Competition and Regulation in the Telecommunications Industry in ...

Competition and Regulation in Telecommunications• Interconnection pricing – a long distance call must originate and terminatein a local access network. As such, the cost of interconnection will impacton the overall cost of the long-distance call. Unless the incumbent isvertically separated (as with AT&T), there is a danger that the incumbentcan set interconnection rates at higher levels for competing long-distancenetworks and so raise the costs of their rivals. As discussed in the localaccess section, there are also dangers of delaying interconnectionagreements to raise rivals costs. The other danger with interconnection isthat the incumbent offers a lower quality of connection to competing longdistanceproviders, making their service less attractive to subscribers.• Facilities leasing – as with interconnection pricing, the price at whichfacilities are leased will influence the price of rival’s costs. If the entrantneeds to lease facilities as a short-term measure, then the price of leasingwill be an important influence on average costs. It is clearly in the interestof the incumbent to overprice these services. The preferable arrangementis for the leasing price to at least reflect long run costs of providing thefacilities. However, it is also feasible that the incumbent price below cost inoff-peak periods to get rid of excess capacity.For long-distance service providers the barriers to entry are substantially less.Service providers lease network capacity from network providers and thenresell it to subscribers on a per minute basis. The infrastructure they require isa billing system and a switch connection to the long distance provider’s pointof-presence(they are routed through the local access network like all others).However, service provider’s face the same customer switching costs ascompeting network providers. In liberated markets the pre-select option israrely made available to service providers because of the highly contestablenature and proliferation of suppliers. Service providers also face the problemof interconnection pricing and facilities leasing. The facilities leasing is more ofa problem for service providers than network providers because they lease allfacilities and not just where they have not rolled out.Likelihood of entryEntry into long distance network and service provision is highly likely in SouthAfrica if the market were liberalised. On the network side, Transtel and Esitelalready have networks in place, and international network providers alreadyexist but cannot sell directly to the subscriber. Given the growth in data traffic,there is considerable scope for other entrants into the market. Opening resaleand network competition at the same time makes it highly likely that initialcompetitors will lease facilities while they establish their own networks. Thiswill accelerate the process of competition. Competition in service provision iseven more likely given the low costs of entry. However, the regulatorydecisions around facilities leasing, customer switching and interconnectioncosts will have a considerable impact on the entry of firms and the coverageof their networks.44