modul 03. interkoneksi dlm perspektif regulasi

7/30/2019 Modul 03. Interkoneksi Dlm Perspektif Regulasi

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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.

Pebruari 2011 InterkoneksiSemester Genap 2010-2011

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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

Pebruari 2011 InterkoneksiSemester Genap 2010 2011

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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.pdf

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