Disconnect with Regulatory Function is Risky Business for Telcos, says KPMG

Misalignment between the board and regulatory function presents risks to corporate regulatory strategy, according to a new report from professional services organisation, KPMG.

KPMG’s Bringing Regulation into the Boardroom report, based on interviews with over 60 senior telecoms executives around the globe, found that senior management and the regulatory function have differing priorities.

Senior managers are keen for the regulatory function to react to the immediate commercial challenges affecting the business and its profits, while the regulatory professionals are more preoccupied with the longer-term impact of regulation on corporate strategy, given the long-term nature of regulation.

David Thomas, Director and Head of Communications Regulation at KPMG in the U.K. commented: “This begs the question as to whether these companies actually have a defined regulatory strategy. Given the profound and growing impact of regulation on the communications sector, there is a real danger that this disconnect could lead to inadequate regulatory policy.”

The survey showed that there is a considerable difference in how the board and the regulatory team view their relationship. Almost 60 percent of regulatory teams see themselves as business partners to the board, but only 14 percent of senior managers shared this view, regarding them as specialists to be called on when needed, not an integral part of the business.

Worryingly, the survey highlighted that regulatory strategy is not well understood across telecoms businesses, a finding that is at odds with the views of the in-house regulatory teams, who believe they have communicated this strategy effectively.

David Thomas continues: “Such differences are a concern and, if left unresolved, could leave to regulatory teams undertaking projects outside of the board’s strategy, wasting valuable time and money. If the two groups are not fully in tune, the sector could also see confusing messages being sent to the regulators.”

There is however, general agreement among respondents on what it takes to be an effective regulatory function, and a high degree of confidence in the individuals working in this part of the business. The function is however lacking effective ways to measure its performance, which can limit its ability to demonstrate its true worth.

Convergence of telecommunications and media, along with deregulation, is blurring traditional regulatory boundaries and putting increasing pressure on telcos to improve communications, learn from other industries and build a strong regulatory team.

“This situation may be even more complex and pressing for those companies operating in multiple regulatory environments,” continues Thomas. “Subsequently, companies will increasingly need to develop proactive regulatory functions that recognise commercial issues and can communicate with the board.”

The research shows that the regulatory function has some way to go before it can claim a permanent place at the boardroom table. To achieve this, it should seek to improve the communications and relationship with its board and the rest of the organisation, and manage and develop its talent more effectively to create attractive career options.

David Thomas concludes: “The good news is that both senior management and those in the regulatory function are receptive to change and open to the idea of learning regulatory lessons and preferred practice from other sectors. It is essential that communications companies take a proactive approach to defining and agreeing their regulatory strategy if they are to prosper in an increasingly converged world.”

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