Jeremy Warner's Outlook: Ofcom shows sense on termination charges, but what happens in two years' time?

Blair speaks the truth - Regal mess prompts calls for AIM reforms

There was anger among consumer groups yesterday at Ofcom's decision to leave price controls on mobile phone charges unchanged for the next two years and then review whether they continue to be necessary at all. Of course they are necessary, yelled the National Consumer Council. Callers to mobile phones have no control over the termination charges they pay, so plainly they need to be regulated.

There was anger among consumer groups yesterday at Ofcom's decision to leave price controls on mobile phone charges unchanged for the next two years and then review whether they continue to be necessary at all. Of course they are necessary, yelled the National Consumer Council. Callers to mobile phones have no control over the termination charges they pay, so plainly they need to be regulated.

Mobile phone charges in general are not regulated as things stand and nor should they be. Five rival networks with any number of virtual operators piggybacking on top should be quite enough to ensure decent levels of price competition. What is regulated is the bit of the tariff mobile companies levy for terminating a call on their network. Common sense dictates that these have to be controlled, as the caller has no way of choosing what price to pay when he connects to a rival network.

Last time the issue was investigated, the mobile companies appealed to the Competition Commission after the then telecoms regulator, Oftel, ruled in favour of tough price controls. Unfortunately for them, the Competition Competition determined that the regulator hadn't been tough enough, and the phone companies got doubly whacked. After that experience, yesterday's ruling must have seemed like manna from heaven. The termination charge is already close to cost. By reducing them further, the regulator would only have ensured that the difference is recouped elsewhere in the pricing matrix.

Yet the review in two years' time of whether to continue with price controls at all may not be entirely to the industry's liking. One way of getting round the problem of the caller's inability to choose the tariff would be to reverse the charging system so that the receiver not the caller pays. This would soon ensure genuine price competition in the termination charge. It might also make mobile phone users more choosy about whom they take calls from, thereby significantly reducing the level of voice traffic. Using just such a charging mechanism significantly slowed the development of mobile telephony in the US. This is not a trade-off the industry would welcome.

Blair speaks the truth on City regulation

Nobody likes regulators, who are generally regarded as the worst type of bureaucrats: they just stop you doing what you want to do, often, it appears, for no reason other than that's what the rules say, never mind that the original purpose of the rules has long been forgotten.

Nonetheless, most of us would agree that they are a necessary evil, without which capitalism would break down and something very much more offensive to individual freedom would take its place. Capitalism works because we've learnt how to regulate it.

This is where Karl Marx got it wrong in postulating that free markets would end up destroying themselves. With each successive crisis of capitalism, Western democracies have got better at controlling the wilder excesses of the unbridled pursuit of profit.

So we have our deposit protection schemes, our defences against fraud, our health and safety regulations, and so on. The problems occur when regulation goes too far and gets out of hand, for it then just clogs up the wheels of commerce to everyone's ultimate disadvantage.

There's plenty to suggest that this is indeed what is happening at the moment. It would be wrong to characterise this as a particularly New Labour, or even European phenomenon. Actually it is global in nature. In some respects the situation is even worse in the United States, where the propensity to sue at the drop of a hat and for juries to back the claimants with swingeing damages is a much greater danger to business than the vicissitudes of the economic cycle. British companies that have tried to escape the long arm of American regulators by cancelling their US listing have found that once the US Securities & Exchange Commission has got its claws into you, it's virtually impossible to persuade it to let go.

Into this debate has stepped the Prime Minister, Tony Blair, with a speech to the Institute of Public Policy Research which went almost entirely unreported until one of the objects of his complaint, the Financial Services Authority, decided to fight back.

According to Mr Blair, something is seriously awry "when the Financial Services Authority that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone; when pensions protection inflates dramatically the costs of selling pensions to middle-income people".

The attack was all the more surprising as it was Labour that created the FSA, an organisation which up until the Prime Minister's remarks had been presented by the Government as a triumph in public policy which countries around the world were queuing up to copy. A whole host of usually critical commentators have also leapt to the City regulator's defence. The FSA has its faults, but on balance it has been a good thing for the City.

Well possibly, but actually what Mr Blair was saying was no more than a statement of truth. A growing number of financial services companies, particularly in the retail sector, do indeed see the FSA as hugely inhibiting to efficient business. It is in the regulation of pensions and life companies, where the great bulk of popular saving takes place, that this is particularly apparent. Solvency, price and sales regulation has reached a point of such intensity that for many it is hardly worth saving at all any more. As the Prime Minister put it, "all these good intentions can add up to a large expense, with suffocating effects".

Even in wholesale markets, where there are fewer complaints about overbearing regulation and the benefits of having a single organisation to deal with are widely acknowledged, the FSA is deluding itself if it thinks the success of the City is largely a consequence of better regulation.

The City is successful because of advantages of language, tax, critical mass and tradition. The FSA is perhaps to be congratulated on not thus far undermining this success, but praise for regulation is never going to come more flattering than that.

Callum McCarthy, chairman of the FSA, is being overly sensitive in cutting up rough about the Prime Minister's remarks, which were entirely justified. That they also cut across what Gordon Brown, the prime minister-in-waiting, still sees as one of his finest achievements, is for political commentators to make something of.

Regal mess prompts calls for AIM reforms

The meltdown at Regal Petroleum, culminating yesterday in the resignation of the chairman and founder, Frank Timis, is almost certain to prompt calls for root and branch changes in the rules governing the Alternative Investment Market (AIM). They must be resisted. Many of the stocks floated on AIM, particularly in the natural resources sector, are essentially a con, but that doesn't mean the whole casino should be closed down.

AIM is the wild west frontier of investment and Regal has proved another salutary lesson in its risks. What was being billed as potentially southern Europe's biggest ever offshore oil find turned out to have virtually nothing in it at all, while Mr Timis seems to have a background more colourful than a Jackson Pollock. Yet the moral hazard of markets has worked exactly as it should. Those who didn't get out in time have suffered calamitous losses. The share price and reputation of the sponsoring securities house, Evolution Group, have also suffered accordingly. Next time, everyone will be a lot more careful. Caveat emptor is the guiding rule of AIM, and that's how it should remain. If investors are sold too many pups, they'll stop supporting the market of their own accord. They don't need regulators to close it down for them.

j.warner@independent.co.uk