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InterkoneksiModul-03
Interkoneksi dalam PerspektifRegulasi
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Telecommunications Market
Telecommunications markets throughout the world economy are characterized bya high level ofeconomicand technological dynamics.
Technological dynamics can be partly attributed to digitization, which has led to a
convergence of previously existing markets, such as cable TV, fixed-line
telecommunications and broadcasting. Modern digital technologies have created
larger markets in which data, voice, video and audio are transmitted in the form of
compressed digital signals.
Economic dynamics received a boost with the 1998 liberalization in fixed-line
telecommunications and GSM technology in mobile telecommunications, and with
the roll-out of UMTS mobile technology, which began in 2004/5.
In the Organization for Economic Co-operation and Development (OECD) countries
there has also been growing production and use of information andcommunication technology (ICT), contributing to higher economic growth.
The telecommunications sector is a crucial pillar of ICT; sustained competition in
telecommunications could be quite important for mobilizing crucial productivity
and welfare effects in the digital economy.
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The Main Arguments of Strengthening
Competition
Competition is a means of enhancing efficiency and forcing
firms to bring prices down to costs (static efficiency), plus a
normal rate of return.
Competition stimulates innovation, especially product
innovation bringing more valuable products to customers
and process innovation, lowering costs to make products or
services more affordable (dynamic efficiency).
Competition creates the right conditions for newcomers from
other sectors or newly created companies to enter themarket; it is therefore a prerequisite for economic freedom.
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Competition Policy and Regulation
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In practice, many markets do not exhibit all the conditions
necessary for effective competition. Market failures occur in
many forms.
The two most associated with the need for regulation are:
Monopoly, including natural monopoly, and
Externalities
Competition policy and regulation are two broad approaches
to encouraging competition in the ICT sector
Competition policy and regulation are not mutually exclusive.
Many countries use a mix of both. However, care is required
to ensure that sector regulation and anti-trust laws are
developed and applied consistently.
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Competition Policy
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Competition policy provides a set of tools to promote
sustainable competition, and to preserve a market
environment in which such competition can flourish.
Competition policy may be implemented through general
competition laws, or through competition enhancing rules in
specific sectors. In the ICT sector, such rules might include:
General prohibitions of anti-competitive behaviour, and mergers
or acquisitions that would reduce competition, or
Specific rules designed to encourage competition in the sectors,
such as interconnection requirements or unbundling policies
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Competition laws
Competition laws (or antitrust laws) aim to promote efficient
competition by penalizing or undoing conduct that reduces competition in
a market.
Competition laws generally include provisions to:
Prevent competing firms from banding together (colluding) to increase
prices or reduce quantities of goods and services, or to exclude other firms
from a market
Prevent firms with a dominant position, or significant market power, from
using their market power to exclude competitors from the market, or
otherwise reduce competition
Stop mergers or acquisitions that would reduce competition
With the exception of provisions for mergers and acquisitions,competition laws are generally ex postregulation. They give the
competition authority or the courts powers to respond to anti-competitive
behaviour once it has occurred
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Regulation
Regulation is useful where the market by itself would produce undesirable
or socially unacceptable outcomes.
Regulation attempts to prevent socially undesirable outcomes, and to
direct market activity toward desired outcomes
For example: Telecommunications regulation is widely used to promote prices
that reflect efficient costs and promote universal access to basic
services
Regulation should only focus on those parts of the ICT sector where there
is a clear need for regulation (that is, where effective competition is not
feasible) and should only be a temporary measure. Over time, regulators
should aim to establish or restore the conditions that provide for effective
competition on a sustained basisFor example: Removing or reducing barriers to entry and exit, and enabling the
market itself for example through the entry of additional
competitors to prevent the incumbent from exercising market
power.
