CHAPTER 1: REGULATORY FRAMEWORKS AND DIGITAL STRATEGIES
This Chapter is aimed at providing guidance on tools for policy makers to encourage investment, competition and the use of broadband access services emanating from their regulatory frameworks and digital strategies. Regulatory frameworks provide the playing field for all actors, including operators and application/content providers as well as national, regional and municipal governments and regulatory agencies. Digital strategies allow for initiating and co-ordinating public and private involvement in different programs and projects aimed to extend broadband access and increase its use by individuals and businesses.
1. This chapter focuses on two key elements of the broadband policy toolkit: the regulatory framework and the broader strategic framework. These two elements are essential to facilitate the development of broadband access and use. On the one hand, the regulatory framework includes the division of powers among the different institutions involved in the governance of the telecommunication markets. On the other hand, the broader strategic framework usually referred to as “digital strategies”, “digital agendas” or “national ICT strategies” aims at extending broadband availability and its use. It should be noted that further to this, good practices on fostering competition and investment through regulatory measures are addressed in Chapters 2 and 3.
2. This chapter addresses the division of powers between different telecommunication and ICT national authorities on their organisation, scope and co-ordination. An adequate regulatory framework setting a clear separation of powers, articulating collaboration among different institutions and providing a sound legal basis for policy definition and implementation is essential to encourage investment and competition, as well as to co-ordinate public and private initiatives to the benefit of consumers. The objective of this chapter is not to be prescriptive about how institutional structures should be, but rather, to highlight the relative advantages and disadvantages of the various institutional arrangements (e.g. lack of independence of regulators and separation of concerns between policy making and regulatory issues aimed to foster competition).
3. Together with setting a stable pro-investment and pro-competitive regulatory framework, governments should articulate digital agendas aimed at encompassing in a co-ordinated manner all the different issues related to digital economy and ICT promotion – from ‘supply-side’ policies, aimed at fostering broadband coverage, to ‘demand-side’ policies, targeted at promoting ICT skills, affordability, e-government, e-health, e-commerce and ICT use by business and citizens, and so forth. This Chapter also aims to provide guidance, recommendations and good practices on how to best articulate a governance model for broadband policy.
4. Digital strategies are examined in this chapter from the perspective of ensuring co-ordination among different public administrations involved and collecting input and feedback from stakeholders. Specific issues on broadband national plans are further explored in Chapter 4. The design of specific plans and actions on other aspects addressed in digital agendas, such as e-government and e-health promotion are also addressed in separate Chapters.
Key policy objectives for the regulatory frameworks
· Fostering the expansion of broadband services. Regarding broadband access, the main objective of national regulatory frameworks is to foster choice for consumers and enable them to benefit from innovative services at competitive rates. Experience shows that encouraging private investment and competition is key to ensure this objective. Thus, the aim of regulatory frameworks should be to ensure effective competition and provide an incentive for investment allowing, where possible, the market to do the heavy lifting deploying networks and offering competitive services, acknowledging also that public intervention may be required. This does not mean that the market should not be regulated. On the contrary, fostering investment and competition in communication markets often requires well-designed regulation.
· Lowering barriers for investment in broadband networks and services. Policy objectives focused on encouraging investment should be based on regulations aimed at lowering barriers. Telecommunication markets need long term investment and this requires that actors know in advance the rules to be applied in a regulatory framework. For this reason, one of the key policy objectives when setting a regulatory framework is to promote stability and predictability of regulation and their implementation minimising burden for market actors, while fostering competition among them, using when possible only ex-post measures.
· Encouraging public initiatives that complement private initiatives when necessary. Notwithstanding the key role played by private initiatives in deploying networks and providing broadband services, in certain cases, public investment may be needed to ensure that all people and geographical areas benefit from ICT services. The regulatory framework must set clear rules for public intervention, to ensure an adequate interplay between public and private initiatives (including public-private partnerships), aiming to facilitate public action when needed, but also preserving competition and incentives for private sector investment.
· Upholding a consistent and effective policy framework for all market actors. With this aim, any regulatory framework for ICTs should be based on defining clear, general rules for all market actors involved in the value chain, based on competition principles, ensuring consistency and effectiveness of regulatory policies. The application of general competition principles in the regulatory framework allows for stability, as these principles are valid for all technologies, as well as predictability on the evolution of the regulatory framework over time.
· Ensuring independence of regulators. A key objective of a sound regulatory framework should be to ensure independence for regulators entrusted with its application, transparency and accountability of the regulatory process as well as ensuring and encouraging multi-stakeholder co-operation in the policy development processes to facilitate achieving objectives. In this context an adequate collaboration between the public and private sector is necessary to reach sector goals.
Key policy objectives for digital strategies
5. Digital strategies are cross-sectoral programmes addressing the different policy objectives involved in the digitalisation of economies and societies. This includes developing and implementing initiatives seeking to achieve policy objectives on the supply side, such as broadband access extension to ensure digital connectivity for individuals and businesses (Chapter 4); deployment of infrastructure aimed to improve regional and international connectivity; and co-ordination with policy makers and regulators in other countries (Chapter 7). On the demand side, digital strategies include areas such as affordability (Chapter 5); fostering ICT skills (Chapter 8); business ICT uptake and entrepreneurship (Chapter 9); e-health and e-government applications (Chapters 10 and 11); and increasing consumers’ trust in the digital economy (Chapters 12 and 13).
• Maximising the potential of ICTs. The key policy objective of digital strategies is to maximise the dividends of ICTs, and especially the Internet, a vital medium of economic and social activities. This key policy objective can be considered under different specific sub-objectives (Box 1).
6. Regular assessment of the fulfilment of the regulatory framework’s objectives is key to ensure it is adequate in fostering competition, investment and innovation in broadband services. Performing regular assessments will also allow for adapting the framework to meet new challenges and new situations, nonetheless by applying general competition principles to ensure predictability.
7. A first set of tools that should be used when assessing the adequacy of a regulatory framework is through the regular collection of information and preparation of key indicators such as the level of prices, competition, investment and infrastructure deployment. The availability of these indicators allows regulators to detect trends, bottlenecks and other issues to be addressed when reviewing and assessing the effectiveness of the regulatory framework. This information should be published regularly to inform stakeholders and allow them to provide relevant feedback and proposals to change a regulatory framework.
