Competition and oligopoly in        telecommunications industry        in the EUVítor Santosovitorsantos@hotmail.com
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                                                        ...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                          3INTRODUCTION       This work ...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                                           4COMPETITIVEN...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                                      5intrinsic charact...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                              6       An important featu...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                           7         Apart from the dist...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                          8       Public utilities often...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                              9CONCEPTS UNDERLYING THE R...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                            10       BARRIERS TO ENTRY  ...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                                            11       Eff...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                            12       Telecommunications ...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                           13so that eventually the inco...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                             14DEDUCTION FROM THE ANALYS...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                           15operators will probably als...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                                                        ...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                           17CONCLUSION       The teleco...
COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU                  18       BIBLIOGRAPHY   http://www.tw...
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Competition and oligopoly in telecommunications industry in the EU

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This work arose in the course of Advanced Microeconomics taught by Ms. Prof. Dr. Alina Badulescu at the University of Oradea.
The work focuses on the telecommunications market, through market analysis and study of oligopolistic characteristics.

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Competition and oligopoly in telecommunications industry in the EU

  1. 1. Competition and oligopoly in telecommunications industry in the EUVítor Santosovitorsantos@hotmail.com
  2. 2. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 2TABLE OF CONTENTSIndex of Tables ..................................................................................................................2Introduction .......................................................................................................................3Competitiveness ................................................................................................................4Oligopoly ...........................................................................................................................5European regulations in the telecommunications sector ...................................................6 Application of sector specific rules ..........................................................................7 Regulation of the telecommunications market .........................................................8Concepts underlying the regulation of telecommunications From competition to monopoly................................................................................9 Barriers to entry......................................................................................................10The definition of a regulatory sector ...............................................................................10Issues to tackle .................................................................................................................12Deduction from the analysis of telecommunications regulation .....................................14The oligopoly of telecommunications .............................................................................14Case study The Portuguese case ............................................................................................... 15 European Union .....................................................................................................16Conclusion .......................................................................................................................17Bibliography ....................................................................................................................18INDEX OF TABLESTable 1 - The Oligopoly in the telecommunications sector in the European Union .......16MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  3. 3. