INTUG
 OECD APEC Global Forum
Policy frameworks for the digital economy


Access, competition & infrastructure



15-17 January 2003



OECD APEC


Aloha

Thank you very much Mr Moderator for the introduction and for the opportunity to speak today on behalf of the users of telecommunications; both business and individual users.


Introduction

INTUG is fortunate in attending both the TEL, that is the APEC Telecommunications Working Group, and the TISP, the OECD Telecommunications Working Party. INTUG also participates in the work of the ITU and liaises with the European Union. We bring together user groups in countries as diverse as Australia and Norway, Denmark and Colombia.

INTUG does its best to be global, to represent all users, from many different national associations and corporations. We have been performing that role in different ways for nearly thirty years; since our foundation in 1974.

Over that time telecommunications has changed greatly, both in technology and in market structures. Nonetheless, our aims remain constant:
We recognise the importance of the coordination of policies and also for the sharing of best practice, this is especially important in emerging markets. The correct adaptation of the best examples and lessons can be beneficial to all countries, without exception. APECTEL and TISP play important roles in that work.

It would be very good to see a joint meeting of TISP and APECTEL, perhaps in Tokyo.

Our belief continues to be that genuine and effective competition in markets will - if it is allowed to do its work - provide choice, value for money and an acceptable range of services. It also creates economic growth and productivity gains.

We welcome new technologies knowing full well that they can be disruptive. We have seen in 2002 the enthusiastic adoption of Wireless LANs. 2003 looks to be the year for IP telephony.

Sometimes it seems as if competition remains only a belief, since it is not often realised. The PTTs first resisted demonopolisation and liberalisation. Today they continue to obstruct competition and at times seem to be stirring up despair. I think that an honest assessment says that in the transition away from monopoly we grossly underestimated the willingness and the capacity of the incumbent operators to play a political game in order to predetermine market outcomes.

In more cynical moments I like to suggest that "light regulation" means regulation only of a firm's competitors and not of itself, that "technological neutrality" means burdening competing technologies with every regulation humanly imaginable, that a "level playing field" is one under which rivals lie buried and that "unbundling the local loop" means preparing the rope with which the new entrants will be hanged.

We should not regulate technologies, only markets. To regulate or to forebear from regulating one technology will distort the market where other technologies are being used.


Competition and liberalisation
Competitive markets provide responses to the needs of users; responses that monopolies cannot and will not make. In order to succeed, operators have to identify and to respond to the needs and wants of their current and future customers. In creating value for their customers, they generate profits for themselves. They provide the means by which customers can create new services, that allows their businesses to thrive and grow, contributing to economic growth.

Telecommunications is an important input to the rest of the economy. This  importance was recognised when the arguments for liberalisation were accepted and we set off on the painful road to reform. The main concern is not the profitability or even the survival of telecommunications operators, but the capacity it provides to the rest of the economy for growth and for productivity gains.

Here in the USA we have the example of the domestic freephone service. In fact, it is an international freephone service using 1-800 in Canada, the USA and some of its territories and dominions, plus Mexico and some islands in the Caribbean. It filled up the 800 number range and spilled into other ranges, such as 888 and 868.  It also created many new lines of business, of which an obvious example is 1-800-FLOWERS. It spurred on the call centre business, much of which is moving to cheaper locations in APEC economies and India, despite the significant regulatory problems in the latter.

The 800 or freephone business faces two major challenges. One is to make 800 numbers accessible at cost effective rates on mobile networks in countries using Calling Party Pays (CPP). This is of critical importance in countries where mobile subscribers exceed fixed subscribers. The other problem is how to ensure adequate quality of service for 800 numbers where callers are using the Internet.

There is a "virtuous circle" that works by the creation of new services attracting customers, generating revenues and justifying investment in infrastructure and allowing operators to re-invest and develop more services.

Competition helps to develop the infrastructure by encouraging innovation and the faster deployment of innovations. It responds better to the needs of customers and provides them with more and better services.

