Tracking telecom

competition in Chile

Michael.Minges@itu.intCompetition Policy in Telecommunications

20-22 November 2002Geneva, 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 2001Segment 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 million minutes

38% 0.3

International LD

12 241 outgoing362 incomingmillion minutes

38% 0.3

Mobile cellular 4 5'271'565 subscribers

31% 0.3

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

83%87%89%

91%93%

95%

76%80%

1111

98

988

5

1994 1996 1998 2000

CTC Market share# Operators

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

Incumbent share has dropped… …but level of competition varies

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).

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1993 95 97 99 01$0.0$0.2$0.4$0.6$0.8$1.0

$1.2$1.4$1.6$1.8$2.0

HHIPeakOff-PeakSettlement rate

Market concentration and price of 3 minute call to US

Mobile

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

17%

32%

39%

12%

0%10%20%30%40%50%60%70%80%90%

100%

1990 1993 1996 1999

BellSouth CTC Entel Smartcom

Mobile market share

Competition impact

$0

$1'000

$2'000

$3'000

$4'000

$5'000

$6'000

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 20010

10

20

30

40

50

60

70GDP per capita (US$, left)TeledensityMobidensityTotal density

CTC privatized

Two new mobile operators

Calling Party Pays

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

Chile had fifth fastest growing telephone network in Latin America during the 1990s

Outperformed peers (e.g., Brazil, Mexico, Argentina) and regional average 17%

19%

19%

21%

23%

25%

26%

27%

28%

Argentina

Mexico

LatinAmerica

Brazil

Chile

Guatemala

Guyana

ElSalvador

Paraguay

Annual average growth (1991-2001)Total telephone subscribers (fixed+mobile)

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.