PLATFORM-BASED VS. SERVICEBASED COMPETITION: HOW
SHOULD LATIN AMERICA
REGULATE?
D. Mark Kennet, Ph.D.
www.MarkKennet.com
INTRODUCTION
As an economist, my position always depends on
how we are defining objectives
 For that reason, we economists have the bad
reputation among the legal community for not
having fixed positions.
 As the old joke goes, if you ask a mathematician
how much is 2+2, he will tell you “4, as long as
we are doing integer math.” If you ask a
statistician the same question, he will respond
“On average, 4.” But the economist answers,
“What would you like it to be?”
 The case of ICT regulation is the same.

POSSIBLE OBJECTIVES
REGULATORY POLICY

IN AN
ICT
Legitimate objectives might be
Keeping prices low enough so that all users can
afford at least some services
 Stimulate investment in infrastructure so that
coverage increases, technology advances are
incorporated, and more services are made available
 Maximize operator earnings

Obviously, in some ideal world it would be
possible to achieve all of these, but in reality we
are forced to choose which objective is most
important
 Each of these objectives implies a different style
of regulation, and each one carries costs and
benefits in terms of the other objectives

OBJECTIVE: KEEP PRICES LOW
Behind this idea is a notion of an anticompetitive
market
 Because there are few service providers, it is
necessary to stimulate an artificial competition
through the use of resale and free access to
infrastructure
 According to this largely European notion, “Intramodal competition” as it is being proposed in
many countries leads to the “Investment Ladder”
that eventually results in more infrastructure
and less need to regulate

INTRA-MODAL COMPETITION
POLICY (I)
 Promotes

Impose obligations for resale and unbundled access (ULL) on
dominant operators independent of technology (copper, cable,
etc.)
 Uses


competition within infrastructures
the investment ladder
Offers of resale and wholesale access are phased in,
gradually requiring a greater investment on the part
of a new entrant
Typically, in broadband:
Resale
Bitstrea
m
Shared
unbundled
access
Completely
unbundled
access
INTRA-MODAL COMPETITION
POLICY (II)
 Establishment
of transition mechanisms
between the investment ladder steps; and
 Elimination of resale or unbundling
obligations when competition exists

Objective: Increase competition and stimulate
gradual investment in network infrastructure
so that penetration increases
Regulation
Competitio
n
Investmen
t
Penetratio
n
ISSUES WITH THE EUROPEAN APPROACH






In theory, it sounds fine; and in the application in
Europe, it seems to function well. But:
In every one of the western European countries, they
started out with a national fixed network already
dispersed throughout the country
Even in the case of mobile networks, there already
existed infrastructure to carry signals to switches and
controllers
For that reason, the regulatory vision was to figure
out how to share the infrastructure so that service
competition would be fostered
The cost of investing in a large part of the
infrastructure and technology was already paid
In some sense, it wasn’t necessary to think of
improving forward-looking infrastructure
OBJECTIVE: STIMULATE INVESTMENT

In this notion, there is a vision of a market suffering a
lack of access to capital for various possible reasons:
The country is less developed economically
 The country wants to modernize rapidly, including in the
less-favored economic sectors




As there are relatively few providers, it is necessary
to stimulate the entry of investors
According to this idea, an “Inter-modal Competition”
will attract investors to install the network currently
lacking
Most regulation is directed toward interconnection
rules in order to permit a free and sustainable
competition
INTER-MODAL COMPETITION
POLICY

Promotes competition between infrastructures

There is a clear preference for operators that own their own
network facilities
The existence of parallel networks minimizes the possibility of
entry barriers in the market
 The policy incentivizes the creation of new networks



It is thought that this policy creates sufficient incentives
for investment and innovation, permitting facilities
owners to be compensated for assuming risks
The envisioned transition is
Ex ante
(access)
Network
rollout
Penetration
Ex post
(competition
)
POSIBLE ISSUES WITH THE PROINVESTMENT NOTION
Price reductions may not occur immediately
 There may exist a tendency toward higher
market concentration

OBJECTIVE: MAXIMIZE OPERATOR
PROFITS
In this notion, there is a vision of “laissez-faire” –
the free market can solve all problems
 The theory is that without government
intervention, potential operators will be more
likely to enter, provide services, and earn money
 Supporters of this approach insist that a totally
free market can stimulate even more investment
than the inter-modal competition model

ISSUES WITH LAISSEZ-FAIRE
Without government intervention, it is likely that
private networks will not interconnect
 There will likely be price gouging and other sorts
of consumer abuses

SO, WHAT IS THE POLITICAL OBJECTIVE IN
REGULATING THE SECTOR?


The answer depends on how the situation in each
country is viewed
If you think that the national network system is
mature and adequate, and that there really isn’t room
for more expansion and coverage, and that the
technology being used is the best, then it’s not really
necessary to worry about future investment



In this case, Euro-style regulation might be the best option
Regulating services is necessary so that consumers pay the
lowest feasible price
If you think that there is a need for more investment
in order to expand coverage and to permit the
introduction of new technologies and innovation, the
stimulating investment may be desirable


In this case, Euro-style regulation may not work so well
It might be worthwhile to look at nearby examples like
Chile and Peru where incentivizing investment has taken
priority
A FEW OBSERVATIONS REGARDING EUROSTYLE REGULATION
Emphasis on opening existing networks
 Insufficient emphasis on stimulating investment
 Does not take into account the reality of
convergence and 3G and 4G networks

For example, an implication of adopting the Eurostyle regulation is having a tight regulation of tripleplay services
 If there were more emphasis on stimulating
investment in infrastructure, triple-play might arise
freely as a product differentiation that is beneficial to
consumers

A FEW OBSERVATIONS ON INVESTMENTORIENTED REGULATION

In some cases, application of this idea lacks
something
For example, in the case of the USA, even with this
type of regulatory vision, the problem of federalism
and states’ rights leads to the situation in which
there are two levels of regulation, one at the national
and the other at the state level
 We can see another example in Peru, where the
creators of the privatization permitted that there be
both a vertical and horizontal monopoly in the sense
that there was only one company operating the fixed,
cable, and mobile networks.

MESSAGES
In designing policy, it is necessary to decide on
and take into account the objectives
 It is not necessary to adopt the policies of other
countries; policies should be designed with
national priorities in mind
 For that reason, I don’t recommend adopting
either the North American style policy or the
Euro-style approach in their respective totalities
 A well-thought-out policy minimizes
unanticipated consequences
