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Telecommunications, Internet and media regulation in Taiwan
Yuntsai Chou
Deputy Director, the 21st Century Foundation
Legal Council Member of NCC (Taiwan)
2011 Eisenhower Fellow
June 23, 2011
outline
• Current regulatory framework;
• Market review;
• Problem assessment and major issues;
• regulatory reforms in Taiwan
Regulatory framework voice
(VoIP/ IPTV)
media Internet
(data)
Telecom Act
-- interconnection bw Type I operators;
-- price caps;
-- essential facilities;
-- unbundled elements;
-- spectrum allotment
Broadcast TV Act
-- C&C spectrum allotment;
-- local content caps;
-- mil/party/gov bar clause;
Cable TV Act
-- flat rate;
-- 1/3 horizontal ownership;
-- 51 service zones;
-- must carry
Satellite TV Act (programming)
-- channel licensing policy
N/A
Content layer
Operation layer
Infrastructure
layer
The white paper on digital convergence (2010)
Task force organized among NICI, NCC, MoT, MoEA for coordination and resource allocation
Content & app service
Industrial development & strategies
Network transmission & service
service & content conversion
novel audio-video service TV digitization
IP convergence (NGN)
regulatory reform
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
CHT 53.7 36.4 30.7 33.3 34.8 34.7 35.4 35.0 35.7 34.5 35.6
TWC 22.4 25.0 29.8 28.6 26.0 24.7 22.8 23.5 23.1 25.3 29.5
FEC 11.1 18.0 21.1 20.8 19.3 19.5 20.3 20.4 21.1 21.2 22.7
D 3.9 4.5 3.4 2.9 2.7 2.5 2.4 2.5 2.4 2.0 0.0
E 3.2 5.8 5.1 4.3 5.3 6.0 5.5 4.9 4.3 3.9 0.0
Weibro 5.7 10.3 9.9 10.1 11.9 12.7 13.7 13.6 13.5 13.1 12.2
Total Revenues ($ mil)
54804 103527 151559 170725 179418 189479 198171 205243 185163 154866 111923
CR4 93 90 92 93 92 92 92 93 93 94 100
HHI 3566 2434 2413 2485 2437 2394 2404 2413 2457 2470 2801
1). Telecommunication Market
Source: the international market concentration project
6
(a) mobile communications
507090110130150
2000 2001 2002 2003 2004 2005 2006 2007
Hong Kong
Japan
S. Korea
Singapore
Taiwan
• Taiwan is the first country in the world to reach over 100 percent penetration rate (108.3% in 2002);
• the subscription rate dropped significantly since 2004;
• The traffic volume (32.23 bil min) surpasses that of wireline (28.39 bil min) since 2007;
• The revenues from mobile data service only account for 5.69% (2007)/6.6%(2008) of the total.
149.2
133.54
108.3
Source: ITU statistics
7
(b) wireline broadband• 47.3% broadband access rate vs. 21.8% wireline
broadband penetration rate in Taiwan; • the wireline broadband penetration grows slowly
since 2005 (1% annual growth rate); • Japan’s surpassed Taiwan’s since 2006;
Singapore’s exceeded Taiwan’s since 2008
05
101520253035
2000 2001 2002 2003 2004 2005 2006 2007 2008
Japan
S. Korea
Taiwan
Hong Kong
Singapore
Source: ITU statistics
The access problemProblems: • a). local loops unbundling hardly exercised due to no
mandatory pricing on element costs;• b). poor quality of cable Internet;• c). paid peering adopted by dominant ISP Hinet (CHT)
Solutions: NCC drafts TA amendments • a). interconnection requirement between Type I and Type II
carriers (all telecommunications carriers); • b). wholesale pricing regulation;• c). restructuring the Internet data exchange center (TWIX);• d). open access to “ducts” or conduits possessed by CHT
• net neutrality is not yet considered
9
(2) TV competition• Cable TV becomes the dominant TV platform since
2000, seven years after the service was legalized in Taiwan.
• Satellite TV is not popular due to the rainy climate that downgrades the receiving quality.
