Introduction
On April 6, the Prime Minister of T&T, Kamla Persad-Bissessar, stated that the Government is "...considering the introduction of a third mobile operator." These statements were made during the Prime Minister's address at a Public Sector Leaders Forum in Washington. Subsequently, on April 8, an editorial was published in the Trinidad Guardian, Third mobile operator too much? In order to clarify the circumstances surrounding the issue of a third mobile operator, the Telecommunications Authority of T&T (TATT) has now found it necessary to reply to some of the concerns that have been outlined in the media. TATT is the statutory body empowered under the Telecommunications Act 2001 (as amended), with the mandate to oversee the liberalisation and regulation of the domestic telecommunications and broadcasting sectors. Amongst the various markets which comprise the local telecommunications sector, the mobile market has seen significant developments and has perhaps been the most prevalent in the public consciousness. As of December 2010, the mobile telecommunications market served a total of 1.8 million subscriptions, and earned approximately $2 billion in revenue. Upon full promulgation of the act in 2004, the incumbent telecommunications provider, Telecommunications Services of T&T (TSTT), was the sole provider of both fixed and mobile telecommunications services. This changed with the entry of Digicel in 2006 into the mobile market and the entry of Columbus Communications (Flow) in 2008 into the fixed line market.
Free market principles
Section 3 of the enabling legislation, outlines that one of the primary objects of the Telecommunications Act is "to establish the conditions for an open market for telecommunications services, including conditions for fair competition, at the national and international levels." Given this objective, it must thus be noted that T&T has adopted a market-based approach to the development of the telecommunications sector, consistent with its obligations under the World Trade Organisation's (WTO) General Agreement on Trade in Services (GATS). Ultimately, it is the free market that would dictate the viability and profitability of any new entrant into the mobile market. Nevertheless, any such entry would, of course, be subject to the various provisions of the regulatory framework established by TATT, pursuant to the objectives of the Telecommunications Act.
Optimal number of providers
Notwithstanding these free market principles, the authority notes the research published by Sunrise Consultants, in an article titled, Mobile licences: how many to grant? Sunrise examines this question by analysing the incremental benefits and costs of introducing subsequent new mobile service providers, and concludes with the generalisation that:"the optimal number of mobile network operators in any country is likely to be no more than four." Although the research methodologies used and findings are by no means definitive, Sunrise further stipulates that: "nevertheless, they all point to an optimum number of mobile operators that is somewhere in between three and six. Particularly in smaller countries, or those with lower gross domestic product (GDP) (and hence likely teledensity) or/and lower population density or/and lower urbanisation, the optimum number will be towards the lower end of this scale."
In interpreting the potential applicability of these results to T&T, one should note that although the local market is small in geographic and population size, it is high in terms of its GDP per capita, relative to other markets of similar size.
However, the authority notes that it has a role in ensuring that inefficient entry does not occur. In this regard, the authority's authorisation framework for telecommunication and broadcasting services provides that mobile concessions (authorisation to provide services to the public) are granted on a national basis. This means that any new entrant would be required to provide service to the entire geographical and population base of T&T, therefore eliminating any possibly inefficient entry based on "cream-skimming" or "cherry-picking" behaviour, where service provision is only targeted to the most profitable sub-markets.
Regulatory framework
Subsequent to the promulgation of the act in 2004, the regulatory framework for the telecommunications and broadcasting sector has evolved significantly. Specifically, interconnection regulations were passed in 2006 under Section 78 of the Telecommunications Act, ensuring that the proper legal framework exists to minimise any issues affecting the ease of entry of a new operator. Additionally, the Access to Facilities Regulations was also passed in 2006 as subsidiary legislation. The access regulations are designed to facilitate the sharing of telecommunications infrastructure, which ultimately reduces the scale of capital investment needed for a potential entrant to be viable. In addition to these two sets of regulations, TATT has drafted a series of other regulatory instruments and policies, which stipulate the conditions under which a new entrant must operate.
Innovation and technology
While the Prime Minster was quoted as stating,"that a truly competitive telecommunications environment will stimulate innovation while benefiting the consumer, as service providers will have to maintain their competitive edge, constantly improving on their services," the Guardian editorial raised various points to rebut these claims. However, TATT wishes to take this opportunity to further clarify to the public, the likely impact of introducing a third mobile operator.
On the issue of innovation, the modern telecommunications industry is characterised by rapid technological progress and the development of increasingly efficient platforms for service delivery.
A new entrant would thus be able to take advantage of these developments, and invest in new technologies for service delivery. Ultimately, such new technologies would translate into lower prices for consumers, and a move towards even greater coverage and the goal of universal access to basic telecommunications services. Additionally, the resulting competition would give existing operators an increased incentive to reinvest their profits into upgrading their networks and moving towards upgraded technological platforms also. New technologies will facilitate convergence, where multiple telecommunications and broadcasting services are offered over a single telecommunication infrastructure.
If a mobile entrant were to invest in new technologies and expand operations into other telecommunications markets, this would increase competition across all markets, as the new operator may likely compete on the basis of bundled packages, and multiplay services. With convergence, different telecommunications and broadcasting markets become interrelated, and, hence, increased competition in one market segment drives down effective prices in other market segments. The end result is that the public ultimately benefits from increased accessibility and affordability of all telecommunications services.
Competition, mobile penetration
Currently, T&T has one of the highest levels of mobile penetration in the region, at 148 as of December 2010. However, rather than implying that this means that there is no further room for competition, it should be taken as evidence of the profitability of the mobile market. Despite this high level of penetration, TATT is currently in consultation with the industry in developing a framework for Local Number Portability (LNP). LNP would allow consumers to switch service providers, while retaining their subscriber identification (telephone number), and is proposed to be implemented in the near future. The introduction of LNP in the local market would therefore significantly increase the scope for competition and hence the viability of another mobile operator.
