Tracking
telecom
competition
in Chile
Michael.Minges@itu.int
Competition Policy in
Telecommunications
20-22 November 2002
Geneva, Switzerland
Measuring competition
!Although competition is a “means” to
the “ends” of enhancing telecom
access, it is nonetheless useful to
measure
!A high degree of competition would
suggest that market is functioning
properly and therefore prices should be
lowest possible and access enhanced
Telephone market 2001
Segment
Operators
Market size
Incumbent
market
share a)
HHI
b)
Local
7 c)
3’523’700
lines in
service
78%
0.6
Domestic LD
12
2’415
38%
0.3
38%
0.3
31%
0.3
million minutes
International
LD
12
241 outgoing
362 incoming
million minutes
Mobile cellular
4
5'271'565
subscribers
Note: a) Based on market size indicator. Telefónica CTC considered incumbent for local and mobile,
ENTEL for long distance (LD).
b) Hirfindahl-Hirschman Index. A measure of market concentration.
1 = monopoly, 0.2 or less = perfect competition.
c) Not including rural telephony concessions.
Source: ITU adapted from CTC, SUBTEL data.
Local market
Incumbent share has dropped… …but level of competition varies
11
95%
93%
8
91%
9
8
89%
11
9
8
87%
5
83%
80%
76%
CTC Market share
# Operators
1994
1996
1998
2000
! Of 11 local operators, four
are rural only.
! Of 7 regular, three only
operate in one region.
! Only incumbent operates
nationwide in all 24 regions
(“primary zones”).
! Level of local competition:
– Six regions have no local
competition
– 10 have two operators
– 3 have three operators
– 2 have four operators
– 1 has five operators
– 2 have six operators
International long distance
! May 2002: 33 operators licensed,
20 in operation (SUBTEL, includes
some double counting). 12
operators at end of 2001 (CTC).
! Rapid drop in prices after
introduction of full competition on
27 August 1994. Market almost
reached “perfect competition”
! Rise in market concentration after
1997 and slight decline last two
years.
! Pricing seems to precede market
changes. Market correction in
1996 after competition settles in.
Since 1996 prices have been
steadily declining.
! Incumbent market share declined
from 86% (92) to 38% (01).
Market concentration and price
of 3 minute call to US
$2.0
0.7
HHI
Peak
Off-Peak
Settlement rate
0.6
0.5
$1.8
$1.6
$1.4
$1.2
0.4
$1.0
0.3
$0.8
0.2
$0.6
$0.4
0.1
$0.2
$0.0
0
1993
95
97
99
01
Mobile
Mobile market share
! Numerous mergers and
changes in regional
licensing complicate
analysis. Six different
companies over 10
years.
! Pricing seems to be
relatively high
compared to other Latin
American nations
! Technologically diverse
with two TDMA, one
CDMA and one GSM
network
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
12%
39%
32%
17%
1990 1993 1996 1999
BellSouth
CTC
Entel
Smartcom
Competition impact
$6'000
$5'000
$4'000
$3'000
GDP per capita (US$, left)
Calling
Teledensity
Party Pays
Mobidensity
Total density
Two new mobile
operators
CTC
privatized
70
60
50
40
30
$2'000
20
$1'000
10
$0
0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
! What caused what in Chile’s telecommunication network development?
! Difficult to disentangle impact of (1) economic growth; (2) privatization; (3)
regulation; and (4) competition.
! Network growth a mixture of four; pricing most likely competition
Chile in the region
Annual average growth (1991-2001)
Total telephone subscribers (fixed+mobile)
!Chile had fifth
fastest growing
telephone network
in Latin America
during the 1990s
!Outperformed peers
(e.g., Brazil, Mexico,
Argentina) and
regional average
Paraguay
28%
El
Salvador
27%
Guyana
26%
Guatemala
25%
Chile
Brazil
23%
21%
Latin
America
19%
Mexico
19%
Argentina
17%
Methodological considerations
!Need disaggregated data for
competition analysis
– Operators claim because market
competitive cannot provide information.
!Competitive market not straightforward
– Local concessions.
– Licenses for long distance when two
services.
Conclusions
!Privatization and economic growth have
driven growth in local fixed market Impact of
competition has been negligible except
perhaps in spurring broadband.
!Mobile market is no more competitive than
most other Latin American nations.
!Biggest impact of competition has been on
long distance traffic.