tariff regulation in the chilean telecommunication market · 2005-06-21 · buenos aires, june 2005...

Buenos Aires, June 2005Buenos Aires, June 2005

Tariff regulation in the Chilean telecommunication market

GOVERNMENT OF CHILEMinistry of Transport and

Telecommunications

Telecommunications Subsecretariat

Applicable legal and regulatory Applicable legal and regulatory frameworkframework

• The General Telecommunications Act (Act No. 18.168 of 1982) and the amendments thereto, in particular the provisions of Article 24 bis, 25 and Section V, on tariffs.

• Regulations governing the procedure for, announcement of and participation in the tariff-setting process, as laid down in Section V of the General Telecommunications Act (Act No. 18.168) (Supreme Decree No. 4 of 2003).

Tariff regulation: Tariff regulation: Normative aspectsNormative aspects

• Tariff freedom (the general rule)• Services affected under the Act (Articles 24 bis

and 25)§ Services provided by public service licensees

and intermediaries through interconnection arrangements. Metering, billing, charging and collection services provided to carriers by public service licensees (Supreme Decree No. 95 of 1994).

§ Tariffs for services provided under interconnection arrangements enable these licensees to charge for the cost of using their networks.

Tariff regulation: Tariff regulation: Normative aspectsNormative aspects

• Basic principles of tariff-setting:§ Tariffs charged to users reflect costs.§ Guaranteed absence of cross-subsidies between

services and tariff areas.§ Use of efficient enterprise model generates

incentives for the actual licensee to introduce technology enhancements in its network and in regulated services, thereby increasing their efficiency.

§ Through the tariff-setting process it is possible to pass on to the consumer the efficiency gains made by the company as a result of its improved management coupled with technological advances.

Tariff regulation: Tariff regulation: Content aspectsContent aspects

• Efficient company (Act 18.168, Art. 30A and F):§ Provides only regulated services.§ Only those costs that are essential to their

provision.§ Using available technology.§ Maintaining quality.§ Determination of costs of each service: investment

and operation, including capital cost.§ Indivisibility of unregulated services: only fraction

of costs used, consistent with the proportion of assets used.


• Incremental development cost (IDC) (Art. 30)§ General rule: marginal cost charging

§ Plans for expansion of each service by tariff area.§ The incremental development cost is obtained for

each expansion plan.§ Exception: Long-run marginal cost

§ In the absence of expansion plans.• Total long-run cost (Art. 30C)

§ Asset replenishment plan for the efficient company.§ Average volume of different services provided.


• Efficient tariffs (Art. 30E)§ Generate revenue equivalent to the IDC (marginal cost).§ In case of more than one regulated service in a tariff

area, equal profit margins.§ Where expansion plan provides for unregulated services:

only fraction of IDC used, in keeping with the proportion of asset usage.

• Definitive tariffs (Art. 30F)§ Only where there are economies of scale.§ Efficient tariffs increased until total long-run cost

reached.§ Inefficiencies minimised.§ Where efficient company provides unregulated services:

only fraction of total long-run cost used, in keeping with the proportion of asset usage.


• Capital cost rate (Art. 30B)§ Risk-free rate of return.§ Company's systematic risk.§ Risk premium.§ Capital cost rate = Risk-free rate + Systematic risk

* Risk premium• Indexation

§ An index is determined for each service.§ Based on published input price indices.§ Representative of cost structure of the efficient

company.


TEBproposal

Elaboration of technical & economic

bases (TEBs)

Elaboration of technical & economic

bases (TEBs)

