MARKET

LIBERALIZATION AND

REGULATORY

CHALLENGES

Beyond 2010: Leadership for the Next Generation

A UP Academic’s Congress To Challenge our Next

Leaders

4 February 2010

KEY MESSAGES

• Markets do not naturally produce competitive

results.

• Liberalization and deregulation are not

synonymous.

• Regulations do not have to restrict trade.

Case 1: TELECOMS

Mandatory interconnection in 1993; market entry in 1995

Among the first 11 countries to permit competition in fixed network

Among the first 14 countries to demonopolize international telecom services

Early reformers were mostly developed countries, except Chile and Philippines

State of Philippine Telecoms

Large number of service providers

73 local exchange carriers

14 inter-exchange carriers

11 IGF operators

5 cellular mobile operators

329 VAS (43 ISPs)

Declining prices of services

Increasing market concentration and deteriorating financial position of non-dominant service providers

State of Philippine Telecoms

70%85%75%

96%

Fixed lines Mobile

1999 2006

2-firm Concentration Ratio

Largest 2 Next largest 2

P 39.2 B profit

P 2.3 B loss

2007 Net Income

Market trends suggest the absence of effective and sustainable competition.

State of Philippine Telecoms

LESSON 1

Market liberalization must be

complemented by pro-competitive

regulation.

Case 2: POWER

Deregulation of generation sector and

establishment of wholesale spot market

Government divestment in power sector

Creation of new regulatory institution

Consumer’s choice of supplier

Cheap Power?

Average prices of electricity for

residential customers (P/kWh)

1998 4.1636

2008 8.1343

(5.1868)

LESSON 2

With market deregulation,

there is need for aggressive

market power monitoring

and mitigation.

Challenge 1

In the transition to competitive markets,

incumbents hold the cards.

• Market power• Infrastructure

• Customer base

• Political power

• Resources : market experience + litigation

skills

Challenge 2

Mitigation of market power can take

several forms.

Structural

Regulatory

Market rules

Challenge 3

Past regulatory lapses and policy

flaws erode confidence on

regulator.

Challenge 4

Regulators lack resources to

govern effectively.

Independence

Funds

Skills and experience