1 Independent Regulatory Agencies, implementation strategies and ...

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1st International Conference on Public Policy -‐ ICPP ..... d) access to the European emergency call number 112 and to other national emergency ..... In the Italian case, the regulatory gridlock caused by Vodafone's judicial actions against.
Independent  Regulatory  Agencies,  implementation  strategies  and  credible  commitment.   A  comparative  research  on  Universal  Service  policies  in  Italy  and  the  UK     Maria  Stella  Righettini  ([email protected])   Giorgia  Nesti  ([email protected])     Department  of  politics,  Law  and  International  Studies   University  of  Padova                           1st  International  Conference  on  Public  Policy    -­‐  ICPP   Grenoble,  June  26-­‐28  2013     Panel  ‘Institutional  analysis  and  public  policy:  towards  a  new  research  agenda’   Session  2:  Actors,  interactions,  and  institutional  context       Working  paper  –  please  do  not  cite  without  authors’  permission    

 

 

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Introduction   In  this  paper  we  contribute  to  the  debate  on  institutional  analysis  and  policy  implementation   studies   by   considering   the   expansion   of   regulatory   policies   through   the   use   of   Independent   Regulatory  Agencies  (IRAs).     The  deep  changes  in  public  utilities  markets  in  the  last  decades  and  the  privatization  of  public   monopolies  have  produced  a  modification  in  the  way  states  adopt  and  implement  regulatory   policies.  IRAs  have  become  important  actors  for  the  intervention  in  this  economic  sector  and   have  changed  the  structure  and  the  functioning  of  the  Regulatory  State  (Majone,  1994,  1997;   Gilardi,   2007).   Many   scholars   have   stressed   specific   structural   aspects   of   regulatory   institutions,  outlining  the  causal  relation  existing  between  structural  variables  (independence   and  delegation)  and  policy  outcomes  (Gilardi,  2007).  The  central  point  of  the  neo-­‐institutional   approach   is   that   delegation   and   independence   given   to   regulatory   institutions   make   them   fundamental  agents  of  the  regulatory  performances  of  the  delegating  principals.  Nevertheless,   some  scholars  have  pointed  out  how  IRAs  can  be  considered  a  case  of  “similar  device  adopted   for  different  motives”  (Lodge,  2008)  reaching  different  results.   Starting   from   this   consideration,   we   would   argue   that   IRAs’   institutional   work   can   differ   significantly   in   the   manner   it   is   performed,   the   time   it   requires,   and   the   results   it   achieves,   and   that   regulatory   policies   can   include   different   types   of   mechanisms   and   relationships   between   regulators   and   regulated   subjects.   We   will   therefore   look   at   the   way   regulation   is   implemented   by   IRAs   and   the   way   implementation   mechanisms   influence   their   credible   commitment,  that  is  to  say,  their  problem-­‐solving  capacity.     Our   comparative   empirical   research   examines   how   the   British   and   Italian   independent   regulators   for   the   telecommunications   sector   (Ofcom   and   Agcom)   have   become   crucial   actors   in   the   implementation   of   Universal   Service   Obligation   (USO)   and   to   what   extent   their   participation  to  the  regulatory  implementation  process  make  a  difference  in  their  regulatory   commitment   and   credibility.   The   two   countries   have   different   economic   and   technological   contexts:  the  UK  has  a  developed  market  both  with  respect  to  fixed  and  mobile  telephony  and   access   markets   (i.e.   network   properties)   while   Italy   is   still   characterized   by   monopolistic   markets   both   in   fixed   telephony   and   in   the   network   property.   Italy   also   has   a   technological   scenario   that   is   very   different   from   the   British   one:   Italy   has   a   more   traditional   access   market   based   on   analogical   systems   while   UK   has   developed   the   so-­‐called   ‘Next   Generation   Network’  

 

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(NGN)1.   With   reference   to   users,   UK   has   a   higher   internet-­‐penetration   than   Italy   has.   The   development  of  mobile  telephony  has  changed  market  and  users’  dynamics  but  it  has  not  yet   filled  the  telecommunication  access  gap  between  the  two  counties  (Agcom,  2012).   We  will  consider  all  these  differences  as  a  scenario  (ceteris  paribus)  for  our  unit  of  analysis:   the   structure   of   the   policy   problem   and   the   implementation   processes   characterised   by   a   chain  of  actions  and  reactions  between  policy  actors  (Dossi,  Dente,  Radaelli,  2012).   We   will   focus   on   the   USO   policy   implemented   by   the   British   and   the   Italian   IRAs   to   guarantee   consumer   inclusion   and   benefits   from   privatisation   of   communications   operators   and   from   market   liberalisation   (Domah   and   Pollit,   2001).   With   the   implementation   of   USO   policies   new   regulatory  tasks,  standards  and  practices  have  been  introduced  and  the  role  and  the  scope  of   regulation   of   communications   markets   have   changed.   This   paper   seeks   to   review   the   regulatory   actions   of   the   two   IRAs   and   to   analyse   the   interactions   between   regulators   and   regulated  businesses,  to  focus  on  the  relational  mechanisms  linking  policy  actors  in  order  to   regulate  social  inclusion.  The  main  research  question  is:  how  and  to  what  extent  do  the  tools   and  policy  implementation  mechanisms  adopted  by  the  two  IRAs  influence  their  credibility  as   problem  solver  agencies  and  their  “output  legitimacy”  (Sharpf,  1999:  19)?     The   paper   proceeds   as   follows.   Part   1   reviews   the   neo-­‐institutional   literature   on   independent   regulation.   Part   2   discusses   the   conceptual   framework   and   main   research   questions,   independent   and   dependent   variables   and   hypotheses.   Part   3   and   4   describe   the   implementation  processes  in  the  two  countries  and  discuss  main  research  findings.     1.  New  institutionalism  and  Independent  Regulation     The  existing  literature  on  regulation  considers  three  principal  approaches  for  the  analysis  of   causes   and   characteristics   of   regulatory   policies:   the   public   interest   theory,   the   economic   theory  and  neo-­‐institutionalism.  For  the  first  approach,  a  regulatory  activity  emerges  in  order   to  correct  market  failures.  In  contexts  in  which  competitive  markets  do  not  lead  to  an  equal-­‐ optimal  allocation  of  resources2,  in  fact,  regulation  is  supposed  to  correct  these  failures:  lack   of   competition,   emergence   of   negative   externalities,   information   asymmetries,   the   need   to   provide   public   goods   that   would   otherwise   be   lacking.   Regulatory   agencies,   in   this   1  

According   to   ITU   ‘A   Next   Generation   Network   (NGN)   is   a   packet-­‐based   network   able   to   provide   services   including   Telecommunication   Services   and   able   to   make   use   of   multiple   broadband,   QoS-­‐enabled   transport   technologies   and   in   which   service-­‐related   functions   are   independent   from   underlying   transport-­‐related   technologies.   It   offers   unrestricted   access   by   users   to   different   service   providers.   It   supports   generalized   mobility   which   will   allow   consistent   and   ubiquitous   provision   of   services   to   users.’   For   more   details   see:   http://www.itu.int/ITU-­‐T/studygroups/com13/ngn2004/working_definition.html   2   That   is   to   say,   in   those   situations   in   which   no   single   position   can   be   improved   without   at   the   same   time   worsening  that  of  another  party.    

