Price setting, Competition and Regulation ENITEL, NICARAGUA · Price setting, Competition and...

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1 Price setting, Competition and Regulation ENITEL, NICARAGUA José Angel Rodríguez Z. – ENITEL Israel Zamora – TELCOR ITU Seminar on Costs and Tariffs Paramaribo, May 2004

Transcript of Price setting, Competition and Regulation ENITEL, NICARAGUA · Price setting, Competition and...

Page 1: Price setting, Competition and Regulation ENITEL, NICARAGUA · Price setting, Competition and Regulation ENITEL, NICARAGUA José Angel Rodríguez Z. – ENITEL Israel Zamora – TELCOR

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Price setting, Competition and RegulationENITEL, NICARAGUA

José Angel Rodríguez Z. – ENITELIsrael Zamora – TELCOR

ITU Seminar on Costs and TariffsParamaribo, May 2004

Page 2: Price setting, Competition and Regulation ENITEL, NICARAGUA · Price setting, Competition and Regulation ENITEL, NICARAGUA José Angel Rodríguez Z. – ENITEL Israel Zamora – TELCOR

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General market aspectsGeneral market aspects

Interconnection

Price setting and tariff regulation

Service regime

Contents

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Basic and mobile telephony markets in Nicaragua

• Mobile telephony market(Approx. 500 000 users)

– Bellsouth – 1992 (TDMA and CDMA 2X)

– Enitel – Dec 2002 (GSM 1900)– PCS – Dec 2002 (GSM 1900)– 250 000 new lines in the last 16

months

• Basic telephony market– Enitel – Exclusivity until next year

(April, 2005)– Over 205 000 lines– 50 000 new lines installed in past 2

years– Lowest teledensity in the region

Market share

81%

73%

62%54%

45%

24%20%15%

29%25%

3% 8%14%

27%21%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Q1-03 Q2-03 Q3-03 Q4-03 Q1-04Quarter

Sh

are

Bellsouth Enitel Móvil PCS

3.17%

3.21% 3.2

6% 3.27% 3.3

1%3.3

7% 3.38%

3.38% 3.4

4% 3.53%3.7

9% 4.00% 4.3

2% 4.50% 4.8

3% 5.09% 5.5

6%5.5

6% 5.88%

3.74%

3.58%

8.20%

7.32%

6.95%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

JANUARY

FEBRUARY

MARCHAPR

IL MAYJU

NEJU

LY

AUGUST

SEPT

EMBER

OCTOBER

NOVEMBER

DECEM

BER

Tel

eden

sity

200

3

Fixed lines Cellular lines

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General market aspects

Interconnection

Price setting and tariff regulation

Service regimeService regime

Contents

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Service regime

PUBLIC SERVICES

GENERAL INTEREST

SERVICE

REGIME

Regulated by law

Basic telephony (Local, LDN, LDI), Telex, Telegraphy

Licensed – direct or through bidding process

Mobile telephony, Public telephony, Cable television, Data transmission, Bearer services, Radio and television

ONLY EXCLUSIVE SERVICES

SPECIAL INTEREST

Licensed – direct

Trunking, Beepers,Teleconferencing, Intermediaries,Infrastructures using spectrum, Community relays

SPECIFIC INTEREST

UNREGULATED

Registered

Internet access, Voicemail, Electronic data interchange, Fax store and forward

Authorized or registered, as appropriate

Private telecommunicationservices not provided to third parties.

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General market aspects

InterconnectionInterconnection

Price setting and tariff regulation

Service regime

Contents

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ALL OPERATORS ARE OBGLIGEDBY LAW TO INTERCONNECT

Commercial and technicalarrangements by which service

providers ensure interconnection of their equipment, networks and services with other providers so that one service

provider’s customers can use the other’s services and vice versa.

Interconnection is critical to the public interest, and so TELCOR has an

obligation to regulate it in order to:

Guarantee communication between customers of different networks and access to services (e.g. emergency calls)

Protect the user (e.g. avoid tariff structures with unreasonable margins)

Iron out distortions created by imperfect competition (e.g. entry barriers from high interconnection costs or high tariffs in markets not subject to competition)

Public interest

Interconnection

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Current network topology

Tx

IGW

Satellite

ENITELTelephone "A"

Interconnection pointInterconnection point

Telephone "B"

Tx

Telephone "C"

Telephone "D"

BELLSOUTH

MSC

BTS

SERCOM

MSC

BTSENITEL MOVIL

MSC

BTS

IGW

Bellsouth

City

SercomEnitel mobile

Carrier Intl.