Morocco is the classic case of mobile network competition, it is frequently cited by the World Bank. A second operator created the competition with the incumbent operator to drive the growth of the market. It was far more rapid than would have happened otherwise. Sadly, it was a lesson not carried into the fixed market, which continues to languish at only modest levels of growth. The political decision by the Moroccan government was to live on the established reputation and on a disappointing fixed network, admittedly with continuing growth in mobile telecommunications.

2002 was a bad year for competition in telecommunications. It was the final stage of the dot.com bubble. It saw the death of many new entrants. These firms had been pumped up with monetary steroids by Wall Street and the City of London. They were financially engineered monsters that turned out to be full of air and water and, in some cases, lies and deceit.

Only now, after the crash, have the operators returned to the need to fund network construction from customer revenues. They have rediscovered the need to justify investment in infrastructure. The days of "free" capital are over.

An obvious reaction from the operators and their financial backers has been consolidation and the desire to limit competition. Yet it is very defeatist. While it may seem to be in the interests of the survivors, it does not serve the interests of the users, the national economies or the suppliers. Nor in the medium term will not serve the operators, who face severe challenges from the impending collapse of revenues from IP telephony.

An obvious question is why do we continue to believe in competition? It is not just nostalgia for a position we have argued for more than a quarter of a century, it is a pressing business need. It lies in the absence of services for which there is demand.

It is the demand for broadband for homeworkers in all APEC and OECD economies. It is need to find one operator able to provide mobile voice telephony for the Americas from Tierra del Fuego to the Alaskan oil fields. These are everyday wishes of business organisations.

The missing elements are for global and trans-national offers include:
In the absence of these, users have to patch together services or to rely on systems integrators. They remain a substantial source of future growth for carriers if they will provide them.

For many operators the regulatory function is a core competence, something it should never be. Instead, these should be in delivering excellent services to customers. Too many operators talk about competition, but rely on what Americans call "working the Hill" or its equivalent in their own countries. It is manipulating the politico-regulatory precess to see that the the playing field is tilted in their favour.

Adam Smith in The Wealth of Nations in 1776 noted that:
As it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves; so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market. WN Bk 4 Ch3 Pt 2
http://www.classicreader.com/booktoc.php/sid.2/bookid.770/
He went further to identify:
... the mean rapacity, the monopolizing spirit, of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot, perhaps, be corrected, may very easily be prevented from disturbing the tranquillity of anybody but themselves. WN Bk 4 Ch3 Pt 2
http://www.classicreader.com/booktoc.php/sid.2/bookid.770/
The only possible justification for a monopoly or an oligopoly must be one of the overwhelming economic interest of the nation and not merely the convenience of a current or putative monopolist or its shareholders.

One of the more unfortunate mistakes made many years ago was the promotion of the idea that a duopoly was a useful staging post to full competition. The United Kingdom tried this with British Telecommunications (BT) and Mercury, though it seems to have done little good to either firm. The market share of BT remains far too high in too many markets.

At the time, it seemed like a good idea. Yet, the UK should have known better, since it has experience of one of the world's longest running duopolies. From the twelfth to the early nineteenth century, Oxford and Cambridge Universities ran a duopoly in higher education. Even now, almost 200 years after the monopoly was broken up, those two players continue to exert disproportionate market power.

The idea of the duopoly as staging post has been taken up by readers of English, consultants and by those in the post-Imperial circle of influence. One unfortunate example is in South Africa which is even now struggling to end the monopoly of Telkom South Africa (jointly owned by the Government, Telekom Malaysia and SBC of the USA). It is hoped it will finally begin the duopoly in the coming months though we will not see full competition for some years.

A short, sharp transition to competition is much to be preferred. However, brutal it may seem, rapid immersion in competition is better for all parties.


Best practice regulation

I said that INTUG works with international bodies and NRAs. One of the useful functions we perform is to speak the unspeakable. We tell the truth.

I do my best to take the edge off the harsher words with a little humour, but the arguments and the numbers are there to back up our positions. I can use the c-word. I can call the mobile operators a cartel. Others have to engage in circumlocutions about ongoning investigations into the currently dominant market oligopoly.

It has been good to welcome New Zealand back into the regulatory mainstream. The experiment of regulation by the high court judge ended a year ago and we have already seen some useful work come out of the NZ Commerce Commission. Interestingly, some of it is based on international comparisons. Yet it has still to take action on local loop unbundling, something we hope can be expedited.