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Effective Competition (1/2)
Effective competition occurs in economic markets when fourmajor market conditions are present:
Buyers have access to alternative sellers for the products they desire
(or for reasonable substitutes) at prices they are willing to pay
Sellers have access to buyers for their products without undue
hindrance or restraint from other firms, interest groups, governmentagencies, or existing laws or regulations
The market price of a product is determined by the interaction of
consumers and firms. No single consumer or firm (or group of
consumers or firms) can determine, or unduly influence, the level of
the price
Differences in prices charged by different firms (and paid by different
consumers) reflect only differences in cost or product
quality/attributes
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Effective Competition (2/2)
In effectively competitive markets, consumers are protectedto some degree from exploitative prices that firms, acting
unilaterally or as a collusive bloc, could charge. Likewise, firms
are protected from manipulation by large individual
consumers (or groups of consumers) and from disruption or
interference from other firms
Competition occurs on the basis of both price and the quality
or features of the product. Products are often differentiated,
that is they are not identical across firms.
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Ex Ante and Ex Post Regulation (1/2)
Practitioners commonly distinguish between ex ante
regulation and ex postregulation.
Various countries have adopted competition policies that rely,
to varying degrees, on mixing elements of these two
approaches.
Ex ante regulation: Ex ante regulation is anticipatory intervention. Ex ante regulation uses
government-specified controls to
Prevent socially undesirable actions or outcomes in markets, or
Direct market activity towards socially desirable ends.
Ex ante regulation is mainly concerned with market structure, that is
the number of firms and level of market concentration, entry
conditions, and the degree of product differentiation
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Ex Ante and Ex Post Regulation (2/2)
Ex post regulation:
Ex postregulation addresses specific allegations of anti-competitive
behavior or market abuse.
Ex postregulation aims to redress proven misconduct through a range
of enforcement options including fines, injunctions, or bans.
Ex postregulation is mainly concerned with market conduct thebehavior of a firm with respect to both its competitors and its
customers
In general, antitrust laws tend to be ex postregulation, while
sector regulation is generally ex ante.
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Advantages of Ex Ante Regulation
Sets forward looking expectations for firm behaviour.
Avoids damage from anti-competitive behaviour by
anticipating and preventing it
Can provide certainty for market participants, by setting out
clear rules in advance
Promotes transparency
Eases dispute resolution, as the competition framework is
already established
Regulators and affected parties know in advance the types of
information required for regulatory proceedings, and can
collect it accordingly
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Disadvantages of Ex Ante Regulation
May prevent potentially beneficial behaviour
Often uses the perfect competition model as a benchmark,
which can lead to unnecessary or excessive intervention
Can introduce unforeseen distortions in the operation of the
market. Asymmetric regulation can encourage service
providers to focus on exploiting opportunities for arbitrage
Imposes high informational requirements on regulators
Can be costly. Inevitably involves lengthy regulatory
proceedings
Regulatory processes can be capturedby regulated entities
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Advantages of Ex Post Regulation
Competition laws specify in advance which forms of conduct are
prohibited. Attempts to only stop conduct that is shown to beharmful to the social good. Temporary departures from competition
benchmarks (for example due to innovation) are not punished
without investigation
Lower informational and monitoring requirements than ex ante
regulation, and therefore lower costs.
Ex postcompetition laws apply the same rules across all sectors,
and so should produce consistent outcomes across sectors
Ex postregulation is the least disruptive form of regulation for
emerging markets Competition authorities are less susceptible to capture than sector
specific regulators
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Disadvantages of Ex Post Regulation
Does not prevent harm to competition, only ameliorates it
Securing the information needed to enforce ex postregulation,
from the accused firm, can be difficult
General competition laws may be unsuitable for identifying and
penalizing anti-competitive conduct specific to a certain market
When applied alongside industry-specific ex ante regulation,
general competition laws can cause inconsistencies in regulatory
outcomes
Can create uncertainty for firms, particularly firms with market
power. At what point do they cross the line between aggressivelycompetitive behaviour and anti-competitive use of market power?
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Regulatory Forbearance
Regulatory forbearance is about focusing regulation to where it is needed,
and withdrawing regulation in those parts of the market where it is nolonger necessary.
