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Previous
editions
In this edition:
1. Tracking
telecom competition in Chile
2. Anti-competitive
conduct
3. Competition
Policy in Denmark
4. Competition
Policy case studies
1. Tracking
telecom competition in Chile
| "Competition
Policy in Telecommunications" was the
topic of the ITU New Initiatives workshop held in Geneva
from 20 to 22 November 2002. This theme was chosen
following a survey of ITU Member States and Sector Members
that ranked it a topic of high current interest. The
workshop was the tenth
in the series organized by the Strategy and Policy
Unit (SPU). Hank
Intven, Senior Partner
at McCarthy Tetrault in Canada,
chaired the meeting. A CD-ROM containing output from
the workshop is available
in June 2003 and can be ordered from the ITU
Sales Service.
More information about the workshop is available at: www.itu.int/competition. |
|
Does more competition mean low prices and enhanced
access?
Chile
provides a rich example when it comes to competition policy. Like several
countries in Latin America, Chile has seen rapid growth of its telephone
network, an impressive take-up of mobile technologies and major privatization
changes in its market. Yet this is against a backdrop of relative poverty and
low global economic status. The issue of affordable telecommunications is
obviously a critical one in a country like Chile, but the different levels of
competition in different regions and different market segments have resulted
in a mixed outcome in terms of prices and accessibility.
Chile
is one of the region's most dynamic and promising markets. Chile's
telecommunications sector is the most advanced in Latin America due to an
effective regulatory regime that has led the market to full competitiveness
after privatization and market liberalization.
In 2002, the markets for domestic and international long-distance and mobile
cellular were highly competitive.
However,
Chile's telecommunication network development is based on a number of
interdependent factors such as economic growth, privatization of the incumbent
CTC, the introduction of competition in international long-distance and mobile
cellular, and regulatory changes such as the introduction of calling party
pays (see Figure 1). From an
institutional perspective, the telecommunication regulator SUBTEL has little
participation in questions of competition
policy; in practice, the competition authorities (the Fiscalía
Nacional Económica)
have the final say on competition policy, and can override
approaches taken by the regulator.
Long-distance
traffic in Chile has seen the biggest impact. The introduction of full
competition (in mid-1994)
was followed by a decrease in market concentration with new players
arriving on the scene, and a sharp drop in prices. In 1994-95, prices for
off-peak calls even dipped temporarily below the settlement rate (the
charges paid by operators in one country for calls to be collected on
another country's networks), leaving Chilean operators out of pocket
during that period. In 1996, prices rose again (accompanied by a slight
rise in market concentration) but since 1997 have followed a continuous
downward trend. Nevertheless, there remains some scope for prices which
are significantly above the settlement rate to drop further still.
Competition also resulted in a decline of the incumbent market share from
86 per cent in 1992 to 38 per cent in 2001.
By
contrast, the lowest degree of competition is in the local market.
Although competition was introduced in 1981 and the incumbent share has
dropped, the level of competition varies due to differentiation of the
local market across different regions of the country. Only the incumbent
operates nationwide in all 24 regions. The level of local competition
therefore varies between six regions that have no local competition at all
and two regions that have six operators.
Finally,
the mobile market is more difficult to assess, with numerous mergers and
changes in regional licences, as well as technological diversity: with two
TDMA networks, one CDMA, and one GSM network. There may even be room for
another operator, since the operator Entel owns two licences but operates
only one. However, although the high degree of competition would suggest
that market forces bring prices down, mobile pricing in Chile seems to be
relatively high compared to other Latin American economies.
See
full case
study on Chile listed below.
2. Anti-competitve
conduct
While
telecommunication regulation typically provides a procedural framework of
rules and guidelines governing the introduction and practice of
competition in a given economy, competition law sets out measures to
protect sound and healthy competition. The balance struck between ex
ante regulation, and ex post law can be a determining factor in
managing competition and dealing with anti-competitive conduct (see Box 1
below).
One
of the key differences between ex
ante sector-specific regulation and ex
post competition law is that the latter typically aims to deal with
complaints against anti-competitive behaviour that is potentially
punishable by penalties or other remedies.
Three
main types of generic anti-competitive law can be identified:
- Law
that prohibits anti-competitive agreements between firms.
- Law
that prevents dominant firms from abusing their position by
restricting competition.
- Law
that prohibits mergers and acquisitions that are likely to have a
negative impact on competition.
While
competition law is a powerful and useful tool for managing healthy
competition, the major difficulty it presents is that it can take several
years to resolve a particular case. In
the fast-changing ICT market, however, everything can change extremely
quickly: the market, technology and actors may not be the same just a few
months down the line. To give an example, a case brought by MFS (now
WorldCom) against KPN in the Netherlands in 1998 was still pending
resolution almost five years later. In such cases, assistance to the
complainant may come much too late to be useful.
