Tracking telecom competition in Chile Michael.Minges@itu.int Competition Policy in Telecommunications 20-22 November 2002 Geneva, Switzerland
Measuring competition Although competition is a “means” to the “ends” of enhancing telecom access, it is nonetheless useful to measure A high degree of competition would suggest that market is functioning properly and therefore prices should be lowest possible and access enhanced
Telephone market 2001 Segment
Operators
Market size
Incumbent
market share a)
HHI b)
Local
7 c)
3’523’700 lines in service
78%
0.6
Domestic LD
12
2’415
38%
0.3
International LD
12
241 outgoing 362 incoming
38%
0.3
31%
0.3
million minutes
million minutes
Mobile cellular
4
5'271'565 subscribers
Note: a) Based on market size indicator. Telefónica CTC considered incumbent for local and mobile, ENTEL for long distance (LD). b) Hirfindahl-Hirschman Index. A measure of market concentration. 1 = monopoly, 0.2 or less = perfect competition. c) Not including rural telephony concessions. Source: ITU adapted from CTC, SUBTEL data.
Local market Incumbent share has dropped… …but level of competition varies 11
95% 93% 8
91% 8
9
89%
9 8 87%
5
83% 80%
CTC Market share # Operators
1994
1996
11
1998
2000
76%
Of 11 local operators, four are rural only. Of 7 regular, three only operate in one region. Only incumbent operates nationwide in all 24 regions (“primary zones”). Level of local competition: – Six regions have no local competition – 10 have two operators – 3 have three operators – 2 have four operators – 1 has five operators – 2 have six operators
International long distance May 2002: 33 operators licensed, 20 in operation (SUBTEL, includes some double counting). 12 operators at end of 2001 (CTC). Rapid drop in prices after introduction of full competition on 27 August 1994. Market almost reached “perfect competition” Rise in market concentration after 1997 and slight decline last two years. Pricing seems to precede market changes. Market correction in 1996 after competition settles in. Since 1996 prices have been steadily declining. Incumbent market share declined from 86% (92) to 38% (01).
Market concentration and price of 3 minute call to US 0.7
HHI Peak Off-Peak Settlement rate
0.6 0.5
$2.0 $1.8 $1.6 $1.4 $1.2
0.4
$1.0
0.3
$0.8 $0.6
0.2
$0.4
0.1
$0.2
0
$0.0 1993
95
97
99
01
Mobile Mobile market share
Numerous mergers and changes in regional licensing complicate analysis. Six different companies over 10 years. Pricing seems to be relatively high compared to other Latin American nations Technologically diverse with two TDMA, one CDMA and one GSM network
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
12% 39%
32% 17% 1990 1993 1996 1999
BellSouth
CTC
Entel
Smartcom
Competition impact $6'000 $5'000 $4'000 $3'000
GDP per capita (US$, left) Calling Teledensity Party Pays Mobidensity Total density Two new mobile operators CTC privatized
70 60 50 40 30
$2'000
20
$1'000
10
$0
0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
What caused what in Chile’s telecommunication network development? Difficult to disentangle impact of (1) economic growth; (2) privatization; (3) regulation; and (4) competition. Network growth a mixture of four; pricing most likely competition
Chile in the region Annual average growth (1991-2001) Total telephone subscribers (fixed+mobile)
ď‚ś Chile had fifth fastest growing telephone network in Latin America during the 1990s ď‚ś Outperformed peers (e.g., Brazil, Mexico, Argentina) and regional average
Paraguay
28%
El Salvador
27%
Guyana
26%
Guatemala
25%
Chile Brazil
23% 21%
Latin America
19%
Mexico
19%
Argentina
17%
Methodological considerations Need disaggregated data for competition analysis – Operators claim because market competitive cannot provide information.
Competitive market not straightforward – Local concessions. – Licenses for long distance when two services.
Conclusions Privatization and economic growth have driven growth in local fixed market Impact of competition has been negligible except perhaps in spurring broadband. Mobile market is no more competitive than most other Latin American nations. Biggest impact of competition has been on long distance traffic.