Privatisation of state-owned services (was: Telecom sector NL unmasked as a Communist Dictatorship)

[Herman Beun]

REPLY TO: D66 at nic.surfnet.nl

Op Sun, 12 Aug 2001 17:02:36 +0200 schreef Nils Zonneveld in newsgroup
talk.politics.european-union:

[earlier:]
> Today I received a letter from Cistron Telecom, my telecom and internet
> provider, well known for their excellent service. Due to a conflict with
> KPN Telecom (a formely state owned telecom company and monopolist), KPN
> Telecom stops it services to Cistron Telecom. This means That within a
> month my internet AND telephone connection will be CUT OFF. The ONLY way
> I way I will be able to have a telephone connection and their poor
> shadow of what they call ADSL internet (mxstream, zum kotzen bah!), is
> to pay those thieves and criminals of the KPN a ransom of several
> hundreds of guilders. I have no choice, if I want telephone I must take
> KPN where I live! Where are the f*&*(*ing politicians now? I don't want
> anything to do with KPN, but at the same time I _need_ my telephone.
> There is no such thing as a free market in the Netherlands.
<snip>
>At least when everything was nationalised those companies where under
>democratic control, they had a responsibility to the public. Now those
>'free market' companies can simply dictate their policies on the consumers.

I think neither (state-owned or private) is better per se, it very
much depends on what is privatised or put under state control, and in
what way. During a study trip of the EP's liberal group to Sweden last
May, we discussed the issue of privatisation with some of the foremen
of Folkpartiet (Sweden's liberal party). Sweden is one of the
countries in Europe that has privatised a great deal of its
state-owned services and Folkpartiet has always supported this.

Taking railways as an example, their story was that there were
basically two ways to create a functioning market for these. One is
what seems most obvious: allow for direct and continuous competition
on price and quality between different railway companies all over the
railway network (leaving aside for the moment if the network itself is
private or government owned), much as it is done in the UK. The other
way is by auctioning temporary licenses for use of the network, each
time giving one company a temporary monopoly contract for an entire
region for a limited period of time, after which it has to enter
competition with other companies again in bidding for the next period.

Which method is better depends on the characteristics of the region
involved. A dense urban region, where intensive traffic is assured, is
best served by the first method of direct and continuous competition
between different companies serving the same destinations.
Folkpartiet, which is in Stockholm city government together with
Moderaterna (conservatives), claims the privatisation of public
transport in Stockholm, carried through according to this method, is a
success.

A rural area with low population density and little traffic, however,
would risk many of its connections to be closed down if this method is
followed, because competition forces companies to concentrate on the
most profitable lines. So the other method with temporary monopolies
is better then, because the monopoly provides the company with
sufficient income from the profitable lines which it can use for
operating the less profitable ones (of course, it is also reasonable
now to include an obligation for running these non-profitable lines in
the monopoly contract). At the same time, competition on price and
quality is still assured because companies know they will have to bid
for new licenses with the public authorities at regular intervals.

An important prerequisite in both cases is that there is no back-log
in investments at the moment competition starts, because otherwise
transition costs may be inhibitive for competitors other than the
former state-owned monopolist which enter the newly created market.
The Swedish government therefore made big investments to improve the
capacity of the railway network prior to privatisation.

Lessons to be drawn from the above:

- keep in mind to what extent the service being privatised is a public
good and what exactly you want to achieve with privatisation;

- get rid of investment back-logs inhibiting the onset of competition
by new market entrants;

- where competition may lead to the disappearance of a public good
(like providing far-remote areas with affordable and regular public
transport) -> privatise by auctioning temporary monopolies under
conditions set by a public body;

- otherwise, privatise by allowing several companies to compete
simultaneously and continuously on the same connections;

It looks like in most cases where privatisation has not led to better
and cheaper services, at least one or more of the above rules was not
followed. E.g. in the UK, the railway system was privatised by the
Thatcher government because it wanted to _avoid_ making investments in
the network that were urgently needed. In the Netherlands, more
government control was maintained than in the UK, which, until
recently, more or less compensated for the negative effects of the
failures here:
- large investment backlogs (network, carriages, personnel => there is
not even physical room for a competitor now on the Dutch network),
- the government failing to enforce conditions for fair competition,
- and last but not least, the fact that a socialist minister took over
in 1998 who made it clear that she was going to issue a single _long
term monopoly_ license for the most _profitable_ part of the railway
network, i.e. effectively smothering competition there where it would
have worked (and lo and behold: only one year later, the only
competitor NS ever had gave up for good).

So, getting back to telecoms now, I don't know enough about your local
situation, but I suspect it is something along these lines. I.e. not
so much failing privatisation, but failing government. Can you or
someone else expand on the situation in Delft (or the Netherlands in
general) to see if I am right?

>But I've send a letter to the D66 fraction of the 'Tweede Kamer' (Dutch
>parliament) about this situation.

Well, er, thanks for the confidence ;-)

/Herman

P.S.: It may be a poor consolation, but I can assure you the telecom
situation in Belgium is much, much worse (state-owned Belgacom
monopoly). Can you imagine I pay five times as much to call from
Belgium to the Netherlands than someone in the Netherlands pays to
call me?

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Herman Beun                  http://www.bigfoot.com/~hermanb/
HermanB at bigfoot.com                       Brussel, Vlaanderen
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European Parliament, ELDR (NL-D66), http://www.vanderlaan.net
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*representative democracy is a contradiction in 4 year terms*
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