Competition
policy in practice
In
the arena of mobile telecommunications in particular, accusations of
anti-competitive behaviour have been made in a number of areas, but .
These include:
- Fixed-to
mobile call termination, especially in Europe, where the rates are
considered to be well above costs (see for instance the research
available on the ITU website at: www.itu.int/fmi).
In Australia it was decided to regulate this market in 2000 by
encouraging operators to mirror reductions in retail tariffs in their
termination charges, and by using the threat of ex post action
if there was evidence of anti-competitive behaviour. In such cases,
the key issues concern why call termination fees to mobile networks
are higher than the termination fees to fixed networks, and the
appropriateness of recovering all non-traffic sensitive costs through
access charges.
- Mobile
roaming, where users typically have little or no information about the
rates they will be charged, may not receive the bill until much later,
and where no one jurisdiction may be able to handle complains in the
event of faulty billing or poor quality of service. Roaming may be an
example of a service where domestic market dominance is used to obtain
high fees from foreign operators.
- Pricing
for short message service (SMS), where the trend has been for prices
to rise, despite a huge increase in the volume of SMS traffic being
generated. As SMS is carried over the signalling channel, the costs
should be relatively low, but prices are not. Because of the bundling
of SMS with other services, it is sometimes difficult to make
meaningful price comparisons.
It
should be borne in mind that the costs of anti-competitive behaviour fall
on the economy as a whole, not just on the sector. For instance, the
European Commission estimates that barriers and bottlenecks in the ICT
market slowed GDP growth by around half a percentage point during the
1990s.
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Merits
of ex ante vs. ex post regulation
Competition
law is traditionally ex post in the sense that matters
are brought before the appropriate authorities when abuses have
been committed or are about to be committed. Telecommunication
regulation, on the
other hand, is mostly been ex ante in nature with
proactive market intervention based on specific legislative
provisions. However, with the increasing influence of general
competition regulation in the telecommunication field, the
application of ex ante and ex post regulation of
telecommunications will be combined and modified in new ways.
The
prime argument in favour of ex post regulation is that it
is more flexible and less interventionist, leaving problems to
be sorted out in the market place until the point where abuses
of general rules are committed. The major disadvantage of ex
post regulation is that it is slow – too slow in a fast
developing communications environment. Cases have to be
processed by the appropriate authorities, and the experience is
that it may take years to reach a final decision (e.g. New
Zealand).
The
argument in favour of ex ante regulation is that this
kind of regulation may be necessary in cases where a non-
competitive environment flourishes, in order to promote
competition. This has been the general understanding of the
situation in telecommunication markets. The current consensus is
that general competition regulation will come to play an
increasingly important role in telecommunications. Competition
analysis of more narrowly defined market segments will be
undertaken with reference to the new EU guidelines. However,
despite this shift, regulatory measures on basis of such
analysis will continue to be ex ante in nature.
Source: ITU
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3.
Competition Policy in Denmark
The
overall picture of telecommunications in Denmark is one of high
penetration levels and relatively low prices. Although not satisfactory,
the level of competition in the market places Denmark among the leading
countries in Europe. In terms of the take-up of traditional fixed line
communications, mobile communications, Internet and broadband networks,
the country fares well on both international and European comparisons.
Prices have also been declining over the past decade. Investments in the
telecommunication area increased with liberalization and have continued to
maintain a solid level.
These
positive developments are due in part to liberalization and increased
competition, on the one hand, and technological innovation and overall
wealth on the other. But the positive developments can also be ascribed to
the proactive intervention of the national regulatory authority, the NITA.
In the fixed line market, there are many operators and licenses have not
been required since 1996. However, competition in the access market is
primarily service-based, as the incumbent operator TDC continues to retain
a significantly dominant position in network access. In mobile
communications, there is enhanced competition with currently four
operators (with networks of their own), a number of service providers, and
an MVNO. In the fast growing ADSL market, competition in Denmark is at a
higher level than in other European countries, but the incumbent operator
is steadily increasing its ADSL market share. In an area not often
considered in competition analysis, competition has also started to have
an impact. The number of outgoing telephone calls on public networks has
decreased more than 10% during the past year (2001-2002), partly
reflecting the growing number of calls made on private networks. The
overall conclusion must be that the liberalization and the creation of
competition in the Danish telecommunication market has been a relative
success compared with most other countries, but some problems persist.
Furthermore, regulation seems to have played a central role.