8. Regular public consultations should be carried out on the effectiveness and adequacy of the regulatory framework. This also includes any policy proposal to improve or adapt the regulatory framework to new situations or to correct existing problems. Well-designed public consultations allow for feedback from all stakeholders and anticipate potential issues before enacting new regulations.
9. Regular benchmarking with reference countries is valuable to identify areas of improvement and different regulatory models that could be applied. Active participation in the LAC regulatory networks in the region, as well as other fora is also a good source of information to evolve regulatory frameworks. Peer and third-party independent reviews are useful ways to get comprehensive external views on areas where the regulatory framework can be improved to address existing or future problems. The peer reviews undertaken by the OECD of the telecommunication markets in Colombia (OECD, 2014) and Mexico are examples of this approach (OECD, 2012).
10. Establishing an effective and powerful oversight mechanism for digital strategies is important in order to: a) provide appropriate incentives for performance from managers and stakeholders; b) evaluate how the digital strategy affects targeted beneficiaries; c) determine resource allocation and improve planning, and d) to provide input for decisions regarding its strategic direction.
11. Digital strategies are usually composed of plans for different policy areas. This implies that the tools and measurements to assess fulfilment of the overall objective of national strategies must be based on key performance indicators for each of the different plans included in a digital strategy. Notwithstanding the need to monitor and assess each specific plan included in the agenda, a comprehensive monitoring combining information on the fulfilment for each plan is necessary. This allows national authorities to identify potential problems when objectives in one policy area (for example, increasing skills in Internet use) are associated with other objectives which determine its success (availability of Internet access).
12. One useful tool for assessing and improving digital strategies is to perform comparisons with a peer group of broadly comparable countries. For example, the Nordic countries tend to benchmark progress with other Nordic countries, Chile with other Latin American countries, while South Africa compares itself with the other BRICS. In the United States, the FCC is required by legislation to make comparisons with at least 25 countries in its annual report on advanced services. The DigiLAC website (www.iadb.org/digilac), maintained by the IDB, allows for comparisons among countries in the LAC region, as well as with OECD countries, with a specific focus on broadband policies and broadband key indicators.
13. The OECD has established models for the review of policies, including using a peer review method. The digital strategy of Spain, the Plan Avanza, for example, was subject to a voluntary peer review in late 2009, significant elements of which referred to policies and actions addressing the availability and use of broadband (OECD, 2010).
Overview of the situation in the LAC region
14. All of the countries in the LAC region have a regulatory framework in force specifically designed for telecommunications, addressing the main issues on distribution of powers among different institutions and stating the main principles to be applied to foster competition and investment. Annex 1 shows the existing regulatory frameworks for the countries in the LAC region and detailed comparisons among countries on different aspects of broadband policies and regulation can be found at the IDB Digilac website (www.iadb.org/digilac).
15. Also, most of the countries have configured a Communications Regulatory Authority, although with differing levels of independence from the government (refer Annex 3 where the policy/regulatory bodies in the region are shown). At least half of them, including all larger countries in the region, have set a national digital strategy comprising of a large number of measures to foster both the supply and demand of broadband infrastructures, services, applications and skills. Annex 2 lists all the digital strategies in the LAC region, identifying key policy objectives and bodies in charge of their implementation. These national digital strategies are in general co-ordinated by the ministry in charge of telecommunication policy, and several countries have also involved the communications authority in the design and co-ordination of the national digital strategy. However, a relevant number of countries lack an adequate governance model aimed at monitoring and controlling implementation.
16. Among the issues perceived in the LAC region as needing improvement is the lack of stability of the regulatory framework in a number of countries where too many frequent changes are made over a short time, decreasing regulatory certainty for investors.
17. Annex 4 shows the distribution of powers among policy/regulatory bodies in the LAC region. In a number of countries the separation of responsibilities and powers between the government, the communications authority and or the competition authority is complex and unclear, with overlapping powers or intersecting management. This makes regulatory action more complex and cumbersome, leading in some cases to inaction and giving more opportunities to dominant operators to avoid the regulatory measures needed to foster competition.
18. In this context, in a number of LAC countries the communications authority is controlled by the government and/or their decisions can be vetoed. This undermines the independence of the communications authorities and may have negative consequences for regulatory initiatives aimed at fostering competition and private investment.
19. Although there have been advances in improving the independence of regulatory authorities in a number of countries in recent years, nominations of the communication authority’s boards is not transparent in many cases, and criteria based on experience and professional competence are not always applied. Mandates for members of the board are also in some cases too long.
20. One key aspect on ensuring independence of communication authorities is to set a separate and adequate level of budgeting for the regulatory agency in charge of applying sector-specific regulation. Budgeting of the regulatory agency is in some cases set by the government, with no clear rules on how it is set, and in a number of cases the regulatory agency may be underfunded so that resource-consuming tasks, such as market analysis and market monitoring cannot be adequately undertaken.
21. In many cases, decisions taken by the regulatory authorities are overturned in courts, suspended or not adequately enforced, undermining regulatory action. Although judicial monitoring is needed to ensure that fundamental rights are respected, this should not allow stakeholders to systematically block or delay for long periods the application of regulatory decisions. In this context, regulatory authorities should have powers to enforce regulation, including the ability to impose proportionate fines that discourage infringements. A number of regulatory authorities in the LAC region do not have this power, or the level of fines that they are allowed to impose, are too low.
22. The legal authority to collect and publish data from market players and the availability of adequate resources for statistical analysis for the communications regulator is a key issue. It is important for the actors in the market and investors to have an annual report and regular updates on the competitive situation and performance of different communication services. In a few specific cases, communication authorities lack powers to collect relevant information from stakeholders. More detailed information about data collection in LAC countries can be found at (BID, 2015).
23. Most of the countries in the region have a competition authority covering general competition issues for all sectors of the economy, including telecommunication services with the exception of five countries in Central America and the Caribbean. The existence of an effective competition authority is important for broadband and telecommunication services, as many anti-competitive practices are addressed by competition law under an ex-post basis for all sectors of the economy (e.g. anti-trust law).