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 3INTRODUCTION This work arose in the course of Advanced Microeconomics taught by Ms. Prof.Dr. Alina Badulescu at the University of Oradea. The work focuses on the telecommunications market, through market analysis andstudy of oligopolistic characteristics. In fact, their characteristics, the mobile telecommunications market ischaracterized by an oligopoly. This kind of market does not compete with each other atEuropean level, but within each country, where the composition of the market isdominated by a small group of companies to ensure distribution of the service market. The description of this work begins with a sense of competitiveness, which frommy point of view is important because it depends on the market, and results in betterorganized, better results through to the consumer. How could it not be, is a short introductory presentation described the concept ofoligopoly, which will be developed throughout the work. In the following it is shown how the EU regulates the telecommunications marketthrough measures to regulate the market, owing to possible domain markets, itdeveloped specific rules for this sector, bearing in mind that this is a marketcharacterized by oligopoly. The European Union also attempts to resolve, through its regulations, some faultsthat are felt in the telecommunications market in Europe. Finally is presented a case study of an oligopolistic sector in thetelecommunications market, the case of Portugal where the market is dominated bythree large companies, which somehow reflects the more European Union countries,which are characterized in this sector, few companies dominate the market, and hencebe seen as an Oligopoly.MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  4. 4. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 4COMPETITIVENESS It is said that a given industry is highly competitive when the various companies thatcomprise it have conditions and similar resources in the search for spaces on the marketcompeting more evenly among themselves. On the other hand, the industry may have a lowcompetitiveness, showing that few companies have the resources and conditionshighlighted, while other companies have few resources, featuring a lopsided contest. Competitiveness can be somehow expressed for market share achieved by any firm ina market in a certain moment in time (Possas 1999) 1. Market share expresses how much aparticular company has sales or revenue out of the total sales or revenues realized for agiven market. For the analysis of competition in the telecommunications industry, the use ofthis concept is relevant, since the market share achieved by a particular firm expresses itsability to gain customers and revenue within the industry. However, Possas (1999) considers the market share in an indicator of the successachieved by a particular firm in the past. Therefore, it is necessary to better assess thepotential that a company has to achieve consistent results in the future. For this, Possas(1999) suggests an internal review of the firm when seeking to understand their strategicchoices that affect their market share. That is, how market share is a historical fact and,therefore, refers to the past, it is necessary to understand the strategy of organizations totry to predict their behavior and therefore its ability to maintain participation. Concomitantly, Kupfer and Hasenclever (2002)2 present the competitiveness andefficiency achieved by the company in competition, as it reflects its ability todifferentiate themselves from competitors. Efficient firms are more capable of offeringdistinctive products and services to the market than its competitors, meaning morelikely to maintain their market shares. It is possible verify that exists a correlation between the concepts ofcompetitiveness, market share and strategic choices of companies. This follows fromthe fact that is the choices and strategic actions and way of how a company operates inthe market that will determine your sales, revenue and market share. Thus, one way toassess the competitiveness of a firm is to check their market share while we observe the1 POSSAS, S. 1999. Competition and competitiveness: note about strategy and selective dynamic on capitalisteconomy. São Paulo, Hucitec.2 KUPFER, D. and HASENCLEVER, L. 2002. Industrial Economics: theoretical and practice in Brazil. Rio deJaneiro, CampusMICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  5. 5. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 5intrinsic characteristics of the organization that contribute toward achieving that result.Kupfer and Hasenclever (2002, p. 3) present a summary of this concept: [...] Competitiveness was defined as the ability of the company formulates and implements competitive strategies, which enable it to expand or maintain, in a lasting one sustainable market position. Following this line of reasoning, it is important that decisions and strategic actionsof a firm should be in line with the competitive practices of other competitors. That is,the firm should make strategic choices consistent with the competitive dynamics of themarket, because, otherwise, could be moved further than the market expects in terms ofsupply. Possas (1999) supports this statement by pointing out that the competitivedimensions are related to market characteristics. Brand, production process, internal management, knowledge of people, customerrelations, among others, are examples of resources and expertise that an organizationmay have as a source of competitive advantage. For Grant (1991)3, the resources andskills, as mentioned earlier, are the basis for company’s profitability. For Porter (1981)4, industrial organization has important contributions to thedetermination of strategy in that it uses market analysis to devise strategies to deal withthe forces driving the industry.OLIGOPOLY An oligopoly corresponds to a market structure of imperfect competition,characterized by the fact that the market is dominated by a small number of producersso that one company alone has any power to influence the price as well. In an oligopoly,the products produced can be homogeneous or show any differentiation being that,generally, the competition is in the highest levels of factors such as quality, customerservice, loyalty or image, rather than to the price level.3 GRANT, R.M. 1991. The resource-based theory of competitive advantage: implications for strategyformulation. California Management Review4 PORTER, M.E. 1981. The contributions of industrial organization to strategic management. Academy ofManagementMICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  6. 6. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 6 An important feature of oligopoly is that they are in sectors with high barriers toentry, whether the high entry costs, the existence of a minimum scale of very highefficiency, the existence of strong economies of experience, legal limitations, or others.Oligopolies are common, we can find them in the communications sector, where entrybarriers are high. An evolutionary trend oligopolies is for oligopolies collusion (or cartel), in whichthe oligopolists organize themselves and jointly make decisions about the supply andprices. In situations of the cartel, prices and quantities traded in the market tend to catchup with prices and quantities that occur in a monopoly situation. Usually, this kind ofpractice is illegal under the antitrust laws because of adverse effects on the economyand giving rise to the damage it brings to consumers.EUROPEAN REGULATIONS IN THE TELECOMMUNICATIONS SECTOR The European Parliament voted on the "telecoms package", which aims toimprove the existing legislation relating to electronic communications services andestablish a new European telecommunications regulator body. This reform is aimed atenhancing competition, widening the choice for users, increase the transparency oftariffs and contractual conditions, to facilitate access for people with disabilities andprotect consumers personal data. European citizens should enjoy, regardless of where they live and wherever theytravel in the EU, communications services more efficient and less costly, whether theyuse mobile phones, broadband connections to the Internet or cable television. Proposals for reform of EU rules on telecommunications, presented by theCommission in November 2007 and on which Parliament legislates on an equal footingwith the Council, provide new rights for consumers, such as change of operatortelecommunications within a day, offering more consumer choice through morecompetition between operators, promoting investment into new communicationinfrastructures, in particular by freeing radio spectrum for broadband services, wireless,and increased reliability and network security through new tools for fighting spam,viruses and other cyber attacks.MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  7. 7. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 7 Apart from the distribution of UMTS5 licenses and issues related to sharing ofinfrastructure, which are still being discussed in some European countries, the followingtopics on mobile communications are on the agenda of national regulators and theEuropean Union, and must be outlined here for a summary: the first number portability,which is an important prerequisite for a competitive market, since it reduces commutingcosts second, international roaming, the third mobile termination charges that areconsidered too high and the fourth Mobile Virtual Network Operators, who need accessto mobile operators infrastructure, which refers to the general issue of interconnectionin the mobile telecommunications market. The international mobile roaming charges are high on the agenda of DGCompetition of the European Commission and national regulatory authorities sinceJanuary 2000. Unannounced inspections were conducted by the European Commissionin July 2001, nine European mobile operators in the UK and Germany in order to findout if there are bees with collective fixing of retail prices or illegally fixed wholesaleprices charged to pressure operators. Another competitive international roaming ratesappears to be weak since the charges are high and static and operators are suspected ofexploiting the lack of customer awareness about these roaming charges. This is true forthe mobile operators customer is traveling the country as well as for the home networkoperator, which usually adds a margin of 10 to 25 cents per minute. High prices forinternational roaming is a problem very similar to mobile termination rates. In mostcases those who ask for termination of international roaming also requires the regulationof mobile termination rates. APPLICATION OF SECTOR SPECIFIC RULES Public intervention through sector specific regulation is closely linked to theconcept of utility based on the notion that a company be "clothed with a public interest."Even though the line between public services and other sectors is a shadow area, whichcan be defined as a core industries in which "the first guarantee of acceptableperformance is not designed to be competitive or self-restraint but the governmentcontrols direct".5 Universal Mobile Telecommunications SystemMICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  8. 8. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 8 Public utilities often involve conditions where a private monopoly, publicmonopoly or public regulation appear, or appear for a long time, the only viablealternatives for the structure of the industry. Permits are issued for example for the operation of mobile telecommunicationsnetworks, leading to restrictions on the entry. Access problems are also seen as such, ifcompetitors have access to facilities owned by other companies, therefore, pricecontrols are among the most common instruments of regulation and can take manyforms. REGULATION OF THE TELECOMMUNICATIONS MARKET The European Union was the driving force in the liberalization of Europeantelecommunications markets and promoted the development of mobile services since1980. However, it was in 1994 that the first time, the European Union promoted acoherent policy framework for the entire mobile sector to open it to competition. The1994 Green Paper