GOVERNMENT OF CHILE
MINISTRY OF TRANSPORT AND TELECOMMUNICATIONS
UNDER-SECRETARIAT OF TELECOMMUNICATIONS
Convergence: A new opportunity for
competition
Paramaribo, May 2004
by Roberto Baltra Torres
Head of Economic Regulation
Agenda
•
Introduction
•
Competition or monopoly?
•
The Chilean experience
•
General outlines of sectoral policy
•
Competition for the future?
•
Conclusions
Introduction
•
Case of VoIP services and solutions, or how
convergence came out of the blue:
§
§
•
Internet telephony is here to stay;
Case of Vonage and Minnesota court.
Today’s obligation: to rethink regulatory and
competition policy.
Competition or monopoly?
•
•
•
•
The ultimate objective is to maximize consumer
satisfaction and maximize country efficiency.
Competition is a tool, not an end in itself.
The “success” of competition policies depends on the
scope of economies of scale:
• Local telephony: since 1982, with minimal impact;
• Long-distance telephony: since 1994, with major
impact;
• Mobile telephony: since 1998, with major impact.
Although a regulated monopoly maximizes efficiency, a
policy which subsidizes competition makes services
more expensive for people with low incomes.
The Chilean experience: Local telephony
•
Bases:
•
•
•
•
No restrictions on entry since 1982
Policy of subsidizing competition via higher access charges
for entrants
Large economies of scale in access network
Outputs:
•
•
•
•
Competition in cream-skimming
Dominant player market share remains high (100% to
80% in 20 years)
Network inefficiency (superimposed access media and
underused pre-installed media)
Low incentive for further penetration
Fixed telephony
Lines in service and penetration (1990-2002)
4 000 000
26.0
3 500 000
Líneas
en service
Servicio
Lines in
Penetration
Penetración
3 000 000
20.6
22.4 22.1
21.0
18.3
15.6
16.0
13.2
2 500 000
9.4
2 000 000
1 500 000
20.4
21.6
6.5
11.0
11.6
11.0
7.9
6.0
1 000 000
1.0
500 000
-
-4.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Fixed telephony
Competition model
Monopoly
Skimming
Competition in high-income sectors
Skimming increases cost of service for low-income sectors
The Chilean experience: Mobile telephony
•
Bases:
•
•
•
•
•
No entry restrictions
Symmetrical regulation of access charges
Four PCS operators with national licences since 1998
Division into subsidiaries for related companies
Outputs:
•
•
•
•
Intense cross-competition
Dynamic market shares (high churn rate) and trend
towards homogenization
Efficient use of networks
High incentive for further penetration
Mobile telephony
7 000 000
47.0
41.1
Mobile subscribers and penetration (1990-2002)
6 000 000
Mobile telephony
Penetration
34.0
42.0
37.0
5 000 000
32.0
27.0
22.2
4 000 000
22.0
3 000 000
2 000 000
1 000 000
15.0
com
pe
titio
n
17.0
12.0
6.5
0.1
0.3
0.5
0.6
0.8
1.4
2.2
7.0
2.8
2.0.
-
-3.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
During 2004, 1 in 2 Chileans will have a mobile phone
1998: “caller pays” and 4 national licences
Mobile telephony
Operator 4
Operator 3
Operator 2
Operator 1
Chile
Competition model
Competition in all socio-economic sectors and throughout the country
The Chilean experience: Long distance
•
Bases:
•
•
•
•
•
•
No entry restrictions
Dial-up multicarrier system since 1994
At least three fibre-optic national networks
National transport resale model
Division into subsidiaries for related companies
Outputs:
•
•
•
•
•
•
More than 15 simultaneous operators (12 without networks)
Intense cross-competition
Former monopoly’s market share cut from 100% to 35% in
one day
Prices fell to less than half
Efficient network use
High incentive for growth in long-distance service use
Long-distance national
Trends in long-distance national traffic (1990-2002)
3 000
2 469
Millions of actual minutes
2 500
2 282
2 244
2 345
2 415
2000
2001
2 194
1 875
2 000
Co
mp
etit
ion
1 500
1 533
1 032
1 000
500
732
474
496
1990
1991
816
1992
1993
1994
1995
1996
1997
1998
1999
From 1998 onwards, strong impact of mobile and Internet
substitution
2002
Long-distance international
Trends in long-distance international traffic (1990-2002)
300
274
255
250
Millions of actual minutes
199
215
210
1998
1999
224
200
144
Co
mp
etit
ion
150
114
100
50
39
47
53
60
64
1992
1993
1994
1990
1991
1995
1996
1997
2000
2001
2002
The Chilean experience: Conclusions
•
It is preferable to segment the market according to
levels of economies of scale:
• Local access networks
• Mobile telephony
• Long-distance telephony
•
Competition in local telephony networks is not
efficient with conventional technology
•
Competition in mobile and long-distance telephony
is highly efficient and beneficial to consumers
Sectoral policy: General outlines
1.
The market as the best allocator of resources: Intervene
through tariff-setting only in markets where competition is
insufficient to guarantee adequate functioning
•
Simulate a competitive regime: Recreate the operating
conditions of competitive markets through tariff regulation,
thus avoiding the use of market forces, predatory
behaviour or any other kind of distortions.
•
Maximize efficiency: Promote, through tariff regulation,
the establishment of conditions of efficiency which would
derive from a competitive market. In conjunction with this,
and without introducing subsidies of any kind, ensure that
conditions are promoted which favour greater competition
in the telecommunication market.
