Proposed Sale of Jersey Telecom
Produced by the
Economic Development (Department for the Economy)
Authored by
JCRA
and published on
22 Mar 2007
Prepared internally, no external cost
Summary
Pulling together the various and at times complex issues and arguments outlined in the paper:
- the States objective in telecommunications is to meet demand (particularly the demands of the financial sector) for telecommunications services, wherever appropriate by competition
- competition occurs in the dimensions of price and quality but the States have expressed a preference for quality services in view of the demands of the financial sector and its importance to the Jersey economy
- resale competition typically results in price competition but it does not always provide for high quality services since it involves minimal investment in the necessary infrastructure (however, such competition may play an important role in facilitating market entry and the transition to more investment-based competition)
- if competition is to result in high quality services, it can only be provided by ‘deep-level’ investments in network infrastructure such as that afforded by facilities- and access-based competition
- of the two, facilities-based competition is not economically feasible in Jersey given the small market size, high capital costs and economies of scale
- access-based competition is the only potentially feasible form of competition in Jersey that will meet the demand for high quality services
- however, on the basis of international experience and despite the best intentions of regulators, it appears that access-based competition is unlikely to develop on an effective, timely and sustainable basis while JT is structured as a vertically integrated supplier of network and retail services under the current regulatory regime
- the JCRA notes Newtel’s plans to become an access-based competitor
- if access-based competition is successful, it would be expected to deliver significant ongoing benefits for the Jersey economy as a whole in both quality and price of services
- there may be a one-off loss in States revenue from structurally separating JT rather than selling as a whole but the JCRA understands that there may be market interest in acquiring separated entities
- there are also likely to be on-going costs stemming from the loss of vertical efficiencies, reduced synchronisation of demand and supply, and loss of welfare-enhancing ability to price discriminate
- there is the likelihood of greater resale competition to keep downward pressure on retail prices
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