Competitiveness in Telecommunications

1
Competitiveness in Telecommunications

• Keith Bernard
• TMG

2
Forces Involved

• Technological Change
• Convergence
• Technological platforms digital transmission
• Cluster market economies of scope
• Services voice, data video all provided via
  different networks
• Markets no longer coincide with industry
• Network economics
• Consumption externalities
• Very large proportion of fixed and sunk costs
• Regulation
• Open entry elimination of license restrictions
• Enhance demand substitutability e.g. number
  portability
• BUT some legacy carryover
• Required use of infrastructure for some operators
  at regulated prices
• Exemption from charges for some services
• Spectrum use highly regulated

3
Inter-relation

• Technological change
• Changes economics of entry
• Bundling of services over a common network
• Requires adaptation of regulatory model
• Pricing of essential facilities
• Equivalent treatment of substitute services
• Permitted use of radio spectrum
• BUT, in turn, regulation affects
  entry/competitive conditions

4
History

• FCC licensing segmented markets by type of
  service and technology employed e.g. voice, data
  (enhanced services), video, etc
• Facilitated by specialized technology
• Result largely oligopolistic market structure
  and high degree of regulation, even market
  management.

5
History continued

• Technology began to break down licensing
  distinctions so that role of FCC was to
  restrict/limit entry into previously protected
  markets.
• Criterion was abuse of dominance
• Well beyond margin squeeze/predatory pricing
• Rules for terms of availability for access to
  essential facilities and even social compact
• Access to local loop
• Expenditure for universal service

6
Last continuation

• At the same time, new competitors wanted to
  retain various exemptions from prior regulatory
  regime
• Exemption from access charges for enhanced
  service providers
• Ensured resale profit margins for resellers
• Reciprocity in provision of international services

7
Current market structure

• Narrowband services voice, dial-up data
• Landline
• Local monopoly/duopoly
• Long distance oligopoly
• VoIP (internet telephony) competitive
  resellers
• Mobile 2G
• Oligopoly
• Joint ownership with landline horizontal
  integration
• Issues Universal Service
• VoIP access charge exemption
• Sunk Costs
• Product bundles
• New technology handsets will eliminate
  landline/mobile distinction

8
Current Market Structure

• Broadband services
• Landline (quasi- broadband)
• Duopoly (ADSL cable modem)
• Mobile ?
• Mobile 3G
• Monopoly/oligopoly
• Joint ownership migration strategy technology
  dependent
• Wireless
• Unlicensed WiFi (intra-building) WiMax (loops
  future mobile)
• Issues Competition
• New Investment
• Spectrum Policy

9
FCC Policy

• Narrowband
• Open entry
• Limited price regulation
• But failure on essential facilities
• TELRIC, especially UNE-P
• Access charge exemption for VoIP
• Adequate spectrum
• Supply substitutability
• Enhanced demand substitutability
• Mobile/mobile fixed/mobile portability
• Issues Prices beginning to increase
• Universal service charges

10
FCC Policy

• Broadband
• Carry-over from narrowband essential facilities
• Low level of landline upgrade of PSTN
• Concern for spectrum interference from unlicensed
  operators
• Unlicensed operators pay no spectrum fees
• Inflexible spectrum use and inadequate allocation
  
• FCC spectrum demand is going forever to
  outstrip supply

11
Indicators

• Europe
• Ratio of ADSL to cable is 21 reverse ratio
  from US
• Europe didnt employ TELRIC
• Asia
• Greater technological advance than US
• Maximum consumer data rate more than 3X that in
  US
• Lower prices per unit of throughput
• From 50 to 15 of US price

12
The way forward

• FCC immediately terminate TELRIC rules
• FCC apply (revised) Universal Service Charges to
  all equivalent services
• FCC eliminate service rules for spectrum use and
  permit unrestricted secondary markets for all
  spectrum commercial and military