 

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perspective,  operate  as  ‘benevolent  agents  for  the  public  interest’  (Baldwin,  Cave  and  Lodge   2012:  41),  or  impartial  experts  acting  to  protect  the  collective  public  interest.  3   The  economic  theory  of  regulation,  on  the  other  hand,  assumes  that  the  regulatory  activity  is   influenced  by  interest  groups.  Authors  like  George  Stigler  (1971)  and  Samuel  Peltzman  (1976,   1989),   in   particular,   hypothesize   that   regulators   serves   the   interests   of   the   regulated   enterprises.  In  this  situation,  the  regulator  is  seen  as  being  "captured"  by  firms  and  induced  to   implement  policies  aimed  at  benefiting  them.  Thus  IRAs’  main  activities  are  seen,  under  this   approach,   as   primarily   seeking   to   create   barriers   to   new   market   entrants,   to   distribute   subsidies,  to  control  prices,  to  discourage  consumers  from  the  use  of  substitute  products.   The   neo-­‐institutional   approach   has   been   increasingly   adopted   over   the   last   twenty   years   within   the   social   sciences,   and   has   recently   found   a   number   of   interesting   applications   also   in   the   field   of   independent   regulation.   In   this   context,   neo-­‐institutionalism   has   focused   its   research  interest  on  the  emergence  of  IRAs.  It  is  possible,  in  fact,  to  distinguish  at  least  two   lines   of   inquiry   within   the   neo-­‐institutional   approach   to   independent   regulation:   1)   those   studies  which  investigate  the  causes  leading  to  the  creation  and  diffusion  of  IRAs  throughout   the   world;   2)   studies   which   examine   the   nature   of   the   relation   existing   between   political   actors   and   IRAs,   in   order   to   verify   whether   to   and   to   what   extent   the   former   are   able   to   control   the   latter,   seeking   moreover   to   ensure   that   the   principles   of   legitimacy   and   democratic  accountability  are  respected.  Both  of  these  approaches  interpret  IRAs  as  subjects   entitled   of   powers   by   government   bodies.   The   relationship   between   the   two   parts   involves   therefore  the  delegation  of  regulatory  powers  by  a  principal  (the  political  actor,  in  this  case)   to   an   agent   (the   IRA),   which   must   exercise   it   according   to   the   mandate   received.   The   political   actors’  choice  to  entrust  regulatory  powers  to  an  independent  third  party  derives,  prima  facie,   from   the   necessity   to   improve   rule-­‐making   processes   in   particularly   technical   and   complex   contexts  often  requiring  specific  expertise.     A   more   rigorous   conceptualization   of   the   causes   at   the   basis   of   the   delegation   of   regulatory   powers   to   independent   institutions,   however,   was   made   by   Giandomenico   Majone,   (1994,   1996a,  1996b;  La  Spina  e  Majone,  2000).  According  to  the  author,  in  fact,  this  process  has  its   origins   in   the   need   for   creating   regulatory   policies   that   are   stable   over   time   and   insulated   from  the  electoral  cycles.    Policy  sectors  requiring  long-­‐term  investments,  in  fact,  need  clear   regulations,   which   political   actors   cannot   guarantee   due   to   the   limited   time   frames   within   which  they  operate.  Such  regulatory  delegation  is  therefore  necessary  to  confer  credibility  to  

3  See  Veljanoski  (2010)  and  Baldwin,  Cave  and  Lodge  (2012).  

 

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policies.   The   credible   commitment   thesis   has   given   rise   to   the   most   recent   empirical   analyses   deriving   from   the   neo-­‐institutional   approach.   Gilardi's   comparative   research   (2002,   2005,   2009),  for  instance,  has  evidenced  how  politicians  seek,  through  the  delegation  of  regulatory   powers   to   IRAs,   to   tie   subsequent   policy   makers   to   previous   decisions.   The   exponential   diffusion   of   IRAs   throughout   the   world   since   the   1990's,   would   then   be,   according   to   this   theory,  the  result  of  isomorphic  processes  through  which  national  governments  adopt  similar   institutional  solutions,  in  order  to  resolve  similar  problems.   Delegation   of   powers   raises,   nevertheless,   several   problems:   To   what   extent   principals   (i.e.   political   actors)   are   able   to   control   their   agents   (IRAs)?   How   can   we   ensure   that   the   independence   conferred   upon   the   agencies   does   not   lead   them   to   deviate   from   their   principals’  mandate  (a  phenomenon  often  referred  to  as  ‘bureaucratic  drift’)  and/or  that  IRAs’   interests   do   not   conflict   with   those   of   the   political   actors   (a   phenomenon   also   known   as   ‘moral   hazard’)?   Several   studies   have   sought   to   define   and   to   measure   the   level   of   both   the   formal   (or   ‘de   jure’)   and   the   real   (or   ‘de   facto’)   independence   of   IRAs   in   different   policy   sectors  and  countries  (Gilardi,  2009;  Gilardi-­‐Maggetti,  2011;  Maggetti  2012).  Other  scholars,   particularly  from  the  United  States,  have  instead  focused  on  control  mechanisms  adopted  by   politicians   to   prevent   drifting   (for   a   review   of   literature   on   this   topic   see   Carrigan   and   Coglianese,  2011).   The  last  fundamental  aspect  analysed  by  neo-­‐institutionalism  pertains  the  inevitable  tension   originating   between   the   need   to   render   IRAs   as   autonomous   as   possible   in   order   to   allow   them  to  perform  the  assigned  tasks  efficiently,  and  the  need  to  ensure  that  these  institutions   are   linked   to   the   will   of   the   people   -­‐   of   which,   politicians,   in   turn,   are   the   expression.   Accountability   studies   aimed   at   analysing   the   various   control   mechanisms   adopted   to   guarantee  IRAs’  legitimacy  seek  to  shed  light  upon  this  issue  (Scott,  2000;  May,  2010).     The   Neo-­‐Institutional   theory   is   one   of   the   most   promising   approaches   in   the   study   of   independent  regulation.  In  particular,  the  research  on  causes  and  dynamics  of  IRAs’  diffusion   has  demonstrated  the  importance  of  the  circulation  of  ideas  between  states  and  of  isomorphic   mechanisms.   At   the   same   time,   in-­‐depth   analyses   of   the   principal-­‐agent   relationship   have   better   portrayed   how   de   jure   and/or   de   facto   structural   characteristics   influence   IRAs’   independence.   Nevertheless,   the   study   of   the   delegation   of   regulatory   powers   from   central   governments   to   IRAs   has   prevalently   looked   at   institutional   and   structural   aspects   of   agencies,   while   limited   empirical   research   has   been   conducted   on   regulatory   policy-­‐making  

 

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processes4.   The   creation   of   a   new   actor   like   IRAs   within   a   policy   sector,   transforms   the   balances   between   the   already   existing   actors,   both   public   and   private,   and   influences   the   relationships   between   them   in   the   policy   process.   The   goal   of   this   paper   is,   therefore,   to   analyse  the  impact  of  IRAs  on  policy-­‐making  and  to  analyse  how  implementation  mechanisms   influence   their   problem   solving   capacity.   To   do   so,   we   will   focus   our   attention   on   the   regulation   of   USO   in   telecommunications,   a   sector   where   IRAs   are   by   now   a   consolidated   actor  of  policy-­‐making.       2.  Conceptual  framework,  research  hypothesis  and  case  studies   The   regulatory   powers   delegated   to   IRAs   have   reshaped   relations   at   a   constitutional   level,   between  the  executives  and  the  other  major  constitutional  players,  judiciary  and  parliaments   (Righettini,  2001;  Radaelli,  2012,  180),  and  between  public  and  private  actors  in  the  market.   These  changes  have  modified  the  design  of  the  regulatory  governance,  the  functioning  of  the   regulatory  process,  the  way  policy  actors  are  involved  into  regulation  and  the  repertories  of   actions  and  behaviours  they  adopted  in  order  to  achieve  their  goals.     Neo-­‐institutionalism   points   that   IRAs   have   been   created   to   solve   problems   of   political   uncertainty   and   time-­‐inconsistency   that   may   lead   to   a   lack   of   credibility   of   policy   makers   (Gilardi,   2006).   By   “delegating   authority,   policy   makers   bind   themselves   and   therefore   increase   the   credibility   of   policy   commitment”.   IRAs   are   meant   to   be   more   competent   and   flexible   in   order   to   better   confront   time   inconsistency   problems   and   to   guarantee   a   policy   credible  commitment  intended  as  a  problem  solving  orientation  (Gilardi  2006:  128,129).     This  paper  is  meant  to  be  an  empirical  contribution  to  the  understanding  of  the  complexity  of   IRAs’   functioning   and   of   the   influence   that   implementation   process   exerts   on   IRAs’   credible   commitment.  The  theory  of  delegation  indicates  that  the  problem  of  time  inconsistency  and  of   credible   commitment   is   shifted   from   political   institutions   to   IRAs.   Nevertheless   the   mechanism   of   delegation   does   not   automatically   improve   the   credibility   of   policy-­‐making   and   IRAs’  problem-­‐solving  capacities.     Credibility   is   an   important   asset   in   the   regulation   of   utilities   that   are   characterised   by   high   investments   and   significant   dangers   of   bias   in   the   regulatory   policy-­‐making   (Levy   and   Spiller,   1994).   Credibility   is   related   to   the   ability   to   solve   problems,   to   find   agreements   on   policy   change  and  to  work  within  the  context  of  interdependence  of  actors  in  the  policy  process.     The   methods   adopted   to   select   and   to   implement   policies   (not   just   to   make   rules)   make   a  

