International Telecommunication Union
Competition Policy in
Telecommunications
Background Paper
Eric Lie
Strategy and Policy Unit
International Telecommunication Union
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The views expressed in this presentation are those of the authors and do not necessarily reflect
the opinions of ITU or its Membership. The author can contacted by e-mail at eric.lie@itu.int.
International Telecommunication Union
Outline
• Why competition?
• Trends in telecom competition
• The basic framework: sector-specific
regulation and competition law
• The trend toward convergence: A new
framework?
• Some challenges: Access to the Internet
• Mergers and acquisitions
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International Telecommunication Union
Competition as a policy tool …
Why competition?
… to reduce prices…
OECD, trends in average residential prices, 1990=100
140
Fixed charges
120
Total charges
100
80
Number of OECD countries
permitting f ixed-line
competition
60
40
22
20
0
4
1990
3
Usage charges
5
6
1992
Source: OECD, Teligen
7
8
1994
8
9
1996
23
24
11
1998
2000
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Competition as a policy tool …
Why competition?
… to increase mobile penetration …
Mobile penetration rate, per 100 inhabitants
90
Six additional PCS licences
awarded in 1996
80
70
60
50
40
30
Hongkong
SAR: Mobile
competition
introduced in
1988 for
analogue
Additional
competition
introduced with
digital mobile in
1993
Singapore:
Mobile
competition
delayed until
April 1997
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Comparison
between the
growth of
mobile
penetration
in Hong
Kong, China
and
Singapore,
1988-2000
0
1988
4
1990
1992
1994
1996
1998
2000
Source: ITU World Telecommunication Development Report 2002, Reinventing Telecoms
Trends in telecom competition
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Where competition is allowed
% of countries allowing competition in selected services
Monopoly
Competition
81%
78%
62%
86%
80%
62%
52%
38%
48%
38%
22%
Basic
services
Leased lines Wireless local
loop
Cellular
19%
Cable TV
20%
14%
VSAT
Source: ITU Trends in Telecommunications Reform 2002: Effective Regulation
ISPs
Trends in telecom competition
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Competition just keeps growing
Countries
140
120
Cellular mobile
100
Local
80
Int'l
60
Growth in
countries
allowing
competition
in selected
sectors
Long distance
40
20
0
1995
1997
2000
2001
Source: ITU Trends in Telecommunications Reform 2002: Effective Regulation
International Telecommunication Union
Allowing competition may not be
enough …
• Competition is absent when there are no
service providers in the market
• Competition is absent when there is no
competitor to the incumbent in the market
• Effective competition may be absent when
the incumbent dominates the market
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This is in part due to ...
• Strong network externality effects
• Large sunk costs involved
• Numerous advantages enjoyed by the
incumbent
Competition policy
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Basic Framework
The basic framework
Telecommunications
regulation
•
•
•
•
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Industry specific
Multiple policy
objectives
Precise in setting
acceptable behavior
Ex ante and ex post
Competition law
•
•
•
•
Economy wide
Focus on preserving
competition
Specific complaint
or investigation
driven
Predominantly ex
post
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Competition law prohibits …
Basic Framework
• Anti-competitive agreements
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•
e.g. bid rigging, price fixing, group boycotts
• Anti-competitive behavior by dominant firms
•
e.g. refusal to deal, predatory and excessive
pricing, tying and bundling, cross-subsidization
• Mergers and acquisitions that have a strong
negative impact on competition
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Relevant markets and dominance
Basic Framework
• Market definition
•
•
•
• Dominance
•
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Product and geographic dimension
Demand substitutability analysis
Hypothetical monopolist test; application of a
small but significant non-transitory increase in
price (SSNIP)
Quantitative and qualitative factors; e.g. market
share, barriers to entry, size, etc.
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A new framework
Toward a new framework:
Deregulation and re-regulation
• Why deregulation?
•
• But is competition law sufficient?
•
•
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Benefits of competition, risk of regulatory
failure, resistance by business, globalization
Uncertainty - Fact specific, focus on illegality,
Delay - Costly and lengthy litigation
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A new framework
A converged approach to
competition policy
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• Regulatory adoption of competition law
concepts and principles
• Forbearance from regulation in competitive
markets
• Realignment of regulation with principles of
competition e.g. USO
• Extension of competition law to
telecommunications markets
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Asymmetrical regulation
A new framework
• Market definition
•
Service classification based approach
• Dominance
•
Emphasis on quantitative thresholds
Certain negative effects
e.g. regulatory distortions, arbitrage
A need for greater flexibility?
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e.g. July 2002, EC guidelines on market
analysis and assessment of SMP
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A new framework
Some common principles
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Telecom regulation
Competition law
• Mandatory
interconnection
• Non-discrimination in
terms & conditions
• Cost-oriented pricing
• Sufficiently
unbundled
• Prohibition against
cross-subsidization
• Essential facilities
doctrine
• Non-discrimination
• Prohibitions against:
•
•
•
Anti-competitive
pricing
Tied sales and
unbundling
Cross subsidization
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Institutional implications
A new framework
• Who should apply competition policy?
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•
Relative advantages and disadvantages
•
•
e.g. sector specific expertise vs. cross-sector
flexibility, risk of capture, etc.
Other considerations
•
Costs of existing institutions have already been sunk
• Need for cooperation and coordination
•
e.g. clear lines of competence, procedures to
resolve overlaps, institutional mechanisms for
collaboration and co-ordination
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Challenges: Access to the Internet
Some challenges
• Local level access
•
Local loop unbundling
•
•
Inter-modal competition
•
Tilting the regulatory framework?
• International Internet access
•
Internet backbone services
•
•
Charging practices
International Internet connectivity
•
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Service vs. facilities-based competition?
A possible role for competition policy?
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Mergers and acquisitions
Mergers and acquisitions
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Who approves mergers?
Num ber of Countries
40
30
25
23
9
0
Sector
Other
Regulator Operator
Ministry
Ministry
*other: mainly the Competition Authority
Other*
Not
regulated
Source: ITU Trends in Telecommunication Reform, 2002 Effective Regulation
International Telecommunication Union
Mergers and acquisitions
Merger notification and review
• Market definition
• Substantial lessening of competition
•
•
•
• Merger efficiencies and public benefit
• Merger approval
•
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Market share and concentration
Barriers to entry, import competition, dynamic
market characteristics
Vertical merger concerns
Behavioral vs. structural conditions
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Thank You
http://www.itu.int/competition
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