Telecommunications Misconceptions

Telecommunications Misconceptions 1. The Regulator’s role is to push for lower prices 2. TLRIC is the solution for all interconnection conflicts 3. Fixed to Mobile calls are more expensive than Mobile to Fixed calls. MEXICO/UIT /LQHV LQ VHUYLFH  20000 18000 16000 14000      à † r  v y Fixed Mobile TOTAL 12000 10000 8000 6000 4000 2000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 \HDU MEXICO/UIT 1999 1 0H[LFDQ 'HPRJUDSKLFV Nominal GDP per Capita (1999) = US$ 4,910 Income distribution = Uneven, 1994 Crisis. Urban population 75% Income per urban household is 2.7 higher than rurals Urban Fixed Penetration 34% Rural Fixed Penetration 2% MEXICO/UIT 0DLQ GLIIHUHQFHV EHWZHHQ FHOOXODU ZLUHOHVV DQG ZLUHOLQH Cost Pre-paid Post-paid Wireline Fixed wireline cost per line Fixed wireless cost per customer Usage (minutes per month) MEXICO/UIT 2 Misconception 1: The Regulator’s role is to push for lower prices 9LFLRXV &LUFOH &RPSHWLWLRQ 'HVWUR\ 0RGHO 9LUWXRXV &LUFOH 3UR&RPSHWLWLRQ 0RGHO Wrong price regulation Lower ROI Less investments Less competition Over-regulation & subsidies Market prices Higher ROI More investments More competition Lower prices MEXICO/UIT Misconception 1: The Regulator’s role is to push for lower prices )DOVH “Price” is a dangerous variable to manipulate. In most cases competition works (excluding some dominant´s services). Regulators can stimulate competition using other methods: Auctioning more frequencies, More Licenses, No Discrimination, Transparency. MEXICO/UIT 3 Misconception 2: TLRIC is the solution for all interconnection conflicts &$3(; YV 7UDIILF 4 3.5 3 C A P E X 2.5 2 1.5 1 0.5 0 0.01 Wireline AMPS TDMA3 CDMA 0.03 0.05 0.07 0.09 Traffic (Erl) 0.11 0.15 0.20 MEXICO/UIT Misconception 2: TLRIC is the solution for all interconnection conflicts &$3(; YV &XVWRPHU¶V 'HQVLW\ 6 5 C A P E X 4 3 2 1 0 6 10 30 50 70 90 120 160 200 300 Density (Users/Km2 ) Wireline AMPS TDMA3 CDMA MEXICO/UIT 4 Misconception 2: TLRIC is the solution for all interconnection conflicts &$3(; YV $YDLODEOH 6SHFWUXP 6 5 C A P E X Wireline 4 3 2 1 0 8 10 12 14 16 18 20 22 24 26 28 30 AMPS TDMA3 CDMA Bandwidth (MHz) MEXICO/UIT Misconception 2: TLRIC is the solution for all interconnection conflicts )DOVH TLRIC depends on technology, customer´s density and traffic. One company has something that another company wants. To calculate TLRIC, Regulators need not available information. Only dominant or essential services should be calculated in this way. In most cases competition can better solve the problems using “obligation to sell and no discrimination” criteria. MEXICO/UIT 5 Fixed to Mobile calls are more expensive than Mobile to Fixed calls. Wireline Price VEN Wireline call + Billing & Collection Wireless Interconnection (LRIC) 0LQLPXP Wireline Interconnection + B & C MEX EUR ARG Wireline Sales Margin (Resale) Wireline Sales Margin (Resale) Wireline call + Billing & Collection Wireless Price (Wholesale) Wireless Price (Retail) Wireline Interconnection + B & C MEXICO/UIT 0H[LFDQ 3ULFHV Caller’s price Originating Network Destination Network US 28 c US 25 c US 3 c US 38 c US 19 c US 19 c MEXICO/UIT 6 Fixed to Mobile calls are more expensive than Mobile to Fixed calls. There are several reasons that can produce this result. In the Mexican case, billing and collection is a function or service not well defined in the incumbent´s concession, provoking endless conflicts. There are some services that are difficult to offer without billing and collection: Call by call carrier selection, collect calls and Calling Party Pays. MEXICO/UIT )LQDO &RPPHQWV • As a result of competition there is a tendency to deaverage and bundle services in different ways. • It is very important for customers everywhere, but specially in developing countries, to know in advance the price of each call. • This is an important Regulator´s function. MEXICO/UIT 7