UK market finds talk is not cheap

What good do governments' regulatory policies do? And how do they come about? To address the first question: there are always risks that wrong or inadequate regulation can permit firms to behave egregiously where human welfare is concerned. Lax regulation may allow firms to overcharge people or to endanger their health. Conversely, tight regulation carries the risk that firms may not invest enough for the future or take a long-term view because their hands are tied. Policies are difficult to get right.

To assess government regulatory policies, it is necessary to understand how they are developed. In The Politics of Telecommunications , Mark Thatcher examines how sectoral and regulatory policies emerged in the way they have in Britain and France. This is not a book about the telecommunications sector per se. It is about the way national institutions shape government policy-making. It attempts to generalise towards a theory of how national institutions shape the evolution of policy and thus shape the evolution of a sector.

The principal arguments are: that within a country, institutions are stable and change rarely; that institutions differ between countries; and that these differences produce dissimilarities in policies. Yet over time, path dependencies can disappear as one country adopts institutional innovations that have been successful in another. This thesis is not unexpected. The strength of the book lies in its detailed analysis of these propositions with reference to the shaping of telecommunications-sector policy in Britain and France. As such, the book falls within the genre of comparative political analysis. The empirical description of the British and French tele-communications sectors is detailed and meticulously documented, making the historical content of the book very strong.

The Politics of Telecommunications should find a wide readership among those interested in politics, public administration or telecommunications policy design. The latter are numerous, as many countries are seeking to reform their telecommunications sectors.

Change came to telecommunications in Britain relatively early, in the 1980s. A Whitehall-directed regime was replaced by Guildhall principles. An independent regulator, Oftel, was created. In France, a technocratic elite has been in charge at the bureaucratic, regulatory and corporate levels. Change came late in the 1990s. The ethos has been that the civil service rules. In Britain, market forces prevail in most areas of the telecommunications sector. In building fixed-line telecommunications infrastructure, Britain and France performed similarly. When it comes to the price of using this infrastructure, France has done better. French prices are generally lower than British and dropped faster in real terms.

Britain has a market-oriented approach, yet a considerable amount of regulatory gaming takes place between BT and Oftel. A large proportion of BT's management attention is devoted to managing the regulatory interfaces. This has yielded a higher income for BT, but at what cost to the customer? The French experience is based on bureaucracy carried to its logical end. But the French customer has gained. The theory that the market approach is always better diverges from reality. National institutions do matter. This is not to suggest that dirigisme always works. Sectoral characteristics also matter. The internet is an example: the US government developed the technical part of the network and then stepped back, in the early 1990s, to let the private sector diffuse this marvel.

Whether a market or a dirigiste approach is better depends on the characteristics of the sector. Thatcher's empirical approach, in conjunction with appropriate theory, will help policy-makers to tailor institutional mechanisms to the circumstances of each sector.

Sumit K. Majumdar is professor of strategic management, Imperial College, London.