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JILT 1997 (3) - Colin Scott (1)

The Proceduralization of Telecommunications Law:

Adapting to Convergence

Colin Scott
London School of Economics and Political Science
c.scott@lse.ac.uk

Contents

1. Introduction

2. Telecommunications and Regulatory Law

3. Factors External to Law in the Changing Nature of Regulation

4. Epistemic Communities - Regulatory v Competition Communities

5. Decontextualization and Generalization

6. General Institutions

7. Proceduralization

8. Role of the Courts

9. Enhancing Self-Regulatory Capacities

10. Conclusion: Revolution or Evolution?

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This is a Work in Progress article published on 31 October 1997.

Citation: Scott C, 'The Proceduralization of Telecommunications Law: Adapting to Convergence', Work in Progress, 1997 (3) The Journal of Information, Law and Technology (JILT). <http://elj.warwick.ac.uk/jilt/wip/97_3scot/>. New citation as at 1/1/04 : <http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/1997_3/scott1/>


1. Introduction

A central characteristic of law in the industrialized countries in the twentieth century has been the breakdown of its general character into ever more specific and technical sets of rules, often the product of legislation. Such phenomena have induced sociologists to write of crises in welfare state systems.[1] General legal norms have to some degree been displaced by 'materialized' law and wide administrative discretion, which is seen as a response to complexity.[2] The sheer bulk of law (mainly legislative law) has increased, and fragmented into specific rules and into a wide range of types of instrument, administered by a proliferation of administrative institutions (both public and private). Policy has become visible as part of an instrumental orientation of legal rules.[3]

Regulatory law in the field of telecommunications has followed this logic, leading to the development of masses of technical rules contained variously in primary and secondary legislation and in other instruments such as licences. However, changes which are now under way in telecommunications regulatory regimes are forcing us to ask whether there is evident a shift away from a pattern of highly specific rules. Is it possible that legal evolution has set itself on a reverse path in which both national and supranational jurisdictions see the evolution of more general and more procedural systems of rules, simultaneously better able both to meet new conditions in a rapidly changing social and technical environment, and to satisfy demands for more participatory and transparent procedures for development of norms? This paper sets out to address these issues as they affect economic regulation in the telecommunications sector in the light of pressures created by convergence of telecommunications, broadcasting and computing, and the trend towards globalization of service provision.[4]

2. Telecommunications and Regulatory Law

The early history of state involvement in the provision of telecommunications services in the common law countries in the nineteenth century was not conspicuously successful. The attempt to regulate through the adaptation of the ordinary contractual rules and adjudicatory techniques of the common law was adequate neither to promote or protect competition between private and municipal providers of service, nor to provide the degree of coordination necessary for the achievement of national service, within which each subscriber could communicate with every other. In the United Kingdom the nationalization of telecommunications services in 1911 removed the oversight of service provision from the legal to the administrative sphere for a period of seventy years. In the United States the response was to leave service providers in private hands, promoting the private monopoly of AT&T, while simultaneously creating specific obligations through highly technical regulation, under the Communications Act of 1934, administered by the Federal Communications Commission. Thus in the US the materialization of law in the telecommunications field came early.

With the widespread policies of privatization and liberalization other common law jurisdictions and the European Community began to observe some degree of convergence in the character of regulatory law and institutions with the regulatory experience of the United States.[5] In the UK the failure of formal law in the early history of telephony led to its displacement by the bureaucratic apparatus of public ownership, within which the legal framework remained very much at the boundaries of the governance structure. Only during the gradual process of liberalization and privatization of the telecommunications sector in the 1980s did a process of materialization occur in British telecommunications law as legislation and licences set out highly detailed provision for universal service, price control and interconnection. Legal rules were to be the chief instrument for securing social and economic policy objectives in the privatized telecommunications sector. These rules, rather than being in the form of general law, were effectively instructions directed towards one actor, the monopoly supplier, British Telecommunications plc.[6] While the determination of policy was formally retained by Ministers and parliament, the new regulatory institution, the Office of Telecommunications (Oftel), inevitably became a rival source of authority,[7] exercising policy powers through the limited instrument of the licence amendment. A similar story could be told in respect of the Australian experience. The New Zealand government attempted to avoid the creation of detailed regulatory rules and institutions, substantially leaving the governance of the liberalizing telecommunications sector to the application of general competition norms, though these steps so reduced the state's formal capacities as to require the development of informal regulatory mechanisms (see below).

Rules which are designed for the instrumental purpose of promoting competition may be universally applicable norms (for example prohibiting the abuse of dominant position) or may be highly specific (for example requiring a telecommunications firm with more than a 25% market share to permit other firms to interconnect with its network on reasonable terms or on terms determined by a third party). For some the economic purposes of both types of rule are sufficient to mean that either is legitimate and the most appropriate should be chosen.[8] A key point here is that the form and nature of the rules is not at issue - the most appropriate type for the task in hand is to be chosen. For others the abandonment of universal rules is offensive. Hayek, for example, suggests that the chief reason for the development of specific rules is so that legislation may pursue (illegitimate) social ends which interfere with a market based on transactions.[9] The placing of special social obligations on telecommunications suppliers is seen to be distortive, rather than supportive of the market, as well as corrupting of the general scheme of private law. Sharing such suspicions about intervention, political science and economics of regulation theorists see regulation as creating a framework in which the interests of the powerful or best organised will be pursued at the expense of the general polity, or of the less powerful.[10]

However, there is a problem with the direction of telecommunications regulation which relates distinctly to the characteristics of the legal system, and which challenges perspectives based on simple, instrumental notions of law. 'Law and state regulation...are being expected more and more to bring about major social changes and economic restructuring at a time when those who make use of law in this way proclaim its capacity to do less and less'.[11] Indeed, Cotterrell attacks as contradictory and ideological Hayek's position which seems to suggest that law can legitimately be used for economic and social restructuring, whereas its use for egalitarian purposes is illegitimate.[12] Put another way, it is the use of law for instrumental purposes generally, whatever they may be, which leads to the materialization and fragmentation of general legal rules into the specific and technical, and which challenges the capacities of legal systems, the strengths of which lie in application of general norms. The observation that law is a 'relatively ineffective means of positively directing behaviour towards specified objectives' is reflected both in the empirical work of sociology of law and the more theoretical concerns of the application of systems theory to law.[13]

If the problem of contemporary law is seen simply as the breakdown of the general norm characteristics of the legal system then a key theoretical question is whether any change in the nature of instrumental regulatory law which reverses its drift down an ever more specific and technical path can be explained by reference to the response of the legal system itself, whether to failings within itself, or to stimuli from without. Equally pertinent is to ask whether such change can be explained without reference to the legal system, as the product of changes external to it alone.