Licensee

Review and compilation of

points of disagreement

Review and compilation of

points of disagreement

Submission ofpreliminary TEBs

Licensee

Review and elaboration of

preliminary TEBs

Review and elaboration of

preliminary TEBs

Subtel

Opinions

RegisteredThird parties

RegisteredThird parties

Participantregistration

notice


notice

Draft TEBs

Procedure: Procedure: Technical and economic basesTechnical and economic bases

Review and compilation of points

of disagreement

Review and compilation of points

of disagreement

Opinion

Background

Committeeof experts

Committeeof experts

Licensee

Submission of disagreementsand possible request for

assistance from committee of experts

Analysis and decision on

definitive TEBs

Analysis and decision on

definitive TEBs

Subtel

Notification ofdefinitive TEBs

Elaboration of tariffstudy commences

Elaboration of tariffstudy commences

Licensee

Procedure: Procedure: Technical and economic basesTechnical and economic bases

Tariffproposal

Review oftariff study

Review oftariff study

Ministries

Elaboration oftariff study

Elaboration oftariff study

Licensee

Report oninsistence

Report on objections& counter-proposals

Opinion

Background

Committeeof experts

Committeeof experts

Final decision

Final decision

Incorporatesor insists

Incorporatesor insists

Licensee

Ministries

OpinionsRegisteredthird

parties

Registeredthird

parties

ProcedureProcedure: : TariffTariff--settingsetting

Substantiatingreport

Final decision

Final decision

Constitutional andlegislative review

Constitutional andlegislative review

Elaboration & signatureof tariff decree

Elaboration & signatureof tariff decree

Tariffdecree

Consultations

BackgroundComptroller-General of the Republic

Publication oftariff decree

Publication oftariff decree

Official Bulletin

Possibleobjections

Ministries

Ministries

Clarification of thetariff process

Clarification of thetariff process

Ministries

Processing of tariff decree

ProcedureProcedure: : TariffTariff--settingsetting

-380

(20) 20 5 5 30

(Subtel calls for TEB proposal for new licensees)

-360

Presentationof TEB

proposal

0 20 25 30 70

-340 -290

Preliminary TEBs

Presentation of disagreements and request for committee of expert (CoE) assistance

Subtel calls for CoEassistance

CoEreport

3 5 2

80

Request for clarification

CoEclarification

report

DefinitiveTEBs

90

180

-180

Presentation of tariff study

120

300

-60

Report on objections and counter-proposals

30

Report on themodifications and

insistence

-30 0

330 360

30

Substantiatingreport and Tariff

Decree

Presentation of tariff study

-180

CoE report


5

-365

Participantcomments

-355

15

OpinionsTariff study

10 10

30

-180

210

5

Setting-up of CoE

OfficialBulletin

announcementlaunchingprocess

DraftTEB

10

40

Setting-up and swearing-in

of CoE

-270

Start of tariffstudy

announced

ProcedureProcedure: : TariffTariff processesprocesses

• The main services regulated in the contextof public service licensees for mobiletelephony correspond to:

§ Interconnection at network termination points§ Access to other telecommunication service

licensees§ Administrative functions (metering, charging,

billing, collection, balance management)

TariffTariff regulationregulation: : TariffTariff aspectsaspects

• The main services regulated in the contextof public service licensees for fixedtelephony correspond to:

§ Interconnection at network termination points§ Access to other telecommunication service

licensees§ Administrative functions (metering, charging,

billing, collection, balance management)

TariffTariff regulationregulation: : TariffTariff aspectsaspects

FixedFixed and and mobilemobile telephonytelephony marketmarket: : CurrentCurrent situationsituation

ChileanChilean marketmarket: : FixedFixed lineslines

Evolution of fixed telephony: Lines in service and penetration (1990-2004)

6.57.9

9.4

11.011.6

13.2

15.6

18.3

20.4 20.621.6

22.4

20.5 20.722.1

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

3 500 000

4 000 000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0

5

10

15

20

25

Lines in service Penetration

ChileanChilean marketmarket: : MobileMobile subscriberssubscribers

Evolution of mobile telephony: Mobile subscribers and penetration (1990-2004)

0.1 0.3 0.5 0.6 0.8 1.4 2.2 2.86.5

15.0

41.1

47.4

59.6

34.0

22.2

0

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0

10

20

30

40

50

60

70

Lines in service Penetration

ChileanChilean marketmarket: : Internet Internet connectionsconnections

Evolution of Internet connections(June 2000 – December 2004)

468 227

578 316

674 646631 526

658 828

569 306 570 828

483 773460 859

326 432

2 411 7 879 31 882 66 722

115 715

188 454

263 572

352 234

424 016

478 883

0

200 000

400 000

600 000

800 000

Jun - 2000 Dec - 2000 Jun - 2001 Dec - 2001 Jun - 2002 Dec - 2002 Jun - 2003 Dec- 2003 Jun - 2004 Dec - 2004

Switched

Dedicated

ChileanChilean marketmarket: : PenetrationPenetration indicatorsindicators

Nota: Para el caso de la penetración en los hogares la información corresponde a la encuesta CASEN 2003.

Penetration of fixed telephony, mobile telephony and Internet in ChileDecember 2004

20.7

51.6

59.6

67.3

5.0

12.6

0 10 20 30 40 50 60 70 80

Fixed lines per 100 inhabitants

Fixed lines per 100 households

Mobile subscribers per 100 inhabitants

Mobile subscribers per 100 households

Internet connections per 100 inhabitants

Internet connections per 100 households

Note: In the case of household penetration, the information is drawn from the CASEN 2003 survey.

ResultsResults: : TariffTariff processesprocesses

• During the most recent period, theregulatory body conducted a series of tariffprocesses with the aim of establishingregulated tariffs for the services in questionin the various market segments.

