Diálogo Regional sobre
Sociedad de la Información




                 "State of the art": Telecom
              regulatio...
“State of the art”

 Sixteen years ago, in the early stages of the reform process,
  Levy & Spiller (1994) said that the ...
The problem




              3
 After all these years: Internet use & awareness among
    the poor in Indo-Gangetic Plain in 2008, acc. to large-
    sa...
What is the Internet?




                        5
Is it this? And this only?




                             6
Alternatively, is the Internet a
 metamedium that allows one
       to engage in . . .
 Communication in multiple forms,
...
Poor are participating, according
         to teleuse@BOP survey . . . .
  If the answer is yes, millions of poor people ...
10,000-sample, 6-country
     Teleuse@BOP survey in 2008 found
        that most poor people had . . .
     Used a phone ...
Among non-owners, ~80% can get
        to a phone in under 5 minutes
                     Time to reach the nearest phone ...
Clearly, success has been achieved
    with mobile voice in South Asia
 How has this region which has a large concentrati...
Budget Telecom Network
Business Model




                         12
How were this many poor people
  connected electronically?
 “Budget Telecom Network Model” that allowed South
  Asian tel...
Total cost of mobile ownership in 77 emerging economies




                                                          14
Competition as the necessary
         condition
 Despite being similar to Bangladesh, India, Pakistan and
  Sri Lanka, Ne...
Source: http://lirneasia.net/projects/2008-2010/indicators-continued/benchmarks/   16
Source: http://lirneasia.net/projects/2008-2010/indicators-continued/benchmarks/   17
Source: http://lirneasia.net/projects/2008-2010/indicators-continued/benchmarks/   18
Low prices  greater participation
                        by the poor (urban and rural)
                 18              ...
Extending BTNM to
broadband




                    20
Investment, over all

 Mobile voice success was achieved because the
  conditions were created for massive investment in
...
Extending the business model:
      Prepaid “sachet” pricing
 Same as with voice and shampoo, poor people need to
  be ab...
New services/applications
            needed
          CellBazaar                         Amazon Marketplace
             ...
Policy & regulation




                      24
What role for policy and
           regulation?
 Restating the key point made by Levy & Spiller back in
  1994: solutions...
Policy & regulation to leverage
BTNM for public objectives such as
       greater Internet use
 Market entry is the neces...
Key lesson 1: Ensure necessary
condition by allowing market entry
 Transparent is good (Pakistan), but even otherwise is
...
Key lesson 2: Priority to scarce
   resources, including spectrum
 Refarm and increase supply of spectrum
 Give frequenc...
Key lesson 3: Wholesale access
         to “fat pipes”
 BTNM causes networks to extend coverage 
  backhaul becomes more...
Key lesson 4: Attention to
   anti-competitive practices
 Especially vertical price squeeze
   • Becomes more important a...
Key lesson 5: Price
  forbearance, banded or full
 India has shown how forbearance gives good results
 But India has som...
Key lesson 6: Go gentle on
  quality of service regulation
 Patchy QOS is an outcome of BTNM
 Hard regulation of QOS wit...
Ad published
in Colombo on the
occasion of the 11th
Meeting of the South
Asian Telecom
Regulators
Council




            ...
34
Key lesson 7: Lower the tax
           burden
 Recognize that long-tail customers are very
  sensitive to price & are buy...
If you can, improve regulation
    & be consistent about it
 Ideal: predictable, transparent and consultative
   • But, s...
In sum

 A new business model, not government action
  (regulation, universal service funds), has connected
  unimaginabl...
Rohan Samarajiva

                         rohan [at] lirneasia.net




                                             Diálo...
Este trabajo se llevó a cabo con la ayuda de fondos asignados al
IEP por el Centro Internacional de Investigaciones para e...
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"State of the art": Telecom regulation and new technologies