4  For  an  exception  see  Maggetti  (2012)  and  Thatcher  (2001;  2002;  2004).  

 

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difference  in  the  problem-­‐solving  orientation  (Sharpf,  2006).  For  this  purpose  we  will  analyse   the   implementation   of   regulatory   policies   in   the   telecoms   sector,   particularly   in   USO   regulatory   policies,   looking   at   the   ways   IRAs   work   in   order   to   guarantee   that   national   providers  improve  access  and  social  inclusion  in  communications  for  final  users.   IRAs  are  intended  and  analysed  as  unitary  core  actors  of  the  USO  policy  with  legal,  technical   and  economic  resources,  interacting  with  other  participants  in  the  implementation  process.     The  USO  policy  is  complementary  to  privatization  policies,  which  spread  throughout  Europe   during  the  1980s,  affecting  the  production  and  the  delivery  of  public  services   essential  for  the   everyday   life   (gas,   electricity,   water   and   communications).   USOs   have   to   do   with   the   transformation  of  public  monopolies  into  more  competitive  markets  and  with  the  grouping  of   private   or   privatised   utilities   under   a   single   regulator   (the   IRA).   USO   is   actually   a   type   of   regulation  oriented  to  produce  general  benefits  in  a  particular  sector  of  economic  activities.   IRAs,  in  order  to  ensure  that  individuals  cannot  be  excluded  from  accessing  and  using  public   utilities,  adopt  specific  policies  to  guarantee  a  universal  access  to  these  services,  that  is  to  say,   to  guarantee  social  inclusion  to  territorially,  socially  and  physically  disadvantaged  groups  and   individuals.     The   conceptual   framework   for   the   comparative   analysis   of   the   Italian   and   British   cases   departs   from   the   idea   that   the   implementation   of   USO   goals   tell   us   much   about   how   institutions  work,  how  actions  and  behaviours  of  regulators  and  regulated  firms  change,  and   how   relationships   between   them   contribute   to   fulfil   the   regulatory   goals.   Implementation   determines   the   “circumstances   under   which   regulation   is   achieved,   design   of   regulatory   programs   are   influenced   and   regulators   are   captured”   (Wilson,   1960).   The   metaphor   of   the   ‘regulatory  capture’  is  an  alternative  way  of  looking  at  IRAs’  independence  not  from  politics   but  from  regulated  interests  (Bernstein,  1995).  We  are  not  so  concerned  with  the  normative   theory  of  the  regulatory  capture  but  rather  in  the  ways  independent  regulators  interpret  their   delegation   and   credible   commitments   to   policy   goals.     We   are   interested   in   how   regulators   and   regulated   interests   influence   each   other   by   modifying   the   policy   process   in   order   to   achieve  (or  not)  given  policy  objectives.     As  has  been  pointed  out  in  previous  studies  (Matland,  1995),  implementation  can  be  analysed   from   a   normative   point   of   view   (top-­‐down   approach)   or   from   an   empirical   and   functional   perspective  (bottom  up).  The  first  approach  sees  “policy  designers  as  the  central  actors  of  the   implementation   and   focuses   attention   on   factors   that   can   be   manipulated   at   the   central   level”   by   central   institutions,   such   as   IRAs   (Van   Meter,   D.   S   and   Van   Horn,   1975).   The   bottom   up   approach   (Lipsky,   1980)   emphasises   the   street   level   implementation,   the   target   groups   and    

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service   deliverers,   arguing   that   a   policy   is   really   made   by   the   reactions   to   central   decisions   at   the  lower  levels  and  by  interactions  between  regulators  and  regulated  interests.  In  the  field  of   regulatory   policy   this   means   to   put   regulated   interests,   final   users,   other   potential   institutional  actors  (such  as  the  judiciary)  and  their  interactions  at  the  centre  of  the  analysis.   Even   the   definition   of   what   a   successful   implementation   is   differs   greatly:   for   the   top-­‐down   approach   ‘success’   is   measured   in   terms   of   steering   powers   and   specific   outcomes   tied   to   program  goals.  For  bottom-­‐up  theorists  only  a  “program  leading  to  positive  effects”  (Wright,   1984),   in   terms   of   problem-­‐solving   solutions,   can   be   considered   a   success.   The   attempt   to   reconcile   the   idea   of   policy   steering   by   central   institutions   and   street   level   transformation   comes   from   implementation   studies   focusing   on   the   interactions   of   a   multitude   of   actors   with   separate  interests  and  strategies  (Sharpf,  1978).  One  aspect  of  this  institutional  approach  is  of   particular  interest.  The  idea  that  policy-­‐making  is  characterized  by  a  polycentric  configuration   that  includes  a  variety  of  subjects  that  are  all  interdependent  within  the  policy-­‐making.  This   approach   includes   in   its   analysis   several   types   of   actors   that   are   often   forgotten:   for   example,   the   judiciary,   including   specialised   administrative   courts,   often   neglected   despite   the   fact   that   they   play   a   crucial   role   in   shaping   policy   problems,   the   constellation   of   actors,   and   pay   offs   in   the  policy  process  (Sharpf,  2006).  In  this  perspective,   IRAs’  credible  commitment  as  problem-­‐ solving   orientation   results   from   the   overall   interactions   developed   in   the   policy   arena   and   from   strategies   of   IRAs’   blame   avoidance   in   a   context   characterised   by   high   interdependence.   The   theory   of   the   Regulatory   State   and   of   the   delegation   of   regulatory   powers   to   IRAs   falls   into  judicial  removal,  increasing  the  difficulties  in  explaining  regulatory  changes  and  agencies’   problem-­‐solving  orientation.   Up  to  the  present,  the  question  of  success  has  been  addressed  by  studies  that  dealt  with  the   issue  in  a  mainly  negative  way,  such  as  the  “problem  of  translating  policy  into  action”  (Barret,   2004,   251),   or   the     “implementation   gap”   (Pressman   and   Wildavsky,   1973)   or   “bridging   the   gap”.   The   empirical   approach   to   the   analysis   of   regulatory   success   as   the   capacity   for   problem-­‐solving  is  the  principal  task.   In   the   neo   institutional   theory   IRAs   are   the   principle   instrument   used   at   the   national   level   for   USO  policy  implementation  and  the  ways  IRAs  implement  USO  goals  should  be  measured  in   terms  of  their  success  in  compelling  business  to  serve  specific  objectives.     For   that   reason,   in   regulatory   studies   conflict   has   a   central   role   in   differentiating   policy   implementation   processes.   According   to   the   classic   typology   of   public   policy   and   policy   sectors  (Lowi;  1972,  Wilson;  1980),  regulatory  policies  involve  a  particular  type  of  rules  and   instruments   that   share   common   characteristics:   they   are   basically   affected   by   the   direct    