24. Ensuring co-ordination between competition authorities and communication authorities is key to facilitating better regulation and avoid contradictory decisions. A number of countries have a Memorandum of Understanding (MoU) between the competition and communication regulatory bodies to ensure better co-ordination and determine ground rules for the intervention of each authority. However, in many cases there is room for improvement in formalising co-ordination between the two authorities when taking decisions on market analysis, mergers and acquisitions and other issues where both agencies would benefit from co-ordination. In some LAC countries, as in the OECD area such as for ACM in the Netherlands, CNMC in Spain or OFCOM in the United Kingdom, , the communication authority also has powers similar to a competition authority but limited to the telecommunication sector, to allow for a more co-ordinated regulatory action.
25. A number of LAC countries involve stakeholders in the design of national digital strategies, through public consultations, specific sectorial fora or digital platforms aimed to collect feedback from citizens. However, in many cases there are insufficient public consultations by LAC countries for key policy regulatory decisions such as the preparation of new laws, market analysis, or broadband plans, and time provided for stakeholders to provide written comments is often too short. Publication of feedback received from stakeholders and the rationale for adoption or rejection of comments by the institution carrying out public consultation is not performed in a number of cases.
The design and implementation of digital strategies
26. Digital strategies are master plans involving not only the ICT ministry but also other government bodies in charge of finance, public administration, industry, education, culture and labor. This implies that designing and implementing digital strategies requires co-ordination across the range of public institutions in order to identify realistic targets and to ensure that processes are in place to monitor their achievement. This usually requires complex co-ordination and creates the risk that the design of digital agendas may not be harmonised. For this reason it is important to designate a co-ordinating body for a digital strategy and establish a mechanism for decision making in areas where there is overlapping competence between different government bodies. A clear responsibility for the overall strategy with adequate powers to take decisions is key to ensure success.
27. In some countries, given the importance placed on digital agendas and to ensure a rapid and smooth evolution to a digital society, the lead in co-ordinating the digital agenda is through the office of the President or Prime Minister such as, for example, in Korea. One good practice applied in some countries is the introduction of a “chief information officers” or adjusted ministerial portfolios, with the aim of improving co-ordination to ensure the achievement of the productivity and other benefits they expect from the use of broadband networks.
28. Consideration may be given to develop formal co-ordination mechanisms such as participation of the various ministries and agencies in a digital agenda programme steering group. These steering groups should also involve experts from the private sector and academia, who can provide relevant feedback on the different issues to be addressed in the digital agenda. Regional and municipal governments, as well as consumer organisations should also be invited to participate in digital agenda steering groups. The digital agenda steering group should meet regularly to assess implementation of the digital agenda, detect gaps and assess proposals for improvements or corrective measures. Accountability and development and the monitoring of indicators directly related to the objectives of the digital strategy are also key to ensuring success.
29. Public-Private Partnerships (PPPs) can be an efficient model for implementing actions under a national strategy. Public funded broadband access extension plans or projects. Examples can be found in the OECD and IDB documents included in the references for Chapter 4, where good practices on Public-Private Partnerships are addressed.
Involvement of non-governmental stakeholders
33. The engagement of stakeholders in the process of strategy and policy formulation is very important in order to improve the quality of laws, policies and their implementation. Integrating stakeholder input into the policy making and regulatory processes strengthens public trust in government and allows for better policy decisions. This is especially relevant for key policy instruments such as regulatory frameworks, and the main pro-competition and pro-investment regulatory decisions.
34. To meet this objective the most relevant tools, which can be used are the publication of draft legislative projects, public consultations, public hearings and digital participation. A good practice adopted by many countries is the creation of a broadband forum to engage operators, business, consumers associations and other civil society organisations in the design of policies to encourage broadband deployment, access and use. In addition, institutional websites should be updated, organised in a clear manner, and provide easy access to all public documents.
35. When carrying out a public consultation process, it is important to apply the following good practices:
• The public consultation must be announced in the institutional website providing links to relevant documents, deadlines for providing feedback and simple procedures to send the stakeholders feedback. In specific cases, it may be advisable to inform key stakeholders of the public consultation. Stakeholders should have enough time to prepare responses to the public consultation.
• Apart from the regulatory proposal, plan or document subject to public consultation, in certain cases it is also useful to include specific questions addressed to stakeholders with the aim of collecting opinions or relevant information to facilitate informed policy decisions.
• Responses received should be published on the institutional website (respecting confidentiality on issues that the stakeholder does not wish to share), and it is also good practice to provide the information, economic and legal arguments for decisions taken, explaining why alternative proposals have been rejected. Such transparency would also serve to reduce future legal appeals.
Distribution of powers among policy/regulatory authorities
36. The institutional setting is one of the key issues that should be addressed in the regulatory framework. The distribution of powers among different bodies must be clear, avoiding overlapping responsibilities and empowering each institution with specific tools for enforcing their decisions through sanctioning powers for infringement of regulations and decisions enacted by the regulatory body. Policy making and application of the regulatory framework usually involve different organisations (Figure 1).
Figure 1. Organisations involved in policy making and regulation for broadband services
Note: Regulatory agencies may be convergent, covering communications, media/broadcasting and/or competition powers.
37. Supranational bodies in the context of broadband access and services are in charge of co-ordinating specific aspects such as spectrum assignment co-ordination (ITU, the International Telecommunication Union) and trade issues (WTO, the World Trade Organization). Certain countries, such as the member states of the European Union, also have developed a common regulatory framework and policy co-ordination framework. In the case of the LAC region, the most relevant supranational bodies in the context of broadband access are the International Telecommunications Union (ITU), in the context of spectrum management and standardisation, as well as regional bodies as CITEL (Inter-American Telecomunications Commission), COMTELCA (Comisión Técnica Regional de Telecomunicaciones) in Central America, CARICOM (Caribbean Community) in the Caribbean Area, UNASUR in South America, or the organisms co-ordinating international and regional trade agreements as- WTO, Mercosur, NAFTA, ALADI, or the Pacific Alliance. Chapter 7 in this toolkit addresses in more detail issues related to regional co-ordination. In general, participation in these supranational bodies is co-ordinated by the corresponding branches of the executive governments.
