Competition and Regulation in the Telecommunications Industry in ...

More documents

Recommendations

Info

Competition and Regulation in Telecommunications4. Market Structure and Contestability AnalysisRegulation has clearly shaped the domestic telecommunications market byrestricting competition in most services. The analysis of market structures istherefore relatively uninteresting. What is more interesting in most cases isthe level of potential entry if the markets were opened to competition. Thisprovides some indication of what might happen if free entry was allowed andso what regulatory safeguard measures might be required. This section looksat the different stages of production in telecommunications and provides initialanalysis of relevant markets, market structure, and contestability. Thepurpose is to provide some guidance for strategic interventions by theCompetition Commission and not to provide exact data on the state of themarket and its performance. This is best done at the point of the competitioncomplaint as the industry is continually changing. ICASA (Gazette Number:21925 General Notice Number: 4715) has a recent review of the PSTN pricesand performance in recent years.4.1 Provision of Customer Premises Equipment (CPE)4.1.1 Relevant MarketsThe relevant market is the supply and not manufacture of CPE. Within thiscategory, the most obvious horizontal division of the market would be:• Fixed line telephones (including fixed wireless which uses the samephone)• Mobile handsets• PABXsIn terms of competition analysis, there may be scope for more narrowdefinitions depending on the features of each piece of equipment. This wouldneed to come out in a specific enquiry.4.1.2 Market StructureThe market for supplying (CPE) is fully liberalised with free entry.Fixed line telephonesThe main market players are retailers and Telkom. Telkom is likely to remaina highly dominant supplier because the incumbent PSTN always retains anadvantage by being vertically integrated with local access provision. Theadvantages may stem from:• customer convenience• a default situation whereby a phone is provided unless otherwiserequested• ability to have the phone paid off over a longer period through integrationwith the customer billing system• customer database for promotional material36
Competition and Regulation in TelecommunicationsIn the UK, the incumbent BT still had over 50% of the market after 10 years ofliberalisation.Mobile handsetsThere are likely to be no dominant players in the provision of mobile handsets.The crucial difference to fixed line is that the market for CPE supply wasliberal from the start and that the network providers were not involved inretailing them. The service providers who did provide them and who wouldhave some vertical integration advantage are sufficiently numerous not tohave market power.PABXsThis is likely to be a more competitive market than fixed line phones asbusinesses are likely to source directly from manufacturers.4.1.3 ContestabilityThe market for supply of CPE is an open one with no real barriers to entry.There are also a large number of firms in the market. However, there areadvantages for vertically integrated service providers (fixed or mobile) thatneed to be monitored. This problem may be particularly acute with fixed linewhere there is only one service provider (Telkom) and a history of monopolysupply (so starting at 100% coverage).4.2 Fixed Local Access4.2.1 Relevant MarketLocal access can be defined as a distinct market from long-distance. The keyquestion here is whether access through other technologies – specificallycable, fixed wireless and mobile – are suitable substitutes for fixed line PSTNto fall in the same relevant market. This is important as it will influence thelevel of competition in the market and therefore some of the regulatorychoices made. All offer telephony and so it is tempting to define them all as inthe same market.In search of a more narrow definition, the most natural division of the marketwould be to separate fixed from mobile. In the fixed category would lie cable,fixed wireless and the PSTN. On the surface there appears to be a stronglevel of substitutability between the mobile and fixed in South Africa as manycustomers who do not have access to a fixed line have purchased cellular.However, it is important to recognise that there are some crucial differencestoo.• cellular offers mobility for which fixed line is a poor substitute• fixed line has greater bandwidth (if purchased), permitting it to transfervideo and data faster than cellular• there are differences in customer equipment presenting switching costs(though not significant)37
Page 1: Competition and Regulation in theTe
Page 4: Competition and Regulation in Telec
Page 7 and 8: Competition and Regulation in Telec

Competition and Regulation in the Telecommunications Industry in ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?