  1. 1. Diálogo Regional sobre Sociedad de la Información "State of the art": Telecom regulation and new technologies Rohan Samarajiva www.LIRNEasia.net; rohan [at] lirneasia.net Seminar on New Technologies and Challenges for Telecom Regulation Brasilia, 13 May 2010
  2. 2. “State of the art”  Sixteen years ago, in the early stages of the reform process, Levy & Spiller (1994) said that the reform solution must fit the institutional conditions  Institutional conditions are different in different countries • How can there be a single “state of the art”? • Basic economic principles apply; but they are translated into different policy and regulatory forms and priorities that depend on institutional conditions  My focus is on one set of policy and regulatory forms and priorities that have emerged in South Asia and the lessons that may be derived for other developing countries grappling with challenges of making new technologies available to all their people 2
  3. 3. The problem 3
  4. 4.  After all these years: Internet use & awareness among the poor in Indo-Gangetic Plain in 2008, acc. to large- sample survey Internet use (% of BOP teleusers) 10% 23% 20% I haven't heard about the Internet 56% 57% 63% I have heard about the Internet but I haven't used it 70% Less than once a month 57% Once a month 74% 2-3 times a month Once a week 43% 41% 36% 2-3 times per week Daily Bangladesh Pakistan India Sri Lanka Philippines Thailand Bangladesh Pakistan India Sri Lanka Philippines Thailand Use the 0.6% 2.2% 0.8% 3.2% 20.7% 23.0% 4 Internet Among BOP teleusers
  5. 5. What is the Internet? 5
  6. 6. Is it this? And this only? 6
  7. 7. Alternatively, is the Internet a metamedium that allows one to engage in . . .  Communication in multiple forms, synchronous/asynchronous, one-to-one/one-to-many, etc.  Information retrieval  Publication  Transactions (including payments), and  Remote computing??  And does using some of these functions over distance, using electronic means, constitute participation in the Internet Economy? 7
  8. 8. Poor are participating, according to teleuse@BOP survey . . . .  If the answer is yes, millions of poor people in the Indo- Gangetic Plain are beginning to participate in the Internet Economy through the mobile networks and handsets • Inchoate, but understandable as services are just beginning to be offered & business models are being worked out • The dongle/netbook surge had not yet occurred in 2008 What mobiles are used for (% of BOP mobile owners) 100% 80% 60% 40% 20% 0% Bangladesh Pakistan India Sri Lanka Philippines Thailand 8
  9. 9. 10,000-sample, 6-country Teleuse@BOP survey in 2008 found that most poor people had . . .  Used a phone in the last 3 months Bangladesh Pakistan India Sri Lanka Philippines Thailand % of BOP 95% 96% 86% 88% 79% 77 % (outer sample)  Used a phone in the last week Bangladesh Pakistan India Sri Lanka Philippines Thailand % of BOP (outer 82% 66% 65% 77% 38% 72% sample) Caused by SMS reliance 9 Among BOP (OUTER SAMPLE)
  10. 10. Among non-owners, ~80% can get to a phone in under 5 minutes Time to reach the nearest phone (% of BOP non-owner teleusers) 100% > 60 minutes 45-60 minutes 80% 30-45 minutes 60% 15-30 minutes 10-15 minutes 40% 5-10 minutes 20% 3-5 minutes 2-3 minutes 0% < 2 minutes Bangladesh Pakistan India Sri Lanka Philippines Thailand Most non-owners walk to the nearest phone 10 Among BOP non-owner teleusers
  11. 11. Clearly, success has been achieved with mobile voice in South Asia  How has this region which has a large concentration of poor people (world’s largest is in the Indo-Gangetic Plain), achieved this? • Despite or because of policy and regulatory actions?  If something works for the hardest problem, is it not likely it will work for others?  How can the lessons be applied to Internet access? 11
  12. 12. Budget Telecom Network Business Model 12
  13. 13. How were this many poor people connected electronically?  “Budget Telecom Network Model” that allowed South Asian telcos since 2005-06 to make excellent (if highly volatile) returns by serving “long-tail” markets of poor people by • Dramatically reducing transaction costs primarily through prepaid • Allowing poor people to pay for services when they need it and when they have money (as opposed to fixed monthly payments) • Controlling operating expenses through business-process innovation • Focusing on revenue-yielding minutes rather than ARPUs  Akin to Budget Airline Model that allows Air Asia to make profits while conventional airlines flounder  Downsides • Patchy quality of service for consumers • Volatile returns; increased risks for suppliers 13