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coercion   of   individual   behaviour.   Coercion   involves   compliance   and   enforcement   costs   by   coerced  individuals  and  groups  that  commit  themselves  to  limit  and  reduce  their  freedom  to   obtain  some  type  of  particular  collective  benefit.   We   are   interested   in   analysing   how   the   USO   policy   implementation   process   affects   IRA’s   credible   commitment   in   two   different   countries   –   Italy   and   the   UK   –   and   how   relational   mechanisms  of  blame  avoidance  trigger  policy  changes.  We  address  the  question  of  how  the   implementation   process,   and   specifically   certain   elements,   such   as   he   intensity   of   conflict,   veto  players,  and  mechanisms  of  regulatory  blame  avoidance,  influences  IRA  problem  solving-­‐ orientation,  and  their  credible  commitment  to  USO  goals.     We   will   focus   on   the   day-­‐by-­‐day   regulation   in   the   Italian   and   British   cases   to   provide   a   realistic   understanding   of   the   problems   and   opportunities   deriving   from   the   interaction   between   IRAs   and   other   institutional   actors   (judiciary   and   other   IRAs)   on   one   side,   and   of   the   opportunities   and   constraints   deriving   from   the   relationships   between   IRA   and   regulated   interests  on  the  other.     Our  analysis  is  based  on  the  concept  of   regulatory  mechanisms  in  order  to  understand  what   links  policy  actors  to  each  other:  regulatory  procedure,  policy  tools  and  causal  mechanisms.   At  the  micro  level  of  the  institutional  setting  we  will  analyse  ‘situational  mechanisms’,  that  is   to   say,   mechanisms   that   explain   individual   action   and   behavioural   choices   along   the   policy   process.   From   this   perspective   we   focus   on   actor   resources   and   strategies   from   a   rationalistic   perspective:   cost-­‐benefits   concentration   and   diffusion.   Then   we   will   use   the   micro-­‐macro   level  analysis  to  seek  to  understand  changes  in  the  policy  arena:  the  politics  of  USO  regulation   (Panebianco,  2009;  Vecchi,  2011).     We  use  the  notion  of  ‘relational  mechanisms’  as  “entities  and  activities  engaged  in,  either  by   themselves   or   in   concert   with   others   that   bring   about   change”   (Hedstrom   and   Swedberg,   1998:  9-­‐10),  strengthening  the  relationships  between  policy  actors  and  policy  resources  and   also   underscoring   the   problems   of   how   (i.e.   through   what   processes)   relationships   are   created.     Our   main   hypothesis   is   that   the   more   IRAs   adopt   a   confrontational   regulatory   process,   characterized   by   high   concentration   of   costs   and   benefits,  the  more  veto   players   compromise   the  IRAs’  problem  solving  capacity.  Veto  players  generate  specific  and  diffuse  negative  biases   on  IRAs’  problem  solving  capacity,  which  could  even  suggest  the  opportunity  to  reform  or  to   abolish  the  independent  agency.     IRAs’   blame   avoidance   strategies   to   gain   or   regain   credibility   can   be   of   three   types   (Hood,   2011):   presentational   strategy,   agency   strategy   and   policy   strategy.   The   first   is   based   on    

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secrecy  and  on  the  cover-­‐up  of  negative  effects  of  regulation;  the  second  is  based  on  shifting   the   responsibility   of   any   failure   to   other   actors;   the   third   is   based   on   the   bureaucratisation   of   procedure  and  of  technical  ability  to  justify  and  legitimise  bad  choices.  With  regard  to  this  last   point,   regulation   is   characterised   by   time-­‐consuming   activities   principally   oriented   toward   bureaucratizing  regulation  and  toward  solving  conflicts  between  policy  actors  rather  than  on   creating  social  benefits.   In   analysing   the   implementation   processes   and   the   regulatory   mechanisms   related   to   USO   policies   we   look   at   IRAs’   working   rules   (Ostrom,   2005).   What   links   formal   rules   to   effective   behaviours?   How   do   the   IRAs’   decisions   affect   expectations   and   reactions   by   using   certain   regulatory   instruments/rules   as   opposed   to   others?   We   can   consider   four   main   clusters   of   working   rules   that   should   allow   us   to   detect   relational   mechanisms   in   the   USO   policy,   affecting  the  credible  commitment  of  IRAs  and  their  problem  solving  orientation:   1. Attribution   or   definition:   to   whom   regulation   is   applied,   who   indentifies   who     participates   in   the   implementation   process   (boundary   rules).   This   allows   us   to   understand   to   what   extent   IRAs   contribute   to   structuring   USO   policies   and   which   other  actors  are  involved.     2. The   choice   rules:     relate   to   the   content   of   regulation   in   terms   of   “permission”;   “oblige”   or   “forbidden”.   In   the   case   of   Universal   Service   ‘Obligations’,   how   is   the   obligation   between   regulators   and   regulated   business   interpreted   and   bargained   and  which  regulatory  tools  are  utilised  to  do  so?   3. The  amount  and  frequency  of  prescriptions  for  the  action  of  the  provider,  in  terms   of   technical   standards   or   informative   burdens   requested   by   the   regulator   to   the   USO   provider   and   the   information   necessary   to   decide   on   costs,   financing   and   reimbursement  of  the  USO  (level  of  bureaucratization).   4. Enforcement   rules,   or   institutionally   assigned   competences   and   consequences   in   the   case   of   failure.   Enforcement   rules   and   sanction   structures   are   meant   as   legal   resources   for   policy   actors.   Is   the   violation   of   rules   convenient   in   the   policy   process?   Each   State   endows   upon   certain   Universal   Service   Providers   (USPs)   special   status   that   allows   the   national   regulator   to   obtain  subsidies   from   the   Universal   Service   Fund   (USF)   to   provide   the  necessary  service  more  economically.  Service  providers  also  must  assure  the  independent   regulators  that  what  they  are  supplying  meets  national  specific  needs  and  expectations.  The   USO   policy   in   the   UK   and   Italy   have   some   common   general   features:   Regulatory   agencies,   Ofcom   and   Agcom,   act   in   a   context   characterized   by   a   defined,   fairly   low   number   of    

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participants   (policy   actors);   Interactions   between   policy   actors   are   influenced   by   boundary   rules   (entry   and   exit   rules),   that   is   to   say   criteria   used   to   determine   whether   a   telecoms   provider   is   eligible   to   fill   the   particular   position   of   USP;   And,   finally,   national   independent   regulators  are  the  most  important  instruments  of  the  European  USO  policy,  which  defines  a   number   of   general   policy   objectives   and   general   constraints   for   national   regulators.   Despite   these  general  features,  national  regulators  greatly  differ  in  the  way  they  implement  common   policy  goals  and  chose  to  achieve  the  credibility  of  regulatory  commitment.     3.  Defining  and  regulating  Universal  Service  Obligations  in  the  UK  and  Italy   3.1  Supranational  constraints     The   concept   of   Universal   Service   can   be   applied   to   many   different   types   of   services.   In   the   case  of  telecommunications,  it  generally  relates  to  the  need  to  deliver  the  service  to  everyone,   under   identical   conditions   and   at   an   affordable   price.   The   rationales   underlying   the   provision   of   Universal   services   (generally   labelled   as   Universal   Service   Obligation   –   USO)   are   economical,   social   and   political.   The   first   argument   relates   to   the   fact   that   if   an   additional   customer   joins   a   telecommunications   network,   existing   members   benefit   because   they   can   contact   the   new   user   and   they   can   receive   calls   from   that   individual.   From   an   economic   perspective,   USO   can   also   help   to   boost   productivity   and   economic   growth,   to   promote   regional  and  rural  development,  and  to  improve  working  condition  and  public  administration   efficiency   (OECD   2003;   Calvo,   2012).   The   sociological   rationale   refers   to   the   need   for   everyone   to   have   access   and   to   be   connected   to   telecommunications   networks   in   order   to   avoid  exclusion  and  to  fully  participate  in  society,  for  instance  by  communicating  with  others   and  by  accessing  public  and/or  emergency  services.  For  this  reason,  USO  is  usually  targeted  to   low   incomes   groups,   people   living   in   remote   rural   areas,   and   to   the   disabled   and   other   vulnerable  groups.  The  political  rationale  pertains  the  ‘governance’  of  USO.  Due  to  the  public   concerns  it  entails,  it  is  generally  perceived  that  the  definition  of  the  scope  and  the  extent  of   USO   for   telecommunications   should   fall   under   the   political   domain   and   should   be   decided   upon  by  elected  institutions.     Historically   in   Europe,   the   USO   was   provided   by   state-­‐owned   monopolies   since   they   were   characterized   by   substantial   economies   of   scale   and   scope.   Often,   these   services   included   uniform   rating   and   entry   restrictions   (OECD,   2006).   When   the   liberalization   of   telecommunications   spread   across   the   world   in   the   1990s,   in   some   countries,   such   as   the   UK,  

 

