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Industry Structure and
Industry Impact Indicators
World Dialogue on RegulationSingapore, March 3, 2007
Payal MalikReader in Economics, University of Delhi
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Industry Structure Indicators
Fixed (wireline+ FW) market share by No. of subscribers/revenue/minutes of usage
Mobile market share by No. of subscribers/revenue/minutes of usage
HHI for mobile market, using market share by subscriber/revenue
HHI for fixed market, using market share by subscribers/revenue
Market share of Pvt. vs. Public operators -mobile
Market share of Pvt. vs. Public operators - fixed
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Structure of the Presentation
Attempt to present for each of the indicators
Importance of the Indicator: Why measure?
Definitional/Availability issues
Limitations of the indicator for policy and regulatory prescriptions
How to compare: Normalization Issues
Recommendations for Improving the Quality of Indicators
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Market Share: Fixed
Why Measure?A measure of the Level of Competition
Implications for Internet and Broadband diffusion and in some countries for Universal Service
Can guide policy and regulation: LLU recommendations
Market power derived from the legacy telecommunications can be transferred to the emerging broadband market
Level of Public/Private Participation
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Measuring Issues
WLL-F, is it fixed or mobile?
Other than India and Pakistan (NRAs report) market shares are calculated by the researcher using company data (subscriber-based)
Market Share based on Revenue and Minutes of Usage not available for any of the 6 countries
Perhaps better to measure for rural urban separately or try and show the regional differences: Thailand
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What do they say? India
BSNL74.75%
MTNL7.71%
Bharti2.69%
Tata8.02%
HFCL0.51%
Shyam Telelink0.35%
Reliance5.97%
Market Shares: Fixed Service Providers, India(March 31, 2006)
Source: TRAI, Performance Indicators
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Market Share: Mobile
Why Measure?A Measure of the Level of CompetitionFeeds into the HHI measure: Merger and Acquisitions and application of antitrust lawRelevant product market
o “voice” vs. “data” market , degree of substitution, ease to switchRelevant Geographic Market
o Zone/circlesEfficiency concerns may override anti-competitive concerns
o Failing firms may be exceptions
How should it be measured?Subscriber base vs. Revenue Base vs. Minutes of Usage
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Mobile Industry Structure Indicators: Status
Not by revenue
Not by revenueNot by revenueNot by revenueTRAI, CMIE
HHI for mobile market, using mt share by subscriber/revenue
Mobile market share by minutes of usage
THSLPHPAKIDINIndicator
Not by revenue
Not by revenueNot by revenueTRAI, CMIE
HHI for fixed market, using mkt share by subscribers/revenue
PTACalculated by researcher using company data
CMIEMobile market share by revenue
Calculated by researcher using company data
Calculated by researcher using company data
Calculated by researcher using company data
PTACalculated by researcher using company data
TRAIMobile market share by # of subscribers
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Market Share: Subscriber base Vs. Revenue Base, Illustration Pakistan
Source: Pakistan country study, Joseph Wilson
Market Share (2004-05)
58
20
74
74
70.5
17.6
1.2 0.34.9 5.5
05
101520253035
4045505560657075
Mobilink Ufone Telenor Warid Paktel Instaphone
Subscriber Revenue
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THE HERFINDAHL-HIRSCHMAN INDEX: Mobile and Fixed
A widely accepted tool for measuring market concentration
HHI takes into account the relative size and distribution of theall the firms (rather than top 4 or 5 firms) in a market and approaches zero when a market consists of a large number of firms of relatively equal size
DoJ: Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated.
Transactions that increase the HHI by more than 100 points in concentrated markets presumptively raise antitrust concerns under the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission
In India mergers and acquisitions are tested on basis of SMP and concentration ratios as per TRAI guidelines
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Measurement Issues: HHIs
Comparability: Many countries divide it by 10, 000
HHI: Regional vs. National
Revenue based HHI should also be reported: TRAI now publishes revenue data company wise
NRAs should make it a yearly practice at least of reporting HHIs
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Best Practice HHI: Thailand
HHI - Mobile
4,814
4,802
4,815
4,903
5,082
5,421
3,981
4,137
4,917
4,753
-
1,000
2,000
3,000
4,000
5,000
6,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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HHI Revenue base and Subscriber base Illustration: India
0.150.16HHI in Mobile Service
0.580.67HHI Fixed Service
2005-062004-05Fiscal Year
Subscriber Base HHI
HHI: Revenue Based
0.96
0.54
0.27
0.560.600.670.64
0.09 0.08 0.08 0.11 0.13
0.000.200.400.600.801.001.20
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Landline Mobile
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Market Structure Indicators: Comparative Picture
Market Share of the Largest Operator
21.72
55
5054.14
6059
0.39
0.45
0.47
0.15
0.38
0
10
20
30
40
50
60
70
India Indonesia Pakistan PhilippinesSri Lanka Thailand
Per c
ent
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
HH
I
Market Share HHI
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Industry Impact Indicators: StatusTHSLPHPKIDINIndicator
No definition
PLDT Group to NTC re SMP, 22 Oct 06 (no definition)
PTA, service wise, direct and indirect employment
TRAI, NSO data not just for telecom, formal and informal employment
Total Employment in Sector
Companies DataDifferent for fixed and mobile
6% of total tax receiptPLDT Group to NTC re SMP, 22 Oct 06(no definition)
PTA ( activation tax, GST, CED, Income Tax, Custom duties, PTA deposits etc.)