3. Factors External to Law in the Changing Nature of Regulation

Among the chief external stimuli to the evolution of more generalized rules for telecommunications regulation are processes of convergence and globalization.[14] The convergence of broadcasting, telecommunications and computing renders the detailed, sector-specific telecommunications regulatory regimes a potential barrier to changes which would otherwise occur in the market.[15] Each regime has its own regulatory institutions and culture. It is said that what is now required is 'technology neutral law'.[16]

Globalization of telecommunications services has created pressure on nation states to reduce the restrictiveness of national regimes, while at the same time supranational institutions (such as the EU and WTO) have sought to expand their competence into telecommunications, and have inevitably based their regimes on the most general possible norms so as to permit the widest application.[17]

The deployment of such generalised norms is consistent with a broad conception of subsidiarity as applied at EU level (and implicitly by the WTO), and permit a degree of regulatory competition between jurisidictions seeking to encourage inward investment in communications infrastructures.[18] Further pressure for generalization of norms arises from the use of a principle of reciprocity as the basis for bilateral agreement on access for foreign companies to national telecommunications markets.

4. Epistemic Communities - Regulatory v Competition Communities

A precondition to the evolution of general regulatory norms has been the identification by both practitioners and academics of a regulatory 'community' of people concerned with broadly similar phenomena, whether in relation to the utilities sectors, social regulation or other areas. Though the regulatory community is nothing like as homogeneous as the competition/antitrust policy community it is now a distinctive grouping. Regulatory and competition/anti-trust communities are to some degree in competition with each other and offering competing paradigms of oversight or construction of markets.[19]

Whereas competition/antitrust is dominated by economists, with others such as lawyers broadly subsuming themselves within economic paradigms[20] such a disciplinary dominance is not so recognisable in relation to regulation. The development of general norms in telecommunications and other sectors based on competition/antitrust principles would represent the triumph of the competition/antitrust community in asserting the general applicability of their norms in sectors which had previously been regarded as special and subject to particular principles.[21] Such a generalization of norms in economic form is, however, unlikely to be complete as a social regulatory agenda, for example in relation to provision of universal service, continues to be reflected in evolving rule-systems.[22]

5. Decontextualization and Generalization

A central aspect of the changes engendered by the various pressures on telecommunications regulation has been a gradual decontextualization or dematerialization of regulatory rules for telecommunications. In part this has occurred in the form of the application of substantially common regimes to all utilities sectors, as has occurred in the UK. Increasingly there is pressure to treat telecommunications for regulatory purposes as part of the broader information society apparatus, attempting to develop common regimes for the economic and content regulation aspects of broadcasting, computing and telecommunications.[23] Most general is the broadly characterised shift from detailed sectoral rules to broad competition/antitrust rules as the basis for regulation.

Figure 1 Hierarchy of Regulatory Sanctions

image 1

Reform of the New Zealand telecommunications sector between 1987 and 1990 involved a shift away from public ownership to competition rules as the basis for regulation with little in the way of detailed rules.[24] Though widely characterised as complete deregulation, in practice the rejection of detailed regulatory principles was not as complete as superficial consideration suggests.[25] Social regulatory requirements, though not contained in legislation, were retained within the company constitution of the privatized dominant incumbent, Telecom New Zealand. Secondary legislation imposed a variety of disclosure requirements on the company, intended to reduce the information asymmetry between Telecom and new entrants in relation to access conditions.[26] Most importantly, and yet most hidden, government maintained a role in reminding Telecom New Zealand of its commitment to provide interconnection to new entrants on reasonable terms, and to threaten to invoke existing legislation or to pass new legislation to provide more detailed principles of interconnection than the competition rules supplied, if Telecom failed to honour its commitments.[27] Though this form of 'implicit regulation' is actually highly developed (Figure 1[28]), the failure of government to escalate its intervention to resolve impasses over the interconnection issue has resulted in a loss of credibility. The attempt by the New Zealand Court of Appeal to reject allegedly 'pure' economic reasoning and introduce more regulatory principles into the major Clear-Telecom New Zealand interconnection dispute was effectively trumped by the Privy Council.[29] At the time of writing Clear Communications is attempting to sue the government over its failure to provide a regulatory regime adequate to permit it to secure proper entry to the market.[30] The parties have responded to the absence of detailed principles for regulation (which resulted in their negotiating interconnection 'in a fog' according to the courts) by developing their own detailed architecture of substantive and procedural principles in a contractual interconnection agreement.[31] The procedural aspects include a hierarchy of mechanisms for resolving disputes which effectively represent a pyramid within the base of the regulatory pyramid (Figure 2).

