European Affairs

The "Lazy Regulator" Helps Finland's Telecommunications Boom     Print Email

Deputy Director General of the Communications Department, Ministry of Transport and Communications of Finland

Largely thanks to a policy of extremely liberal regulation, Finland has become the world's number one country in mobile telecommunications and connections to the Internet. Seventy percent of Finns now have mobile telephones and the number of fixed lines is declining.

Finland has invented the doctrine of the "lazy regulator," which means that the regulator does not intervene in the market unless absolutely necessary. Market forces and general competition legislation are allowed to define business practices. We believe in the customer's ability to choose between operators and services, and there is no need, therefore, to regulate either the price or the quality of services. As in other sectors, the market will set the standards.

The benefits to Finland of this type of liberal regulation have been the following: First, wireless communication is very inexpensive. According to OECD statistics, Finnish charges for household mobile communications are the lowest in the world, and only about 60 percent of those in the United States. For example, there is no charge for incoming calls, which is an American phenomenon that I cannot understand. It is one reason for the relatively low penetration of mobile subscriptions in the United States.

Second, we have a high quality of service. We are able to make or receive a call without being cut off several times per call, as happened to me during a recent visit to the United States.

Third, mobile services were launched early, which has certainly contributed to Finland's leading position. The NMT analog mobile system was operational at the beginning of the 1980s, and the first ever GSM call was placed in Helsinki about ten years ago. We issued the world's first third generation licenses a year ago.

The concept of the "lazy regulator" does not imply total freedom for industry. There are some areas in telecommunications that are regulated with sector-specific rules, like frequency allocation, numbering and so on. Telecommunications is treated as a business, nothing more. We have general legislation for all kinds of businesses.

The goal is not to regulate but to establish a healthy environment in which industry can thrive. This has resulted in a highly competitive telecommunications market in Finland, maybe the most competitive in the world.

This means that new services are promoted, and customers are given access to new technologies, as soon as possible. There are no taxes on telecommunications.

About ten years ago, during a deep recession in our national economy, there was for a while a special telecommunications tax. But it was abolished very quickly once a national debate was launched about the requirements of an information society. It was felt that the telecommunications tax implied that information society services were being taxed, which was not our intention.

In the current phase of development, Finland does not support auctions of licenses for mobile services such as third generation mobile networks. We believe that an old-fashioned "beauty contest," in which regulators compare the merits of the applicants and choose the best, allows for the rapid spread of networks everywhere.

There are no extra costs for the operators of the networks. We prefer to see the networks grow, offer new services, and become profitable.

When British regulators recently auctioned next generation wireless licenses, the price of spectrum soared to $35 billion. Nobody expected the price of licenses to reach this level, and there are concerns that the auction's outcome has placed excessive financial burdens on the companies bidding for the licenses.

When auctions are held, the licenses will go to the operators most able to pay. But those are not necessarily the ones that will offer the best services. That is why Finland does not hold auctions. The licenses we issued last year were free of charge. There is a nominal frequency fee that operators must pay, but it is just for administrative costs.

I should say that "beauty contest" is not the correct way to describe our system. There is no political assessment of applicants. The law sets out criteria for the assessment of applicants and provides for legal recourse if a potential licensee is dissatisfied. Anyone has a right to claim that the procedure is unfair. That, however, has never happened. Our licenses have never been contested.

Obtaining a license in Finland is a simple process. If applicants have adequate resources and promise to obey the rules, they have a legal right to licenses, provided frequencies are available. If there is more than one applicant for the same frequencies, they are evaluated according to the following criteria:

  • Which company can offer the most technically advanced services?
  • What is the effect on competition of issuing the license to one applicant or another?
  • Which company can offer the lowest prices for services?
  • Will the applicant offer services throughout the country?
  • How secure are the applicant's services, including data protection and so on?
  • How good will the quality of service be?

A detailed report is then written and released. Dissatisfied applicants may take legal action. The courts then reassess the case. So, the process is judicial, not political. But the disputes procedure has never yet reached the legal stage.

We continue to try to make our regulatory environment better for business. Promoting electronic commerce is now a priority for the Finnish government. The challenge is to learn why the United States is so far ahead in electronic commerce, despite the fact that Finland has a sophisticated, inexpensive infrastructure in place. This has been studied from many points of view.

Among the reasons are the kinds of services offered online in the United States, and a high degree of trust in the system on the part of American consumers. But flat rates for local calls may be the decisive reason why Americans are such eager users of electronic services.

Ultimately there will be many ways to reach the customer, including fixed networks, 3G mobile networks, digital television and other technologies. Finns like mobile services because they are so convenient - the devices fit easily in a pocket or purse. But, I do not believe that mobile phones will replace all telecommunication technologies. They will be merely one important component of a new communications network that will be a reality much sooner than most of us imagine.


This article was published in European Affairs: Volume number I, Issue number III in the Summer of 2000.

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