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Telecommunications Misconceptions. 1. The Regulator’s role is to push for lower prices 2. TLRIC is the solution for all interconnection conflicts 3. Fixed to Mobile calls are more expensive than Mobile to Fixed calls. Lines in service (000). Mexican Demographics.

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telecommunications misconceptions
Telecommunications Misconceptions

1. The Regulator’s role is to push for lower prices

2. TLRIC is the solution for all interconnection conflicts

3. Fixed to Mobile calls are more expensive than Mobile to Fixed calls.

MEXICO/UIT

slide3

Mexican Demographics

Nominal GDP per Capita (1999) = US$ 4,910 Income distribution = Uneven, 1994 Crisis.

Urban population

75%

Income per urban household

is 2.7 higher than rurals

Urban Fixed Penetration

34%

Rural Fixed Penetration

2%

MEXICO/UIT

slide4

Main differences between cellular wireless and wireline

Cost

Pre-paid

Post-paid

Wireline

Fixed

wireline

cost per

line

Fixed wireless cost per customer

Usage (minutes per month)

MEXICO/UIT

misconception 1 the regulator s role is to push for lower prices

Wrong price regulation

Market prices

Lower ROI

Higher ROI

Less investments

More investments

Less competition

More competition

Over-regulation

& subsidies

Lower prices

Misconception 1: The Regulator’s role is to push for lower prices

Vicious Circle

Competition Destroy Model

Virtuous Circle

Pro-Competition Model

MEXICO/UIT

misconception 1 the regulator s role is to push for lower prices6
Misconception 1: The Regulator’s role is to push for lower prices

False

“Price” is a dangerous variable to manipulate.

In most cases competition works (excluding some dominant´s services). Regulators can stimulate competition using other methods: Auctioning more frequencies, More Licenses, No Discrimination, Transparency.

MEXICO/UIT

slide7

Misconception 2: TLRIC is the solution for all interconnection conflicts

CAPEX vs Traffic

4

3.5

3

2.5

Wireline

C

A

AMPS

P

2

TDMA3

E

X

1.5

CDMA

1

0.5

0

0.01

0.03

0.05

0.07

0.09

0.11

0.15

0.20

Traffic (Erl)

MEXICO/UIT

slide8

Misconception 2: TLRIC is the solution for all interconnection conflicts

CAPEX vs Customer’s Density

6

5

C

4

Wireline

A

AMPS

P

3

E

TDMA3

X

CDMA

2

1

0

6

10

30

50

70

90

120

160

200

300

2

Density (Users/Km )

MEXICO/UIT

slide9

Misconception 2: TLRIC is the solution for all interconnection conflicts

CAPEX vs Available Spectrum

6

5

Wireline

C

4

AMPS

A

P

TDMA3

3

E

CDMA

X

2

1

0

8

10

12

14

16

18

20

22

24

26

28

30

Bandwidth (MHz)

MEXICO/UIT

slide10

Misconception 2: TLRIC is the solution for all interconnection conflicts

False

TLRIC depends on technology, customer´s density and traffic. One company has something that another company wants. To calculate TLRIC, Regulators need not available information.

Only dominant or essential services should be calculated in this way. In most cases competition can better solve the problems using “obligation to sell and no discrimination” criteria.

MEXICO/UIT

fixed to mobile calls are more expensive than mobile to fixed calls
Fixed to Mobile calls are more expensive than Mobile to Fixed calls.

Wireline Price

Wireline call + Billing & Collection

Wireline Interconnection + B & C

Wireline Sales Margin (Resale)

VEN

Wireless Interconnection (LRIC)

Minimum

MEX

Wireline Sales Margin (Resale)

EUR

Wireless Price (Wholesale)

Wireline call + Billing & Collection

Wireline Interconnection + B & C

ARG

Wireless Price (Retail)

MEXICO/UIT

slide12

Mexican Prices

Caller’s price

Originating Network

Destination Network

US 28 c

US 25 c

US 3 c

US 38 c

US 19 c

US 19 c

MEXICO/UIT

fixed to mobile calls are more expensive than mobile to fixed calls13
Fixed to Mobile calls are more expensive than Mobile to Fixed calls.

There are several reasons that can produce this result. In the Mexican case, billing and collection is a function or service not well defined in the incumbent´s concession, provoking endless conflicts.

There are some services that are difficult to offer without billing and collection: Call by call carrier selection, collect calls and Calling Party Pays.

MEXICO/UIT

slide14

Final Comments

  • As a result of competition there is a tendency to deaverage and bundle services in different ways.
  • It is very important for customers everywhere, but specially in developing countries, to know in advance the price of each call.
  • This is an important Regulator´s function.

MEXICO/UIT