38. Telecommunication laws and the framework for regulation are enacted by the legislative body, based on proposals made by the executive government. The legislative body should have also as a mission a general oversight of the performance of the regulatory framework. The executive government and regulators should report regularly to this body, and hearings should also be organised to facilitate monitoring by the legislature as well as taking informed decisions on the evolution of the regulatory framework.
39. The executive body should be in charge of policy making, defining goals and means for the implementation of the ICT national strategy, as well as proposing new legislation. In general, design and execution of national broadband plans should also be in the scope of the executive body. These responsibilities should be organised around a specific ministry or department focused on ICT policy making and national strategies design and implementation.
40. The judicial power is in charge of ensuring that the rights of stakeholders are protected, as well as that regulatory decisions are aligned with laws. The legal system must be designed so as to avoid the use of the judicial system by stakeholders to evade or delay the application of the law via excessive non-justified litigation. Good Ag practice in this context is to allow regulatory decisions which are challenged in the courts to remain in force until a decision is reached by the court. As noted above, transparency in the regulatory process and providing stakeholders to address their concerns on draft regulations can help reduce legal challenges.
41. Typically, the functions of the regulatory bodies are in many cases distributed among several agencies addressing different issues: telecommunication (communication authorities), media/broadbcasting services (audiovisual authorities), and antitrust and general aspects on competition (competition authorities). However, as indicated in Chapter 6, the convergence of telecommunication and broadcasting is leading many countries to merge communication and audio visual authorities to ensure a technologically neutral regulatory framework addressing issues related to the complete value chain, including content and applications under a holistic approach. Some countries as well have provided the communication authority the power for ex post regulation in addition to ex ante regulation.
Annex 4.1 Standardisation, spectrum management, numbering, IT
Annex 4.2 Licenses, interconnection regime, market/competition analysis), price regulation, Quality of Service
Annex 4.2 Licenses, interconnection regime, market/competition analysis), price regulation, Quality of Service
Annex 4.3 Design and implementation of National Broadband Plans, Universal access/service Funding universal access/service obligations
Annex 4.3 Design and implementation of National Broadband Plans, Universal access/service Funding universal access/service obligations
Relations among the different policy/regulatory authorities
46. Ensuring a clear separation of powers between regulatory bodies and policy makers does not imply that institutional actors should act as separate “silos”. On the contrary, the different institutions should maintain close co-operation underpinned by clearly established procedures that ensure good co-ordination. These procedures must allow for providing input on key policy making and regulatory decisions, as well as to enable the different actors to play an advisory role in areas of their competence when requested by other institutions.
47. Procedures for articulating key issues on the relation among the different authorities should be defined by law, establishing which type of decisions, draft laws or measures are to be subject to a consultation process by other bodies, and the context for taking opinions into account. Further details on co-operation among institutions can be established through memoranda of understanding that should also include specific actions and clear procedures for cooperation.
48. Government institutions in charge of policy making should request an opinion from communications and competition authorities on draft laws, decrees and any other legal instrument where competition and investment in the telecommunication sector is involved. Digital agendas, national broadband plans, and any project where public funding is involved should also be provided to communication regulatory authorities in order to obtain their feedback on the implications for competition and investment of the proposals. When key regulatory decisions are to be taken by communications authorities, it is also good practice to ensure that policy makers have an opportunity to provide their feedback.
49. Communication authorities should also allow for local administrations to provide input on issues related to telecommunications infrastructure deployment in areas such as providing and administering rights of way and the funding of specific projects aimed at extending broadband access in municipalities. This input from local administrations allows the taking into account their concerns when setting national regulatory frameworks for regulation of rights of way and providing guidance to local administrations on simplification and standardization of procedures. This is key in avoiding multiple complex local regulations thus encouraging network deployment by operators (see Chapter 3 on Competition and Infrastructure Bottlenecks).
50. Communication and competition authorities must have a fluid and continuous interrelationship, as competition issues are addressed from both ex-ante regulation (the focus of communications authorities) and ex-post regulation (the focus of competition authorities) and there are risks on inconsistencies leading to regulatory uncertainty. The key areas where communication and competition authorities should co-ordinate are the following:
• Merger and acquisitions analysis and its implications for preserving competition. Assessment of the potential effects of mergers in the telecommunication sectors is complex and can benefit greatly from input by experts in market analysis in the communication authorities.
• Market analysis and imposition of specific ex-ante regulation is typically the task of the communications authority, and input from competition authorities is also very valuable to better co-ordinate ex-ante and ex-post regulation and avoid inconsistencies in regulatory decisions.
• Antitrust regulation has a general focus and there are a few specificities for the telecommunication sector. However, there are certain issues on collusion practices in the communications sector where the competition authority may rely on expert advice from the communication authorities, and the regulatory framework should allow for collaboration among institutions upon request of the one entrusted with the corresponding area of competence.
51. As described earlier, in some cases, just one regulatory body may have the competence for ex-ante and ex-post regulation. This is the case for communication authorities entrusted with powers on ex-post competition issues in the telecommunication sector, such as CNMC in Spain, or OFCOM in the United Kingdom.
52. Concurrent ex-ante and ex-post powers allow for easier co-ordination, and in this case, co-ordination procedures can be kept internal to the regulatory body, but terms for co-ordination between units in the organisation must still be defined. Joining ex-ante and ex-post powers for telecommunication services in just one organization allows for close co-operation of experts with the focus of reaching consistent regulatory approaches and measures. However, it is important to ensure that decisions on competition focused on ex-post regulation are aligned with application of ex-post regulation by other regulatory bodies.
The functioning and structure of the regulator
56. Regulators should be structured taking into account areas of competence assigned to them, establishing well defined processes for each of the issues to be addressed, such as regular market analysis, disputes resolution, etc. These processes should provide well defined deadlines for each process. These procedures should also ensure transparency and that stakeholders can provide their feedback on decisions under consideration. A right of appeal for stakeholders effected by decisions should also be considered.
