Telecomunications
Evolution of the sector
Traditionally vertically integrated monopolistic sector :
1924: Compañía Telefónica Nacional de España (CTNE, ITT subsidiary)
Public ownership since 1945 (20% private capital).
Single operator. Network owner (& builder) and telephone service provider.
Traditional tariff structure implied cross-subsidies between call types: Long
distance (expensive) and local (cheap).
Regulated prices according to consumer price index (price cap).
Public Service Obligations: National network coverage & phone boxes-
Very little innovation and inefficient, loss-making firm.
Similar cases across Europe, with 100% public firms (PTT model)
Changes
1970s & 1980 liberalisation in the US
1982: Antitrust case forces the break up of ATT in 7 regional companies.
They compete in the long distance market
Entry into local markets authorised in early 1980s
US experience showed that competition increased efficiency
Development of new products (data transmission)
Elimination of cross subsidies
Competition and technical change created new services
Europe starts liberalising telecoms in the 1990s
1984: 2nd operator authorized in UK (Mercury)
Telefónica was fully privatised between 1995 and 1999.
Telecomunications 1
, Alternative firms progressively allowed to enter: 1995 (Airtel, bought by
Vodafone in 2001, mobile operator), 1998 (Retevision, fixed line operator).
Technological change allows convergence of fixed, mobile and data markets
The importance of the network
The network is a relevant element of the telecoms industry, more
than in other ‘network industries’:
1. Demand increases can only be met by expanding network capacity. Bottlenecks
can arise locally. Demand is irregular : network dimension needs to cope with
peak demand.
2. Technological change in telecoms requires upgrading and expanding the
network almost continuously.
In fixed lines: cable and fibre (NGA: Next Generation Access)
4G, 5G for mobile communications and data
The access loop (or “last mile”)
When telecoms were liberalised in the 1990s, Telefónica’s fixed line
network reached the customer premises. Given standard phone use, duplicating the
access loop by competitors was considered unfeasible: that was the remaining
natural monopoly. Given that Telefónica could block entry by ‘margin squeeze’ (set
high access prices to prevent rivals from making profits), there was an obvious need
to regulate ‘last mile’ access:
Create a sector regulator: CMT (Telecoms Market Commission). Now CNMC.
Regulate third party access: the network owner has to facilitate
interconnection access to its network by rivals, at regulated prices.
Network access regulation
The regulator faces a trade-off when setting networks access prices:
Given existing network capacity, and with the aim of fostering competition, the
best choice would be to set low regulated access prices. This will, for
instance, facilitate the development of Mobile Virtual Network Operators
(MVNO).
Telecomunications 2
Evolution of the sector
Traditionally vertically integrated monopolistic sector :
1924: Compañía Telefónica Nacional de España (CTNE, ITT subsidiary)
Public ownership since 1945 (20% private capital).
Single operator. Network owner (& builder) and telephone service provider.
Traditional tariff structure implied cross-subsidies between call types: Long
distance (expensive) and local (cheap).
Regulated prices according to consumer price index (price cap).
Public Service Obligations: National network coverage & phone boxes-
Very little innovation and inefficient, loss-making firm.
Similar cases across Europe, with 100% public firms (PTT model)
Changes
1970s & 1980 liberalisation in the US
1982: Antitrust case forces the break up of ATT in 7 regional companies.
They compete in the long distance market
Entry into local markets authorised in early 1980s
US experience showed that competition increased efficiency
Development of new products (data transmission)
Elimination of cross subsidies
Competition and technical change created new services
Europe starts liberalising telecoms in the 1990s
1984: 2nd operator authorized in UK (Mercury)
Telefónica was fully privatised between 1995 and 1999.
Telecomunications 1
, Alternative firms progressively allowed to enter: 1995 (Airtel, bought by
Vodafone in 2001, mobile operator), 1998 (Retevision, fixed line operator).
Technological change allows convergence of fixed, mobile and data markets
The importance of the network
The network is a relevant element of the telecoms industry, more
than in other ‘network industries’:
1. Demand increases can only be met by expanding network capacity. Bottlenecks
can arise locally. Demand is irregular : network dimension needs to cope with
peak demand.
2. Technological change in telecoms requires upgrading and expanding the
network almost continuously.
In fixed lines: cable and fibre (NGA: Next Generation Access)
4G, 5G for mobile communications and data
The access loop (or “last mile”)
When telecoms were liberalised in the 1990s, Telefónica’s fixed line
network reached the customer premises. Given standard phone use, duplicating the
access loop by competitors was considered unfeasible: that was the remaining
natural monopoly. Given that Telefónica could block entry by ‘margin squeeze’ (set
high access prices to prevent rivals from making profits), there was an obvious need
to regulate ‘last mile’ access:
Create a sector regulator: CMT (Telecoms Market Commission). Now CNMC.
Regulate third party access: the network owner has to facilitate
interconnection access to its network by rivals, at regulated prices.
Network access regulation
The regulator faces a trade-off when setting networks access prices:
Given existing network capacity, and with the aim of fostering competition, the
best choice would be to set low regulated access prices. This will, for
instance, facilitate the development of Mobile Virtual Network Operators
(MVNO).
Telecomunications 2