• CHT is the only provider that offers IPTV service but cannot have access to those “must have” channels mostly affiliated with MSOs
TV households and the penetration rate in Taiwan, 2010 (unit: 1,000 households)
Source: NCC statistics
terrestrial TV
digital terrestrial TV
cable TV digital cable TV
IPTV
308 760 4,730 283 666
3.9% 9.7% 63.9%
3.6% 8.5%
10
a). terrestrial TV• NCC filed a proposal to the Executive Yuan that subsidies
103 thousand low-income households, totaling NT$261m (≒US$8.7 m)
• Among 7.83 m TV households, 760 thousand already receive terrestrial signals digitally, 3.84 m have at least medium willingness to switch,
3.13 m households (40%) still show no interest of switching if no subsidies at all
turning-off analog signals is not politically feasible by 2012.
No subsidies Partial subsidies
Full subsidies
medium + high willingness 49.56% 70.45 % 87.29 %
(score 4-10) 3.84 m 5.46 m 6.77 m
high willingness 14.59 % 28.89 % 74.34 %
(score 8-10) 1.13 m 2.24 m 5.76 msource: (Tsai et al, 2010)
b). cable TV market % 2001 2002 2003 2004 2005 2006 2007 2008
Eastern Multimedia Group 25.64 24.24 24.23 24.07 23.9 23.99 23.85 23.51
CNS Group 20.59 22.09 22.6 22.99 23.26 23.28 23.35 23.05
TBC 13.91 14.51 13.57 13.6 13.94 14.58 14.7 14.6
FuYan 10.71 10.02 9.8 10.16 9.86 9.79 9.62 10.99
TINP 5.16 5.13 6.86 6.89 6.66 6.69 6.59 6.64
Independents (20-23) 23.98 24.01 22.93 22.28 22.38 21.69 21.9 21.26
CR4 71 71 70 71 71 72 72 72 HHI 1416 1413 1425 1444 1448 1471 1466 1462
Source: the market concentration project
12
cable TV’s digitization• the percentage of its digital subscribers reaches only
5.7%; • The cable TV penetration rate of Taiwan is the second
highest among the countries in the chart;• the degree to which cable TV service is delivered
digitally is lowest (2%)。2007 Cable statistics
0% 10% 20% 30% 40% 50% 60% 70% 80%
CanadaFrance
GermanyIrelandJapan
NetherlePolandSpain
TaiwanU.K.U.S.
digital cable
cable penetration
13
Underpinnings of the low-degree digitization
• 1). Network effects and switching costs of the analog installed base:
the (flat) rate regulation (US$17/mo for 70~80 channels) entails a high penetration rate (86% unofficial record) of the analog cable TV
• 2). Substitute services such as IPTV and digital satellite TV not available:
14
NCC’s agenda• intra-platform vs. inter-platform competition?• shock therapy vs. gradualist approach of
regulatory reform?• uniformed vs. differential regime of
regulation?
• NCC is encouraged to create multiple regulatory layers that tailor operators’ incentives that allows for service innovation and thus market competition.
Rate regulation & tiering policy
Rate regulation & tiering policy
Service zone Service zone
Copyright
Copyright
Cable TV ActCable TV Act
Essential facilitie
s
Essential facilitie
s
NGN regulatory principles
NGN regulatory principles
Access chargeAccess charge
Telecom Act
Telecom Act
market definition,
SMP, essential facilities
market definition,
SMP, essential facilities
Wholesale pricingWholesale pricing
Spectrum management
Spectrum management
Terrestrial/ Satellite TV Acts
Terrestrial/ Satellite TV Acts
Separation bw transmission/ programming
Separation bw transmission/ programming
Indecency clause
Local content caps
mil./party/gov. bar clause
Indecency clause
Local content caps
mil./party/gov. bar clause
Merging two Acts
Merging two Acts
Regulatory harmonization
Separation bw content/ transmission
Regulatory harmonization
Separation bw content/ transmission
Convergent regulatory framework
Convergent regulatory framework
Deregulation as premise; gradualist
approach
Roadmap for regulatory reform
foreign investment cap universal service reform licensing policy
foreign investment cap universal service reform licensing policy
content
transmission
Must carryMust carry
Harmonizing the regulatory inconsistencies
• Telecom Act & Cable TV Act– No clauses such as market definition, significant market
player (SMP), essential facilities in the Cable TV Act
• Cable TV Act & (Terrestrial TV/ Satellite TV Act)– Revising the mil./party/gov. bar clause– Local content ration: 70% required for terrestrial TV; only
20% for Cable TV
• (Terrestrial TV/Satellite TV Act) & Telecom Act– Spectrum management: no auction method adopted in
allocating broadcasting radio frequencies
Amending the Cable TV Act
• 1). Market competition: to eliminate service zones that a cable TV operator can provide service in any area in the Island;
• 2). Rate Deregulation: a. to lessen flat rate; b. to allows for service tiering; c. only to regulate basic service;
• 3). Enforced Digitization: a. an entrant must deliver the service digitally;b. an operator must switch to digital transmission to
renew the license
18
Strategies to switch to digital cable TV
• 1). making IPTV more competitive deregulating IPTV’s tariffs and programming packages; mandating equal access to programming;
• 2). subsidizing consumers’ switching costs such as discounted tariffs and free set-top-boxes relieving cable TV from the rate regulation so that it can subsidize consumers with their designated tariff structures.
