Privatization: a bitter bite for consumers

In 1990, a century after the enactment of Sherman Act, the Italian Parliament adopted law no. 287, introducing competition law (as it is called in Europe) in Italy, a country with too many monopolies.

Since that date, many privatizations have been carried out. Telecommunications, Energy (oil, gas, electricity, water) and Highways. They have all been extremely profitable, since have allowed the new owners to exploit in the competitive market infrastructures and licences (i.e. essential facilities) respectively built and granted under the public monopoly and paid for by taxpayers money. The economic potential of these companies became clear when they were listed on the Milan stock exchange and many investors slept in tents set in front of the banks' doors to be the first one to buy the newly issued shares. Of course, the shares have been sky-rocketing since their issuance!!!!

Privatization seemed the dawn of a new era of prosperity and many foresaw increased competition and lower prices to the benefit of Italian consumers. The truth, instead, was that the wave of privatizations has replaced the public monopolist with private monopolists. There are several evidences of this phenomenon.

In the telecom sector there has been a moderate increase in competition. New operators have entered the market of both fixed and mobile telephony. However, the process seems to be incomplete. In the fixed telephony there is competition, but the infrastructures (the phone network and the relevant band capacity) are firmly held by the former incumbent. Pursuant to EU telecom rules, the incumbent has been notified as a holder of Significant Market Power (SMP), a definition which triggers temporary and asymmetric regulatory measures aimed at increasing competition. The former incumbent has been fined € 152 million for violating such measures. However, full separation between network ownership and service provision has never been considered...

In the mobile telephony market an oligopoly with three operators has established. Competition might further develop if Mobile Virtual Network Operators (MVNO) were allowed to enter the market. MVNO are operators which lack the network to operate mobile telephony services, but are entitled, pursuant to asymmetric regulation, to purchase band capacity from the SMP operators already in the market. The SMP operators, however, refuse to sell band capacity and are under investigation by the IAA (the decision shall be adopted within days).

In the energy sector, there is a substantial monopoly held by the former incumbents. The biggest of these once state-owned giants, has recently been fined € 290 million for refusal to deal, having refused to sell pipeline capacity to new entrants on the Italian energy market. The cost of energy in Italy is the highest in Europe.

Highways are the last example of ill-fated privatization. The Italian highways network was privatized and sold to ASPI. ASPI was under investigation by the IAA for attempt to monopolizing and has settled a private antitrust lawsuit brought for the same reason. In these days ASPI is planing a merger with the Spanish counterpart Abertis. The merger, however, has raised multiple complaints and is currently under scrutiny because it is alleged to be a disguised sale of ASPI to Abertis, in breach of the Italian law regulating the sale of entities holding public licenses.

All these example make me reflect and conclude that privatization does not always mean increased competition. Is there a philosophy for privatization I can turn to?   

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