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the   already   existing   USO   regime5   was   slightly   modified   and   adjusted   to   better   fit   the   new   economic  environment.  In  other  countries,  such  as  Italy,  the  provision  of  Universal  service  in   telecommunications   was   introduced   later,   reflecting   the   delay   of   the   privatization   and   the   liberalization  process.   The   imposition   of   a   USO   that   generally   obliges   the   designated   firm   to   provide   loss-­‐making   services,   could   conceivably   generate   anti-­‐competitive   behaviour,   since   any   new   market   entrants  would  be  allowed  to  take  only  profitable  customers.  For  this  reason,  since  the  early   1990s   the   European   Commission   has   introduced   a   number   of   USO   requirements   within   its   regulatory   framework   for   telecom   liberalization6.   The   Open   Network   Provision   (ONP)   Directive,  published  in  1995  and  amended  in  1998,  defines   Universal  service  as  the  right  to   connect   both   to   fixed   public   telephone   networks   on   a   fixed   location   and   to   fixed   public   telephone  services7.  The  Directive  also  establishes  that  EU  Member  States  should  designate  at   least   one   operator   to   deliver   Universal   Service   and   should   create   arrangements   in   order   to   finance   the   Universal   Service   provision.   The   1999   reform   of   the   EU   telecom   regulation   updated   the   notion   of   Universal   service   through   the   so-­‐called   ‘Framework   Directive’   2002/21/EC8,  which  defines  Universal  service  as  ‘a  minimum  set  of  services  of  specified  quality   which   is   available   to   all   users   regardless   of   their   geographical   location,   and   in   the   light   of   specific  national  conditions,  at  an  affordable  price’  (Art.  2).  The  notion  of  Universal  service  is   further  detailed  in  Directive  2002/22/EC  (Universal  Service   Directive),  amended  by  Directive  

5  A  not  yet  legally  formalized  concept  of  Universal  Service  originated  in  United  Kingdom  in  1837,  leading  to  the   creation   of   a   General   Post   Office   (GPO)   service   monopoly.   The   GPO   became   in   1912   the   monopoly   supplier   of   all   telephone   services   in   the   UK   (except   for   a   few   local   authorities).   In   1969   the   GPO   ceased   to   be   a   government   department   and   was   converted   to   a   Public   Corporation   (Post   Office   Act)   and   split   into   two   divisions:   Post   and   Telecommunications.   The   division   of   Telecommunications   was   renamed   in   1980   as   British   Telecom   and   in   1981   separated   from   the   Post   Office.   BT   was   empowered   to   license   other   operators   to   run   telecommunications   systems  on  the  basis  of  apposite  standards  approved  by  the  Secretary  of  State.   6   The   1992   ONP   lease-­‐lines   directive   (Council   Directive   92/44/EEC   of   5   June   1992   on   the   application   of   open   network   provision   to   leased   lines)   introduces   some   elements   related   to   the   Universal   Service   stating   the   principle  that  leased  lines  should  be  available  to  everyone  under  transparent  conditions  and  at  a  regulated  price.   The   1994   Council   Resolution   94/C48/01   ‘On   Universal   Service   principles   in   the   telecommunications   sector’   further   specifies   what   Universal   Service   is   made   of   some   basic   elements,   such   as   price   and   quality   of   service,   provision   of   information,   settlement   of   disputes,   access   to   directory   information,   public   telephone   facilities,   emergency  numbers  and  facilities  for  the  disabled.   7   Directive   95/62/EC   of   the   European   Parliament   and   of   the   Council   of   13   December   1995   on   the   application   of   open  network  provision  (ONP)  to  voice  telephony,  OJ  1995  L  321/6-­‐24  (30.12.1995)  and  Directive  98/10/EC  of   the  European  Parliament  and  of  the  Council  of  26  February  1998  on  the  application  of  open  network  provision   (ONP)  to  voice  telephony  and  on  Universal  Service  for  telecommunications  in  a  competitive  environment  (incl.   Annex  I-­‐V),  OJ  1998  L  101/24-­‐47  (01.04.1998)   8  Directive  2002/21/EC  of  the  European  Parliament  and  the  Council  of  7  March  2002  on  a  common  regulatory   framework  for  electronic  communications  networks  and  services.    

 

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2009/136/EC  (Citizen  Directive)9,  which  states  that  minimum  services  for  users  is  to  consist   of     a)   a   connection   to   public   communications   networks   at   a   fixed   location   and   at   an   affordable   price.  The  requirement  is  for  the  provision  of  local,  national  and  international  telephone  calls,   facsimile   communications   and   data   services.   Data   connections   should   be   capable   of   supporting   data   communications   at   rates   sufficient   for   access   to   online   services   such   as   those   provided  via  the  public  internet;     b)  access  to  at  least  one  comprehensive  directory  and  at  least  one  comprehensive  telephone   directory  inquiry  service;     c)  public  pay  telephones  and  other  public  voice  telephony  access  points;     d)   access   to   the   European   emergency   call   number   112   and   to   other   national   emergency   numbers   free   of   charge   from   any   telephone,   including   public   payphones,   without   the   use   of   any  means  of  payment;     e)   suitable   measures   to   guarantee   access   to   and   affordability   of   all   publicly   available   telephone   services   at   a   fixed   location   for   disabled   users   and   for   users   with   special   social   needs.   In   addition   to   providing   a   definition   of   Universal   service,   the   Directive   also   outlines   the   general   conditions   under   which   EU   Member   States   are   called   upon   to   adopt   their   USO   schemes.  Article  8  states  that  “Member  States  shall  use  an  efficient,  objective,  transparent  and   non-­‐discriminatory   designation   mechanism   and   no   undertaking   shall   be   excluded   a   priori   from  being  designated  as  a  provider  of  USO  and  the  USO  must  be  provided  in  a  cost  effective   manner”.   The   designated   undertakings   should   also   guarantee   that   the   Universal   Service   respects   certain   quality   standards  

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and   affordable   rates   (particularly   for   low   income  

consumers).   Both   the   requirements   (affordability   and   quality   standards)   should   be   periodically   assessed   by   national   IRAs.   The   European   Directive   left   to   Member   States   the   discretion  to  decide  whether  USO  should  be  publically  financed  or  not.  In  fact,  since  ‘Ensuring   Universal   service   (…)   may   involve   the   provision   of   some   services   to   some   end-­‐users   at   prices   that   depart   from   those   resulting   from   normal   market   conditions’   (considerandum   4),   and   whenever   national   IRAs   find   that   an   undertaking   is   subject   to   an   unfair   burden,   Member   9   Directive   2009/136/EC   of   the   European   Parliament   and   of   the   Council   of   25   November   2009   amending   Directive   2002/22/EC   on   Universal   Service   and   users’   rights   relating   to   electronic   communications   networks   and  services,  Directive  2002/58/EC  concerning  the  processing  of  personal  data  and  the  protection  of  privacy  in   the   electronic   communications   sector   and   Regulation   (EC)   No   2006/2004   on   cooperation   between   national   authorities  responsible  for  the  enforcement  of  consumer  protection  laws.   10Quality-­‐of-­‐Service   Parameters,   Definitions   and   Measurement   Methods   are   detailed   in   the   Annex   III   to   the   Directive.  