Figure 2 Clear - Telecom Interconnection Agreement

image 2

In other jurisdictions the shift towards competition/antitrust rules has been more gradual and/or less complete. In Australia the starting point in 1989, when a liberalization policy was introduced and a new regulator, Austel, established, was of highly detailed sectoral rules with regular legislative reform increasing the specificity and complexity of the regime.[32] However, in 1995 general competition law rules in relation to interconnection/third party access in all utilities sectors were introduced,[33] and this was supplemented in 1997 with new telecommunications interconnection principles, which, though more prescriptive than the 1995 general interconnection regime, were less prescriptive than the previous sectoral legislation. These new principles were accompanied by new procedures for industry negotiation over terms of interconnection and access with only a residual role for the regulator in determining disputes.[34]

In relation to interconnection the UK regime has never accorded with the formal model based on commercial negotiation with a residual dispute-resolution role for the regulator which is provided for in British Telecom's licence.[35] Interconnection principles, contained in licences, have been rendered ever more specific as the regulator has become involved in both setting ground rules and detailed terms of interconnection, albeit using new and more transparent procedures. A partial reduction in involvement is to be effected by introducing a price cap on interconnection charges, rather than have them set by the regulator directly.[36]

In relation to other aspects of regulation in the UK there has been a marked shift away from detailed licence conditions towards competition rules. Lying behind these changes were concerns within the regulatory office that ever more detailed licence conditions were making the rules over-specific and unmanageable. There was uncertainty about the scope of the existing rules, and unwillingness to engage in the time-consuming procedures necessary to introduce specific new rules to address new forms of conduct, and a concern that regulated firms looked to the regulator for authoritative guidance on the interpretation of the rules, rather than develop their own capacity to interpret and implement their requirements. The new, general competition rules are to be incorporated in the licences of all UK telecommunications operators and are modelled on Articles 85 and 86 of the EC Treaty.[37] This 'spontaneous alignment' (ie non-mandatory)[38] of UK telecommunications rules with EC competition law goes beyond the content of the rules to new procedural provision, including the creation of an advisory committee, the publication of guidelines on the application of the rules and of procedures for implementing them.[39] Lying behind this change was a concern from the principal regulatee, British Telecom, that there should be procedural mechanisms to promote consistency with the EC norms, and from the regulator that if such consistency was credible firms would be able to interpret the new licence conditions for themselves on the basis of EC competition law, rather than be guided by the policy-driven interpretation of licences by the regulator as occurs with sector-specific rules.

A further aspect to this generalization of rules is a shift from highly specific instruments, such as the detailed conditions contained in individual licences in the UK, towards rules of more general application. This shift is driven in part by the promulgation of framework rules at supranational level, which are then to be implemented by participating nations. In the European Community, complex licensing rules and conditions are seen as an obstacle to the completion of a single market in telecommunications. For example the evolving EC regime for telecommunications licensing favours the issuing of class licences which refer to a general set of conditions.[40]

In relation to the World Trade Organisation, the Reference Paper, which provides the framework for liberalization to which 69 states have committed themselves, is necessarily drafted with a high degree of generality. Accordingly the main emphasis of the Reference Paper is on the provision of appropriate measures to provide safeguards against anti-competitive conduct, to require that a major supplier provides non-discriminatory and transparent interconnection to other firms, and to establish a regulator who is independent of suppliers of services.[41] In contrast with EC policy, the WTO Reference Paper merely tolerates, rather than requires, measures to protect universal service obligations.

6. General Institutions

In institutional terms the pressure of generalization is reflected in the development of more general regulatory bodies. In Australia the chief powers in respect of economic regulation of telecommunications are being transferred to the general competition authority, the Australian Competition and Consumer Commission (ACCC) (the new 'super-regulator' for telecommunications[42]), while the rump of the sectoral regulator retains only standard setting and consumer protection functions. The survival instincts of the UK regulator, Oftel, have led it to reposition itself as a 'competition authority' for telecommunications. Notoriously privatization and liberalization of the New Zealand telecommunications sector was carried out without the creation of a sectoral regulator at all, though as noted above, the Department of Commerce has carried out more in the way of implicit regulation than might have been anticipated.

At supranational level it is the competition directorate (DG IV) of the European Commission which has taken a lead role in the oversight of telecommunications rather than the dedicated telecommunications directorate (DG XIII). There has been considerable discussion as to whether a EU-level specialist telecommunications regulatory authority is needed. Two distinct sets of arguments may be made for such a move. First, there are concerns that the enforcement functions of the Commission, particularly as against the Member States, are not sufficiently insulated from the political functions of the Commission (for example in bringing forward new legislative proposals). There is concern that in some instances enforcement strategies may be compromised or driven by the need to bargain with Member State governments over political matters.[43] The second issue is how effective the Commission will be in the gathering of information and pursuit of Member State governments using the clumsy Article 169 proceedings for failure to implement and operate Community law requirements effectively. While the Commission can act directly against firms for breach of Community competition law, this is not the case in respect of implementation of single market legislation. As yet the development of a European Telecommunications Regulatory Authority appears a remote possibility. At least in the short-term there is no political will among the Member States for creating any rival authority even more remote and less accountable than the Commission,[44] and the potential problems of monitoring of Member States' regulatory arrangements for compliance with EC requirements have not yet fully emerged.[45]

Finally, the WTO is taking on increasing importance in relation to international trade in telecommunications, as opposed to the more specialised (and much older) International Telecommunications Union. Against these developments, however, has been the reassertion of the authority of the specialized US Federal Communications Commission, which until the passage of the Telecommunications Act of 1996, had been severely constrained by the activities of the Antitrust Division of the Department of Justice and the antitrust activities of the courts.

7. Proceduralization

While subject to substantially public, monopolistic operation[46] the values of telecommunications operation were largely substantive and technically-oriented. The chief emphasis was on supply. Privatization, liberalization and re-regulation of telecommunications has greatly increased the transparency of provision. Paradoxically, the enhancement in transparency and enhancement of procedural rights, both in relations between firms and regulators and between firms and customers (in both wholesale and retail markets), has increased the dissatisfaction with the way in which decisions affecting telecommunications are taken.

The theoretical vision of proceduralization highlights the lack of any higher discourse (metaphysical or religious) to guide regulatory reasoning,[47] with the consequence that rational discourse is perceived to be the only way to ground legitimate decision making.[48] The emphasis on proceduralization is concerned with providing the mechanisms through which rational discourse can occur. Such proceduralization provides the means to legitimate decision making concerning increasingly complex issues. Rational discourse displaces both expertise and any inherent normative validity of law as the basis for legitimate regulation.[49] Within this schema the function of law is to organise how regulatory power is exercised (through procedural rules) rather than to provide detailed technical prescription.[50] While proceduralization is concerned in part with legitimacy of regulation, it also directed towards notions of efficiency. The limited regulatory or steering capacity of the state is premised on the tendency of 'social systems and large organizations stubbornly [to] resist direct interventions'.[51] Such concerns may be premised on versions of public choice theory which suggest that interest groups will use regulatory institutions to pursue their own interests, or, a theory of systems which highlights the limited capacity for one system to direct another.