  14. 14. Total cost of mobile ownership in 77 emerging economies 14
  15. 15. Competition as the necessary condition  Despite being similar to Bangladesh, India, Pakistan and Sri Lanka, Nepal had high prices until 2009 • Backdoor entry to mobile space by “fixed” CDMA operators was the explanation for prices dropping in 2009 15
  16. 16. Source: http://lirneasia.net/projects/2008-2010/indicators-continued/benchmarks/ 16
  17. 17. Source: http://lirneasia.net/projects/2008-2010/indicators-continued/benchmarks/ 17
  18. 18. Source: http://lirneasia.net/projects/2008-2010/indicators-continued/benchmarks/ 18
  19. 19. Low prices  greater participation by the poor (urban and rural) 18 40 16 35 14 30 % of population INR per minute 12 25 10 20 8 15 6 4 10 2 5 0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Mobile tariff (effective charge) Urban Indian SEC D and E mobile penetration Rural Indian SEC D and E mobile penetration 19
  20. 20. Extending BTNM to broadband 20
  21. 21. Investment, over all  Mobile voice success was achieved because the conditions were created for massive investment in network build-out  Building networks capable of broadband is not just incremental; it is the building of an overlay network that requires massive investment, but • Not enough cashflow from commodity voice business • Governments have gotten greedy and are extracting lots of taxes • Great Recession (positive and negative effects, depending on region and players) • Regulation has become politicized with higher profile 21
  22. 22. Extending the business model: Prepaid “sachet” pricing  Same as with voice and shampoo, poor people need to be able to pay when the need arises and when money becomes available  Broadband use in HSPA+ networks, where the relation between the base station and users is in any case not fixed is conducive to this form of pricing  Of course, sachet pricing can include “buckets” of minutes, MB, etc., and need not be seen as a taxi meter 22
  23. 23. New services/applications needed CellBazaar Amazon Marketplace Dispute Dispute resolution resolution Feedback Feedback mechanism mechanism Delivery Delivery Payment Payment Order Order Search Search CellBazaar Amazon Marketplace stages included stages not included •Today CellBazaar can only do search; if payment policy firmed up they can 23 add payments; if postal system improved they can start delivery, etc.
  24. 24. Policy & regulation 24
  25. 25. What role for policy and regulation?  Restating the key point made by Levy & Spiller back in 1994: solutions must fit institutional conditions  Institutional conditions include the operative business model  policy and regulation must support and leverage the business model, not work at cross purposes to it  The question then is what can policy and regulation do to leverage the “Budget Telecom Network Model”? 25
  26. 26. Policy & regulation to leverage BTNM for public objectives such as greater Internet use  Market entry is the necessary condition; uncertainty caused by license terms ending needs to be reduced  Spectrum management, including refarming, has to be given highest priority  More emphasis on availability of, and wholesale access to, “fat pipes” than termination rates per se  Attention to anti-competitive practices, especially vertical price squeeze  Old style price regulation to be replaced by forms of forbearance, if necessary bounded to address competition concerns  Gentle on Quality of Service (QOS) regulation  Phase out universal-service levies and rationalize taxes 26
  27. 27. Key lesson 1: Ensure necessary condition by allowing market entry  Transparent is good (Pakistan), but even otherwise is better than no entry (Bangladesh and Sri Lanka); even Nepal’s “backdoor” mode has a good side  Entry does not mean a piece of paper, but includes frequencies, numbers and rights of way  Unless uncertainty caused by license renewals is addressed, new investments will be depressed  Address market-exit, as integral element of market-entry policy  Will result in BTNM being implemented 27
