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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. Lines in service (000). Mexican Demographics.

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Telecommunications Misconceptions

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  1. 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

  2. Lines in service(000) MEXICO/UIT

  3. Mexican Demographics 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

  4. Main differences between cellular wireless and wireline Cost Pre-paid Post-paid Wireline Fixed wireline cost per line Fixed wireless cost per customer Usage (minutes per month) MEXICO/UIT

  5. Wrong price regulation Market prices Lower ROI Higher ROI Less investments More investments Less competition More competition Over-regulation & subsidies Lower prices Misconception 1: The Regulator’s role is to push for lower prices Vicious Circle Competition Destroy Model Virtuous Circle Pro-Competition Model MEXICO/UIT

  6. Misconception 1: The Regulator’s role is to push for lower prices False “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

  7. Misconception 2: TLRIC is the solution for all interconnection conflicts CAPEX vs Traffic 4 3.5 3 2.5 Wireline C A AMPS P 2 TDMA3 E X 1.5 CDMA 1 0.5 0 0.01 0.03 0.05 0.07 0.09 0.11 0.15 0.20 Traffic (Erl) MEXICO/UIT

  8. Misconception 2: TLRIC is the solution for all interconnection conflicts CAPEX vs Customer’s Density 6 5 C 4 Wireline A AMPS P 3 E TDMA3 X CDMA 2 1 0 6 10 30 50 70 90 120 160 200 300 2 Density (Users/Km ) MEXICO/UIT

  9. Misconception 2: TLRIC is the solution for all interconnection conflicts CAPEX vs Available Spectrum 6 5 Wireline C 4 AMPS A P TDMA3 3 E CDMA X 2 1 0 8 10 12 14 16 18 20 22 24 26 28 30 Bandwidth (MHz) MEXICO/UIT

  10. Misconception 2: TLRIC is the solution for all interconnection conflicts False 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

  11. Fixed to Mobile calls are more expensive than Mobile to Fixed calls. Wireline Price Wireline call + Billing & Collection Wireline Interconnection + B & C Wireline Sales Margin (Resale) VEN Wireless Interconnection (LRIC) Minimum MEX Wireline Sales Margin (Resale) EUR Wireless Price (Wholesale) Wireline call + Billing & Collection Wireline Interconnection + B & C ARG Wireless Price (Retail) MEXICO/UIT

  12. Mexican Prices 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

  13. 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

  14. Final Comments • 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

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