The proceduralized solution to the problems of illegitimacy and inefficiency of regulation is to posit models of regulation action under which the administration itself is subjected to a separation of powers involving opportunities for participation and control by other actors' information requirements.[52] 'The weak binding power of regulatory law...demands compensations primarily in the area of administration, where officials can no longer restrict their activity to a normatively neutral, technically competent implementation of statutes within the framework of normatively unambiguous responsibilities.'[53] Administrative institutions need to enhance their capacities to learn about experience, and to respond flexibly.[54] We might go further, recognising the intimate involvement of other actors - governments, firms, user groups - in defining the meaning of regulatory rules through negotiation and interpretation, and with varying degrees of power and influence.[55] The 'democratization' of administration, thus, cannot be restricted to the stages at which rules are made, but would need to be extended to the stages at which their application is negotiated with those whose conduct they affect. This would involve democratization both of enforcement processes and supply contracts.

On the basis of experience in the UK telecommunications sector we may question whether the proceduralization of regulatory decision making requires a statutory regime of procedural requirements (as obtains in the United States).[56] In its management of the change from telecommunications duopoly to a fully liberalised telecommunications sector the UK Office of Telecommunications (Oftel) has developed a wide range of innovative procedures for consultation and negotiation.[57] First, in the context of seeking modifications to the licence of the dominant operator, British Telecom (BT), to provide a more satisfactory basis for interconnection in 1993-94, Oftel rejected the bilateral model of negotiation with BT (accompanied by a 28 day statutory consultation period) in favour of holding industry workshops at which Oftel and BT's assumptions were tested, and from which questions were taken away to be developed by working groups. Better informed, Oftel was able to develop an interconnection regime which was considerably simpler than that they had originally envisaged (being based on a standard set of tariffs for each type of interconnection service).

These procedures were extended for the decision making associated with changing the price control on BT in 1995-96, with the addition of public hearings and a three stage consultation procedure. Publication by Oftel of detailed statements of its current thinking on the issue, and of reasons for its final decision is highly developed. After the publication of both the first and second consultation papers in December 1995 and March 1996, there was an opportunity both to comment on Oftel's views, and also to comment on the comments made by others. The imbalance in power and information between consultees was addressed in a number of ways. User groups were both given assistance and extra time in making their submissions, and represented through a consumer advisory panel which advised Oftel at each stage of the procedure. An expert advisory panel (staffed largely by economists) was also used. Again, the final decision of Oftel was considerably more deregulatory in character than had been initially anticipated.[58] The assumptions of the regulator and dominant firms have never been so thoroughly tested in a British regulatory procedure. Arguably these procedures have placed too heavy a burden on smaller firms and user groups to comment, and created the risk of providing too much information to the regulator. Though BT retains a somewhat privileged position in these procedures (because rule making generally involved modifications to its licence to which it must consent or invoke a time consuming reference procedure to a third party) the model developed exhibits many of the characteristics of sound proceduralized decision making, and is well ahead of the consultative procedures used by government in respect even of legislative rule making. It represents something of a shift from a hierarchical model of regulation to a consultative (if not negotiative) model.[59].

Although European Community legislative procedures are also based on a reasonably transparent and proceduralized model, they occur at a considerable remove from UK decision making, and it is difficult for the less well-organised to participate. The agreement of norms at Community level accordingly risks damaging the Oftel model, and preventing the development of appropriate models in other Community jurisdictions. Many issues will apparently not be open for domestic regulators or governments to decide. Agreements between the European Parliament and the Commission to reduce the reliance on committees to develop the application of Community rules, and the greater involvement of the Parliament itself in Community legislation, only go a small way to removing these problems.

8. Role of the Courts

The development of highly specific sectoral rules has largely been the work of legislatures. The courts, with a preference for norms of general application, have exhibited a number of contrasting reactions to the complexity and specificity of telecommunications regulation. In some instances they have attempted, either implicitly or explicitly, to unpick highly detailed regimes, by attempting to reassert general values. Such an approach was most marked in the United States, where the assertion by the courts of general anti-trust rules which reached its climax in the AT&T decision of the District Court of Columbia in 1982, was only reversed through new federal regulatory legislation in 1996. Were this approach of the courts to predominate an increase in litigation associated with liberalization would be likely to provide further pressure for generalization of norms. A second response has been for the courts to throw their hands up in the air on seeing the complexity of the issues they are required to adjudicate on, discouraging the pursuit of preliminary actions to full hearings[60] or refusing to have the court used as the forum for the resolution of such a technical dispute.[61]

In some instances the courts have shown themselves inclined to dilute or substantially reject the specificity of regulatory regimes through the application of more general principles. In Clear Communications the Privy Council effectively rejected arguments which had persuaded the New Zealand Court of Appeal, that the application of competition rules in relation to abuse of dominant position had to be tailored to the specific character of the telecommunications sector.[62] In Scottish Power the Court of Appeal held the system of individual licence modifications was effectively subject to duties to consider whether to modify other licences in similar circumstances, implicitly arguing for general rather individuated rules in that sector.[63]

9. Enhancing Self-Regulatory Capacities

Self-regulation is seen to provide a partial solution to the problems of contemporary regulatory law from a variety of perspectives. From the view-point of systems theory the problem to be overcome is the lack of capacity of legal instruments to direct behaviour. Law can instead provide regulatory signals to institutions such as companies which have been refashioned in their internal organisation so as to be more sensitive to such external stimuli. Thus the principal instruments of control are internal to the regulated institution.[64] Such an approach is exemplified by changes in the internal organisation of British Telecom so as to create a compliance officer within the company who sits outside the line management structure, reporting directly to non-executive directors.[65] Such monitoring, by a regulator with an internal badge, changes the incentive structure within the company for employees and divisions who must seek both to satisfy the financial controller and the compliance officer.

