Liberalization

For the past decade, the sectors that provide these services have been undergoing a process of fundamental change. This change has been caused by technological development, globalisation and liberalisation. Various State-controlled or owned enterprises have been or are being privatised. New enterprises are entering these market sectors, and the development of more legislation on fair competition is an ongoing process in the Maltese islands.

In some cases, competition, however, is somehow hindered by the fact that some sectors are composed in part of natural monopolies. Against this background, the challenge is to secure a well-defined limitation of the natural monopoly in each sector, and to ensure that all sections operate to the benefit of consumers. “Now that network infrastructure ( telephone cables, pipelines etc) can be separated from services to clients, competitive market conditions are coming closer.” The European Commission believes.

However, liberalization of these services poses both opportunities and threats for consumers.

Opportunities - Consumers are promised more choices, lower prices and better quality. In order liberalization gives a positive result to consumers, we need both strong legislation that ensures consumers’ rights, and of course informed consumers who will be able to face and handle correctly and to their own benefit, the new market trends and the new market situation.

Threats - Where services of general interest are provided by state-owned or controlled monopolies, consumers have fewer things to worry about. There is only one provider, one quality, and one price. Somebody else makes the decisions for them regarding quality and price. Even though they have to pay money for services which might not be of very good quality, they can do little, or even nothing, to better their situation.

On the contrary, when a sector of these services is liberalized, consumers must learn to behave differently. They must search the market, conduct surveys, be informed on different providers, on prices, on accessibility, on geographical and economical restrictions, on quality, on terms of contracts, and even on after sales services. Informed consumers will become capable to compare similar services, and make their own decisions and choices, that will be most profitable to them. This might create a new difficulty, since changing attitude needs time, education, and training. Market survey is a time consuming procedure, and many consumers are not willing to undertake such initiatives, since they cannot see clear profit as soon as the relative market sector is liberalized.

Many of the SGI contain an element of natural monopoly. If there is no appropriate regulation, or the existing regulation is not properly implemented, a privately-owned natural monopolist may not have the incentive to maintain open access to the infrastructure, and/or to ensure interconnection on fair and open terms. It should also be noted that in the absence of competition, there is considerable scope for collusion between market players. This may have a negative effect on access, prices and quality.

In the sectors where competition is more easily introduced, there might be instances where the individual consumer will not be able to reap the positive benefits that liberalization brings with it. For example, price reductions may not have the same positive effect on all consumers. This has been the case in the telecommunications sector where the falls in international calls have not always had a positive effect on the majority of local consumers, because prices of fixed charges and local calls have not matched these reductions.

Equally, a greater number of providers do not automatically mean a greater number of services for consumers. This is due either to the uniform nature of some of these services, e.g. water is water, or to the uniform unfair commercial practices when some enterprises agree among them, thus forming a cartel which distorts competition and harms consumers.

Liberalisation supports the close linking of prices to costs. It also denies subsidies. The result may be greater choice and lower prices for some groups of consumers. On the other hand, other groups may be disadvantaged through higher prices and exclusion. This is why the Commission adopted the “Altmark package”, in 2005.

The big question is whether market can by itself solve the problems of exclusion or not. There is fear that some essential services will not be provided to all consumers at prices they can afford. In particular, people on low income, or those living in areas where infrastructure provision is expensive, are likely to find themselves unable to afford access to essential services. Similarly, certain groups of consumers who are viewed as unprofitable might not be offered the benefits of lower prices without obligations being placed on suppliers to require them to do so.

Some essential services are not economically viable and, in the absence of intervention, will not be provided by the market at all. The result here is that choice may be limited or non-existent. For instance, a transport provider in a liberalised industry may not choose to offer services on a little used route. This is the reason why the term “Universal Services” was initialised in the European Union.