Competition Policy in Telecommunications · Competition Policy in Telecommunications Background Paper Eric Lie Strategy and Policy Unit International Telecommunication Union The views

International Telecommunication Union

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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

20

40

60

80

100

120

140

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

Why

com

petit

ion?

Why

com

petit

ion?


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Competition as a policy tool Competition as a policy tool ………… to increase mobile penetration to increase mobile penetration ……

0

10

20

30

40

50

60

70

80

90

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

Why

com

petit

ion?

Why

com

petit

ion?


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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

Tren

ds in

tele

com

com

petit

ion

Tren

ds in

tele

com

com

petit

ion


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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

0

20

40

60

80

100

120

140

1995 1997 2000 2001

Countries

Cellular mobile

Local

Int'l

Long distance

Source: ITU Trends in Telecommunications Reform 2002: Effective Regulation

Tren

ds in

tele

com

com

petit

ion

Tren

ds in

tele

com

com

petit

ion


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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

Bas

ic F

ram

ewor

kB

asic

Fra

mew

ork


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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

asic

Fra

mew

ork

Bas

ic F

ram

ewor

k


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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.

Bas

ic F

ram

ewor

kB

asic

Fra

mew

ork


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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

A n

ew fr

amew

ork

A n

ew fr

amew

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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

A n

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amew

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A n

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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

A n

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A n

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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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A n

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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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A n

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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?

Som

e ch

alle

nges

Som

e ch

alle

nges


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Mergers and acquisitionsMergers and acquisitionsWho approves mergers?Who approves mergers?

23

30

40

0

25

9

SectorMinistry

OtherMinistry

Regulator Operator Other* Notregulated

Number of Countries

*other: mainly the Competition Authority

Source: ITU Trends in Telecommunication Reform, 2002 Effective Regulation

Mer

gers

and

acq

uisi

tions

Mer

gers

and

acq

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tions


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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

Mer

gers

and

acq

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tions

Mer

gers

and

acq

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Thank YouThank You

http://www.itu.int/competitionhttp://www.itu.int/competition

Documents

Competition Policy in Telecommunications · Competition Policy in Telecommunications Background Paper Eric Lie Strategy and Policy Unit International Telecommunication Union The views