The model of 'responsive regulation' is one in which the capacity of firms to develop their own regulatory rules is exploited through the development of general regulatory norms. 'Enforced self-regulation' is a model under which the content of regulatory rules is determined by the firm, which also monitors for compliance, each aspect being subject to the approval of a state regulatory authority.[66] The structure of European Community law has family resemblances to enforced self-regulation, in the sense that EC directives set general objectives through directives which require Member State governments to introduce domestic rules and enforcement mechanisms, which are then reported to the Commission for approval. In this way Member States can develop regulatory systems in keeping with existing domestic culture and institutions.[67] The capacity of the Community to direct the Member States through legal instruments is thus not strained.

Cotterrell's communitarian vision is of collective participation in political decision making, and of law which, instead of directing behaviour, seeks to build on the existing behavioural incentives of individuals, encouraging actions that are favoured and constraining those which are not. 'Thus law approves some motivations, purports to reinforce and reward some attitudes, 'officially' confirms some assumptions about what counts as merit and demerit, and potentially discourages, deters, and disconfirms other motivations, attitudes and assumptions.'[68] Such a programme would involve subtle changes to power relations, and recognition that general legal rules and specific and discretionary rules are in a continuum in which both forms are likely to be part of any regulatory strategy.[69]

10. Conclusion: Revolution or Evolution?

While the telecommunications sector, and communications more generally may be going through a revolution, such a form of change is not plausible for the legal system, and hence for the regulatory frameworks. Telecommunications regulation is subject to an evolutionary process in which the specificities of telecommunications rules are giving way to more generalised rules and procedures. While we can see the pressures for such change from processes of globalization and convergence, these processes themselves do not explain the change at the level of the legal system. The response of the legal system is not the implementation and application of tailored general rules, but rather the adaptation of the existing general rules of competition/antitrust law. There appears to be a good fit between the external pressures and the change which is occurring. This change is supported by the activities of the courts which favour more general rules, and may attempt to generalise and proceduralise specific rules. Furthermore the capacity of firms to internalise broad rules of general application may be greater as the existing dominant incumbents are already familiar with the demands of competition/antitrust regimes, and smaller firms can more readily buy in the less specialised expertise.

Thus the shift towards more general regulatory norms appears to be accompanied by tentative moves towards enhancing the self-regulatory capacities of regulated firms. It is not clear whether prescription based on enhancing self-regulatory capacities can be fully reconciled with the procedural vision of regulatory law. Proceduralized regulation suggests the involvement of a public regulatory authority in listening to groups affected by regulation, including firms and user groups, each having as far as possible an equal voice.[70] Regulators then make decisions on the basis of the best possible information. This suggests the kind of instrumental model of law which is found to be lacking in contemporary regulation. A reconciliation might be achieved by recognising the fragmentation of regulatory power among regulatory and other governmental authorities, firms and users and seeking to build each into the processes of the others, attributing tasks in a manner appropriate to enhancing self-regulatory capacities. Thus user groups might participate in the self-regulatory activities of firms through their appointment to non-executive directorships on boards, and in the activities of regulators through shared involvement in monitoring and enforcement of regulatory rules.[71]

Which aspects of telecommunications regulation might be subject to such reform? The failure of pure competition law to promote competitive markets in New Zealand suggests that vigilant regulators with enforcement powers have a continuing role in such matters as interconnection and unfair conduct. Indeed, EC and WTO rules will require domestic regimes to demonstrate that they have effective apparatus for promoting fair competition.[72] Where price controls have been retained over dominant incumbents who face little competition, their withdrawal is only likely to occur as competition is seen to develop.[73] Intriguingly it is in the field of social obligations, most associated with arguments for retaining strong state involvement, that the potential for more responsive regulation may be greatest.[74] The British regulator, Oftel, has eschewed the use of legislative powers to regulate the quality of dominant firms' service and persuaded all firms to develop codes of practice on such matters. Oftel has abandoned access deficit contributions and universal service funds in favour of a decision that the reputational and other advantages of meeting loss-making universal service obligations exceed the cost to British Telecom of providing the services. The regulator is withdrawing from a role in regulating the closure of public call-boxes and putting such decisions down to negotiation between local authorities and BT. Such steps have occurred alongside more traditional regulatory involvement in requiring BT to offer low-cost services which permit incoming and emergency calls only, and the development of principles under which disconnection for non-payment is greatly reduced.[75] It remains open to question whether public authorities such as Oftel and, indeed, the European Commission have given sufficient priority to key issues relating to universal service, such as the development of policies to ensure that all those who need access to services such as voice mail (particularly the homeless) can and do receive such services. This is a matter which seems more urgent than adapting universal service requirements to the era of broadband services.[76]

Footnotes

[1] Offe, C. Contradictions of the Welfare State (trans J. Keane) Hutchinson, London (1984).

[2] Habermas, J. Between Facts and Norms - Contributions to a Discourse Theory of Law and Democracy (William Rehg, Trans.). Polity Press, Cambridge (1996), 389, 438; Ladeur, K.-H. 'Post-Modern Constitutional Theory: A Prospect for the Self-Organising Society' Modern Law Review 1997 60 617-629. Rather than seeing the regulatory field as occupied by either general or particular legal rules, Cotterrell suggests there is a continuum, and that twentieth century experience has seen a shift towards the particularistic end of the continuum: Cotterrell, R. Law's Community: Legal Theory in Sociological Perspective Oxford University Press, Oxford (1995), 221.

[3] Cotterrell, R. Law's Community: Legal Theory in Sociological Perspective Oxford University Press, Oxford (1995), 280-282.

[4] Accordingly this paper addresses central issues relating to the regulation of infrastructure and services (which include competition safeguards, interconnection and universal service requirements) but not issues associated with content regulation. For a typology of issues see Fenoulhet, T. R. 'The Regulatory Dynamics of the Information Society' in A. Dumort & J. Dryden (Eds.), The Economics of the Information Society (pp. 20-30) Office for Official Publications of the European Communities, Luxembourg (1997) 29.