 

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States  may  compensate  Universal  service  providers’  net  costs.  These  costs  are  identified  in  the   providers’   designation   mechanism   or   are   calculated   by   national   IRAs,   taking   into   account   any   market   benefit   obtained   by   the   provider   through   the   USO.   Providers,   for   their   part,   provide   IRAs   with   a   detailed   report   on   all   costs   incurred.   Member   States   may   finance   net   costs   through   public   funds   or   may   establish   a   mechanism   to   share   the   USO’s   net   cost   between   providers   of   electronic   communications   networks   and   services   (Art.   13.1).   This   sharing   mechanism   (usually   labelled   as   USO   Fund)   should   be   administered   by   IRAs   or   by   a   body   independent  from  both  the  beneficiaries  and  the  IRA  supervised  businesses  (At.  13.2).     3.2.  Attributes  of  regulation     The   EU   requirements   represent   general   constraints   to   the   domestic   definition   of   Universal   service   provisions.   The   UK   and   Italy   have   tailored   their   USO   schemes   to   conform   to   the   EU   framework   while   at   the   same   time   taking   into   account   the   features   of   their   own   national   contexts.   The   legal   notion   of   Universal   Service   was   introduced   in   the   United   Kingdom   in   1984,   when   British  Telecom  was  privatized  and  it  was  given  the  task  of  guaranteeing  that  basic  fixed  line   telecommunication  services  were  available  throughout  the  United  Kingdom  at  an  affordable   price.   BT   was   given   the   special   status   as   the   USP   at   that   time   and   detailed   obligations   were   listed   in   its   license.   The   most   recent   definition   of   Universal   service   conditions   is   set   out   in   the   Communications  Act  2003  and  is  further  detailed  in  the  Electronic  Communications  (Universal   Service)   Order   2003,   emended   by   the   Electronic   Communications   (Amendment)   Order   2011   -­‐   both   issued   by   the   Secretary   of   State,   that   updated   British   legislation   in   the   telecom   sector   according  to  the  2002  Universal  Service  Directive  and  the  2009  Citizens’  Directive11.     According   to   the   Order   of   the   Secretary   of   State,   the   designation   of   the   Universal   service   provider   is   an   IRA’s   duty.   Oftel   designated   BT   and   Kingston   as   USPs   (the   latter   only   for   the   Hull  area)  for  the  UK  in  its  2003  Statement12.  Ofcom  has  never  amended  this  designation.   In   Italy,   on   the   other   hand,   the   notion   of   Universal   Service   was   introduced   only   in   1997,   by   Decree   no.   318   transposing   the   European   telecommunications   Directives,   updated   in   2003   by   11   Art.   65   (2)   of   the   Communications   Act   states   that   Universal   Service   conditions   are:   electronic   communications  

networks   and   electronic   communications   services;   facilities   capable   of   being   made   available   as   part   of   or   in   connection   with   an   electronic   communications   service;   particular   methods   of   billing   for   electronic   communications  services  or  of  accepting  payment  for  them;  directories  capable  of  being  used  in  connection  with   the   use   of   an   electronic   communications   network   or   electronic   communications   service;   directory   enquiry   facilities  capable  of  being  used  for  purposes  connected  with  the  use  of  such  a  network  or  service.   12  Oftel,  Designation  of  BT  and  Kingston  as  Universal  Service  providers,  and  the  specific  Universal  Service  conditions.   A   statement   and   Notification   issued   by   the   Director   General   of   Telecommunications   on   the   implementation   of   the  Universal  Service  Directive,  22  July  2003  

 

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Decree   no.   259   and   then   again   in   2012   by   Decree   no.   70,   now   referred   to   as   the   Code   for   Electronic  Communications.  Art.  1  defines  the  Universal  service  as  ‘a  minimum  set  of  services   of   specified   quality   which   is   available   to   all   users,   regardless   of   their   geographical   location   and,   taking   account   of   national   conditions,   at   an   affordable   price’.   Article   3(4)   of   the   Code   designates  Telecom  Italia,  the  ex  national  incumbent,  as  the  USP.       3.3.  The  contents  of  obligation   The   UK   Communication   Act   of   2003   defines   the   regulatory   framework   for   USO.   It   lists   a   number   of   general   obligations   and   allocates   the   regulatory   competencies   between   the   government  and  the  independent  regulator.  The  Act  calls  the  Secretary  of  State  to  set  out  by   Order  the  extent  to  which  the  Universal  service  conditions  ‘must,  for  the  purpose  of  securing   compliance   with   Community   obligations   for   the   time   being   in   force,   be   provided,   made   available   or   supplied   throughout   the   United   Kingdom’   (art.   65,   2).   The   Secretary   of   State   should   consult   with   Ofcom   before   making   or   varying   the   Universal   service   order.   Ofcom   is,   moreover,   at   the   heart   of   the   regulatory   regime,   given   that   it   is   responsible   for   the   performance   of   several   duties.   It   may   set   all   the   appropriate   USO   conditions   for   securing   compliance  with  the  obligations  defined  in  the  Universal  service  order,  require  all  necessary   information  from  the  provided  by  the  USP  to  be  independently  audited  (also  by  a  third  party),   monitor   Universal   service   tariffs   and   it   may   calculate   and   review   the   extent   (if   any)   of   the   financial  burden  for  the  designated  USP  and  carry  out  independent  audits  of  costs  borne  by   the  provider.   In   Italy,   the   regulatory   framework   for   the   USO   is   detailed   by   a   governmental   law.   The   Communications  Code  of  2003  (Art.  53)  assigns  to  the  Ministry  the  duty  to  monitor  over  the   application   of   rules,   to   re-­‐examine   the   general   conditions   of   application   of  the   USO   every   two   years  and  to  finance  providers’  net  costs.  Universal  service  conditions  have  been  detailed  by   Agcom   through   nearly   10   deliberations   issued   between   2000   and   2011.   Agcom   is   also   responsible   for   designating   the   undertaking   charged   with   the   USO   (ex   Art.   61   of   the   Communications  Code).  Despite  this,  however,  Agcom  has  not  yet  named  a  new  provider  and   Telecom  Italia  still  fulfils  these  obligations.       3.4  Informative  burdens  and  other  rules   To  evaluate  net  costs,  Ofcom  assesses  estimated  costs  and  potential  benefits  for  carrying  the   USO.  Three  components  of  costs  have  been  identified:     •  

areas  of  the  United  Kingdom  which  give  rise  to  a  universal  service  cost,     15



customers  in  areas  that  are  otherwise  profitable  for  the  USP,  and    



public  payphones  which  give  rise  to  universal  service  costs.    

Possible  benefits  generated  are:  customer  life  cycles  (unprofitable  customers  later  becoming   profitable   customers),   ubiquity   (a   household   moving   from   an   uneconomic   area   to   an   economic   area   will   know   that   it   can   obtain   service   from   BT),   corporate   reputation   from   being   known  to  provide  uneconomic  services  and  call  box  benefits  (because  uneconomic  call  boxes   may  become  economic  over  time  and  because  even  uneconomic  call  boxes  provide  constant   logo  advertising  that  enhance  corporate  reputation).   Art.  71  of  the  2003  Communication  Act  states  that  in  the  event  Ofcom  considers  it  to  be  unfair   for   the   provider   to   bear   the   burden   of   USO,   this   burden   may   be   shared   by   other   operators.   The  assessment,  collection  and  distribution  of  contributions  from  other  providers  should  be   carried  out  in  an  objective  and  transparent  manner.  To  reimburse  the  USP,  the  Act  also  allows   for  the  creation  of  a  fund  (the  ‘sharing  mechanism’)  in  accordance  with  European  legislation   and   managed   by   Ofcom.   Art.   72   of   the   Act   establishes   that   Ofcom   must   report   every   twelve   months  with  regard  to  the  sharing  mechanism,  setting  out  costs  and  market  benefits  derived   from  the  USO  and  the  amount  of  contributions.  At  the  present  writing,  however,  the  fund  has   not  yet  been  created,  given  that  Oftel/Ofcom  have  always  considered  that  BT  has  not  incurred   any  excessive  burden  in  fulfilling  its  obligations.  In  1997,  for  instance,  Oftel  estimated  that  the   costs  of  Universal  service  provision  for  BT  were  approximately  £  45-­‐65m  while  the  indirect   benefits   to   BT   were   £   102-­‐151m   (OECD,   2003:   33).   In   2003-­‐2004   Ofcom   estimated   that   net   costs  were  £52-­‐74m  and  indirect  benefits  were  £59-­‐64m.   Concerning  the  quality  of  Universal  service,  Ofcom  has  not  yet  defined  any  standards.     In  Italy,  on  the  other  hand,  Agcom  has  the  duty  to  assess  the  equity  of  the  net  cost  reported  by   Telecom  Italia.  The  method  to  calculate  the  net  cost  is  outlined  in  Annex  11  of  the  Code,  which   defines   this   cost   as   the   'difference   between   the   net   cost   of   operations   of   a   designated   undertaking   subject   to   Universal   service   obligations   and   the   net   cost   of   operations   in   the   absence  of  such  obligations'.  Agcom  reviewed  the  method  of  calculation  in  2008  on  the  basis   of  avoidable  costs  and  missed  revenues  related  to:     •

potentially  unprofitable  areas  



unprofitable  public  telephone  (in  profitable  areas)  



favoured  customer  categories.  