19
The regulatory layers in digital convergence
• differential treatments on players in accordance with their market (platform) powers.
• this approach indeed entails policy bonus for the disadvantaged (platform) players.
• departure from rigid administrative ordinances to contractual relationships
20
The regulatory layers of TV platforms
Terrestrial TV
Mobile TV Cable TV IPTV Web TV
Tariff regulation
High Medium Low Low n/a
Public channels
must carry transmission consent
transmission consent
transmission consent
Copyright Law
Children protection
content regulation
content regulation
content regulation
content regulation
Children Indecency Act
Pay-TV channels
Ex ante review
filing filing filing n/a
21
Licensing and spectrum preferences
21
Tender licenses granted when the original ones expired renewal No license renewal
Secondary trading permitted, in addition to technical and service neutrality
Spectrum management
Only technical neutrality
No reserved licenses for incumbents nor entrants
Incumbent clause
reserved licenses for incumbents
No voluntary recall recall spectrum recalled when failing to meet the efficiency criteria
WBA (Wimax) operators
2G 、 3G operators
Conjoint analysis on spectrum policy
attributes Stimuli Average utility value
WBA operators 3G operators 2G operators
a. renewal a.1 No license renewal -8.896 94.793 4.252
a.2 Tender licenses granted when the original ones expired
8.896 -94.793 -4.252
b. liberalization (spectrum management)
b.1 Technical neutrality -69.886 37.995 48.497
b.2 Technical and service neutrality -29.671 -25.352 -32.466
b.3 Granting secondary trading, in addition to technical and service neutrality
99.557 -12.643 -16.030
c. incumbent clause
c.1 auto license renewal for incumbents 9.541 32.344 98.923
c.2 new licenses reserved for the entrants -19.603 -52.962 -12.479
c.3 licenses reserved for neither incumbents nor entrants
10.062 20.619 -86.444
d. recall d.1 voluntary recall -38.486 -0.331 4.939
d.2 No voluntary recall (enforced recall) 22.842 -0.291 -42.108
d.3 Spectrum recalled when failing to meet the efficiency criteria
15.644 0.622 37.168
Source: (Chou, 2010)
23
regulatory layers of managing spectrum
23
既有業者執照優先權的保留Providing differentiated incentives for different players
Long-term effectiveness of spectrum management and market competition Long-term effectiveness of spectrum management and market competition
Limited
profitability
Limited
profitability
Not permitted in technical upgradeNot permitted in technical upgrade
- Low incentive to switch to higher efficient uses- subscribers’ migration costs
- Low incentive to switch to higher efficient uses- subscribers’ migration costs
- Allowing for technical neutrality- Allowing for technical neutrality
- Allowing for secondary trading that utilize the spare spectrum
- Allowing for secondary trading that utilize the spare spectrum
WBA operators
Maintaining status quo while raising the frequency fees
Maintaining status quo while raising the frequency fees
3G operators 2G operators
problem
policy adjustme
nt
goal
24
References• Yuntsai Chou (2010) WiMax development & spectrum
efficiency, Wireless Association research report• Tasi zi-hong, Yuntsai Chou & Chuan-chu Li (2010).
The market and the demand of digital TV in Taiwan. NCCL98046-981106.
• Cave, Martin (2010). Snakes and ladders: Unbundling in a next generation world. Telecommunications Policy, 34, 80~85.
• FCC (2010). Connecting America: The National Broadband Plan.
• The international media concentration project, initiated by Eli Noam in 2009, http://internationalmedia.pbworks.com
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