price setting, competition and regulation enitel, nicaragua
TRANSCRIPT
1
Price setting, Competition and RegulationENITEL, NICARAGUA
José Angel Rodríguez Z. – ENITELIsrael Zamora – TELCOR
ITU Seminar on Costs and TariffsParamaribo, May 2004
2
General market aspectsGeneral market aspects
Interconnection
Price setting and tariff regulation
Service regime
Contents
3
Basic and mobile telephony markets in Nicaragua
• Mobile telephony market(Approx. 500 000 users)
– Bellsouth – 1992 (TDMA and CDMA 2X)
– Enitel – Dec 2002 (GSM 1900)– PCS – Dec 2002 (GSM 1900)– 250 000 new lines in the last 16
months
• Basic telephony market– Enitel – Exclusivity until next year
(April, 2005)– Over 205 000 lines– 50 000 new lines installed in past 2
years– Lowest teledensity in the region
Market share
81%
73%
62%54%
45%
24%20%15%
29%25%
3% 8%14%
27%21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Q1-03 Q2-03 Q3-03 Q4-03 Q1-04Quarter
Sh
are
Bellsouth Enitel Móvil PCS
3.17%
3.21% 3.2
6% 3.27% 3.3
1%3.3
7% 3.38%
3.38% 3.4
4% 3.53%3.7
9% 4.00% 4.3
2% 4.50% 4.8
3% 5.09% 5.5
6%5.5
6% 5.88%
3.74%
3.58%
8.20%
7.32%
6.95%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
JANUARY
FEBRUARY
MARCHAPR
IL MAYJU
NEJU
LY
AUGUST
SEPT
EMBER
OCTOBER
NOVEMBER
DECEM
BER
Tel
eden
sity
200
3
Fixed lines Cellular lines
4
General market aspects
Interconnection
Price setting and tariff regulation
Service regimeService regime
Contents
5
Service regime
PUBLIC SERVICES
GENERAL INTEREST
SERVICE
REGIME
Regulated by law
Basic telephony (Local, LDN, LDI), Telex, Telegraphy
Licensed – direct or through bidding process
Mobile telephony, Public telephony, Cable television, Data transmission, Bearer services, Radio and television
ONLY EXCLUSIVE SERVICES
SPECIAL INTEREST
Licensed – direct
Trunking, Beepers,Teleconferencing, Intermediaries,Infrastructures using spectrum, Community relays
SPECIFIC INTEREST
UNREGULATED
Registered
Internet access, Voicemail, Electronic data interchange, Fax store and forward
Authorized or registered, as appropriate
Private telecommunicationservices not provided to third parties.
6
General market aspects
InterconnectionInterconnection
Price setting and tariff regulation
Service regime
Contents
7
ALL OPERATORS ARE OBGLIGEDBY LAW TO INTERCONNECT
Commercial and technicalarrangements by which service
providers ensure interconnection of their equipment, networks and services with other providers so that one service
provider’s customers can use the other’s services and vice versa.
Interconnection is critical to the public interest, and so TELCOR has an
obligation to regulate it in order to:
Guarantee communication between customers of different networks and access to services (e.g. emergency calls)
Protect the user (e.g. avoid tariff structures with unreasonable margins)
Iron out distortions created by imperfect competition (e.g. entry barriers from high interconnection costs or high tariffs in markets not subject to competition)
Public interest
Interconnection
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Current network topology
Tx
IGW
Satellite
ENITELTelephone "A"
Interconnection pointInterconnection point
Telephone "B"
Tx
Telephone "C"
Telephone "D"
BELLSOUTH
MSC
BTS
SERCOM
MSC
BTSENITEL MOVIL
MSC
BTS
IGW
Bellsouth
City
SercomEnitel mobile
Carrier Intl.
