Competition and Regulation in the Telecommunications Industry in ...

Competition and Regulation in TelecommunicationsAgain the key question is how will the market change if entry was liberalised.In answering this question for mobile, it is important to separate the networkprovision from the service provision, as the barriers to entry are considerablydifferent.Barriers to entryIn the network component the barriers to entry include:• Sunk costs – if the network provider is required to roll out a completenationwide network (as is the case in South Africa), then the sunk costswill clearly be high. However, with mobile, as opposed to fixed line, thelevel of infrastructure required depends on the level of traffic (see section1). The result is that there is a lower investment required to launch aservice, but which can rise in proportion to the growth in subscribers. Thismakes entry easier and more likely that the industry can support morethan one or two network providers. A further means of easing the entry ofa new network is to allow the use of infrastructure from competing networkproviders until a full network is up and running. The reduction in time toenlist subscribers means that the entrant can start generating a return ontheir investment sooner, thereby lowering costs of establishment.• Interconnection pricing – as with any network, a mobile network needs toconnect to all other networks in order to provide their subscribers with thechance to call anyone else. The key interconnection prices are fixed localaccess, other mobile networks and long-distance. There are similarconcerns about overpricing of interconnection, especially when there is adominant player in the mobile networks or a player that isvertically/horizontally integrated into other markets (long-distance or localaccess). The dominant player concerns were discussed in detail underlocal access. Problems are non-standard pricing, delaying interconnection,or overpricing interconnection. For the vertically integrated/horizontallyintegrated firm there are opportunities to engage in transfer pricing fromthe competitive segment to the uncompetitive segment. If there is a localaccess monopoly with a mobile network, it may be in their interests toraise local access interconnection prices for all mobile networks (includingtheir own). There is no fear of retaliation in the local access market wherethere is no competition, and overpricing enables them to extract rents fromother mobile providers and also affect the overall substitutability of mobilewith fixed line.• Facilities leasing – similar concerns to interconnection arise on facilitiesleasing. The difference is merely the nature of the contract, but theproblems of strategic pricing of facilities remains the same.• Customer switching – customer switching costs include the usual numberswitching issues, but also would include the use of long-term contracts bythe current service providers (linked to specific network providers). Longtermcontracts are part of the product range offered by service providers(including pay-as-you-go) and serve the customer by providing a chanceto ‘hire’ a phone as part of the contract – thereby saving them from thepurchase price. However, the length of contracts would need to be46