The   overall   net   cost   is   the   sum   of   the   net   costs   of   the   various   elements   of   the   USO,   taking   into   account  all  intangible  benefits.  Undertakings  entrusted  with  the  provision  of  Universal  service   are  required  to  submit  to  the  agency,  no  later  than  31  March  of  each  year,  the  calculation  of    

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the   net   cost   for   the   previous   year.   Agcom   determines   whether   the   USP   is   entitled   to   a   reimbursement   and,   if   so,   Agcom   submit   the   provider’s   accounts   to   an   independent   auditor   (as  indicated  by  art.  62  of  the  Code).  In  accordance  with  the  European  Directives,  the  Italian   Law   states   that   Telecom   Italia’s   net   cost   should   be   financed   by   a   fund   shared   among   all   the   telecom  operators,  included  mobile  operators,  according  to  their  network  usage.  Annex  11  of   the   Code   amended   by   Agcom   deliberation   (1/08/CIR)   defines   the   method   of   calculation   for   contribution  to  the  fund.  The  financing  process  calls  upon  Telecom  Italia  to  annually  present   the   calculation   of   its   net   costs   to   be   revised   by   Agcom.   If   Agcom   concludes   that   there   is   an   unequal  burden  on  Telecom  Italia,  the  sharing  mechanism  is  applied  to  the  selected  telecom   operators.   In   parallel,   Agcom   instructs   an   independent   auditor   to   verify   Telecom’s   calculations.   Once   the   audit   is   completed,   Agcom   consults   the   operators   and   the   national   Antirust  Authority  on  the  applicability  of  the  sharing  mechanism.  Concerning  the  definition  of   quality  standards,  the  Annex  6  to  the  Code  lists  some  quality  parameters  that  the  provider  is   supposed  to  respect.  Agcom  updates  such  parameters  every  year  and  in  2010  it  also  adopted  a   Global   Quality   Index   (GQI)   for   the   Universal   Service   to   integrate   these   requirements13.   Telecom  Italia  should  communicate  to  Agcom  the  achieved  results  every  years  and  the  IRA  has   the   duty   to   sanction   the   provider   for   violations.   Telecom   Italia   is   also   called   to   propose   its   quality  standards  for  the   following  year.  Agcom  submits  them  to  consultation  with  consumers   and  then  adopts  the  final  parameters.   Up  to  now,  Agcom  has  always  reimbursed  Telecom  Italia’s  net  costs,  apart  from  1998  when   the   IRA   affirmed   that   Telecom   Italia’s   cost   were   balanced   by   indirect   benefits.   The   reimbursement  amounted  to  almost  €  62m  in  1999,  €  58m  in  2000,  €  40m  in  2001,  €  37m  in   2002,  €  41m  in  2003,  €  26m  in  2004,  €  28m  in  2005.  In  2003  and  2010  the  mobile  operator   Vodafone  appealed  Agcom’s  decisions  to  include  mobile  operators  within  the  USO  Fund  at  the   Italian   administrative   courts   (the   Regional   Administrative   Tribunal   and   then   the   Council   of   State).   Five   court   rulings,   however,   have   acknowledged   the   legitimacy   of   the   extension   to   mobile  operators  of  the  cost  of  Universal  service.  These  rulings  have  also  been  supported  by   Antitrust  opinions.  The  main  consequence  of  the  judicial  review  has  been  the  revision  of  all   Agcom   decisions   issued   between   1999   and   2003,   thus   Agcom   is   actually   compensating   Telecom  Italia’s  net  costs  related  to  2005.     Telecom  Italia  was  also  sanctioned  in  2007  (€  116.000),  2009  (€  116.000),  2011  (€  174.000),   2012   (€   58.000)  and  2013  (€  174.000)  for  failing  to  meet  its  quality  obligations,  respectively   13  The  GQI  is  detailed  in  the  Agcom  Deliberation  no.  328/10/CONS  while  the  2013  quality  goals  are  determined  

by  the  Deliberation  no.  644/12/CONS.  

 

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in  2006,  2007,  2009,  2010  and  2011.     4.  

From  credible  commitment  to  regulatory  “capture”  and  beyond  

The   presence   of   the   fund   and   its   management   makes   a   great   difference   in   the   level   of   conflict   existing   in   Italy   in   the   regulatory   process   and   may   lead   to   the   emergence   of   veto   players.   The   choice   to   create   a   Universal   service   fund   may   hinder   IRA’s   problem-­‐solving   capacity   and   freeze  regulation.     The  comparison  between  how  the  two  IRAs  operate  in  their  different  contexts,  shows  how  the   IRAs’  credible  commitment  is  conditioned  by  the  dilemma  between  short  terms  options  and   long   terms   policy   objectives.   When   the   level   of   conflict   on   short   term   options   is   high   and   veto   players   are   present   in   the   policy   arena   we   have   a   shift   of   IRA’s   attention   from   substantive   policy   goals   (inclusion)   to   process   goals   (who   loses   less),   frustrating   IRA’s   problem   solving   capacity.  The  Italian  case  clearly  demonstrates  how  the  high  discretion  characterising  the  USO   policy   creates   counter-­‐productive   conflicts   and   veto   players   in   the   independent   regulatory   arena  and  leads  to  high  levels  of  uncertainty  in  the  implementation  process.     Assessing   outcomes   and   problem   solving   capacity   in   a   comparative   perspective   is   quite   problematic  (Domah  –  Pollit,  2001):  records  and  data  are  difficult  to  interpret.  For  example,   despite   the   decreasing   trends   of   fixed   telephony   rates   throughout   the   last   ten   years   in   both   countries,   Italian   fixed   telephony   rates   are   still   the   highest   in   Europe   (Ofcom,   2012).   The   difficulty   of   guaranteeing   affordable   rates   in   fixed   telephony   can   be   explained   by   Agcom’s   choice   to   maintain   initial   rates   high   in   order   to   facilitate   the   access   markets   and   to   develop   new   networks   in   the   most   remote   areas.   This   choice   did   not   take   into   account   the   technological   evolution,   i.e.   that   mobile   phones   would   replace   fixed   telephony   services.   Moreover,  over  the  last  two  decades  fixed  telephony  quality  standards  adopted  by  IRAs  have   considerably  increased  providers’  technical  efficiency,  in  both  Italy  and  the  UK.  Nevertheless,   Agcom’s   adoption   of   a   Global   Quality   Index   (GQI)   hides   a   number   of   permanent   deficits   of   the   Italian  provider  in  achieving  the  required  quality  goals.  These  deficits  are  measurable  by  the   frequent  fines  levied  upon  Telecom  Italia  by  Agcom  .   IRAs   in   the   telecoms   sector   should   be   credibly   committed   to   realize   Universal   service   and   social  inclusion  by  regulating  business,  but  this  commitment  is  interpreted  and  implemented   in  very  different  way,  with  different  policy  instruments,  different  incentives  and  implications   for   the   policy   arena.   Ofcom,   due   to   the   legacy   of   the   British   independent   regulatory   State   (Moran,  2003),  adopts  an  agency  strategy  (Hood,  2011)  to  maintain  its  regulatory  credibility   and   to   avoid   blame   for   failures.   Through   mechanisms   of   reputation   and   a   so-­‐called   “light    

