The European Commission just doesn’t get it

From the BBC, in its latest attempt to drag the EU into the fiery depths of Socialism, the European Commission has decided that the best way tackle high international mobile phone costs is to implement enforced EU-wide price caps. Apparently, the Commission estimates its changes would wipe £3.5bn off of the earnings of mobile phone operators.

Yeah, way to go European Commission. This is going to do wonders to help an already stagnant EU economy and massive unemployment rates, isn’t it? In reality, there are precisely three effects this policy will have on the mobile communications sector. First, by intentionally undermining the profits of telecommunications companies, so too will be investment into future development of telecommunications infrastructure. In the long term this will result in EU consumers having access to sub-standard services and higher costs. Second, it will cause loss of jobs. Every dollar a company doesn’t have, is a dollar it can’t spend on employing someone. Third, it will reduce competition by undermining the manoeuvrability of companies and the incentive for new operators to enter the market.

I’m not arguing against regulation per se. By all means regulation is necessary under any system. However, in a market economy (assuming that’s what the EU actually wants, which isn’t quite clear) regulatory bodies should aim to achieve their goals through regulations which enhance competition, rather than undermine it. In my opinion, many of the hostilities against market economics can be attributed to insufficient competition, giving the perception that capitalism has little to offer the average pleb. If the EU wants to overcome its deep-rooted moral objections to capitalism it should aim to create a more competitive system, rather than a more heavily regulated and less competitive one which only deepens the hostilities.

As an example, in this particular instance, rather than introducing price caps, what I would regard as being a ‘good’ regulatory response would be as follows. Mandate that all mobile services companies provide a ‘price sheet’ which describes all costs in a standardized manner. This would enable the consumer to directly compare different operators and make more informed decisions, and, as we all know from ECON101, information is the key to efficient markets. The big problem with mobile phone charges, the reason they are so high, is because there are often hidden charges and costs. Regulation of the type I just described would directly counteract this problem.

There has also been a bit of chatter lately about implementing fee caps on banks, in response to countless hidden fees and charges. I think regulation of the form I just described would also be a good option in this case.

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