Competition and Regulation in the Telecommunications Industry in ...

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Competition and Regulation in Telecommunicationslinking to a server farm that would include a router, authentication server, firewall,mail hosts, proxy servers and local content servers.• Some form of customer management systems – this would include customerinformation, billing and customer support (call centre)• Content – some advanced services may have content that will be received by thecustomer (e.g. Internet, video-on-demand)A local example of separation of network and service provider is the cellular industryin South Africa. The network providers do not retail to the public but insteadwholesale network access to a group of approved service providers. These providersin turn offer retail outlets to access customers, they stock and sell the phones, do thecredit checks, link the customer to the network and perform all billing and debtcollection.Horizontal market divisions in the service component can be taken from the divisionsin the network markets and include:• Local vs long distance vs international – standard voice products• Business vs residential – the business market has greater capacity usage andconcentration changing the cost and product package provided.• Data vs. voice vs. video – separation of voice products from Internet and otherVANS from broadcast type products.• Fixed vs mobile – this would apply across all of the other divisions e.g. mobileInternet may be separated from fixed line by the more limited range ofapplications it supports (for now).A key question when examining the horizontal market divisions is product bundlingand technological change. In terms of product bundling, most voice services offer themore advanced features as part of the service. Are these additional products or arethey part of a basic voice service as most companies provide them? In terms oftechnological change, it needs to be recognised that product boundaries willcontinually change and so need to be reassessed periodically.1.1.3 Features of NetworksThe pricing and competitive behaviour amongst network providers is influenced by anumber of factors peculiar to network industries. First, the value of a network isrelated to the number of customers connected to that network. Therefore, it is in theinterests of all competitors to interconnect with each other to gain access to as broada customer base as possible in order to enhance the value of their respectivenetworks. The ability to interconnect also means that firms can compete with othernetwork providers on one part of their network without having to duplicate the entirenetwork – for instance, firms may compete on long distance telephony by buildingtheir own long distance infrastructure and interconnecting to a local network to reachthe final customers. For service providers interconnection is key. Although theregulation stipulates that interconnection must occur, it is the terms of thisinterconnection that determine the pricing and competitiveness of alternativeinfrastructures.10
Competition and Regulation in Telecommunications1.2 Forms of international tradeAccording to the WTO negotiating rules, trade in telecommunications services canoccur through four possible modes of supply – cross-border supply, consumptionabroad, commercial presence and the presence of natural persons. These will bediscussed in the context of network infrastructure and services.1.2.1 Provision of network infrastructureUntil recently, the most common form of trade between countries has been throughcross-border supply of international network services. Trade occurs through theinterconnection of networks in order to complete or route an international call.Included in this trade is the third-party routing of calls (e.g. Zimbabwe may routeinternational calls via South Africa). Imports are considered to be outgoing calls thatthe network provider in the other country charges to be completed. Incoming calls orones third-party routed by a country’s network are considered exports. Cross-bordersupply is dominated by, but not limited to, interconnection charges for data, voice orvideo. The extent to which trade offers competition depends on whether theinfrastructure of another country is able to service the South African market. This islikely with international services as satellites have broad footprints over wholeregions and fibre optic networks often loop past many countries. It is possible forsatellite communications to bypass all domestic infrastructure by passing signaldistribution through a earth gateway station located in another country.With the growing liberalisation of communications services internationally, anincreasingly important form of trade has become commercial presence. In order toprovide communications services to consumers in a country beyond completing theirinternational calls to another country, network and service providers need to have aphysical presence in that country. All networks, with the exclusion of satellite, requireinvestments in terrestrial transmission equipment and either physical lines or radiofrequency. Even for satellite communication one still requires an earth station to linkto the satellite, and authority for use of radio spectrum.Due to the growing importance of commercial presence as a means of service trade,the presence of natural persons also becomes important on the level of intracorporatetransferees only. The high demands for human capital in production meanthat companies entering a market may require to bring in their own technicalexpertise in order to build and maintain their network or service. However, there areno trade demands beyond inter-corporate transferees.1.2.2 Provision of servicesThe interconnection of networks globally means that many data and video servicescan be provided from another country in a cross-border fashion. It is common to findemail, e-commerce and web-hosting services for South Africans being supplied fromservers in the USA. There is no doubt that domestic e-tailers compete with foreignones.In terms of voice products, there is competition between service providers to routeinternational calls through their networks. In particular, calling cards and call-backservices are a means to capture consumption abroad. When a traveller makes use ofa national calling card when making an international call, the call is routed throughthe network back home and in this way provides revenue and ‘imports’. Many11
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