[5] Majone, G. 'The Rise of the Regulatory State in Europe' West European Politics 1994 17(3), 77-101.

[6] It was Hayek who observed that much of what the sociologists call 'materialized' law has the characteristic that it does not take the form of generally applicable rules, but rather of instructions to a limited range of actors: Hayek, F. A. Law, Legislation and Liberty: Volume I - Rules and Order Routledge, London (1973), 128. This distinction, familiar in some civilian legal systems, is to be found formalised in the European Community legislative instruments, some of which have general application (regulations), whereas others affect only those to whom they are targeted (directives).

[7] Moon, J., Richardson, J., & Smart, P. 'The Privatisation of British Telecom: A Case Study of the Extended Process of Legislation' European Journal of Political Research 1986 14, 339-355.

[8] This, for example, appears to be the position of Foster, who suggests that regulation directed at economic purposes of protecting against monopoly and promoting competition is the only legitimate set of functions for utilities regulators: Foster, C. D. Privatization, Public Ownership and the Regulation of Natural Monopoly Blackwell, Oxford (1992).

[9] Hayek, F. A. Law, Legislation and Liberty: Volume I - Rules and Order Routledge, London (1973) 141-2. Hayek notes of a certain type of 'social' legislation: 'The aim of it is to direct private activity towards particular ends and to the benefit of particular groups. It was as the result of such endeavours, inspired by the will-o-the-wisp of 'social justice', that the gradual transformation of purpose-independent rules of just conduct (or the rules of private law) into purpose-dependent rules of organisation (or rules of public law) has taken place.' (142). This is not to say that Hayek opposes the development of mechanisms to supply collectively goods which would not be supplied by the market alone. Indeed he anticipates the administration of levies and funds by firms for the provision of collective goods, resonant with EC proposals for the creation of universal service funds to finance universal service in voice telephony: Hayek, F. A. Law Legislation and Liberty Volume 3: The Political Order of a Free People Routledge London (1979), 146.

[10] Peltzman, S. 'Towards a More General Theory of Regulation' Journal of Law and Economics 1976 19, 211-240; Wilson, J. Q. (ed) The Politics of Regulation In J. Q. Wilson (Ed.)Basic Books, New York (1980); Hills, J. Deregulating Telecoms Frances Pinter, London (1986); Wenders, J. T. ' The Economic Theory of Regulation and the US Telecoms Industry' Telecommunications Policy 1988 12(1), 16-26; Habermas, J. Between Facts and Norms - Contributions to a Discourse Theory of Law and Democracy (William Rehg, Trans.)Polity Press, Cambridge (1996), 333-4.

[11] Cotterrell, R. Law's Community: Legal Theory in Sociological Perspective Oxford University Press, Oxford (1995), 249.

[12] Cotterrell suggests that it is the ideological positions associated with the 'minimal state' and the rule of law (in the sense of an objection to particularised rules and wide discretion) which lies behind the sort of position adopted by Hayek. Such concerns do, in his view, obscure the contemporary problems of the legal system: Cotterrell, R. Law's Community: Legal Theory in Sociological Perspective Oxford University Press, Oxford (1995), 253-60.

[13] Cotterrell, R. Law's Community: Legal Theory in Sociological Perspective Oxford University Press, Oxford (1995), 262-3; Teubner, G. 'Juridification - Concepts, Aspects, Limits, Solutions' in G. Teubner (Ed.), Juridification of Social Spheres (pp. 3-48). Walter de Gruyter, Berlin (1987).

[14] Fenoulhet, T. R.'The Regulatory Dynamics of the Information Society' in A. Dumort & J. Dryden (Eds.), The Economics of the Information Society (pp. 20-30). Office for Official Publications of the European Communities, Luxembourg (1997) 21.

[15] In some cases such barriers are intended, as in the case of the prohibition on the two main UK public telecommunications operators on providing broadcast entertainment services over their national telecommunications networks. This prohibition, intended to last until 2001 (though it may be subject to earlier review by the new Labour government) was to protect the investments of cable tv operators during their early years.

[16] Collins, R., & Murroni, C. New Media New Policies Polity Press, Cambridge (1996), 175. Collins and Murroni adopt the term 'fuzzy law' to capture the notion of general rules. 'Regulation needs to apply general principles to particular issues case by case and needs to steer an optimal path between contradictory policy goals.' They recognise that the deployment of such general principles must be accompanied by regulatory discretion so as to avoid risks of political interference: op cit 175-6.

[17] This is not to say the national governments implementing supranational norms will necessarily retain the simplicity and general characteristics of supranational norms. However, at least within the European Union, the promulgation of unduly complex regulatory systems might create barrier to trade, thereby falling foul of either the specific duties to implement the relevant legislation, or the general duty of loyalty of the Member States, Article 5 EC.

[18] McCahery, J., Bratton, W., Picciotto, S., & Scott, C. 'Introduction: Regulatory Competition and Institutional Evolution' In J. McCahery, W. Bratton, S. Picciotto, & C. Scott (Eds.), International Regulatory Competition and Coordination (pp. 1-56). Oxford University Press, Oxford (1996).

[19] Dezalay, Y. 'Between the State, Law and the Market: The Social and Professional Stakes in the Construction and Definition of a Regulatory Arena' In J. McCahery, W. Bratton, S. Picciotto, & C. Scott (Eds.), International Regulatory Competition and Coordination (pp. 59-87) Oxford University Press, Oxford (1996).

[20] This thesis is developed for the United States in Eisner, M. Antitrust and the Triumph of Economics : Institutions, Expertise, and Policy Change University of North Carolina Press, Chapel Hill, (1991).

[21] Gardner, A.' The Velvet Revolution: Article 90 and the Triumph of the Free Market in Europe's Regulated Sectors'. European Competition Law Review 1995 16 (2)78-86.

[22] Scott, C. 'Changing Patterns of European Community Utilities Law and Policy: An Institutional Hypothesis' in J. Shaw and G. More (eds) New Legal Dynamics of European Union Oxford University Press, Oxford (1996).