Sectoral policy: General outlines
2.
Minimalist approach to regulation: “the essential minimum”
•
Ensure that regulation favours resolution of current problems
arising from the absence of competition, avoiding the
introduction of distortions of any other kind and eliminating
subsidies between services.
3.
Consumer protection
•
Ensure adequate protection for consumers by setting nondiscriminatory maximum tariffs based on the essential costs of
service provision, so as to avoid monopolistic revenues.
•
Minimize asymmetries and distortions which produce inequities
within the same locality.
•
Ensure that every consumer can choose between various offers
and tariff plans from different companies in line both with their
consumer profile and with the preferred price-quality
combination.
Sectoral policy: General outlines
4.
Symmetry in regulatory treatment
•
Ensure that tariff levels and structures are consistent with
harmonious development of the industry, and that they promote
investment and increased quality of service, meet consumer
needs and promote technological innovation in the short,
medium and long term.
5.
Promote the incorporation of more efficient technologies
•
Ensure conditions that enable the provision of competitive
services and their corresponding infrastructure and, in the long
term, that there is movement towards the convergence of media
and services, especially as regards increasing the availability of
media so that Chileans can access the Internet.
Sectoral policy: General outlines
6.
Symmetry in regulatory treatment
•
Ensure that equivalent services receive similar regulatory
treatment so as to avoid implicit subsidies or distortions of any
kind. It will thus be necessary to move towards a regime without
tariff imbalances between licensees in the same segment with
respect to interconnection, when offering the same service in the
same geographical area.
7.
Maximum transparency
•
Ensure maximum transparency in the development of regulatory
processes.
Competition models for the future ?
•
Phase 1: Traditional competition model
§
Network/service competition
§
Network/service silos
§
1 device per service
•
Phase 2: Physical competition model
§
Unbundling of networks
§
1 device per service (type of communication)
§
Multiple protocols
•
Phase 3: Logical competition model
§
Service competition
§
Convergence
§
1 device per service (type of communication)
§
1 protocol (IP)
•
Phase 4: Virtual operators/resale model
§
“Second floor” competition
§
Integration of services
§
1 service (communications) with multiple devices
Phase 1: Traditional competition model
NETWORKS
OPERATOR/ACCESS 2
OPERATOR/ACCESS 1
SERVICE
Physical integration of network and services
Phase 2: Physical competition model
Shared use of media
ACCESS 2
ACCESS 1
NETWORKS
OPERATOR D
OPERATOR C
OPERATOR B
OPERATOR A
SERVICE
Phase 2: Physical competition model
Unbundling of networks:
•
Unbundling obligatory for all local
operators
•
Tariff regulation of unbundling service
•
Unbundling regulations lay down
standards for service quality and
response time (in preparation)
Phase 3: Logical competition model
OPERATOR F
OPERATOR E
OPERATOR D
OPERATOR C
OPERATOR B
OPERATOR A
SERVICE
INTERNET/IP
ACCESS 2
ACCESS 1
NETWORKS
Physical and logical separation of networks and services
Mixed-model transition
Logical competition model: Broadband telephony
•
•
•
•
Public telephone service (neither local nor mobile)
• Makes use of broadband or dedicated Internet
connectivity
Non-geographical (transnational) by definition
• Numbering can be managed remotely
(preferable to establish single national numbering)
• Virtual primary zone for on-net communications
• Communications between Internet telephony
licensee and incumbent licensee requires gateway
function
Network use to be paid for (access charges and
broadband connection)
See vonage.com and magentavoiss.com
Design model: Broadband telephony
Local communication
Local primary zone or mobile area
Local communication
Virtual primary zone
Gateway function
Communication models
1. Communication in virtual primary zone (BPTS-BPTS)
BB
GW
IP
Internet/IP
BPTS
licensee
BPTS
licensee
BB
Internet/IP
IP
GW
2. Communication between virtual primary zone and local primary zone
or mobile area
BB
GW
IP
Internet/IP
BPTS
licensee
GW
GW: Gateway
BB: Dedicated IP or Internet connection
PTS: Public telephone service
BPTS: Broadband public telephone service
PTS licensee
Local/Mobile
Phase 4: Virtual competition model
Virtual operator 1
INTERNET/IP
INTERNET/IP
NETWORKS S2
Integrated services competition
Single multimedia communication service
ACCESS 2
ACCESS 1
ACCESS 2
ACCESS 1
NETWORKS S1
OPERADOR D
SERVICE 2
OPERATOR C
OPERATOR B
OPERATOR A
OPERATOR D
OPERATOR C
OPERATOR B
OPERATOR A
SERVICE 1
Virtual operator 2
Virtual competition model
• Virtual (no-network)
telecommunication operating licence
• No discrimination in offer of facilities
• Obligation to provide resale services
for operators
– Volume-based discount
– No administration or sales costs
Conclusions
•
•
•
•
•
Convergence is here!
Convergence obliges us to rethink regulatory and
competition policy.
New models need to be constructed to exploit the
strength of competition and the efficiency of
network use.
Separating the network layer from the service
layer is the best way to achieve efficient
competition which benefits consumers.
We regulators must be flexible enough to
understand technological changes and incorporate
them in our regulations.
GOVERNMENT OF CHILE
MINISTRY OF TRANSPORT AND TELECOMMUNICATIONS
UNDER-SECRETARIAT OF TELECOMMUNICATIONS
The good news: there is still work
for the regulators!
Paramaribo, May 2004
by Roberto Baltra Torres
Head of Economic Regulation