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Strategic Use of Regulation: The incumbents’ behaviour in the Telecoms and Energy sectors in Belgium

David Aubin
Université catholique de Louvain
David Aubin
Université catholique de Louvain
Joery Mathys
University of Leuven
Koen Verhoest
Open Panel

Abstract

Liberalisation policies gave rise to multi-level and complex regulatory arrangements in most utility sectors in Europe, involving a wide set of authorities with general or sector-based competencies. The regulatory arrangement is the whole set of organisations and authorities located at different levels of government which have the task to orientate or govern the behaviour of market actors as well as the capacity to implement regulatory decisions. Such a specialisation in the regulatory arrangements may generate fragmentation, overlaps and blind spots in the regulation. These weaknesses are strategically used by the incumbents which are in a constant search for a preservation of their market shares and profits. They put regulation under pressure, and try to bypass it with technical justification. This communication provides a first empirical evidence of the use of rules in strategic behaviour. The incumbents elaborate strategies that use the regulatory gaps to preserve their market position, limit access of potential rival, or maintain cost disparities. Although strategic behaviour has been considered theoretically in public choice and institutional economics, very few empirical studies were conducted so far. This contribution compares two incumbent’s behaviour in the Belgian telecoms and energy sectors: Belgacom about the regulation of Mobile Termination Rates and Suez about the control of the Liquified Gas Terminal in Zeebrugge. It uses the method of process-tracing analysis to show how strategic behaviour works in reality. Incumbents develop complex strategies which take different forms (i.e. litigation, lobbying and direct contacts with competitors), activate rules of different levels (European, national and sub-national), and use different modes of engagement (persuasion vs. threat).