proposals for positions on the licensing conditions for operators ofmobile networks. The proposed framework would mainly rely on what was at that timethe telecommunications policy of the European Union that it had to be applied to themobile sector. Under the amendment of ONP6 Framework Directive in 1997, an additionaldirective dealing specifically with issues of interconnection has been introduced, whichplays a significant role in terms of regulation for MVNOs7 and termination charges. TheInterconnection Directive requires all operators providing publicly available telephoneservices to negotiate interconnection with each other, if requested by another operator.More important is that it requires mobile operators in the national interconnectionmarket to offer cost-orientated interconnection, which is a severe intervention in themarket and in the center of discussion. SMP8 is generally presumed when an operatorhas more than a market share of 25% in the relevant market, however the NationalRegulatory Authorities (NRAs)9 are flexible and can decide on SMP independently ofmarket share data. As for the economic regulation is the concept of SMP and itsconsequences for the interconnection and pricing issues that are the most importantbasis for the regulation of mobile telecommunications markets in Europe.6 Open Network Provision7 Mobile Virtual Network Operator8 Significant Market Power9 National Regulatory AuthorityMICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  9. 9. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 9CONCEPTS UNDERLYING THE REGULATION OF TELECOMMUNICATIONS FROM COMPETITION TO MONOPOLY There is a competition that is believed to give companies stronger incentives tooffer customers what they want on prices and quality products. Finally, innovation ispromoted through competition, as it offers companies the opportunity for short termgains. A monopoly, in contrast to a competitive market occurs and can be kept underthree conditions: first, the market is occupied by a single seller, the second replacementof the product is not possible because similar products are not available enough, and lastentry market this product is limited by substantial barriers and exit is difficult. There aremany possible reasons for the existence of monopolies and they are all listed as barriersto entry. A firm with monopoly power may choose to produce at any point on the curveof market demand, ie it can set the price and consequently reduce production or viceversa. A case that is connected to the case of monopoly is the case of oligopoly that is amodel of market behavior that falls between monopoly and perfect competition.Oligopolies refer to markets with an extremely limited number of companies operating.Oligopoly theory and not particularly distinguished coalition of collusion between thecompanies. Attempts by economists to describe and model oligopolistic markets havegenerated a series of theories, none of which became a standard or can claim universalapplicability. Often the net effects of welfare under oligopoly remain unclear.Imperfect information is an important issue, because only through sufficient informationcustomers are able to evaluate competing products and make rational decisions. In thetelecommunications sector this is particularly important, since different rates can createan environment in which consumers get to the point of not knowing how much they willpay for services. Switching costs are a potential source of market distortion. In many markets (andparticularly in previously monopolistic markets like the telecommunications market),consumers who purchased a certain product has switching costs for the product of acompetitor, even if it is identical or slightly better. While there are different categoriesof switching costs, transaction costs of switching suppliers (to cancel a contract, changeof phone number, etc.) and research costs seeking alternatives most relevant to thetelecommunications market.MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  10. 10. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 10 BARRIERS TO ENTRY Barriers to entry are considered the most important reason why markets are notcontestable and are usually the reason why markets become monopolies. They form animportant structural feature of the industry. Examples are the barriers to entry theabsolute cost advantages of incumbent firms (eg, knowledge of a technique of low-costproduction), economies of scale and product differentiation as entry barriers forpotential competitors. The ownership of resources, patents, exclusive franchises fromthe government or even unique managerial talent can also be barriers to entry. Due to the need to sink for example, costs for advertising, new entrants are facedwith additional costs higher than the historical that has already committed its resources.The risk of losing funds unrecoverable can indeed be increased by the incumbentsthreat of retaliatory strategic or tactical responses. Thus, a potential candidate requiresadditional revenue expected to be offset by an increase in incremental costs and risk.This allows the incumbent to win a corresponding income. Thus, barriers to entrysupernormal profits, inefficiencies, cross-subsidies and the prices can not ideal. Caninhibit the work of the invisible hand and have negative consequences for the well-being.THE DEFINITION OF A REGULATORY SECTOR There has been an intense debate under way in the world to regulate the sectormakes sense. The creation of regulatory bodies, therefore, is very controversial in manycountries. Besides the general fear of regulatory activity to be captured, a number ofother arguments have been made against economic regulation and in favor of relying oncompetition law. It is argued that the sector regulators have a natural tendency toperpetuate and expand the fields of activity, which of course increases the costs ofregulation to an improper value. Also, firms are suspected of playing "a game of tactics,with different statuses and authority that makes the costs resulting from the dualapplication of both general competition law and sector specific regulation. Anotherquestion is whether regulatory authorities will really have easy access to knowledge andexperience gained by the cartel office with similar constellations of market in otherbranches, which significantly affects the quality of decisions being made.MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  11. 11. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 11 Effects of regulation on innovation are considered negative. The regulation issupposed to stifle investment and risk, because this rulemaking postpone the rapiddeployment of new technologies, they may sometimes have little incentive to innovatebecause of preference strategies become less attractive. Also they may be afraid to beunduly regulated in the future, making innovation a risky expensive affair. It is also anargument against the sector-specific regulation that regulators can not rely on economictheory as a basis for decisions to intervene in many cases it is absent or very difficult toapply in practice. This is particularly detrimental to price regulation, which has asignificant impact on markets, but due to the complexity of the matter is not always wellmatched. Thus, the regulation substitutes individual judgments and judicial decisionsfor the aggregation of information effectively and accurately than the competitioneffectively. People feel in telecommunications markets that can still be a need for priorregulations to clearly define an environment conducive to the emergence ofcompetition, not only retrospectively apply remedies to punish unlawful conduct. Inmarket surveillance and decisions on issues such as interconnection and quality ofservice can only be granted by a regulatory authority. One key issue, mandatory accessto the markets always lead to price regulation. But in most cases, competitionauthorities are not sector specific skills and expertise needed to deal with issues notafford, often make the needed constant supervision, for example, and termination ratesare still quite slower in the reaction of regulators, so that these issues are normally notpart of their task. So many authors argue that: ”It will be long time before the evolution of competition in telecommunications reaches the point where competition law alone is sufficient.(…). The desire, if not impatience, of competition law policy- makers to shift telecommunications regulation onto more familiar ground may indeed cause them to disregard the time and effort required for telecommunications competition to take hold.” 1010 See Waters et a. (2000), p. 739. Experiences in New Zealand have proven how difficult it is to ensurecompetition in the absence of regulation and demonstrate how reluctant courts can be in getting involved intechnical yet crucial details. See Laffont; TiroleMICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  12. 12. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 12 Telecommunications services often require the combination of several elements.Long distance calls to the flow of sample through the local loop, switches andtransmission facilities between offices, as well as through the lines of the long distancecompany in the middle of the trunk. The inefficiency of a monopoly to coincide with a protected market whereproducers can produce inefficiently, because no real competition (natural monopoly), orpotential competition (due to high barriers to entry of the stranded costs, which does notwould exit the market without significant losses) are a threat. The monopolist canprevent potential competitors from competing not only on the market (monopoly)primary but also in adjacent complementary to that potential entrants do not haveaccess, because the monopolist has no incentive to provide it in commercial terms.ISSUES TO TACKLE Charges for terminating calls on mobile networks are currently one of the mostcrucial issues facing regulators in Europe. Call termination refers to the final completionof calls on a network, and in this case refers calls to mobile phones or the completion ofcalls on mobile networks that originate in other fixed or mobile networks. Thetermination fee is a wholesale charge paid by the operator on whose network the calloriginates to the network operator when the call ends. The retail price paid by callers toa call from one network to a mobile network is largely composed of two components:one, the cost of the first operator of origin and make the call, and two, the terminationfee paid by the first operator to the second terminating operator. The latter stronglyaffects the retail price and it gets to between 40 and 65% of retail price for calls fromone network to another mobile network. Termination charges are on average as high as18.16 Cent in the European Union is about ten times the average rate for fixed-fixedinterconnection. And even if the cost structures of mobile networks are different fromthose in fixed networks, a difference of this magnitude is difficult to explain. Therefore,it seems that mobile operators can set prices on their networks call termination withoutsignificant competitive pressure. Traders and consumers are directly affected by the issue of termination charges.termination charges above cost and unbridled competition normal operators make profitunduly from their business. Consumers suffer directly from the high terminationcharges, because they pay much to call mobile phones in relation to costs for operators,MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  13. 13. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 13so that eventually the income is transferred from consumers to the operators. Operatorssay they are adjusting their prices and that termination charges are therefore consistentwith economic efficiency and in the best interest of the client. This implies thatconsumers are reimbursed for the high termination charges through the benefitsgenerally low retail prices and complete package of mobile phone, even if the operatorsof market power over termination charges. It also implies that the global players do notgenerate profit rather than in a competitive market and are exposed to competitivepressure on the entire package of mobile services. Each fixed-mobile call subsidizes mobile phone users. This is even more serioussince a market research indicates that those who do not have mobile phones are usuallylow-income families. This problem will only be reduced by increasing the penetrationrate of mobile phones. In the process of developing the new regulatory framework the issue oftermination charges almost lead to a severe crisis when one of the committees of theParliament accepted proposals for compulsory regulation of prices based on costs to beimposed on international roaming and mobile termination rates, including explicitly inthe new Interconnection Directive. However, it did not accept the proposed amendmentout of fear too many regulations on the market. In several European countries (France, Ireland), some operators have been knownto enjoy SMP in the national interconnection market. Obligations of cost orientationimposed on these operators for termination charges. In the UK, although SMP is notdesigned for mobile operators, Oftel uses the power of competition to impose controlson fares for all operators and has launched a proposed takeover of termination rates until2006, through amendment of licenses mobile operators. Based on evidence that the market for termination charges is a monopolist, andthat due to lack of vendor competition have the power to set prices as a result, thecontrol of the termination rates to lower prices for consumers seems appropriate and isalso recommended by most experts and committees that have worked on the subject.MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  14. 14. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 14DEDUCTION FROM THE ANALYSIS OF TELECOMMUNICATIONS REGULATION Should be taken into account, however, that the dynamics of thetelecommunications markets in terms of growth and competitive development andtechnology seem to make it impossible to provide a final statement on the matter. Allkinds of factors that can hardly be evaluated today may influence the situation. Soalthough it is now difficult to imagine how it could develop a real competition, expertsagree that it is necessary to reassess the situation on a regular basis to see if the marketor technological developments have changed the situation. Considering the measures necessary to ensure competitive prices, it seemsinevitable that a regulatory agency is responsible for controlling prices. Price regulationis a very complex issue and requires ongoing supervision and dealing with carriers. Regulations based on concepts of market power, such as the concept of PMSflexibility in deciding when and when not to regulate. Although this flexibility of thecourse can be interpreted as a source of easy to manipulate discretion is essential tohave, since the telecommunications market is developing dynamically. This is evenmore important at European level.THE OLIGOPOLY OF TELECOMMUNICATIONS Clearly, the mobile telecommunications market is not a monopoly. Due to thenumber of licenses in different countries, is a naturally oligopolistic market. The costfunctions are considered as a form of economies of scale, but only to a certain extent,thus enabling all existing players to survive. There is broad consensus that 4-5 players should be sufficient to generatesufficient competition in the market. But some regulators are uncomfortable with the limited number of operators andthe environment of oligopoly, from the beginning, with little chance of expanding thenumber of operators. In his view, an oligopoly does not provide sufficient competitionin itself. Three competitors having three different infrastructures in an oligopoly situationcould theoretically still provide for adequate competition Exit the market is so expensive (loss of license) that nobody will leave, no matterhow low prices. Anticipating this, nobody starts a price war. In such a scenario UMTSMICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  15. 15. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 15operators will probably also increase the barriers to entry remaining competitivepressure. Considering the potential market entry, more factors must be taken into account.The infrastructure for mobile telecommunications is characterized by a cost functionwith strong economies of scale with a growing number of customers. Competition in services will enable consumers to make an even greater value onthe more common, since it involves more likely to complement smart service offeringsand services. This can develop to be a major barrier to entry in itself. But the resultingpositive feedback to the operators also implies that there will be no reduction inmarginal costs and economies of scale, for example because of the improvement ofcooperation between operators and service providers with a growing number of serviceofferings.CASE STUDIES THE PORTUGUESE CASE In Western Europe, the infrastructure sector has undergone radical change sincethe liberalization process began over 20 years. Contrary to what