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touch   legal   regime”,   Ofcom   has   transferred   entirely   to   BT   (and   Kingston)   the   responsibility   of   implementing  the  USO,  balancing  costs  and  benefits  and  using  as  incentive  the  option  of  exit   (the  possibility  to  change  the  USP)  to  guarantee  BT  compliance.  Agcom,  on  the  other  hand,  has   adopted  a  policy  strategy    (Hood,  2011),  based  on  high  bureaucratization  of  procedures  and   regulatory   decisions   based   on   technical   procedures   for   justifying   USO   financing   and   reimbursements.  The  main  task  of  regulators  adopting  this  strategy  is  to  properly  represent   outputs   and   outcomes   and   to   conceal   weaknesses.   The   high   level   of   bureaucratization   adopted   by   Agcom   throughout  the  implementation   process   gives   centrality   to   legal   resources   and  to  the  actors  controlling  them  (Dente,  2009).  As  the  theory  of  regulation  argues  (Wilson,   1961),  regulatory  actors  are  more  generally  “threat  oriented”  than  “opportunity  oriented”  and   thus   they   are   more   inclined   to   take   decisions   that   increase   costs   and   decrease   benefits   rather   than   the   contrary.   This   implies   that   regulated   firms   adopt   counterattack   strategies   through   reactive   behaviours   to   reduce   increasing   costs.   That   is   certainly   the   case   of   Vodafone’s   systematic  judicial  actions  against  the  imposition  to  finance  the  US  fund.  These  administrative   courts  have  judged  IRA’  decisions  and  obliging  it  to  review  continuously.  This  time-­‐consuming   procedure,  also  involving  the  Antitrust  authority,  gives  a  juridical  appropriateness  to  Agcom   decisions,  but  at  the  same  time  makes  them  less  effective  and  credible  to  the  public.   The   two   different   levels   of   bureaucratization   at   the   street   level   of   policy   implementation   correspond  to  different  strategies  of  credible  commitment  and  blame  avoidance.   In   the   Italian   case,   the   regulatory   gridlock   caused   by   Vodafone’s   judicial   actions   against   Agcom  decisions  allows  Agcom  to  shift  the  blame  for  its  failure  to  the  judicial  actors  in  order   to   maintain   its   credibility.   The   so-­‐called   “juridical   problem”   has   been   long   indicated   as   the   main  cause  of  the  delay  and  ineffectiveness  of  USO  regulation  in  Italy.  The  trade-­‐off  between   the  substantive  objective  of  social  inclusion  and  the  goal  of  governing  conflicts  arises  from  the   asymmetric  distribution  of  costs  and  benefits  between  fixed  and  mobile  operators.     Agcom  and  Ofcom  play  different  roles  in  the  distribution  of  pay-­‐offs  along  the  implementation   process.  The  Italian  regulator  adopts  a  traditional  command  and  control  regulatory  approach,   playing   a   redistributive   game   by   establishing   the   Universal   Service   Fund   and   by   creating   a   high  concentration  of  costs  for  mobile  operators  that  must  finance  it,  and  a  high  concentration   of   benefits   for   the   provider   (Telecom   Italia).   Ofcom,   on   the   other   hand,   chooses   to   play   a   ‘wilsonian   regulatory   game’   based   on   reputation   incentives   and   characterized   by   concentrated  costs  for  the  USPs,  and  diffuses  benefits  for  the  society.  The  different  choice  to   create   the   fund   is   based   on   different   IRAs’   cost-­‐benefit   analysis   and   is   important   in   structuring   the   relationships   between   regulators   and   regulated   interests.   Agcom’s   cost-­‐  

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benefit   analysis   is   not   based   on   technical   competences   but   more   on   a   “cognitive   short   cut”   based   on   incumbent’s   data   with   regard   to   USO   investment   costs.   We   may   thus   synthesize   this   as   follows:   a   blame   avoidance   regulatory   mechanism   (UK)   versus   a   blame   shifting   regulatory   mechanism  (Italy).   Agcom’s  regulatory  failure  has  produced  policy  learning  and  policy  change.  As  stated  above,   Vodafone’s  judicial  actions  have  caused  a  relevant  regulatory  delay.  At  the  present  Agcom  is   reimbursing  the  USO  net  costs  for  2006  and  “regulating  the  past”.  In  this  “regulatory  fiction”,   the   Italian   IRA   has   changed   its’   mind   about   the   fund.   For   the   amounts   due   after   2006,   the   evaluation  of  net  costs  will  change  and  will  no  longer  be  in  favour  of  Telecom  Italia14.  Agcom   has  decided  to  suspend  operators’  contributions  to  the  fund  in  order  to  decrease  the  level  of   conflict  and  to  change  the  pay-­‐off  distribution  between  the  actors.  The  ‘differential  adjustment’   mechanism  put  in  place  by  Agcom  explains  the  regulatory  change  in  the  Italian  case:  this  cost-­‐ avoidance  mechanism  allows  the  regulatory  process  to  proceed.   The   Italian   independent   regulator   has   been   nudged   to   change   its   regulatory   strategy   in   order   to  increase  its  credibility  in  the  regulatory  process  and  its  commitment  to  USO  goals:  We  see  a   shift   from   a   “policy   strategy”   approach   to   “an   agency   strategy”   approach   aimed   at   avoiding   veto  players  and  to  re-­‐gain  regulatory  credibility.   Ofcom,   on   the   contrary,   bases   its   regulatory   approach   to   USO   on   compensative   and   reputational  mechanisms,  thereby  avoiding  the  creation  of  veto  players  in  the  implementation   process  and  maintaining  its  credibility  as  a  problem-­‐solver  agency.   If   we   ask   the   four   questions:   who   uses,   who   chooses,   who   pays,   who   profits   (Thaler   and   Sunstein,   2008:108)   we   see   that,   at   times,   both   incentive   conflicts   and   mechanism   conflicts   arise.  In  Italy,  disadvantaged  citizens  receive  fixed  telephony  services  at  the  highest  costs  in   Europe  from  the  national  incumbent,  which,  based  on  Agcom  decisions,  is  reimbursed  by  the   mobile   operators.   In   the   event   of   poor   functioning   of   the   US   due   to   the   failure   to   comply   with   its   obligations,   Telecom   Italia   is   liable   for   fines,   which,   however,   are   far   inferior   to   the   net   costs   for   which   it   receives   reimbursement   and,   moreover,   it   never   risks   losing   its   legal   status,   which  is  guaranteed  by  a  parliamentary  law.  In  the  context  of  this  decisional  architecture  the   relevance   of   profit   and   loss   is   asymmetric,   while   in   the   case   of   the   UK,   the   decisional   architecture  and  the  relevance  of  costs  and  benefits  are  far  more  symmetrical.  The  regulator   capture   mechanism   may   be   reinterpreted   as   an   asymmetrical   incentive   relevance   strategy   (salience)   in   the   decisional   process,   which   invalidates   the   regulator   credibility   and   its   14   Telecom   Italia’s   net   costs   in   2006   have   been   estimated   around   €   8m,   so   Telecom   Italia   would   probably   not   get  

the  reimbursement.    

 

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problem   solving   capacity.   Agcom's   recent   change   of   strategy   is   the   outcome   of   a   learning   process  through  which  the  weakened  authority  tries  to  realign  the  salience  of  its  incentives  at   all  levels  of  the  decisional  process  in  order  to  curb  and  to  limit  existing  capture  mechanisms   and  to  regain  its  compromised  credibility.     Conclusions   This   paper   was   meant   to   be   a   contribution   to   the   debate   on   institutionalism   and   on   the   relevance  of  institutional  factors  in  policy  implementation.  It  sheds  light  upon  IRA  credibility   within   policy-­‐making   processes   and   contributes   to   enlarge   the   empirical   research   on   the   functioning   of   regulatory   policy.   We   have   focussed   our   attention   on   the   relationships   existing   between  the  distribution  of  costs  and  benefits  along  the  implementation  process  in  the  USO   case   and   the   IRAs   credible   commitment   as   an   orientation   to   problem   solving.   We   were   meant   to   understand   how   and   why   implementation   processes   may   differ   not   only   on   the   basis   of   structural   variables,   such   as   independence   or   delegation,   but   also   on   the   basis   of   different   levels   of   conflict   between   policy   actors   and   on   the   basis   of   IRAs’   defence   mechanisms   that   seek  to  gain,  regain  and  retain  policy  credibility.     These   findings   have   direct   implications   on   the   theory   of   delegation   and   the   effective   utility   and   role   played   by   IRAs   in   national   policy   arenas   despite   their   independence   from   politics,   and   raise   a   number   of   questions   on   the   regulatory   isomorphism   pursued   by   the   European   Commission   and   by   the   European   IRA   coordinator   (BEREC)   which   seeks   to   render   national   policies  more  homogeneous  throughout  the  European  Union.          

 

 

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