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Back to the Basics – Competition, Competition, Competition

Arturo Muente-Kunigami's picture

How important is it to have competitive and well regulated markets?

I am on my way back from Papua New Guinea, where competition in mobile services, introduced in 2007, has sliced prices by more than half and almost quintupled penetration. Coverage from mobile networks is reaching more than two thirds of the population in the country, including some far-reached rural areas in the highlands of the country. Some obligations were set in the licenses, but operators have in many cases gone beyond their obligations in areas that many would have deemed unattractive three years ago.

In Costa Rica, it could be argued that just the threat of competition has improved market conditions: after the enactment of new telecommunications laws in 2008 aimed at opening the market, the incumbent, ICE, started heavy investments in 3G networks and has since improved its efficiency, coverage, and overall service delivery.

The graph above compares countries that in 2007 had competitive mobile markets to those that had a monopoly or partial competitive markets. The graph suggests that there is indeed a relationship between penetration and market structure. Note that in both countries I’ve mentioned the incumbent (Telikom PNG and ICE, respectively) are state-owned.

As broadband takes the spotlight in many countries, we should ask ourselves if regulation and competition could take us further before thinking on the relatively easier (albeit expensive), long-term and job-generating (key words these times) public investment option. I strongly believe that there is a portion of currently unserved broadband segments that could be reached with just better regulation. Usual bottlenecks that could be tackled first are international connectivity and infrastructure sharing regulation (and enforcement). But beware, some incumbents in competition are surviving precisely because of these bottlenecks, and while breaking them Governments should assess the impact on the incumbent – especially if it is State-owned!

Domestic backbones in rural areas and even in some secondary urban areas might still be commercially challenging, even under an optimal regulatory environment. Depending on the overall objectives set regarding broadband, Governments will most probably have to introduce some form of Public-Private Partnerships and smart subsidies.

In 2006 a study on Latin American Universal Service Funds suggested that an additional 10% penetration could be attained just by having better regulations (what the study refers as “market gap”). Maybe it is worth updating the calculation of this “market gap” for broadband services.