TATT notes that the extent of existing competition in the mobile market is mainly conducted through promotional activities and advertising for mobile voice call services (and SMS texts). A third mobile operator may, therefore, likely benefit consumers through the introduction of various value-added services, such as mobile broadcasting, content streaming, and third-party applications. In particular, TATT believes that there is significant potential for competition in the mobile broadband market, which would ultimately increase T&T's international ratings in Internet usage and penetration. This is a critical issue, given the Government's current focus on information and communications technology-based development.
Revenues and duopoly
The Guardian editorial noted that based on TATT's market reports, mobile sector revenues have been in decline. However, one must interpret this trend in light of the fact that the market has only now be settling into a sustainable equilibrium. Furthermore, these declines are only marginal and short term in nature, and are realised only in the market for mobile voice services. While the mobile voice market may be interpreted as close to reaching maturity, the market for value added mobile services and mobile internet has not yet fully bloomed. As such, TATT does not believe that there is any evidence or grounds to suggest that the introduction of a third mobile provider would reduce total revenues in the mobile market.
What is likely to happen, however, is the redistribution of revenues due to increased competition. Again, TATT wishes to reiterate that the potential benefits of entry will be gained by consumers through increased service quality and variety, and lower prices.
The existing state of the market sees a duopoly (two service providers) in both major market segments: fixed voice and mobile. Generally, a duopoly is not conducive to a high level of sustained price-based competition. The introduction of a third mobile provider would increase the scope for competition, both in terms of price and quality of service, by dismantling the current duopolistic structure of the mobile market. This would also reduce any scope for possible anti-competitive behaviour, such as possible collusive agreements or predatory pricing. The authority, hence, believes that the April 8 editorial's concluding statement that,"Instead of looking to attract a new competitor to the local mobile market, the Government should focus its efforts to ensure that the possibility of anti-competitive behaviour is eliminated," has minimalised the issue in the least. While TATT continues to monitor the market for any possible incidence of anti-competitive behaviour, increased liberalisation of the market must be seen as a parallel goal, rather than an alternative objective.
Competition, prices
On the issue of prices, it is noted that there are currently rates being offered for international call services which are ironically less than the rates being offered for local (off-network) calls. This means that, in certain circumstances, it is cheaper (on a per minute basis) for consumers to call their friends and family abroad, as opposed to their local counterparts. The authority sees this as representing the need for more competitive rates for local calls, where there is a great divergence between existing levels of competition in the markets for local calls, and that for international calls. One of the measures that TATT uses to monitor developments in telecommunications markets, is the HHI (Herfindahl–Hirschman Index). The HHI is a measure of market competition based on market share distributions, and ranges from 10,000 (complete monopoly) to approximately zero (perfect competition). Since 2008, the HHI in the mobile market has been fairly constant, at a level of approximately 5,000, indicating only moderate competition, and implying a strongly entrenched duopoly. According to the authority's price regulation framework, a competitive market is defined as having an HHI of less than 1,800. This is statistically impossible with two operators, and, therefore, it is the ultimate objective that a third mobile provider would facilitate increased competition as reflected in a significantly lower HHI indicator.
Prices and price wars
The media have also noted the possibility of a resulting price war from the entry of third mobile provider. In this regard, declining prices should be seen as a positive development which benefit consumers, in so far as such decreases are sustainable. The negative connotations of a price war only become a critical issue if prices fall below costs, meaning that competition no longer becomes sustainable and an operator is forced to exit the market. In accordance with the principles of the Telecommunications Act, prices are determined by market forces where interconnection and access to facility charges are ideally cost based. The authority has various mechanisms in place to identify any incidence of anticompetitive behaviour, and to ensure that prices are not set below costs. It is anticipated that the requirement for operators to produce regulatory accounts which would separate revenues based on lines of business, will soon be implemented.
The authority is well on its way in implementing a long run average incremental cost (LRAIC) model, which would determine the unit costs of services, and assist in setting regulated prices where applicable. These tools will assist the authority in determining any incidence of cross-subsidies, or any other anti-competitive act. Furthermore, the authority has developed a price regulation framework, which outlines the conditions under which regulatory intervention may be necessary, and the pricing remedies to addresses any potential failure of the free market mechanism in particular market segments. Any new entrant would be subject to these regulatory requirements, hence, the negative effects of a possible price war would be adequately addressed by the existing regulatory framework.
Quality of service
The assertion that increased competition may paradoxically lead to decreased quality of service is completely unfounded. All telecommunication service providers are bound by the terms and conditions of their concession agreement, which includes provision regarding minimum quality of service (QoS) parameters. The authority has drafted a Network QoS Policy, as well as a consumer rights and obligations policy, which both outline further QoS indicators and minimum service standards. Like existing operators, any new entrant would be legally bound by these provisions, hence, ensuring that the consumers are able to benefit from high technical and consumer service standards. In fact, the introduction of a new operator will give all operators the incentive to improve their quality of service, even beyond the minimum stipulated standards. TATT continues to provide consumers with redress for service related complaints, where the complainant has not received a satisfactory resolution from the service provider.
Conclusion
The authority assures both the public and the media, that as an independent regulator, it will continue to work with the Government, concessionaires and consumers, to ensure the orderly development of the local telecommunications sectors towards the economic, social and cultural development of T&T.
As more developments take place regarding the matter of a third mobile operator, TATT shall inform the public accordingly. In the interim, interested parties are encouraged to keep abreast with developments in the industry by perusing the annual market reports, and quarterly statistical updates, as published on the authority's Web site: www.tatt.org