An example of the absence of best practice concerns Mobile Number Portability (MNP). This battle has been fought repeatedly in countries where operators argue it is unwanted, unnecessary, technically difficult, expensive, punitive and an insult to their belief in competition. As a result it has been put off in country after country; a living embodiment of the 3D strategy: Deny, Delay, Degrade. Yet on the web site of OFTA you can find monthly statistics going back to March 1999, when the service became available in Hong Kong. So it can be done, if operators can be persuaded to apply their minds to it.

There is vital need to assist the development of regulators in the least developed countries and in those economies where there is little or no tradition of independent exercise of regulation or competition law. It is a role for OECD, for APEC and individual NRAs in developed economies. Moreover, good regulation of telecommunications may encourage countries to adopt better general competition and consumer laws. There have been APEC and OECD conferences on competition policy as a horizontal issue.

We need more work to identify global best practice and greater support for regulators trying to implement it.

One tool in this which had proved of great value has been the peer review. It is not only for those on the receiving end. Undertaking a peer review teaches you a lot about your own circumstances. It is good to see this practice at OECD and WTO. It is being taken up by the African Union and in NEPAD, the New Partnership for Africa's Development.It would be a useful practice for APECTEL.

We need to ensure that good ideas flow around the world and that the supporting resources are provided for this.


Benchmarking

Given the pace of change in telecommunications and the diversity of models around the world, there is a considerable value in being able to benchmark operator against operator, country against country and region against region. Some of this is available from commercial sources, though often at considerable expense.

This is valuable work whether directly by NRA or in collaboration with operators. For example, the United Kingdom's Comparable Performance Indicators. The Infocomm Development Agency (IDA), in Singapore, publishes a quarterly Quality of Service (QoS) Survey on the cellular networks. The FCC produces are much broader annual study on competition in the cellular markets.

Such documents demonstrate that NRAs are doing their jobs well, analysing data and markets. They also provide users and policy makers with a means to be better informed.

The ITU's Asia-Pacific Telecommunications Indicators from the end of last year helps us to understand the present state of play in that region. It certainly caused me to ask questions about why particular countries were performing better than I had expected and some more poorly.

At about the same time the European Commission published its Eighth Report on the Implementation of the Telecommunications Regulatory Package. This shows just how difficult it is to achieve conformity amongst fifteen member states and soon another ten, even when you have the legal powers of a Treaty, the European Court of Justice and the prior agreement of the member states. There are also the eEurope benchmarks. The leased lines report tells the stories of delays, discrimination and some very peculiar variations between countries.

We are looking forward to the regular biennial Communications Outlook 2003 from the OECD. A equivalent publication from APEC would be extremely valuable. It would be useful to see common definitions and statistics across the OECD and APEC.

The concept of the top ten or top twenty or top forty is well known to teenage music fans. It has been highly entertaining to watch it brought into the world of broadband communications. The OECD Broadband League Table, measuring broadband teledensity, has become the subject of amusing and sometimes slightly depressing attempts to produce ever more recent numbers.

We need to understand what is the reality of global best practice, only then can we apply the lessons to our respective domestic circumstances. Then we need to examine it again, once we have the next round of data.


Mobile telecommunications

As I said earlier, 3G is a depressing story as it imploded, instead of exploding. The model of trashing the existing infrastructure and handsets, to jump to new 3G networks and handsets has clearly failed. On the few operational networks we have some very disappointing ARPU numbers. We have genuine doubts that there is any real demand for 3G. To date, the numbers suggest that demand is very modest.

3G has been said to stand for Games, Gambling and Girls or, more cynically, Greed, Gullibility and Grief.

Competition has delivered us a new class of player in the mobile telecommunications business. Very quietly, underneath all the noise and fuss of 3G, the jump to broadband mobile telecommunications, we have seen the rise of IEEE 802.11. It is a reminder of the many successes of the Silicon Valley model. It is creative destruction at work.