TRAI, Service tax, GST, Spectrum charges, license fee, USO charges
Total Tax paid by sector
No definition
Total Approved FDI, Board of invtt., PEZA,SBMA, CDC
PTA (no definition)
BKPM (Investment Board); no definition
DoT, Government, DIPP
Total Foreign Investment
Definition providedTRC (no
definition)PTA (no definition)
TRAI, Definition provided
Total Investment
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Investment
TRAI, India
Gross Capital investment of Telecom Services Sector
Capital Employed and Return on Capital Employed (RoCE)
Definition:The Capital Employed is fund deployed to operate the business. It is sum of depreciated value of capital assets /fixed assets, capital work in progress and working capital
Spells out the definition in the Accounting Separation Regulation
Thailand:
Definition: Investment refers to the annual expenditure associated with acquiring ownership of property and plant used for telecommunication services and includes land and buildings
How to compare?
Capital employed per subscriber (mobile and basic)
Capital Employed Per Capita
Incremental Capex per incremental subscriber: Ideal
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How to compare Capital Employed? Illustration, India
Capital Employed per mobile and basic subscriber
362
167 169 163
370
147 153 152
0
50
100
150
200
250
300
350
400
Capital Employedper basic
subscriber
Capital Employedper mobilesubscriber
Capital Employedper basic
subscriber
Capital Employedper mobilesubscriber
India China
2004 2005Source: TRAI, 2005
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Foreign Investment: What is it?FDI Definition, India:
Investments by FIIs, NRIs, FCCBs, ADRs, GDRs, convertible preference shares, proportionate foreign investment in Indian promoters/investment companies including their holding companies
Earlier this was capped at 49% now 74%, whereas Pakistan 100% FDI allowed: so policy matters in determining the indicator
Thailand
Telecommunications Act, limits foreign equity holdings to 49%
Foreign investors acquire complete corporate control, despite the direct equity share limitations: through indirect equity holdingi.e., holding of equity shares in a series of holding companies up the company's ownership chain or through Thai nominees
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Tax Paid by the Sector
What should be included in Tax?Any levy is passed on to the subscriber by the service provider: So tax is a very narrow measure
All that should be captured: TRAI publishes data on such levies in a detailed manner e.g. Service Tax, GST, Licencefee, Spectrum Charges, USO levy
How to compare? Absolute Number does not help
Total levy on telecom service as a percentage of total revenue
Tax as a percentage of total telecom revenue
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How to compare Tax paid by the sector? Illustration Pakistan
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How to compare Tax paid by the sector? Illustration India
Source: TRAI, 2005
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Total Employment in Sector
Formal and informal employment: PTA TRAI reports using companies data
Methodology NSO India(Communication services other than those of couriers and cable
operators )workforce in the activity, separately for rural/Urban/organized/un-organised segments: ASI and economic census (once every 5 years)the private organized sector estimates have been prepared using the data on estimated workforce (from the DGET source)economic activities of internet, cyber cafés, etc. have also been included
How to compare?Employee per subscriber
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How to compare employment figures? : India
Employment
4368.91
3943.34
158
1678
425.57132
1089
4294
3821.05
472.95
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Total Employees Govt. Companies Pvt. Companies Govt. Companies Pvt.Companies
Employees of Telecom Companies (in '00 nos.) Subscribers per Employee at yearend (in nos.)
2004-05 2005-06
Source: TRAI, 2005
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RecommendationsRevenue based and minutes of usage market shares important as may reflect different market power scenarios
A central agency should collect the data periodically from the operators and make it available to the general public through its website.
e.g. Data for Pakistan and India mostly from NRAs.
Philippines source of the data however was not government: a position paper of the number 1 telco vs the issuance of an SMP ruling
Standardize definitions for investment, tax and employment for meaningful comparisons
List of indicators from these parent indicators for comparability: Suggested a few
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Recommendations: India
NSO
NSOs can facilitate employment data rather than just operator’s employment data
India NSO has not adopted any ICT definition; span across various NIC codes; suggest adoption for measuring ICT output, employment and other macro indicators
TRAI
Definitions of the data should be published
Time-Series data on the financials
More disaggregated data form the operators should be made public
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netThank You