57. Regulators should define and measure key performance indicators of the main issues to be addressed including the inputs (e.g. number of disputes filed, claims received and so forth), processes (e.g. time to perform market analysis), output (e.g. number of decisions taken) and outcomes of the regulator (e.g. evolution of concentration for each market). A reference for the definition of these performance indicators can be found in the OECD Best Practice Principles for Regulatory Policy and a specific practical case of its application in the case of Communications Regulators can be found in the review done by the OECD for Colombia’s Communications Regulation Commission (CRC).
58. Most issues examined by the regulator require the collection of data from operators. It is important that the regulator has the power to request necessary data from operators, set a time limit to receive data requested and, if necessary fine operators if data are not forthcoming The regulator must put in effective procedures to ensure confidentiality for data needed for regulatory decisions that is sensible and should not be disclosed to third parties.
59. A challenge for national regulators in the LAC area is staffing. The lack of human resources can slow the reform process, reduce the quality of decision making and may create regulatory uncertainty. Experts in the regulatory authority must have relevant experience in the telecommunication sector and in their area of work. Adequate incentives must be set to attract and retain well-qualified staff, and if needed, exemption from civil service employment and salary rules may be considered to compete with the private sector to engage good professionals.
60. Communication regulators are usually organised around several units specialised in different areas of competence or fields of expertise. There is no single model for structuring the different areas of competence, but it is important to ensure that there is a fluid communication and collaboration between them. For illustrative purposes, a typical distribution of units that can be found in many of the regulators in the LAC and the OECD area is included (Figure 2). Depending on powers assigned to the regulator, there can be additional units or they can be organised in a different way.
Figure 2. Structure of the regulator
61. A market analysis unit is usually in charge of assessing evolution of telecommunications markets with the aim of identifying competition problems, especially those related to positions of dominance and interconnection issues. When any competition problem is detected, this unit determines the most adequate regulatory measures to be applied. Mergers and acquisitions appraisal (or collaboration with the competition authority) in the sector is also an issue addressed by this unit. Cost accounting also falls within the ambit of this unit given that some regulatory measures include price regulation. This unit collaborates with other units on any aspect where economic analysis is needed, and experts in this area should have a strong background in economics and competition law.
62. A technical unit focuses on engineering aspects related to regulatory measures such as procedures and standards used by operators when interconnecting, technical details for reference offers, and number portability. A technical unit is usually also responsible of management of scarce resources including spectrum and numbering. Telecommunication engineers and other experts with relevant experience in the sector is needed. A legal unit usually co-ordinates dispute resolutions, infringement procedures and in general, legal advice for other units in order to ensure that decisions are consistent with the regulatory framework, minimising judicial overturn of decisions by the regulator.
63. If the communications authority also has consumer protection responsibilities, it is advisable to configure a unit to address all consumer protection issues that involve specific aspects, tools and methodologies (refer Chapter 12). Collaboration with other units is usually required to ensure consistency of consumer protection policies with other objectives such as encouraging competition and investment.
64. Data collection, statistical analysis and production of reports, as discussed in the final section of this chapter, is an important area of work for the communications authority. Data collection and statistical analysis is complex and resource consuming and experts on econometrics, and in general statistical analysis are needed. Apart from other tasks such as production of regular reports on the evolution of the sector, this unit has a key role in supporting other units (IDB, 2015).
65. Aside from the types of units common in many organisations carrying out similar responsibilities (e.g. external communications, human resources) the telecommunication industry requires close international co-operation and co-ordination. International activities are especially relevant, as most of the regulatory policies benefit from close collaboration and benchmarking with regulators in other countries as well as international organisations in the area. The ICT regulatory toolkit prepared by the ITU (www.ictregulationtoolkit.org) provides more detailed information, practical material and advice for the organisation of regulators.
Telecommunications Regulatory Frameworks for the countries in the LAC region
Legal instruments to be used for broadband regulation
30. A general telecommunication law usually provides the legal and policy framework for the sector, distributing powers among different institutions, and setting the main principles to be applied for authorisations, competition issues, consumer protection, etc. Separately, competition law sets the framework for ex post intervention (e.g. antitrust regulation) is usually applicable for the telecommunication sector.
31. Telecommunication regulatory frameworks set specific rules for ex ante intervention for the sector and are more specific, and tend to be more dynamic, than competition law. However, it is good practice to ensure that the general principles of telecommunication regulatory frameworks are stable, technologically neutral, and based on a forward-looking approach with a horizon of two or three years. Specific regulations are usually needed over time to address issues related to new services, new technologies, addressing needs to share certain infrastructures, or to set specific procedures (as for example, number portability). In general, this can be achieved through decrees or regulations issued by the national regulatory authority.
32. Finally, regulatory bodies, such as the Communication Authority or the Competition Authority, need to adopt decisions imposing specific obligations on market actors when regulating broadband. To do this, it is important to ensure that these bodies have at their disposal effective legal tools to curb market power in all parts of the digital ecosystem, not only for telecommunication players but for all actors in a digital ecosystem.. This includes enforcement including the ability to impose fines proportionate to infringements and aimed to discourage non-fulfilment of regulatory decisions.
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Data collection and reporting
69. Successful implementation of policy and regulatory measures depend fundamentally on the ability to respond to the complexity of the economy and assess the effects on public policy-making. In the OECD this is called fostering ‘evidence-based’ policies and, for this to succeed it is necessary to collect relevant data to inform policies.
70. This section aims at discussing the following issues: why the collection of data by regulators is important for broadband policy-making; what mandate should be provided within a regulatory framework; which are the typical data that should be collected; what reporting should be produced; and finally, what issues should be taken into account when collecting relevant data. A discussion on measurement and indicators on specific themes covered by this Toolkit (such as competition, e-education, e-health and so forth) is addressed under the section “Tools for measurement and analysis in the LAC region” of each Chapter. The data collection issues discussed here refer to broadband policy objectives measurement and should not be confused with the tracking of internal management indicators.