The story of mobile telephony in India is one of delays and disappointments. Only in the last twelve months have we seen something like a take-off in subscribers. It is still barely 1% teledensity and lags the already disappointing fixed network with its 3% teledensity. There was a wasted decade. Now the incumbents are trying to kill off the GSM operators. The only really comparable country is China which is a decade ahead in mobile, with vastly more users and much faster growth.

One subject where I would stress the vital importance of competition is in value-added and data services in mobile telecommunications. There are mobile operators who continue to believe that "walled gardens" represent the future. These are generally fixed operators who see ISPs as having stolen the Internet from them. If the mobile Internet on 3G proves to be a walled garden, it will fail.

Instead, we need access to competitive infrastructure and the widest possible range of services.


Broadband telecommunications

Broadband has become the talisman for current developments. A good showing here and your country is doing well.

We have just heard from South Korea, the world champion, about how it is done. There are more broadband connections in South Korea than in the European Union and ten times the number of those in the United Kingdom.

One can also look at Japan which has shown remarkable growth in the last eighteen months. It has overtaken South Korea in ADSL, but not in the overall total, because of limited use of cable. It seems to have created a competitive market structure, at retail level, which is allowing operators to respond to demand. It is providing real broadband, 8 to 12 Megabits per second and access to cheap IP telephony with gateways to the PSTN.

I will be in Australia in a few weeks time to discuss broadband and it will be interesting to hear how they explain sinking to twentieth ranking in the world with little prospect that their relative downward movement will change. They may take some consolation in being five places above New Zealand.

In Europe we have seen a series of bitter and unpleasant disputes. In country after country progress has been blocked by incumbent operators engaging, on the one hand, in delaying tactics and, on the other, in legal challenges. Rivals are reduced to lengthy complaints. The expectation of the incumbent operators is that the competitors will die out. It is like mediaeval sieges, complete with the occasional decomposed body being catapulted into the enemy camp. The incumbents have launched retail DSL before they made wholesale available. They have priced retail below wholesale. They have discriminated in the provision of loops.they have overcharged for collocation.

In the USA we have seen delaying tactics while operators line up their players on Capitol Hill in order to regulate their competitors out of existence.

Nezu-san identified the difference in broadband dynamics in Japan-Korea and the USA and EU. One obvious explanation for this is the acrimonious behaviour of the incumbent operators the Atlantic, compared to the acceptance of the settled political consensus in the Sea of Japan.

It is all too clear that Local Loop Unbundling (LLU) can work or it can be run into the sand by incumbent operators who know that competitors will go away or will die. It is a matter of choice whether a country makes it work. There may be better alternatives, but those do not and must not include monopolies run by incumbent operators. There are already too many alternatives, whether cable television, wireless local loop, ethernet to home or, perhaps, Wireless LAN. Anyone seeking lessons for their own policy could do worse than to visit Seoul and Tokyo.


Conclusion

It has not been a good time for competition in the telecommunications sector over recent months. At the end of the dot.com bubble we have fewer market players in many countries and significantly fewer trans-national operators. Even the incumbent operators are scaling back their international operations.

There are few global offerings and even regional offerings are disappointing. Users are still having to patch together too much from national components. Here is a major opportunity for operators.

The incumbent operators are again becoming more dominant in their national markets, too often with a new dominance in wholesale xDSL markets. In such cases the fear is that margin squeeze will kill rivals in the retail market, reducing competition and, most worringly, slowing the move to higher speeds. Speeds at which truly new and innovative applications can be created.

Our belief is that competition is essential to ensure that the broadband market and the wireless data market grow and prosper.

Governments that had held on to shares in incumbent operators in the hope of selling them in the future have discovered they cannot be sold and the firms are often crippled with debt. Having the Finance Minister looking over the shoulder of the NRA or pushing, even gently, the case for the incumbent operator does not make for fair competition.

There are long running market abuses of the provision of leased lines, of international mobile roaming and of fixed to mobile call termination rates. Abuses that are proving hard to eliminate. There are weaknesses in competition law, especially in the problems of the delays of being too slow to help new entrants.

Despite all of this, INTUG continues to believe in and to advocate competition as the way forward, a view it has consistently expressed since 1974.




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Last updated 15 January 2003.