluralistic policy-making and greater accountability than offered by state ownership and regulation by government” (Thatcher 2002c: 954). This argument originates from the financial sector in which the independence of central banks plays an important role for credibility and trust, and thus monetary stability (cf. Bernhard 1998; McNamera 2002).

100 According to Levy and Spiller (1996), these conditions are necessary in order to enforce the regulatory contract. The latter is an informal agreement between the government and regulatory authorities on the one side and the management of the regulated firms on the other. Under the contract, the regulators commit

unable to give up powers might opt for formal delegation to NRAs. This might further the credibility of future reform steps without having to derange the established power distribution between those institutions which have been responsible for regulation in the past.

The creation of NRAs is the most visible institutional result of regulatory reform in the telecommunications sector. Thus far, over 100 countries have delegated responsibilities for the regulation of the telecommunications sector to NRAs (Levi-Faur 2004: 15). In the EU, harmonization was brought on the way by the Commission which pushed for a new regulatory framework that grants NRAs a central role in the regulation of national telecommunications markets. A similar diffusion of NRAs can be observed in the electricity sector. By now, almost all West European countries have established a NRA with the power to regulate ex ante access to the grid and prices charged by network operators. Except for Germany, Sweden and the United Kingdom, all electricity regulators have been created in a short time period between 1999 and 2000, pushed by the requirements of EU Directive 96/92/EC.¹⁰¹