platform-based vs. service-based competition: how should latin america regulate?
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Platform-based vs. Service-based competition: How should Latin America Regulate?. D. Mark Kennet, Ph.D. www.MarkKennet.com. Introduction. As an economist, my position always depends on how we are defining objectives - PowerPoint PPT PresentationTRANSCRIPT
PLATFORM-BASED VS. SERVICE-BASED COMPETITION: HOW SHOULD LATIN AMERICA REGULATE?D. Mark Kennet, Ph.D.
www.MarkKennet.com
INTRODUCTION
As an economist, my position always depends on how we are defining objectives
For that reason, we economists have the bad reputation among the legal community for not having fixed positions.
As the old joke goes, if you ask a mathematician how much is 2+2, he will tell you “4, as long as we are doing integer math.” If you ask a statistician the same question, he will respond “On average, 4.” But the economist answers, “What would you like it to be?”
The case of ICT regulation is the same.
POSSIBLE OBJECTIVES IN AN ICT REGULATORY POLICY Legitimate objectives might be
Keeping prices low enough so that all users can afford at least some services
Stimulate investment in infrastructure so that coverage increases, technology advances are incorporated, and more services are made available
Maximize operator earnings Obviously, in some ideal world it would be
possible to achieve all of these, but in reality we are forced to choose which objective is most important
Each of these objectives implies a different style of regulation, and each one carries costs and benefits in terms of the other objectives
OBJECTIVE: KEEP PRICES LOW
Behind this idea is a notion of an anticompetitive market
Because there are few service providers, it is necessary to stimulate an artificial competition through the use of resale and free access to infrastructure
According to this largely European notion, “Intra-modal competition” as it is being proposed in many countries leads to the “Investment Ladder” that eventually results in more infrastructure and less need to regulate
INTRA-MODAL COMPETITION POLICY (I) Promotes competition within infrastructures
Impose obligations for resale and unbundled access (ULL) on dominant operators independent of technology (copper, cable, etc.)
Uses the investment ladderOffers of resale and wholesale access are phased
in, gradually requiring a greater investment on the part of a new entrant
Typically, in broadband:
Resale Bitstream
Shared unbundled
access
Completely unbundled
access
INTRA-MODAL COMPETITION POLICY (II) Establishment of transition
mechanisms between the investment ladder steps; and
Elimination of resale or unbundling obligations when competition existsObjective: Increase competition and
stimulate gradual investment in network infrastructure so that penetration increases
Regulation
Competition
Investment
Penetration
ISSUES WITH THE EUROPEAN APPROACH In theory, it sounds fine; and in the application in
Europe, it seems to function well. But: In every one of the western European countries,
they started out with a national fixed network already dispersed throughout the country
Even in the case of mobile networks, there already existed infrastructure to carry signals to switches and controllers
For that reason, the regulatory vision was to figure out how to share the infrastructure so that service competition would be fostered
The cost of investing in a large part of the infrastructure and technology was already paid
In some sense, it wasn’t necessary to think of improving forward-looking infrastructure
OBJECTIVE: STIMULATE INVESTMENT
In this notion, there is a vision of a market suffering a lack of access to capital for various possible reasons: The country is less developed economically The country wants to modernize rapidly, including in
the less-favored economic sectors As there are relatively few providers, it is
necessary to stimulate the entry of investors According to this idea, an “Inter-modal
Competition” will attract investors to install the network currently lacking
Most regulation is directed toward interconnection rules in order to permit a free and sustainable competition
INTER-MODAL COMPETITION POLICY Promotes competition between infrastructures
There is a clear preference for operators that own their own network facilities The existence of parallel networks minimizes the possibility of
entry barriers in the market The policy incentivizes the creation of new networks
It is thought that this policy creates sufficient incentives for investment and innovation, permitting facilities owners to be compensated for assuming risks
The envisioned transition is
Ex ante (access)
Network rollout
Ex post (competitio
n)
Penetration
POSIBLE ISSUES WITH THE PRO-INVESTMENT NOTION
Price reductions may not occur immediately There may exist a tendency toward higher
market concentration
OBJECTIVE: MAXIMIZE OPERATOR PROFITS
In this notion, there is a vision of “laissez-faire” – the free market can solve all problems
The theory is that without government intervention, potential operators will be more likely to enter, provide services, and earn money
Supporters of this approach insist that a totally free market can stimulate even more investment than the inter-modal competition model
ISSUES WITH LAISSEZ-FAIRE
Without government intervention, it is likely that private networks will not interconnect
There will likely be price gouging and other sorts of consumer abuses
SO, WHAT IS THE POLITICAL OBJECTIVE IN REGULATING THE SECTOR? The answer depends on how the situation in each
country is viewed If you think that the national network system is
mature and adequate, and that there really isn’t room for more expansion and coverage, and that the technology being used is the best, then it’s not really necessary to worry about future investment In this case, Euro-style regulation might be the best
option Regulating services is necessary so that consumers pay
the lowest feasible price If you think that there is a need for more investment
in order to expand coverage and to permit the introduction of new technologies and innovation, the stimulating investment may be desirable In this case, Euro-style regulation may not work so well It might be worthwhile to look at nearby examples like
Chile and Peru where incentivizing investment has taken priority
A FEW OBSERVATIONS REGARDING EURO-STYLE REGULATION
Emphasis on opening existing networks Insufficient emphasis on stimulating
investment Does not take into account the reality of
convergence and 3G and 4G networks For example, an implication of adopting the Euro-
style regulation is having a tight regulation of triple-play services
If there were more emphasis on stimulating investment in infrastructure, triple-play might arise freely as a product differentiation that is beneficial to consumers
A FEW OBSERVATIONS ON INVESTMENT-ORIENTED REGULATION
In some cases, application of this idea lacks something For example, in the case of the USA, even with
this type of regulatory vision, the problem of federalism and states’ rights leads to the situation in which there are two levels of regulation, one at the national and the other at the state level
We can see another example in Peru, where the creators of the privatization permitted that there be both a vertical and horizontal monopoly in the sense that there was only one company operating the fixed, cable, and mobile networks.
MESSAGES
In designing policy, it is necessary to decide on and take into account the objectives
It is not necessary to adopt the policies of other countries; policies should be designed with national priorities in mind
For that reason, I don’t recommend adopting either the North American style policy or the Euro-style approach in their respective totalities
A well-thought-out policy minimizes unanticipated consequences