The
full liberalization of telecommunications in Denmark was implemented ahead
of the general EU 1998 deadline. The positive results of this process are
largely due to the proactive role of the telecommunication regulatory
agency in carrying out the policy of 'best and cheapest' and 'several
pipes to the home'. Before the change of policy in the mid-1990s, Denmark
was not among the group of leading countries in the EU with respect to
liberalization of telecommunications. But since this shift in policy, the
implementation of the new package has been carried through with
consistency and often more stringently than in other EU countries.
Competition
among the operators is regulated primarily through bills and executive
orders but is also promoted by means of, inter alia, published
surveys of prices and quality of services of the operators in order to
improve transparency in the market for the users. Decisions by the
regulator or the appeal system are generally accepted by the players in
the market, supported by the fact that no cases have yet been brought to
court. There is generally a cooperative spirit between the operators and
the regulatory authority, for instance in the form of industry agreements
(self-regulation) and cooperative forums endorsed by the regulatory
authority, e.g. in the field of interconnection and spectrum management.
There
remain, however, some serious problems. The major one is the difficulty in
developing competition in the network access field. Service competition
has developed, but infrastructure or facilities-based competition may be
more difficult to obtain, and the ADSL case has shown that in service
areas closely related to the physical access network, the incumbent
operator continue to have a stronghold, which is difficult to compete
with.
Another
problem, like in other EU countries, is the persistently high mobile
termination rates, which are not regulated under Danish legislation. For a
number of years, these rates have not come down in spite of the relatively
high number of mobile operators in the Danish market and falling prices
for mobile to fixed calls. Operators in the mobile area complain that
there are too many mobile operators in the Danish market, making it
difficult to run a profitable business. The future regulation of mobile
termination rates will be more in line with the new EU regulatory
framework.
Future
challenges facing Danish policy-makers and regulators
The
main challenges for Danish policy-makers and regulatory authorities are no
different than the challenges facing the European Commission and other
European countries, i.e. how to increase competition, rely more on general
competition law, accommodate trends in convergence, support tendencies
towards truly sub-regional and European markets, and in general, support
the development of information and network societies.
More
specifically, the main challenges with respect to enhancing competition
are to improve the conditions for network access competition, including
alternative access technologies and unbundling provisions, and to
implement the new long-run average incremental cost (LRAIC) system for
interconnection charges. In the mobile area, termination charges are far
too high, and at a more general level, mobile operators believe that there
are too many operators in the market. A consolidation process in the
mobile area is likely and foreseen by players in the market.
There
is no doubt that general competition law will play an increasing role in
telecommunications. In the Danish telecommunication environment, there is
widespread agreement that telecommunication markets have developed to a
stage where a greater reliance on general competition law is possible and
even desirable.
However,
the speed and character of this process is up for discussion. While the
incumbent operator wishes as quickly as possible to disband
sector-specific regulation, there is a concern both among competing
operators and among end users that sector-specific regulation will be
necessary for some time to come.
Furthermore,
an important assignment for the national regulator will be to further
develop expertise in conducting the kind of the competition analysis
required by the new EU guidelines. Moreover, organizational relations
between the National IT and Telecom Agency (NITA) and the Competition
Authority have to continuously develop with the increasing integration of
telecommunication regulation and general competition law.
Finally,
the overall aim of telecommunication regulatory policy is to promote the
development of information or network societies. The Danish NITA has clear
responsibilities in this field. The role of the regulator is not only to
be a reactive 'watchdog' but, in line with activities at ministerial
level, its role extends to promoting the usage of new information and
communication technologies (ICT). In some countries, this may raise
concerns regarding the independence of the regulator. However, the Danish
government is not unduly concerned. In regulatory matters, the authority
is independent and in policy matters, the NITA provides advice to the
Ministry. In the view of NITA, the main focus should be effective
independence based on criteria of regulatory efficiency and
accountability. Continued developments in this direction are an important
and ongoing challenge for the development of the Danish telecommunication
market and the enhancement of competition within it.
Excerpt from the case study on Denmark[PDF]
4.
Competition Policy case
studies
The
ITU commissioned a number of case studies for the workshop on Competition
Policy
which took place from 20 to 22 November 2002 at ITU headquarters in
Geneva. The countries covered include Chile[PDF], Denmark
[PDF], United
States of America [PDF] and India
[PDF].
| For
further information on Policy and Strategy Trends, please
contact: ITU Strategy and Policy Unit, International
Telecommunication Union, Place des Nations, CH-1211 Geneva 20
(Switzerland). Fax: +41 22 730 6453. E-mail: spumail@itu.int
. Website: www.itu.int/spu/ |
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