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Fixed exchange

Cell 2

Mobile exchange

Cell 1

ENITELBellSouth

Call 1Origin: ENITEL

Termination: BellSouth

Call 2Origin and Termination:

BellSouth

Call 3Origin: BellSouth

Termination: ENITEL

Call 4:

ENITELInterconnection

278-0000

267-1111

777-4444

882-5555

Call scenarios with Bellsouth

$0.024

Customer

$0.27

$0.12

$0.18

Bellsouth $0.24

Enitel $0.032

Origin and Termination

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Fixed exchange

Cell 2

Mobile exchange

Cell 1

ENITEL PCS/Enitel Mobile

Call 1Origin: ENITEL

Termination: BellSouth

Call 2Origin and Termination

BellSouth

Call 3Origin: BellSouth

Termination: ENITEL

Call 4Origin and termination

ENITELInterconnection

278-0000

267-1111

777-4444

882-5555

TARIFFS FOR INTERCONNECTED SERVICES ARE ASYMMETRICAL BETWEEN OPERATORS

$0.024

Call scenerios with the other mobile operators

Customer

$0.154

PCS/EM $0.1216

Enitel $0.032

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Economic distortions

• The justification advanced for high interconnection charges was recovery of investment for mobile, i.e. promoting the development of new technologies.

• The outcome is inefficient use of resources and and increasingly under-utilized fixed network.

• This results in mobiles replacing fixed networks.

• The regulator has initiated a new round of interconnection charge review in TCN Bellsouth’s cellular telephone network in order to bring prices in line with market rates and prevailing regulations.

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General market aspects

Interconnection

Price setting and tariff regulationPrice setting and tariff regulation

Service regime

Contents

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Price setting for services subject to competition

• The main “driver” for setting prices is the MARKET itself.

• However, tariffs must be cost-based with a reasonable profit margin allowing return on investment.

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Basic tariff regulation mechanisms

Cost-based price regulation

Regulation by maximum rate of return

CPI – X rule

Little incentive to reduce costs

Barriers to investment if marginal costs are used

Information asymmetry

Availability of real cost and demand data

Dynamic forward-looking rule? P1Q0 = (CPI-X) ?PoQo

Allows regulation with asymmetrical information

Allows multi-product regulation (range of products)

Incentives to reduce costs and increase efficiency

Can cause problems in the event of cost variations outside the company’s control; may cause allocation inefficiency (margin not controlled); no incentives to increase quality; disincentive in respect of unrecoverable costs

Little incentive to reduce costs and risk of overinvestment to constantly drive rates up

Information asymmetry

Availability of real cost and demand data

Tariff regulation for regulated services

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Tariff regulation: Basic telephony

Basic concepts

Consumption

Ranges of services

? P1Qo = (CPI-X) ? PoQo

Local residencial Local businessLong-distance

Installation or connection

Basic charge

Hardware120m from public thoroughfare

Monthly subscriptionCall time included

Call time billedLocal (same Department)National long-distance (betweenDepartments)

Itemized billingInternational long-distance (rounding)Interconnected services (e.g. cellular)

Tariff periods Peak rateReduced rate

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Basic concept

Actual consumption

Traffic direction Mobile – Mobile (On Net)Interconnection (Off Net)

Mobile tariff schemes

Minutes included

Pre-paymentFlat rate by period and destination

Deferred paymentConventionalControlled accountScale of rates by destination and period

On Net Everywhere, anytime

Mandatory or deferred payment andpre-payment

Subsidies Penalty for termination of contract

Off Net tariffs

Mobile telephony

Differentiated tariffs

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Regulatory principles for mobile services

• Mobile telephone operators obliged by law to submit their tariff and price proposals for approval by the regulator.

• Non-discrimatory prices for users in the same segment.

• Price structure must be consistent with other similar services.

• Prices must be comparable or better than current national or regional prices (benchmarks).

• Prices should cover costs plus a reasonable profit margin.

• Predatory practices prohibited. As a reference, it has been established that interconnection charges should not be higher than an operator’s minimum price or tariff.

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THANK YOU FOR YOUR ATTENTION

[email protected]: (505) 270-8378