[23] For example, there is in the UK a debate developing as to whether Oftel and the various broadcasting regulators should be subsumed within a single Office of Communications, with similar scope (if not powers) to the US Federal Communications Commission: Collins, R., & Murroni, C. New Media New Policies Polity Press, Cambridge (1996).

[24] See generally Stevenson, J. 'New Zealand' in C. Long (Ed.), Telecommunications Law and Practice (pp. 563-589) Sweet & Maxwell, London (1995).

[25] Flood, C. 'Regulation of Telecommunications in New Zealand - Faith in Competition Law and the Kiwi Share' Competition and Consumer Law Journal 1995 3 199-221.

[26] See the Disclosure Regulations, SR 1990 no 120, and amended by Amendment no 1 SR 1993 No 380, issued under the Telecommunications Act 1987.

[27] Among the more public examples of this 'regulation through coaxing' role see Ministry of Commerce Regulation of Access to Natural Monopolies Report to Cabinet from the Office of the Minister of Commerce, Office of the Minister of Communications, (1996).

[28] Figures 1 and 2 are based on the models developed by Ayres, I. and Braithwaite, J. Responsive Regulation Oxford University Press, Oxford (1992).

[29] Clear Communications v Telecom New Zealand [1995] 1 NZLR 385 (PC).

[30] New Zealand Herald, 21 July 1997.

[31] Interconnection Agreement 1996 between Telecom New Zealand Limited and Clear Communications Ltd.

[32] See generally Armstrong, M. (Ed.). (1990-). Communications Law and Policy Butterworths, Melbourne.

[33] King, S., & Maddock, R. Unlocking the Infrastructure - The Reform of Public Utilities in Australia Allen & Unwin, St Leonards, NSW (1996), chapter 3; Leonard, P., Waters, P., & Fisse, B. . 'Essential Facilities in Telecommunications I'Telecommunications Law and Policy Review 1995 3(6), 56-60; Leonard, P., Waters, P., & Fisse, B.'Essential Facilities in Telecommunications II' Telecommunications Law and Policy Review, 1995 3(7), 66-69.

[34] Initially through a Network Interworking Industry Forum (NIF) to be replaced by a Communications Industry Forum (CIF). An Access Code is to be negotiated through another indutry body, the Telecommunications Access Forum (TAF): Horton, B. 'Post '97 Regulation: An Unknown Culture' in the papers of the Communications Research Forum, Bureau of Transport and Communications Economics, Melbourne (1996).

[35] Department of Trade and Industry Licence Issued to British Telecommunications plc HMSO, London, (1984, as amended) Condition 13.

[36] Oftel Network Charges from 1997 Office of Telecommunications, London, (1997).

[37] Oftel Pricing of Telecommunications Services from 1997 Office of Telecommunications, London (1996); Oftel Fair Trading Condition - Incorporation into Existing Telecommunications Licences Office of Telecommunications, London (1997). Pitt, E. 'Licensing Under the UK Telecommunications Act 1984 - The Fair Trading Condition' European Competition Law Review 1997 329-332.

[38] Maher, I. 'Alignment of Competition Law' Yearbook of European Law 1996 (forthcoming).

[39] Oftel Guidelines on the Operation of Fair Trading Condition Office of Telecommunications, London (1997); Oftel Procedural Notes of the Advisory Body on Fair Trading in Telecommunications Office of Telecommunications, London (1997); Oftel Fair Trading Condition - Enforcement Procedure Office of Telecommunications, London (1997). Additionally a regular Competition Bulletin published by Oftel provides details of current and decided cases, indicating the approach Oftel has taken.

[40] Draft Licensing Directive COM (95) 545 Final.

[41] The World Trade Organisation 'Reference Paper' was not formally published but is referred to in the Introductory Note to the Agreement on Telecommunications Services 36 ILM 354 (1997)and reproduced at 36 ILM 367. It may be noted that there is no requirement that the regulatory authority is independent of ministers, a factor which permitted the New Zealand government to sign up to the Reference Paper. A helpful discussion of the WTO Agreement is provided in: Fredebeul-Krein, M., & Freytag, A. 'Telecommunications and WTO Discipline: An Assessment of the WTO Agreement on Telecommunications Services' Telecommunications Policy 1997 21, 477-491. Fredebeul-Krein and Freytag describe the interconnection principles of the Reference Paper as 'rather specific' (490) but these things are relative.

[42] Baxt, B. 'Proposals for Telecommunications Reform' Australian Law Journal 1996 70 359-362.

[43] This argument is made in relation to the enforcement of the environmental obligations of the Member States: Williams, R. 'The European Commission and the Enforcement of Environmental Law: an Invidious Position' Yearbook of European Law 1995 14, 351-399. For telecommunications the view is echoed in a recent survey of elite opinion: National Economic Research Associates, & Denton Hall Issues Associated with the Creation of a European Regulatory Authority for Telecommunications Report for European Commission (DG XIII), (1997) para 3.8.

[44] This concern applies more generally to the issues of the creation of EU-level regulatory authorities. No agency has been created distinct from the Commission which has classical regulatory powers of rule-making, monitoring and enforcement. The European Environment Agency, for example, exists chiefly to gather and disseminate information: Ladeur, K.-H. 'The European Environment Agency and Prospects for A European Network of Environmental Administrations' In A.Kreher (ed) The New European Agencies European University Institute, Florence, 1996; Majone, G.'New Agencies in the EC: Regulation by Information' In A. Kreher (Ed.) The New European Agencies (pp. 5-11) European University Institute, Florence, 1996. The creation of a distinct EU level agency with wide powers would almost certaintly require a Treaty amendment: National Economic Research Associates, & Denton Hall Issues Associated with the Creation of a European Regulatory Authority for Telecommunications Report for the European Commission (DG XIII), (1997) para. 4.3.1.

[45] See National Economic Research Associates, & Denton Hall Issues Associated with the Creation of a European Regulatory Authority for Telecommunications Report for the European Commission (DG XIII), March 1997.

[46] This description obviously excludes the experience of the United States where regulated private monopoly has been the general rule in the this century, though this has given way to competition in the long distance telecommunications market since the 1960s and the Communications Act of 1996 holds out the prospect of competition developing in local telecommunications markets.

