Competition Policy in Telecommunications · Competition Policy in Telecommunications Background...
Transcript of Competition Policy in Telecommunications · Competition Policy in Telecommunications Background...
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Competition Policy in Competition Policy in TelecommunicationsTelecommunications
Background PaperBackground Paper
Eric LieEric LieStrategy and Policy UnitStrategy and Policy Unit
International Telecommunication UnionInternational Telecommunication Union
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 [email protected].
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OutlineOutline
•• Why competition?Why competition?•• Trends in telecom competitionTrends in telecom competition•• The basic framework: sectorThe basic framework: sector--specific specific
regulation and competition lawregulation and competition law•• The trend toward convergence: A new The trend toward convergence: A new
framework? framework? •• Some challenges: Access to the InternetSome challenges: Access to the Internet•• Mergers and acquisitionsMergers and acquisitions
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Competition as a policy tool Competition as a policy tool ………… to reduce pricesto reduce prices……
2423221198876540
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1990 1992 1994 1996 1998 2000
Fixed charges
Total charges
Usage chargesNumber of OECD countries
permitting f ixed-line competition
OECD, trends in average residential prices, 1990=100
Source: OECD, Teligen
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Competition as a policy tool Competition as a policy tool ………… to increase mobile penetration to increase mobile penetration ……
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1988 1990 1992 1994 1996 1998 2000
Singapore: Mobile
competition delayed until April 1997
Hongkong SAR: Mobile competition introduced in1988 for analogue
Additional competition introduced with digital mobile in 1993
Six additional PCS licences awarded in 1996
Mobile penetration rate, per 100 inhabitants
Comparison between the growth of mobile penetration in Hong Kong, China and Singapore, 1988-2000
Source: ITU World Telecommunication Development Report 2002, Reinventing Telecoms
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Where competition is allowedWhere competition is allowed% of countries allowing competition in selected services% of countries allowing competition in selected services
62%52%
38%
22% 19% 20%14%
38%48%
62%
78% 81% 80%86%
Basicservices
Leased lines Wireless localloop
Cellular Cable TV VSAT ISPs
Monopoly Competition
Source: ITU Trends in Telecommunications Reform 2002: Effective Regulation
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Competition just keeps growingCompetition just keeps growingGrowth in Growth in countries countries allowing allowing competition competition in selected in selected sectorssectors
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1995 1997 2000 2001
Countries
Cellular mobile
Local
Int'l
Long distance
Source: ITU Trends in Telecommunications Reform 2002: Effective Regulation
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Allowing competition may not be Allowing competition may not be enough enough ……
•• Competition is absent when there are no Competition is absent when there are no service providers in the marketservice providers in the market
•• Competition is absent when there is no Competition is absent when there is no competitor to the incumbent in the marketcompetitor to the incumbent in the market
•• Effective competition may be absent when Effective competition may be absent when the incumbent dominates the market the incumbent dominates the market
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This is in part due to ...This is in part due to ...
•• Strong network externality effects Strong network externality effects •• Large sunk costs involved Large sunk costs involved •• Numerous advantages enjoyed by the Numerous advantages enjoyed by the
incumbentincumbent
Competition policyCompetition policy
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The basic frameworkThe basic framework
Telecommunications Telecommunications regulationregulation• Industry specific• Multiple policy
objectives• Precise in setting
acceptable behavior• Ex ante and ex post
Competition lawCompetition law
• Economy wide• Focus on preserving
competition• Specific complaint
or investigation driven
• Predominantly ex post
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Competition law prohibits Competition law prohibits ……
•• AntiAnti--competitive agreementscompetitive agreements• e.g. bid rigging, price fixing, group boycotts
•• AntiAnti--competitive behavior by dominant firmscompetitive 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 Mergers and acquisitions that have a strong negative impact on competition negative impact on competition B
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Relevant markets and dominanceRelevant markets and dominance•• Market definitionMarket definition
• Product and geographic dimension• Demand substitutability analysis • Hypothetical monopolist test; application of a
small but significant non-transitory increase in price (SSNIP)
•• DominanceDominance• Quantitative and qualitative factors; e.g. market
share, barriers to entry, size, etc.
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Toward a new framework: Toward a new framework: Deregulation and reDeregulation and re--regulationregulation
•• Why deregulation?Why deregulation?• Benefits of competition, risk of regulatory
failure, resistance by business, globalization
•• But is competition law sufficient?But is competition law sufficient?• Uncertainty - Fact specific, focus on illegality,• Delay - Costly and lengthy litigation
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A converged approach to A converged approach to competition policycompetition policy
•• Regulatory adoption of competition law Regulatory adoption of competition law concepts and principlesconcepts and principles
•• Forbearance from regulation in competitive Forbearance from regulation in competitive marketsmarkets
•• Realignment of regulation with principles of Realignment of regulation with principles of competition e.g. USOcompetition e.g. USO
•• Extension of competition law to Extension of competition law to telecommunications marketstelecommunications markets
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Asymmetrical regulationAsymmetrical regulation•• Market definitionMarket definition
• Service classification based approach
•• DominanceDominance• Emphasis on quantitative thresholds
Certain negative effectsCertain negative effectse.g. regulatory distortions, arbitrage
A need for greater flexibility?A need for greater flexibility?e.g. July 2002, EC guidelines on market analysis and assessment of SMP
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Some common principlesSome common principles
Telecom regulationTelecom regulation•• Mandatory Mandatory
interconnectioninterconnection•• NonNon--discrimination in discrimination in
terms & conditionsterms & conditions•• CostCost--oriented pricingoriented pricing•• Sufficiently Sufficiently
unbundledunbundled•• Prohibition against Prohibition against
crosscross--subsidizationsubsidization
Competition lawCompetition law•• Essential facilities Essential facilities
doctrinedoctrine•• NonNon--discriminationdiscrimination•• Prohibitions against:Prohibitions against:
• Anti-competitive pricing
• Tied sales and unbundling
• Cross subsidization
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Institutional implicationsInstitutional implications•• Who should apply competition policy?Who should apply competition policy?
• 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 coordinationNeed 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 InternetChallenges: Access to the Internet
•• Local level accessLocal level access• Local loop unbundling
• Service vs. facilities-based competition?• Inter-modal competition
• Tilting the regulatory framework?
•• International Internet accessInternational Internet access• Internet backbone services
• Charging practices• International Internet connectivity
• A possible role for competition policy?
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Mergers and acquisitionsMergers and acquisitionsWho approves mergers?Who approves mergers?
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SectorMinistry
OtherMinistry
Regulator Operator Other* Notregulated
Number of Countries
*other: mainly the Competition Authority
Source: ITU Trends in Telecommunication Reform, 2002 Effective Regulation
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Merger notification and reviewMerger notification and review•• Market definitionMarket definition•• Substantial lessening of competitionSubstantial lessening of competition
• Market share and concentration• Barriers to entry, import competition, dynamic
market characteristics• Vertical merger concerns
•• Merger efficiencies and public benefitMerger efficiencies and public benefit•• Merger approvalMerger approval
• Behavioral vs. structural conditions
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