GOVERNMENT OF CHILE
Ministry of Transport and
Telecommunications
Telecommunications Subsecretariat
Tariff regulation in the Chilean
telecommunication market
Buenos Aires, June 2005
Applicable legal and regulatory
framework
Tariff regulation: Normative aspects
•
The General Telecommunications Act (Act No.
18.168 of 1982) and the amendments thereto, in
particular the provisions of Article 24 bis, 25 and
Section V, on tariffs.
•
Regulations governing the procedure for,
announcement of and participation in the tariffsetting process, as laid down in Section V of the
General Telecommunications Act (Act No.
18.168) (Supreme Decree No. 4 of 2003).
Tariff regulation: Normative aspects
•
•
Tariff freedom (the general rule)
Services affected under the Act (Articles 24 bis
and 25)
§ Services provided by public service licensees
and intermediaries through interconnection
arrangements. Metering, billing, charging and
collection services provided to carriers by
public service licensees (Supreme Decree
No. 95 of 1994).
§ Tariffs for services provided under
interconnection arrangements enable these
licensees to charge for the cost of using their
networks.
Tariff regulation: Content aspects
•
Basic principles of tariff-setting:
§
§
§
§
Tariffs charged to users reflect costs.
Guaranteed absence of cross-subsidies between
services and tariff areas.
Use of efficient enterprise model generates
incentives for the actual licensee to introduce
technology enhancements in its network and in
regulated services, thereby increasing their
efficiency.
Through the tariff-setting process it is possible to
pass on to the consumer the efficiency gains made
by the company as a result of its improved
management coupled with technological advances.
Tariff regulation: Content aspects
•
Efficient company (Act 18.168, Art. 30A and F):
§
§
§
§
§
§
Provides only regulated services.
Only those costs that are essential to their
provision.
Using available technology.
Maintaining quality.
Determination of costs of each service: investment
and operation, including capital cost.
Indivisibility of unregulated services: only fraction
of costs used, consistent with the proportion of
assets used.
Tariff regulation: Content aspects
•
Incremental development cost (IDC) (Art. 30)
§
§
•
General rule: marginal cost charging
§ Plans for expansion of each service by tariff area.
§ The incremental development cost is obtained for
each expansion plan.
Exception: Long-run marginal cost
§ In the absence of expansion plans.
Total long-run cost (Art. 30C)
§
§
Asset replenishment plan for the efficient company.
Average volume of different services provided.
Tariff regulation: Content aspects
•
Efficient tariffs (Art. 30E)
§
§
§
•
Generate revenue equivalent to the IDC (marginal cost).
In case of more than one regulated service in a tariff
area, equal profit margins.
Where expansion plan provides for unregulated services:
only fraction of IDC used, in keeping with the proportion
of asset usage.
Definitive tariffs (Art. 30F)
§
§
§
§
Only where there are economies of scale.
Efficient tariffs increased until total long-run cost
reached.
Inefficiencies minimised.
Where efficient company provides unregulated services:
only fraction of total long-run cost used, in keeping with
the proportion of asset usage.
Tariff regulation: Content aspects
•
Capital cost rate (Art. 30B)
§
§
§
§
•
Risk-free rate of return.
Company's systematic risk.
Risk premium.
Capital cost rate = Risk-free rate + Systematic risk
* Risk premium
Indexation
§
§
§
An index is determined for each service.
Based on published input price indices.
Representative of cost structure of the efficient
company.