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Fixed exchange
Cell 2
Mobile exchange
Cell 1
ENITELBellSouth
Call 1Origin: ENITEL
Termination: BellSouth
Call 2Origin and Termination:
BellSouth
Call 3Origin: BellSouth
Termination: ENITEL
Call 4:
ENITELInterconnection
278-0000
267-1111
777-4444
882-5555
Call scenarios with Bellsouth
$0.024
Customer
$0.27
$0.12
$0.18
Bellsouth $0.24
Enitel $0.032
Origin and Termination
10
Fixed exchange
Cell 2
Mobile exchange
Cell 1
ENITEL PCS/Enitel Mobile
Call 1Origin: ENITEL
Termination: BellSouth
Call 2Origin and Termination
BellSouth
Call 3Origin: BellSouth
Termination: ENITEL
Call 4Origin and termination
ENITELInterconnection
278-0000
267-1111
777-4444
882-5555
TARIFFS FOR INTERCONNECTED SERVICES ARE ASYMMETRICAL BETWEEN OPERATORS
$0.024
Call scenerios with the other mobile operators
Customer
$0.154
PCS/EM $0.1216
Enitel $0.032
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Economic distortions
• The justification advanced for high interconnection charges was recovery of investment for mobile, i.e. promoting the development of new technologies.
• The outcome is inefficient use of resources and and increasingly under-utilized fixed network.
• This results in mobiles replacing fixed networks.
• The regulator has initiated a new round of interconnection charge review in TCN Bellsouth’s cellular telephone network in order to bring prices in line with market rates and prevailing regulations.
12
General market aspects
Interconnection
Price setting and tariff regulationPrice setting and tariff regulation
Service regime
Contents
13
Price setting for services subject to competition
• The main “driver” for setting prices is the MARKET itself.
• However, tariffs must be cost-based with a reasonable profit margin allowing return on investment.
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Basic tariff regulation mechanisms
Cost-based price regulation
Regulation by maximum rate of return
CPI – X rule
Little incentive to reduce costs
Barriers to investment if marginal costs are used
Information asymmetry
Availability of real cost and demand data
Dynamic forward-looking rule? P1Q0 = (CPI-X) ?PoQo
Allows regulation with asymmetrical information
Allows multi-product regulation (range of products)
Incentives to reduce costs and increase efficiency
Can cause problems in the event of cost variations outside the company’s control; may cause allocation inefficiency (margin not controlled); no incentives to increase quality; disincentive in respect of unrecoverable costs
Little incentive to reduce costs and risk of overinvestment to constantly drive rates up
Information asymmetry
Availability of real cost and demand data
Tariff regulation for regulated services
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Tariff regulation: Basic telephony
Basic concepts
Consumption
Ranges of services
? P1Qo = (CPI-X) ? PoQo
Local residencial Local businessLong-distance
Installation or connection
Basic charge
Hardware120m from public thoroughfare
Monthly subscriptionCall time included
Call time billedLocal (same Department)National long-distance (betweenDepartments)
Itemized billingInternational long-distance (rounding)Interconnected services (e.g. cellular)
Tariff periods Peak rateReduced rate
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Basic concept
Actual consumption
Traffic direction Mobile – Mobile (On Net)Interconnection (Off Net)
Mobile tariff schemes
Minutes included
Pre-paymentFlat rate by period and destination
Deferred paymentConventionalControlled accountScale of rates by destination and period
On Net Everywhere, anytime
Mandatory or deferred payment andpre-payment
Subsidies Penalty for termination of contract
Off Net tariffs
Mobile telephony
Differentiated tariffs
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Regulatory principles for mobile services
• Mobile telephone operators obliged by law to submit their tariff and price proposals for approval by the regulator.
• Non-discrimatory prices for users in the same segment.
• Price structure must be consistent with other similar services.
• Prices must be comparable or better than current national or regional prices (benchmarks).
• Prices should cover costs plus a reasonable profit margin.
• Predatory practices prohibited. As a reference, it has been established that interconnection charges should not be higher than an operator’s minimum price or tariff.