71. There are many reasons to collect data on the market and produce reports. First and foremost, the collection and analysis of data is crucial to make informed policy and regulatory decisions. That means collecting solid statistical data and indicators, which can guide regulatory action to meet policy objectives. Collecting and reporting on statistical evidence is also key to provide information on those policies or regulatory measures, which have been implemented to assess their effects and, if necessary, adjust them.
72. In OECD countries an approach followed by many central government departments and independent regulators is to undertake assessments aimed at providing cost benefit analysis of policy proposals and evaluating the functioning of the market and the effectiveness and efficiency of regulation. This focus has, to a large extent, been stimulated by treasuries and finance ministers concerned with ensuring the value of public expenditure. At the same time, a more informed public with increased access to news and data sources, has put pressure on policy makers to provide clear and reliable evidence upon which their decisions are based.
73. Data collection serves not only to compare indicators through time in the same country, but also to benchmark domestic performance against peer countries. Regular benchmarking with similar or neighbouring countries serves as an additional tool that helps policy makers to identify existing gaps or good practices applied in other countries. Peer comparison has become a central instrument for improving public sector performance in many countries of the OECD.
74. Another very important dimension of data collection and reporting is its value for the private sector. Regular publication of key performance indicators (e.g. level of investment, revenues, infrastructure availability, quality of service and so forth) can be very useful for market players such as telecommunication operators or potential investors, as this allows for reducing information asymmetries, fostering transparency in the sector, levelling the playing field and increasing predictability.
75. Finally, by routinely collecting information on internationally agreed indicators, policy makers and regulators facilitate the provision of data for international observatories and international organisations such as ITU, IDB and OECD. These observatories are important for benchmarking and for informing policy analysis of the situation in a country or region. One example for the LAC region is DigiLAC, an initiative from the IDB for measuring broadband policies and development in the LAC area by comparing countries according to the Broadband Development Index (Box 2).
76. The OECD’s broadband portal, is another example which provides a range of comparative broadband data enabling performance benchmarking and other information (Box 3).
77. Another relevant issue is to decide on the type of information to be collected. In order to inform broadband policies, regulatory authorities and ministries require a wide-array of data to be collected, analysed and reported. Usually, telecommunications indicators cover the supply-side (or the infrastructure side), demand-side, prices and the quality of services aspects of telecommunication services. These indicators should be relevant, accurate, coherent, timely, based on a clear methodology, preferably using internationally comparable standards, and regularly reviewed in light of technology developments:
- Supply side: for both fixed and mobile technologies, as well as at the retail and wholesale levels, data should be collected on the number of lines, number of subscriptions, population and geographical coverage, number of customers (market shares), financial information (revenue and investment) and ownership structure of service providers. From this core data, other indicators can be calculated, such as ratios (broadband subscriptions per 100 inhabitants, per households, by speed tiers, etc). Revenue is often presented per telecommunication access path or by broadband subscription, which provides an indicator of relative revenue levels.
- Demand side: demand side data are used to measure the effective usage and adoption of broadband by households, individuals and businesses and are usually collected using surveys. These surveys often cover issues ranging from duration and type of broadband usage to detailed aspects of the exact usage of broadband (such as platform used and location of use) and particular usage to access advanced services and applications, like e-health, education services, e-government, transportation, energy, finance, and so forth.
- Prices: price is one of the most reliable indicators to monitor the effects of competition on consumers and market performance, therefore collecting data on prices of wholesale and retail services, both standalone and bundled, are key for informing regulators. Regulators may use basket methodologies to analyse retail offers, where different user profiles are compared in order to represent a larger variety of types of users in a market. Wholesale prices can be collected, as needed, from requests for data of the commercial agreements of operators.
- Quality of service (QoS): QoS data collection should feed performance indicators measuring advertised and effective broadband speeds, latency, consumers’ complaints and incidents. On speeds and latency, for example, direct measurements on the network could be carried out by the regulator, or by using third parties that provide independent data, such as Akamai, Ookla or M-Lab. Moreover, qualitative data on consumer’s satisfaction can be collected via targeted surveys.
78. The OECD Guide to Measuring the Information Society provides a standard reference for statisticians, analysts and policy makers in the field of Information and Communication Technologies (ICTs) to define and implement key performance indicators in this area.
79. Publication and dissemination of data is a key issue. The regular publication of reports and press releases facilitates the circulation of information, alerting stakeholders and experts on new trends arising from the data collected. Regulators should produce an annual report of KPIs and other relevant indicators to illustrate the evolution of the wholesale and retail markets, such as the ones highlighted above, as well as provide regular updates through press releases of monthly or quarterly available data. Moreover, ministries or regulators may wish to produce thematic reports showing the evolution of specific services, trends or regional differences.
80. In order to reduce the burden of data collection on operators, co-ordination among institutions to avoid duplication of data requests is crucial. As much as data collection is important for evidence-based policy making, government institutions should be cautious to not overload operators, analysing which information is indeed necessary and sending questionnaires on a regular basis to allow stakeholders to plan ahead. On top of recurrent requests, specific data needed for decision-making processes should be tailored on a case-by-case fashion.
81. Finally, it is crucial that operators and consumers trust regulators to keep confidential data collected from being publicised or used in an inappropriate or unauthorised manner. Depending on the size and structure of the sample collected, raw data can sometimes be aggregated or masked in a way that protects confidentiality and yet produces useful information for analysis. But if operators are not convinced the information provided will be protected the quality of the information provided will suffer. Regulators should be committed to safeguarding information that identifies the operations, or individual characteristics of respondents, either operators or consumers.
82. This Chapter sets out good practices for developing effective digital strategies and sound regulatory frameworks. First, the design and implementing digital strategies requires co-ordination across a range of public institutions in order to identify realistic targets and to ensure that processes are in place to monitor their achievement. For that, it is important to designate a co-ordinating body and establish a mechanism for decision-making in areas where there is overlapping competencies between different government bodies. The definition of clear responsibilities along with the provision of adequate powers for public institutions to take the necessary actions is key to ensuring success. Establishing an effective oversight mechanism for digital strategies is also important to ensure the successful implementation, assess fulfilment of objectives, improve planning, and help policy makers in decisions. Creating steering groups that involve different types of stakeholders and implementing benchmarking exercises can also contribute with implementation.