Procedure: Technical and economic bases
Participant
Participant
registration
registration
notice
notice
Licensee
Elaboration
Elaborationof
of
technical
technical&
&economic
economic
bases
bases(TEBs)
(TEBs)
Draft TEBs
Registered
Registered
Third
Thirdparties
parties
Opinions
TEB
proposal
Subtel
Review
Reviewand
and
elaboration
elaborationof
of
preliminary
preliminaryTEBs
TEBs
Submission of
preliminary TEBs
Licensee
Review
Reviewand
and
compilation
compilationof
of
points
pointsof
of
disagreement
disagreement
Procedure: Technical and economic bases
Licensee
Review
Reviewand
and
compilation
compilationof
ofpoints
points
of
ofdisagreement
disagreement
Submission of disagreements
and possible request for
assistance from committee
of experts Subtel
Analysis
Analysisand
and
decision
decisionon
on
definitive
definitiveTEBs
TEBs
Notification of
definitive TEBs
Licensee
Elaboration
Elaborationof
oftariff
tariff
study
studycommences
commences
Background
Committee
Committee
of
ofexperts
experts
Opinion
Procedure: Tariff-setting
Licensee
Elaboration
Elaborationof
of
tariff
tariffstudy
study
Tariff
proposal
Opinions
Registered
Registered
third
third
parties
parties
Ministries
Review
Reviewof
of
tariff
tariffstudy
study
Background
Report on objections
& counter-proposals
Licensee
Incorporates
Incorporates
or
orinsists
insists
Report on
insistence
Ministries
Final
Final
decision
decision
Committee
Committee
of
ofexperts
experts
Opinion
Procedure: Tariff-setting
Ministries
Final
Final
decision
decision
Substantiating
report
Ministries
Elaboration
Elaboration&
&signature
signature
of
oftariff
tariffdecree
decree
Tariff
decree
Comptroller-General of the Republic
Possible
objections
Constitutional
Constitutionaland
and
legislative
legislativereview
review
Processing of
tariff decree
Official Bulletin
Publication
Publicationof
of
tariff
tariffdecree
decree
Background
Ministries
Clarification
Clarificationof
ofthe
the
tariff
tariffprocess
process
Consultations
Procedure: Tariff processes
Presentation of
CoE
disagreements
report
and request for
committee of Setting-up and
expert (CoE) swearing-in
assistance
of CoE
Presentation
of TEB
proposal
Official
Bulletin
Draft
TEB
announcement
launching
-360
process
-365
-355
-380
(20)
Participant
registration
20 10
10
0
-340
5
-290
5
15
20
CoE
Start of tariff
clarification
study
report
announced
5
25
10
3
30
-180
-270
5
2
70
30 40
Presentation of
tariff study
90
80
180
Participant
comments
(Subtel calls for
TEB proposal for
new licensees)
Subtel calls for CoE
assistance
Preliminary
TEBs
-180
-60
Request for
clarification
Definitive
TEBs
-30
0
-180
30
Opinions 210
Tariff study
Presentation of
tariff study
120
5
30
300
30
330
Setting-up of
CoE
Report on objections and
counter-proposals
Report on the
modifications and
insistence
CoE report
360
Substantiating
report and Tariff
Decree
Tariff regulation: Tariff aspects
•
The main services regulated in the context
of public service licensees for mobile
telephony correspond to:
§
§
§
Interconnection at network termination points
Access to other telecommunication service
licensees
Administrative functions (metering, charging,
billing, collection, balance management)
Tariff regulation: Tariff aspects
•
The main services regulated in the context
of public service licensees for fixed
telephony correspond to:
§
§
§
Interconnection at network termination points
Access to other telecommunication service
licensees
Administrative functions (metering, charging,
billing, collection, balance management)
Fixed and mobile telephony market:
Current situation
Chilean market: Fixed lines
Evolution of fixed telephony: Lines in service and penetration
(1990-2004)
4 000 000
25
Penetration
Lines in service
3 500 000
21.6
20.4
3 000 000
22.4
22.1
20.5
20.6
20.7
20
18.3
15.6
2 500 000
15
13.2
2 000 000
11.0
11.6
9.4
1 500 000
10
7.9
6.5
1 000 000
5
500 000
0
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Chilean market: Mobile subscribers
Evolution of mobile telephony: Mobile subscribers and penetration
(1990-2004)
12 000 000
70
59.6
10 000 000
Lines in service
8 000 000
47.4
Penetration
60
50
41.1
40
34.0
6 000 000
30
22.2
4 000 000
20
15.0
2 000 000
6.5
0.1
0.3
0.5
0.6
0.8
1.4
2.2
10
2.8
0
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Chilean market: Internet connections
Evolution of Internet connections
(June 2000 – December 2004)
800 000
Switched
674 646
600 000
631 526
658 828
578 316
400 000
Dedicated
569 306
570 828
483 773
468 227
460 859
424 016
352 234
478 883
326 432
263 572
200 000
188 454
115 715
0
2 411
Jun - 2000
7 879
31 882
Dec - 2000 Jun - 2001
66 722
Dec - 2001
Jun - 2002
Dec - 2002 Jun - 2003
Dec- 2003
Jun - 2004
Dec - 2004
Chilean market: Penetration indicators
Penetration of fixed telephony, mobile telephony and Internet in Chile
December 2004
Internet connections per 100 households
Internet connections per 100 inhabitants
12.6
5.0
67.3
Mobile subscribers per 100 households
59.6
Mobile subscribers per 100 inhabitants
51.6
Fixed lines per 100 households
20.7
Fixed lines per 100 inhabitants
0
10
20
30
40
Note:
theelcase
household
penetration,
the information
is drawn
from the aCASEN
2003 CASEN
survey. 2003.
