Competition and Regulation in the Telecommunications Industry in ...

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Competition and Regulation in Telecommunications1. The Nature of the telecommunications industryThis first section explores the nature of the telecommunications industry as a startingpoint for competitive analysis. It begins by determining market separation bothvertically (supply chain) and horizontally. This discussion includes a look attechnological convergence and who are the current and future players in the market.It then explores the possible forms of trade in telecommunications and how thatmight impact the geographical scope of the market and contestability. Lastly, itexamines the role that telecommunications plays in the broader economy. This mayinform how to trade off efficiency and public interest considerations.1.1 The telecommunications marketThe telecommunications industry concerns the provision of two-way, one-to-onecommunications of voice, data and video. It is distinct form the broadcasting market,which is typically a one-way, one-to-many communications service. However,convergence means that infrastructures developed for either market can be adaptedto provide the other service. Given these economies of scope, it is often preferable toprovide both services.For regulatory purposes it is important to understand the vertical stages of productionand possible horizontal market divisions in telecommunications. Table 1.1 providesthe commonly used breakdown for telecommunication, noting that the dynamicnature of the industry makes such definitions valid at a point in time only.Table 1.1: A breakdown of the telecommunications marketProduction Stage Description Sub-stages Horizontal divisionsProvision of Network Provision of switching and • customer premises • fixed vs. mobileinfrastructuretransmissionequipment• PABX vs. phoneinfrastructure• Local access • Fixed vs. mobile• Business vs.residential• Voice/data vs.broadband video• National LongDistance• International LongProvision of servicesProvision of additionalinfrastructure andtechnical support tooperate service overinfrastructureDistance• Line lease agreement• Content• value-addedinfrastructure• Technical serviceprovision• Customermanagement (billing& customer support)• basic voice vs. VANSvs. broadcast• Fixed vs. mobile• national long distancevs. international• Business vs.residentialTelecommunications production can roughly be divided into the provision of networkinfrastructure and the provision of services on that infrastructure. Typically a publicmonopoly is vertically integrated and so provides all parts of the production chain andall horizontal markets. However, in the context of deregulation it is important to focuson the various stages of production and not what individual firms do. In this way it is2
Competition and Regulation in Telecommunicationseasier to identify essential facilities and anti-competitive behaviour stemming fromvertical integration. It is also easier to track where competition can feasibly survivewithout regulation.1.1.1 Provision of Network InfrastructureNetwork providers operate the infrastructure on which various telecommunicationservices are run. Networks are made up of switches and transmission. The switchesprovide the routing of voice, data, and video signals through the network. Thetransmission medium can be separated into fixed line (twisted pair of copper wires,fibre optic, coaxial cable) or wireless (satellite, cellular radio, microwave, PCS).The big technological changes in network provision have been (Laffont & Tirole2000):• the rapidly decreasing costs of switches and transmission equipment• the increasing capacity and speed of transmission mediums – both in thetransmission material (e.g. fibre optic) and the improved compression of signals(e.g. ADSL or asymmetric digital subscriber lines which increase speeds oncopper paired wire)• the increasing intelligence of the networks enabling them to improve theirefficiency and begin to offer a wide variety of services beyond mere telephony(discussed below)• the convergence of different industries due to the common use of digital format.The industries relate to the original purpose for which the networks were built –telecommunications (voice), broadcasting (video) and computing (data)There are three different components to the network that can be seen as threedifferent stages of production. These are local access, long-distance andinternational. Figure 1.1 below demonstrates how these three componentsinterconnect to form a complete international telecommunications network. It looks ata mixed fixed line/mobile example. The local access network connects the customerpremises to the local switch through the local loop. From the local switch there is aninteroffice transmission facility to either other local switches or long-distance (nationalor international) points-of-presence. The long-distance networks then transmit thesignal to another long-distance point-of-presence where it is distributed to a localswitch and onto the other customer premises. What follows is a more detaileddiscussion of each component of the supply chain and the various technologicalplatforms used.3
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