happened, the decisionson investments in innovation and public infrastructure now reflect the actualcompetition, innovation and performance: the case of mobile telecommunicationsPortuguese characteristics of network industries: barriers to entry, the exit barriers,economies of scale, economies of scope, irreversibility and high risk. Hence the naturaltendency to oligopoly. The infrastructure companies now operate in a market context,under operating conditions laid down by government policy enforced by regulators.However, these markets, the networks have become an integral part of complexstructures with high value added businesses, in which each agent tends to optimize theown position in the interest of its shareholders. The constant and intense technological change today is a fundamental variable inthe analysis of the relationship between differentiation, innovation and efficiency, i.e.the key vectors that articulate and define the behavior and strategy in oligopolisticcontext.MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  16. 16. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 16 The year 1995 already showed an explosive growth market: Telecel had 177,360customers and TMN 152,105. Indeed, this feature remains the most obvious Portuguesetelecommunications market. The third mobile operator - Optimus - licensed in 1997, was characterized by anentry with an aggressive strategy focused on low prices, causing an almost immediatereaction of the two competing reaction also focused on reducing prices. In a first analysis, the entry of a third element in the existing duopoly has proved abenefit for consumers: keeping, apparently, the same quality of service, the pricedecrease was indeed substantial. The regulatory authority for telecommunications in Portugal - Anacom - attributesto the three national mobile operators Significant Market Power, a quality that bringsthe fulfillment of a set of obligations. Among these three players are required to makeseveral cuts in termination rates for fixed-mobile by 2006 in order to harmonize theprices in Portugal with the rest of Europe. EUROPEAN UNION The Portuguese case heres an example of what happens in Europe, thetelecommunications sector. As can be seen in Table 1, the telecommunications sector in the countries shownas an example is dominated by a small group of companies representing the entiresector. Thus, it is clear that this sector is characterized by an oligopoly in otherEuropean countries. Table 1 :: The Oligopoly in the telecommunications sector in the European Union, an example of some countries Tim O2 AMC Vento Meteoro, 3 Albânia Vodafone Italy 3 Ireland Móbil de Tesco Vodafone Vodafone O2 KPN Czech T- Móvel Vai o Móbil Vodafone Netherlands T-Móbil Malta Vodafone Répúblic Vodafone U: fon T- Móvel Vodafone Vodafone KKT Cell Germany E-Mais Cyprus KKTC Telsim 2 Turkey Turkcell Avea O2 Cosmote Orange O2 Vento Cosmote United Vodafone Greece Q-Telecom Romania Móbil de Zapp T-Móbil kingdom Vodafone Vodafone Orange, 3 Movistar T-Móvel Vodafone (Telecel) Orange Hungary Pannon Spain Yoigo Portugal TMN Vodafone Optimus VodafoneMICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  17. 17. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 17CONCLUSION The telecommunications market is a market where exponential growth whenviewed from a European perspective. In Europe, there are 79 mobile network operators.Is usually characterized as an oligopoly, the European Commission is obliged toimplement regulatory measures so that there is an abuse of market power, which wouldtranslate into higher costs for consumers. It is important to be aware of possible strategies for small business groups thatdominate the market, so they do not result in familiar situations such as cartels in whichthis group of companies established between itself and that in turn set prices andmeasures that are not advantageous to consumers. This way, is fundamental to the European Union to intervene with its rules, hencethe emphasis in this work that gave the rules of EU regulation. In an increasinglycompetitive market, customers have the possibility to switch to an operator who canbest fit the profile of its demand, forcing companies to increase productivity and reduceprices. Regarding the situation of the sector across the EU, the European Commissionsaid that it considers have been denied to consumers and businesses as well as theEuropean Union as a whole, the full economic benefits that would result from a singletelecoms market and competitive real due to the inconsistent enforcement of the sector. This work had interest for me, since, despite the concept of oligopoly is not newto me, the market for telecommunications was something they had never sought toknow so badly. Thus, resulted in new knowledge for me.MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA
  18. 18. COMPETITION AND OLIGOPOLY IN TELECOMMUNICATIONS INDUSTRY IN THE EU 18 BIBLIOGRAPHY http://www.twobirds.com/English/News/Articles/Pages/Assessment_of_smp_in_French_electroni c_communications_markets.aspx http://www.market-analysis.co.uk/PDF/Topical/HarbordHoernigMerger20AUGUST2010.pdf http://groups.haas.berkeley.edu/fcsuit/Pdf-papers/Regulation-Landgrebe.pdf http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+IM- PRESS+20080923IPR37898+0+DOC+XML+V0//PT http://www.anacom.pt/ http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/215&format=HTML&aged=0&l anguage=PT&guiLanguage=en http://ec.europa.eu/enterprise/sectors/rtte/index_pt.htm NATIONAL COMMUNICATIONS AUTHORITY (ANACOM). Statistical data on mobile communications. Portugal: Anacom, 2003 Samuelson, Paul A., 2005 Economics, McGraw-Hill MICROECONOMICS ADVANCED  UNIVERSITY OF ORADEA

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