Nota:In
Para
casoofde
la penetración
en los hogares
la información
corresponde
la encuesta
50
60
70
80
Results: Tariff processes
Tariff regulation: Tariff processes
•
•
•
During the most recent period, the
regulatory body conducted a series of tariff
processes with the aim of establishing
regulated tariffs for the services in question
in the various market segments.
The processes covered public service
licensees for mobile and fixed telephony
and intermediate service licensees.
They involved a review of the tariff decrees
relating to the dominant enterprises and
mobile and rural companies, bringing other
companies into the arena.
Tariff regulation: Tariff processors
•
The processes by segment correspond to:
Mobile and of the same
type:
• Bellsouth
• Entel PCS
• Entel Móvil
• Smartcom
• Telefónica Móvil
• Nextel (Multikom and
Centennial)
Rural:
• CTR
• RTC
• Megacom
Fixed:
• CTC
• Telefónica del Sur
• TelCoy
• EntelPhone
• VTR
• Manquehue
• Telesat
• CMET
Intermediate:
• Entel
Mobile access charges: The new prices
Time-based structure for access charges ($/min)
140.0
120.3
120.0
100.0
86.7
84.2
80.0
60.0
40.0
20.0
65.1
Normal
43.4
Reduced
Night
0.0
Former regulatory framework
Tariff Decree 2004-2009
Mobile access charges: The new prices
Time-based structure for access charges (USD/min)
0.300
accessPromedio
charge = USD
0.110/min
CargoAverage
de Acceso
= 110
cUS$/min
0.200
0.171
0.124
0.120
0.100
Normal
Reduced
0.093
0.062
Night
0.000
Former regulatory framework
Tariff Decree 2004-2009
Comparison of charging periods
Current time-band structure
Time
band
00:00 - 08:59
09:00 - 13:59
14:00 - 19:59
20:00 - 23:59
Working
days
Reduced
Normal
Normal
Reduced
Sundays
Saturdays and public
holidays
Reduced
Reduced
Normal
Reduced
Reduced
Reduced
Reduced
Reduced
Traffic distribution:
Normal rate
: 57.9%
Reduced rate
: 42.1%
Proposed time-band structure
Time
band
00:00
08:00
14:00
20:00
-
07:59
13.59
19:59
23:59
Working
days
Night
Normal
Normal
Reduced
Sundays
Saturdays and public
holidays
Night
Night
Normal
Reduced
Reduced
Reduced
Reduced
Reduced
Traffic distribution:
Normal rate
: 61.4%
Reduced rate
: 33.5%
Night rate
:
5.1%
Access charges: Decreasing prices
Access charge 2004-2008 ($/min)
80.00
77.98
77.59
77.50
77.20
77.26
76.42
76.81
75.00
72.50
70.00
0
1
2
3
4
5
6
Local access charges: Normal rate
Local company access charges by primary zone
(in pesos as at December 2003)
14
13
12
11
10
8
7
6
5
4
3
2
1
CTC
ETPH CMET VTR (*)
MNET TSAT
TSUR
TCOY
Primary zones
Curicó
Rancagua
Santiago
Valparaíso
San Antonio
Quillota
Los Andes
Ovalle
La Serena
Copiapó
Antofagasta
Iquique
0
Arica
($/minute)
9
Local access charges: Normal rate
CTC
ETPH CMET VTR (*)
MNET TSAT
TSUR
TCOY
Primary zones
Puerto Aysén
Coyhaique
Ciudades
Medianas
Décima Región
Puerto Montt
Osorno
Valdivia
Punta Arenas
Temuco
Los Ángeles
Concepción
Chillán
Linares
30
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
Talca
($/minute)
Local company access charges by primary zone
(in pesos as at December 2003)
Telephone line service
Local company telephone line service per tariff area
(in pesos as at December 2003)
16 000
14 722
14 000
($/Line-month)
12 000
9 701
10 000
8 000
6 632
7 655
8 044
8 059
8 179
8 090
10 131
8 012
6 000
4 000
2 000
0
Santiago
Valpara íso
Concepción
Antofagasta,
La Serena
and Chillán
Iquique,
Arica, Copiapó,
Quillota, Los
Ovalle, San
Andes, Curicó
and Linares
Antonio, Talca,
Los Ángeles and
Punta Arenas
Tariff areas
Rancagua and
Temuco
Valdivia,
Osorno and
Puerto Montt
Coyhaique
Isla de Pascua
THE END
Tariff regulation in the Chilean
telecommunication market
Buenos Aires, June 2005
by Roberto Baltra T.
Adviser , Subsecretario de Telecomunicaciones