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Only where there is market or competitive failure, meaning the normal pressures of demand and supply equilibrium have broken down, is there really a need for intervention by the regulator.
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Secondly, a regulator should not be overly involved in utility companies’ management decisions in such a way as to distort such business decisions. Abuse may also occur through non-price anti-competitive tactics where the incumbent for instance “drags its feet” in completing the interconnection process with new entrants by delaying getting the appropriate equipment even though interconnection agreements have been signed and are in place. It is the regulator’s responsibility to scrutinise through the rate review process the proposed rates to ensure that they are fair. An example of such abuse is if a regulated service provider tries to propose the setting of very high rates in relation to the cost of providing the service to ensure excessive profits are gained. Firstly, a regulator must prevent the possible abuse of monopoly power. There are certain broad principles which should guide all regulators. With the establishment of the new type of regulatory body came questions such as how far and at what point should a regulator intervene into an industry and what are the fundamental concepts that a regulator should place at the pinnacle of all of its decisions? This meant regulation that was not solely concerned with the setting of prices but rather had a wider scope which incorporated issues such as standards of service and encouraging competition. With the emergence of this fledgling competitive market it was considered essential that a more modern type of regulation should be formulated. It was recognised that without the threat of new entry or the growth of the new rivals the discipline of a competitive market could not be exerted and these incumbent firms would have been able to continue to exploit their dominant position at the expense of consumers. New entrants therefore faced the significant challenge of competing against very dominant and powerful incumbents who would have occupied this privileged position as a result of legal barriers to entry. The incumbent providers were forced to become more efficient in the face of increasing competition, while the new entrants were faced with the challenge of competing effectively and accumulating market share against well entrenched and experienced incumbent providers. Over time, however, these incumbent monopoly providers were exposed to market forces as governments permitted new players to enter the market during an era of globalisation and liberalisation of traditionally protected markets. Traditionally throughout the world utility services were provided by a single entity. Printed in the Business Monday newspaper on March 14th, 2011