  28. 28. Key lesson 2: Priority to scarce resources, including spectrum  Refarm and increase supply of spectrum  Give frequencies and numbers without delay • Not necessarily free, paying attention to transparency and removing incentives to waste • Predictable procedures  No point in licenses without frequencies; but in general frequencies should be decoupled from licenses  Assist with rights of way  Allow passive and active infrastructure sharing to bring down costs • Help reduce energy costs 28
  29. 29. Key lesson 3: Wholesale access to “fat pipes”  BTNM causes networks to extend coverage  backhaul becomes more important • International is especially important for broadband  Wholesale access is more important than termination • Bangladesh achieved good performance with the worst termination regime in the world • With widespread multiple SIM use, customers are bypassing interconnection regimes 29
  30. 30. Key lesson 4: Attention to anti-competitive practices  Especially vertical price squeeze • Becomes more important as retail prices go down under the BTNM 30
  31. 31. Key lesson 5: Price forbearance, banded or full  India has shown how forbearance gives good results  But India has some of the world’s lowest HHIs  What about countries with less competition and incumbents with control over essential facilities? • Banded forbearance • A rudimentary form in place in Bangladesh 31
  32. 32. Key lesson 6: Go gentle on quality of service regulation  Patchy QOS is an outcome of BTNM  Hard regulation of QOS with high standards will stifle the model and deprive the poor of service  But truth in advertising and naming and shaming for those who violate basics . . .  Crowdsourcing of QOS • Asian 2 years ahead of USA 32
  33. 33. Ad published in Colombo on the occasion of the 11th Meeting of the South Asian Telecom Regulators Council 33
  34. 34. 34
  35. 35. Key lesson 7: Lower the tax burden  Recognize that long-tail customers are very sensitive to price & are buying “sachets” of services • No big usage-insensitive taxes  Ideal if mobile/telecom specific taxes removed; even if not, keep them steady and reasonable  Time to end universal service taxes; no point in taxing the poor to provide services also to the poor 35
  36. 36. If you can, improve regulation & be consistent about it  Ideal: predictable, transparent and consultative • But, second-best options that rest on simplicity and one-off actions may be most efficacious  If good regulation can be done consistently over time, regulatory risk will decrease  cost of capital will decline  more investment will flow in  more people will be connected at lower prices  more profit  virtuous cycle 36
  37. 37. In sum  A new business model, not government action (regulation, universal service funds), has connected unimaginable numbers to networks at unimaginable prices; this same model can be extended to broadband  Policy of market opening has created the conditions for emergence of disruptive competitors and discovery of new business model to bring costs down to the floor  Government will get better results by understanding and leveraging the business model than by trying to achieve public objectives on its own  Particularly important to align telecom and taxation policies 37
  38. 38. Rohan Samarajiva rohan [at] lirneasia.net Diálogo Regional sobre Sociedad de la Información LIRNEasia Horacio Urteaga 694 12 Balcombe Place, Colombo 08, Jesús María, Lima - PERU Sri Lanka Teléfonos: ( 51-1) 3326194 / 4244856 Voice: +94 (0)11 267 1160; +94 Fax: (51-1) 3326173 (0)11 493 9992; +94 (0)11 497 9795 info@dirsi.net Fax: +94 (0)11 267 5212 www.dirsi.net http://www.lirneasia.net/ info[at]lirneasia[dot]net
  39. 39. Este trabajo se llevó a cabo con la ayuda de fondos asignados al IEP por el Centro Internacional de Investigaciones para el Desarrollo y de la Agencia Canadiense de Desarrollo Internacional, Ottawa, Canadá. Este documento cuenta con una licencia Creative Commons del tipo: Reconocimiento - No comercial - Compartir bajo la misma licencia 2.5 Perú Usted puede: copiar, distribuir y comunicar públicamente la obra y hacer obras derivadas, bajo las condiciones establecidas en la licencia: http://creativecommons.org/licenses/by-nc-sa/2.5/pe/legalcode Se sugiere citar este documento de la siguiente forma: Samarajiva, Rohan. "State of the art": Telecom regulation and new technologies [diapositivas]. Brasilia: DIRSI, 2010.
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