• The processes covered public servicelicensees for mobile and fixed telephonyand intermediate service licensees.

• They involved a review of the tariff decreesrelating to the dominant enterprises and mobile and rural companies, bringing othercompanies into the arena.

TariffTariff regulationregulation: : TariffTariff processesprocesses

TariffTariff regulationregulation: : TariffTariff processorsprocessors

Mobile and of the sametype:

• Bellsouth• Entel PCS• Entel Móvil• Smartcom• Telefónica Móvil• Nextel (Multikom and

Centennial)

• The processes by segment correspond to:

Fixed:• CTC• Telefónica del Sur• TelCoy• EntelPhone• VTR• Manquehue• Telesat• CMETRural:

• CTR• RTC• Megacom

Intermediate:• Entel

MobileMobile accessaccess chargescharges: : TheThe new new pricesprices

Time-based structure for access charges ($/min)

120.3

86.784.2

65.1

43.4

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Former regulatory framework Tariff Decree 2004-2009

Normal

Reduced

Night

MobileMobile accessaccess chargescharges: : TheThe new new pricesprices

Cargo de Acceso Promedio = 110 cUS$/min

Time-based structure for access charges (USD/min)

0.171

0.1240.120

0.093

0.062

0.000

0.100

0.200

0.300

Former regulatory framework Tariff Decree 2004-2009

Normal

Reduced

Night

Average access charge = USD 0.110/min

ComparisonComparison of of chargingcharging periodsperiods

Traffic distribution:

Normal rate : 61.4%

Reduced rate : 33.5%

Night rate : 5.1%

Traffic distribution:

Normal rate : 57.9%

Reduced rate : 42.1%

Current time-band structure

Time band

Working days

Saturdays

Sundays and public

holidays00:00 - 08:59 Reduced Reduced Reduced09:00 - 13:59 Normal Normal Reduced14:00 - 19:59 Normal Reduced Reduced20:00 - 23:59 Reduced Reduced Reduced

Proposed time-band structure

00:00 - 07:59 Night Night Night08:00 - 13.59 Normal Normal Reduced14:00 - 19:59 Normal Reduced Reduced20:00 - 23:59 Reduced Reduced Reduced

Time band

Working days

SaturdaysSundays

and public holidays

Access Access chargescharges: : DecreasingDecreasing pricesprices

Access charge 2004-2008 ($/min)

76.4277.2676.81

77.2077.5977.98

70.00

72.50

75.00

77.50

80.00

0 1 2 3 4 5 6

Local Local accessaccess chargescharges: : Normal Normal raterate

Local company access charges by primary zone(in pesos as at December 2003)

0

1

2

3

4

5

67

8

9

10

11

12

13

14

Aric

a

Iqui

que

Ant

ofag

asta

Cop

iapó

La S

eren

a

Ova

lle

Los

And

es

Qui

llota

San

Ant

onio

Val

para

íso

San

tiago

Ran

cagu

a

Cur

icó

Primary zones

($/m

inut

e)

CTC ETPH CMET VTR (*) MNET TSAT TSUR TCOY

Local Local accessaccess chargescharges: : Normal Normal raterate

Local company access charges by primary zone(in pesos as at December 2003)

02468

1012141618202224262830

Talc

a

Lina

res

Chi

llán

Con

cepc

ión

Los

Áng

eles

Tem

uco

Pun

ta A

rena

s

Val

divi

a

Oso

rno

Pue

rto M

ontt

Ciu

dade

sM

edia

nas

Déc

ima

Reg

ión

Coy

haiq

ue

Pue

rto A

ysén

Primary zones

($/m

inut

e)

CTC ETPH CMET VTR (*) MNET TSAT TSUR TCOY

TelephoneTelephone lineline serviceservice

Local company telephone line service per tariff area(in pesos as at December 2003)

6 6327 655 8 044 8 059 8 179 8 090 8 012

9 701 10 131

14 722

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

Santiago Valpara íso Concepción Antofagasta,La Serena

and Chillán

Iquique,

Quillota, Los

Andes, Curicóand Linares

Arica, Copiapó,

Ovalle, San

Antonio, Talca,Los Ángeles and

Punta Arenas

Rancagua andTemuco

Valdivia,Osorno andPuerto Montt

Coyhaique Isla de Pascua

Tariff areas

($/Lin

e-m

on

th)

Buenos Aires, Buenos Aires, JuneJune 20052005

THE ENDTariff regulation in the Chilean

telecommunication market

by Roberto Baltra T.by Roberto Baltra T.AdviserAdviser, Subsecretario de Telecomunicaciones, Subsecretario de Telecomunicaciones

tariff regulation in the chilean telecommunication market · 2005-06-21 · buenos aires, june 2005...

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