The concept of regulatory forbearance rests on the goal of a gradual
removal of ex ante regulation and an accompanying increase in the use of
general ex post competition regulation.
The concept of regulatory forbearance has two elements:
A regulator may refrain from applying certain regulatory conditions, or from
intervening in certain markets. For example, the Canadian Radio-television
and Telecommunications Commission has explicitly stated that it will forbear
from regulating certain services
A regulator may reduce the scope of regulation, or withdraw entirely fromregulating specified markets.
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Regulated Industry
Definition
One in which market price, amount or quality of output or the
circumstances of market entry are controlled by some level of
Government or other organization (Telecommunication Deregulation Allison &Thomas)
There are many external drivers that impact on the financial
performance of a Telcos, but none is potentially more
influential or intrusive than regulation
It is generally accepted that the prime reason for regulationis to protect the consumer by promotion of competition
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Competition vs Monopoly
Perfect Competition: supplier assumed to maximize profit
and buyers seek value for money
Monopolistic Environment:
Usually one with dominant supplier, the supplier has market power to
set the price to maximize profit. Assuming price elasticity, the supplier
can chose to sell few at a high price or more at a lower price; at worst,
the captive market may be overcharged, all may disadvantage of the
customer
Monopolies may also exploit their power in one market to cross
subsidize below cost predatory pricing in competitive markets
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Why Regulation
Mostly, the successful transformation of monopolistictelecommunications markets into competitive one requires
regulatory invention. Without it, viable competition is not
likely to emerge.
Regulatory intervention is required for a variety of reasons Regulators must authorize or license new operators
The must often remove barriers to market entry by new operators
The must oversee interconnection of new entrants with incumbent
operators
Regulatory intervention may also be required to ensure
competitive markets do not fail to serve high cost area or low
income subscribers
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Motivated Factor of Telcos Market
Liberalization Increasing evidence that more liberalized telcos market were growing and
innovating faster and serving customer better.
The need to attract private sector capital to expand and upgrade telcos
networks, and to introduce new service
Growth of the internet, which caused data traffic to overtake voice traffic
in many countries, and led to the introduction of many new serviceproviders
Growth of mobile and other wireless services, which provided alternatives
to fixed networks and introduced new service providers to
telecommunications markets
Development of International trade in telecommunications services, whichare increasingly provided by transnasional and global services providers
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The Consensus
The successful transformation of
monopolistic telecommunications markets
into competitive ones requiresREGULATORY INTERVENTION
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Regulatory Objective Promote universal access to basic telecommunications services
Foster competitive market to promote :
Efficient supply of telecommunications services
Good quality of service
Advanced services, and
Efficient prices
Where competitive markets do not exist or fail, prevent abuses of market powersuch as excessive pricing and anti-competitive behavior by dominant firms
Promote public confidence in telecommunications markets through transparent
regulatory and licensing processes
Protect Consumer right, including privacy right
Promote increased telecommunications connectivity for all users through efficientinterconnection arrangements
Optimize use of scarce resources, such as radio spectrum, numbers and rights of
way
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Effectiveness of RegulationThe effectiveness of regulation depends on a number of aspects such as :
How well implementation options are match to the situations in which they apply,
complex situations dealt with by simple rule cause erratic results whilst
discretionary based system may be a cumbersome way of dealing with simpler
situations.
Long standing relationships influencing the regulator doing what is in the best
interest of the regulated.
Regulation being misused as a source of power Regulators maximizing their own long term career interests e.g. commissioners
have fixed post at given salaries and are likely to minimize conflict to remain in
office.
