Competitiveness in the UK Energy and Telecommunication Markets

Abstract

In this paper we investigate the relationship between network regulation and competition in the retail market by comparing the UK retail markets for energy and telecom services. The energy and telecom industries went through a process of privatisation and vertical unbundling in the 1980s and 1990s. However, over the last decade there have been diverging views on the retail competition for household consumers in the two sectors. There is growing political and regulatory concern about insufficient competition in the energy sector while competition in the telecom sector is largely considered healthy. As in most network industries, competition in the energy and telecom markets is directly affected by the underlying network infrastructure. The regulation of both sectors aims at fostering competition in the retail market while allowing the right price signals for long-term investment in the underlying infrastructure. While it is not clear to us that there is a problem with competition in the energy market, we compare the two industries and their regulation to address two research questions: “Are there systematic differences between the two industries that explain the perceived difference in competitiveness?” and “Are there lessons of successful regulation that can be transferred between the two sectors?”