Furthermore, this Chapter highlights the importance of establishing telecommunication regulatory frameworks that are stable, predictable, technologically neutral, and based on a forward-looking approach with a horizon of two or three years. Moreover, the distribution of responsibilities and powers between the executive branch (ministerial departments) and regulatory agencies should be implemented in a way that fosters a clear separation between policy formulation and application of the regulatory framework. It is crucial that regulatory agencies are independent of governments in formulating and applying regulations to avoid conflicts between effective regulatory decisions, aimed to foster competition and investment, and short term political pressures; and that judicial review does not undermine the timeliness and legal certainty of regulatory decisions.
Regulators should therefore be provided with a distinct legal mandate, supported by adequate powers, have a stable and independent source of funding, not controlled by the government, and have the members of the board nominated in an open, transparent and merit-based manner. The head and the members of the regulatory board should be independent from the government and have their mandates set at adequate and stable timeframes.
Different policy/regulatory authorities should maintain close co-operation based on well-defined procedures enabling a fluid communication among them. Converging ex-ante and ex-post powers within the same institution allow for easier co-ordination as procedures are kept internal, but defining terms for co-ordination between the different units is advised.
Finally, it is crucial that the regulators have the power to request necessary data from all actors in regulated markets, set time limits for responses and, if necessary, fine actors if the request is not fulfilled. Collecting solid statistical data, consolidating indicators while ensuring confidentiality of sensible data, and producing reports is key to making informed policy and regulatory decisions. It is also important for informing market agents, fostering transparency in the sector, reducing information asymmetries, levelling the playing field and increasing predictability of the regulated sectors. Indicators should be relevant, accurate, coherent, timely, based on a clear methodology, preferably using internationally comparable standards, and regularly reviewed in light of technology developments.
1. The UK Treasury’s “Green Book” provides consistent guidance to public bodies on the methodology for cost benefit analysis and impact assessments. Available at www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-incentral-governent.
2. The protection of confidentiality is one of the fundamental principles of a national statistical agency (see: http://unstats.un.org/unsd/methods/statorg/)
Independence of the regulatory agencies
42. When distributing powers between the executive branch (ministerial departments) and regulatory agencies, in order to ensure an effective application of the regulatory framework, it is of capital importance to establish a clear separation between policy formulation (preparing laws, national ICT strategies and broadband plans, etc.) and application of the regulatory framework which is the responsibility of regulatory authorities.
43. Regulatory agencies should be independent of governments in formulating and applying regulations. Government involvement in regulation can potentially bring into conflict effective regulatory decisions with political considerations. These concerns are heightened by possible conflicts of interest, when the state maintains a stake in operators. An independent regulator is in general less subjected to short term political pressure and can focus directly on creating competition.
44. Governments, in general, should focus on the main objectives and requirements for the development of broadband services, whereas regulatory bodies need to put in place the regulation necessary to transform the communications market which is usually dominated by one or more operators into a competitive market open to access by new entrants. In turn, this usually requires that obligations are imposed on dominant operators to provide access to their networks and services. Governments also become a de facto market player when subsidising network deployments and careful independent monitoring is needed on the implications for competition and investment to ensure that public intervention does not negatively affect private investment and competition. As addressed in Chapter 4 on the expansion of broadband access and services, public intervention can be needed to ensure broadband availability in certain areas where private initiatives cannot fulfil all public objectives. However, any broadband expansion plan or project involving public funding must take into consideration the potential implications on distorting a market or inhibiting future competition in that location.
45. Good practices to ensure the independence of regulatory bodies, applied in many OECD countries include:
• Providing the regulator with a distinct legal mandate, free of ministerial control. Decisions to be taken by the regulator should not be subject to ministerial approval. In general, the ability to overrule the regulator’s decisions by other actors should be limited to the minimum.
• Regulatory powers must include all aspects of regulatory oversight and must be clearly defined to allow for addressing competition issues for telecommunication players and to OTTs (when they provide similar services). This includes powers to enforce their decisions independently.
• Regulators should have their own source of funding not controlled by the government. If the budget of the regulatory body depends on an appropriation from the government’s budget, it is possible for a government to use this discretionary power to control a regulator. A good practice applied by many countries is to set a levy on the regulated industry, based on a small percentage of their turnover, which is then used to finance the regulatory agency. This provides for a stable source of funding independent of the government and more predictable than other alternative sources such as spectrum fees or fines.
• In order to enforce independence from governments, it is a good practice that the legislative body is made responsible for appointment of heads and members of the board of regulators, or at least, to be able to confirm/reject appointments proposed by governments. Appointments of members of the board and the Head of the regulatory bodies should be conducted through open and transparent procedures. Mandates should not be too short, to avoid instability, and increase independence – a usual practice is to set mandate periods of around five or six years on a staggered basis to ensure continuity of the board.
• Issues such as rules for dismissal, conflicts of interest and provisions regarding joining the regulated sector after the termination of a mandate should be addressed in the law, in order to ensure independence and increase the credibility of the regulatory body.
The Head and the members of the Board of the Regulator
66. There is a widespread agreement among competition experts that the head and the members of the board of the competition and communication authorities should be independent from the government, to avoid political interference and ensure that decisions are not dependent on the political situation of the country. No direct participation of government departments should be allowed on the regulator’s board, which should be able to take decisions independently.
67. The head and commissioners of these regulatory bodies should not be subject to discretionary appointment and dismissal by the government, and appointments should be for a fixed term long enough to ensure their independence (five or six years is often the norm). These appointments should be undertaken through open and transparent procedures, such as by establishing a shortlist of qualified candidates for the appointing authority to choose from. The appointment process should incorporate high transparency standards, through open procedures and clear qualification and evaluation criteria. An evaluation committee should be established and tasked with assembling a list of qualified candidates according to established criteria.
68. The Board of the Regulator is in charge of discussing and adopting regulatory decisions. It is advisable to have staggered appointments for commissioners, in order to ensure continuity, and avoid the replacement of multiple commissioners at the same time. The legal framework should provide legal protection for the head of the regulator and commissioners when acting on behalf of the regulator, limiting their personal liability in order to avoid the filing of criminal charges and administrative complaints against the persons as a means to put pressure on them and create time-consuming disruptions.