[47] Though some, such as Hayek (see above) would suggest that markets provide the basis for guiding regulatory outcomes.

[48] Habermas, J. Between Facts and Norms - Contributions to a Discourse Theory of Law and Democracy (William Rehg, Trans.). Polity Press, Cambridge (1996), 98.

[49] Habermas op cit 136-7, 414.

[50] Habermas op cit 144.

[51] Habermas op cit 333.

[52] Habermas op cit 391, 429.

[53] Habermas op cit 440.

[54] Ladeur, K.-H. 'Post-Modern Constitutional Theory: A Prospect for the Self-Organising Society' Modern Law Review 1997 60, 617-629, 620.

[55] Hancher, L., & Moran, M. 'Organizing Regulatory Space' n L. Hancher & M. Moran (Eds.), Capitalism, Culture and Regulation (Chapter 10) Oxford University Press, Oxford, (1989); Reichman, N. 'Moving Backstage - Uncovering the Role of Compliance Practices in Shaping Regulatory Policy' In K. Schlegel & D. Weisburd (Eds.), White-Collar Crime Reconsidered (pp. 244-268) Northeastern University Press, Boston. 1992. The New Zealand Commerce Commission (the competition authority) went so far as to say that in relation to interconnection the dominant incumbent, Telecom New Zealand, was effectively the regulator because of the power it exercised in the process :New Zealand Commerce Commission, Telecommunications Industry Inquiry Report Wellington, NZCC (1992).

Because of the failure to recognise the importance of the points at which regulatory rules are applied for understanding the meaning of such rules sociological theory (though not socio-legal studies of regulation) are deficient. This criticism applied equally to the model of 'Regulatory Negotiation': Demunck, J., & Lenoble, J. 'Negotiated Law and Proceduralization' Centre of Philosophy of Law, Louvain-la-Neuve, (1996).

[56] It has been suggested that the procedural requirements appropriate to future UK communications regulation would include: the holding of public hearings; the right of representation for all individuals and groups affected by the decision at hand; and a requirement that the regulator give reasons for decisions. This would be accompanied by the creation of a Consumer Council 'to initiate proposals, to conduct research, and to advise complainants': Collins, R., & Murroni, C. New Media New Policies Polity Press, Cambridge (1996) 178.

[57] Oftel Improving Accountability: Oftel's Procedures and Processes Office of Telecommunications, London (1997).

[58] The fact that Oftel proposed regimes which were less burdensome in respect of interconnection and price controls than might have been anticipated, following extensive consultation, might be taken as evidence of capture by the dominant firm. However the very fact of extensive consultation has meant that other firms and consumer groups have better information than hitherto, as do analysts, and there has been no suggestion of hidden motives. Where there has been some questioning, particularly the slippage in the terms on which competition rules based on Articles 85 and 86 were to be applied to BT, this may be attributed to a statutory structure which encourages Oftel and BT to negotiate behind closed doors in the final stages of a licence modification.

[59] cf Demunck, J., & Lenoble, J.'Negotiated Law and Proceduralization' Centre of Philosphy of Law, Louvain-la-Neuve (1996).

[60] Mercury Communications Ltd v Director General of Telecommunications, (Court of Appeal, unreported) noted in Utilities Law Review 1994 5 103-105. See also the House of Lords decision: [1996] 1 All ER 575.

[61] Clear Communications v Telecom New Zealand Privy Council (above).

[62] Clear Communications (above).

[63] R v Director General of Electricity Supply ex p Scottish Power (Divisional Court, unreported) noted in Public Law [1997] (3) (forthcoming). Contrast the more hands-off approach of the Court of Appeal in R v Director General of Telecommunications ex p British Telecom (unreported) noted in Utilities Law Review (1997) 8 82-83.

[64] Teubner, G. 'Juridification - Concepts, Aspects, Limits, Solutions' in G. Teubner (Ed.), Juridification of Social Spheres (pp. 3-48)Walter de Gruyter, Berlin, 38. See also Black, J. 'Constitutionalising Self-Regulation'. Modern Law Review (1996) 59 (1):24-55.

[65] The Guardian 11 September 1996.

[66] Ayres, I., & Braithwaite, J. Responsive Regulation - Transcending the Deregulation Debate Oxford University Press, Oxford (1992), chapter 4.

[67] Maher, I. 'Limitations on Community Regulation in the UK: Legal Culture and Multi-Level Governance' Journal of European Public Policy 1996 3, 577-93.

[68] Cotterrell, R. Law's Community: Legal Theory in Sociological Perspective Oxford University Press, Oxford (1995), 270.

[69] Cotterrell op cit 271.

[70] Prosser, T. Law and The Regulators Oxford University Press, Oxford (1997).

[71] This is what Ayres and Braithwaite refer to as 'tripartism': Ayres, I., & Braithwaite, J. Responsive Regulation - Transcending the Deregulation Debate Oxford University Press, Oxford (1992), chapter 3.

[72] Paradoxically such requirements may reduce the extent to which domestic governments can rely on non-legal and less formal oversight mechanisms: Wilks, S. 'Regulatory Compliance and Capitialist Diversity in Europe' Journal of European Public Policy 1996 3, 536-59, 547. Supranational regulatory developments may therefore reduce the extent to which problems of regulatory law may be overcome.

[73] Oftel Pricing of Telecommunications Services from 1997 Office of Telecommunications, London (1996).

[74] This is precisely contrary to the arguments of Tony Prosser who suggests that whereas most issues of utilities regulation should be proceduralized with the regulator supervising transparent procedures for rule making, the protection of certain social obligations is so important that social principles should, in a sense, trump other concerns and be protected by regulators absolutely: Prosser, T. Law and The Regulators Oxford University Press, Oxford (1997).

[75] See generally Murroni, C. 'Universal Service in Liberalised Telecommunications Markets' in A. Dumort & J. Dryden (Eds.), The Economics of the Information Society (pp. 109-116). Luxembourg: Office for Official Publications of the European Communities.

[76] cf Murroni op cit 115-6.

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