The regulator should be consistent to implement principles for effective
Regulation, such as :
Minimize Regulatory Intervention After Competition Establish
Harmonize with Regional and Global Regulator Standards
Introduce Competition
Regulate by Principles
Establish Operational Efficiencies
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Style of RegulationThe style of regulation may also be influenced by the history of politics in different
country, for example :
In USA, the primary concern is to prevent monopolization stemming from anti
trust legislation of the Sherman Act of 1890 which made monopolistic behavior
illegal; examples are the break-up of ITT and AT&T
British, British approach has been based on open ended, public interest criteria
with criteria which, in addition to promotion of competition and mattersconcerning consumer choice also included the promotion of regional policy and
exports; more recently it has veered towards competition
In EU, the EU approach is primarily aimed at abuse of market power, collusion, or
dominant position reducing competition but also operates exemptions on the
grounds of beneficial effects on production efficiency; it is an effects based
discreationay system where breaches can result in fines and where case law can becreated by the European Court of Justice.
Indonesia ???, Telcos regulation in Indonesia may be to move monopolisation to
competition.
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Where Regulated Interconnect Is Required
Regulation is only required in a telcos market to compensate for some
perceived or expected market failure. In the absence of market failure,there should be no regulation.
Regulation should only be introduced to counteract anti-competitive
behaviour, or where it is otherwise beneficial to the public interest (e.g., in
the development of standards on any-to-any interconnectivity between
networks). The appropriate scope of interconnect regulation goes through three
phases (as shown in regulatory funnel)
Regulators impose a minimum set of ex ante regulations to control the
incumbent behavior
Regulation is progressively tightened to overcome any obstacles experiencedby the emerging competition
Regulation is loosened as the disciplines of effective competition take over.
Eventually, market freedoms exceed those in the early days of liberalization.
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Regulatory Funnel of Interconnection
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Extent of regulatory
pressures
Extent of
market
freedoms
time
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Three Phases of Interconnect Regulation(1/2)
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Interconnect regulation is initially focused on the incumbent operator, and
on a relative small range of services and facilities which entrants need inorder to commence operations.
Over time, the scope of regulation spreads to cover more operators and
more services, but concentrates only on bottleneck facilities.
the key requirements to overcome bottleneck market power are the
regulated provision of number portability, local loop unbundling and call
termination service.
The most liberalized countries are now moving from Phase 2 to Phase 3
liberalization. Key issues in these countries are:
Defining market dominance, and the extent of regulation for the few key players
involved
Defining bottleneck facilities, and ensuring that regulation for these facilities applies to
all operators
Extending the cost-based interconnection framework to cover mobile and broadband
Internet access services
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Three Phases of Interconnect Regulation
Notes:
(1) Other operators may be affected by the requirement for reprocity
(2) Other regulated interconnect facilities may exist (eg. directory services), but they are not central to the call completion
services
(3) Although a transition to Phase 3 may already be taking place
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Scope of RegulatedInterconnect
Phase 1Limited competition
Phase 2Broad competition
Phase 3Effective competition
Which operator? Incumbent(1) Dominant(1) All operators
Which facilities?
A few basic requirements(2),
principally:
equal access carrier selection
call termination
call origination
Almost all interconnect
services, especially:
call origination
call termination
call transit
local loop unbundling
number portability
Bottleneck facilities, principally:
local loop unbundling
call termination
number portability
Which services? Voice telephony Voice telephony(3)
All mass market services,
especially:
voice telephony
mobile communications
Internet access
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References
International Telecommunication UnionSignificant market power in
telecommunications: theoretical and practical aspects Prof. Dr Paul J.J. Welfens
(http://www.itu.int/ITU-D/finance/work-cost-
tariffs/publications/market_liberalization_reports.pdf)
ICT Regulation Toolkit, Module 2Competition and Price Regulation InvoDev,
ITU (http://www.ictregulationtoolkit.org) Implementing Cost-Based Interconnect David Rogerson, Mark Donelly, Barry
Ladbrook, Nick Owen Ovum, Arthur Andersen
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http://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.ictregulationtoolkit.org/http://www.ictregulationtoolkit.org/http://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfhttp://www.itu.int/ITU-D/finance/work-cost-tariffs/publications/market_liberalization_reports.pdfTop Related