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ITU Strategy and Policy Unit News Update 
Monthly Flash - July 2003

Issue 1: July 2003   

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:

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.



Competition impact


Source: Chile case study


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: 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.

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


 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: . Website:



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