IDB (2015) Recolección, procesamiento y publicación de información estadística para el sector de las telecomunicaciones. (Collection, processing and publication of statistical information for the telecommunications sector) https://publications.iadb.org/bitstream/handle/11319/7282/CMF%20DP%20Colecci%C3%B3n_procesamiento_y_publicaci%C3%B3n_de%20_informaci%C3%B3n_estad%C3%ADstica.pdf?sequence=1
OECD (2010), Good Governance for Digital Policies: How to Get the Most Out of ICT: The Case of Spain’s Plan Avanza, OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264031104-en
OECD (2012), OECD Review of Telecommunication Policy and Regulation in Mexico, OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264060111-en
OECD (2014), OECD Review of Telecommunication Policy and Regulation in Colombia, OECD Publishing. DOI: Paris. http://dx.doi.org/10.1787/9789264208131-en
Judicial review of regulatory decisions
53. Regulatory decisions should be subject to judicial review and may on occasion require review on substance in a limited number of specific areas. However, the fact that appeals lead to a suspension of regulatory action and freeze or delay regulatory decisions should be avoided, as this undermines the timeliness and legal certainty that is vitally important in a regulated market. Since legal processes are usually lengthy and resource demanding, telecommunication operators, especially incumbents, use this as a tool to delay, prevent or undermine regulatory decisions. Suspending a regulatory decision, could result in significant financial loss, and thus economic harm to new entrants, hindering competition and facilitating the entrenchment of dominant positions.
54. When needed, reform in legal processes must be considered to allow a regulator’s decision to stand if a market player goes to court until the court has ruled on the complaint. This reduces the number of frivolous complaints to the court. Even though countries still provide for injunctions in their laws, the burden of proof should be on the plaintiff to show that suspension is necessary to avoid damage, or is needed to avoid an irreversible situation.
55. When possible, it is also good practice to set up special judicial panels to hear court appeals on telecommunication issues where the judges have knowledge of the telecommunication sector or by creating a specialised court that can deal with appeals in this sector, as has been followed by Mexico. This would allow for better judicial decisions in an area where specialised knowledge is needed. In addition, regulatory bodies can also organise seminars, workshops and courses for the judicial power to ensure that the judicial powers make well informed decisions.
CHAPTER 2: SPECTRUM POLICY
This Chapter addresses topics regarding spectrum planning, management, licensing, assignment and valuation, as well as policies to promote efficient use of spectrum such as spectrum trading, sharing and refarming. Spectrum is a key resource for expanding wirelss access to broadband services and a crucial element for broadband policy making. Moreover, this Chapter aims to shed light on the current challenges of spectrum management such as those related to the switch-over to digital terrestrial television (DTT) and the increased need for spectrum resources for wireless broadband.
1. Spectrum is a scarce resource essential for providing wireless telecommunication and broadcasting services. This implies that spectrum assignment and use is associated with important social and economic trade-offs that need to be fully considered.
2. From a technical perspective, radiospectrum, commonly referred to in telecommunications as “spectrum,” is the part of the electromagnetic spectrum whose frequencies span the 3 Hz to 3,000 GHz range. The ITU has divided the radiospectrum into different bands (Figure 1). Ultra High Frequency spectrum, that spans from 300 MHz to 3 GHz, is the most suitable for telecommunications services. Bandwidth increases with higher frequencies, but their reach decreases. Thus higher frequencies are more suitable for dense areas that require bandwidth, whereas lower frequencies are more appropriate for coverage purposes, as fewer base stations are required to provide service in any given area.
3. From an economic perspective, spectrum is a scarce resource in any given place or time, meaning only a finite amount of spectrum can be used. It cannot be stored, as opposed to many other scarce resources such as minerals or oil, and it cannot be transported, though at least in theory it can be traded given that the rights of use can be transferred.
4. As spectrum is used for the delivery of services that are considered essential, public authorities have an underlying obligation of guaranteeing that it is used in the most efficient way. A balance between licensing processes and conditions (including costs), as well as coverage, deployment, and quality obligations associated with the spectrum, together with competition considerations can only be reached through intense management. This management is essential to maximise, socially and economically, the use of the spectrum.
5. Spectrum policy has undergone dramatic changes in many OECD countries. Those changes are, or will soon be, affecting all LAC countries as well. The switch-over to digital terrestrial television (DTT), together with the increased need for spectrum resources for wireless broadband, is challenging actual spectrum regimes. More spectrum resources need to be released and made available for wireless broadband services, while at the same time maintaining a competitive level playing field. This chapter addresses the most relevant topics regarding spectrum management, licensing, and valuation.
6. Except when explicitly stated, this Chapter refers to spectrum used for the provision of telecommunications services, and especially broadband services. Several references are made to changes in allocation, which have been crucial for the transition to DTT and the “first digital dividend” (the 700 MHz band in Latin America). A potential “second digital dividend” (the sub-700 MHz band, which encompasses the frequencies in the 470-698 MHz range) will require the evaluation of spectrum use for telecommunications vis-à-vis broadcasting.
Key policy objectives for the LAC region
7. For the LAC region spectrum policy and efficient spectrum management is especially important in the context of broadband development. In many geographical regions without fixed telecommunication, infrastructure broadband development will depend on wireless access. The main spectrum policy objective can be broadly defined as guaranteeing its “efficient use.” This general objective is comprised of several more specific objectives:
• Maximise the social and economic utility of spectrum use. As a scarce resource essential for the provision of services that have positive externalities, active management is required to maximise these externalities, both from an economic and social perspective.
• Increase the availability, penetration, and use of telecommunications services. Inefficient management of spectrum usually translates into insufficient wireless telecommunications infrastructure and investment, insufficient coverage of population by wireless telecommunication networks, deficient quality, and high prices. These facts reduce availability (thus impacting the possibility of universal access), hamper the increase of penetration, and hinder demand for telecommunication services. Usage of services is the main causation of the economic spill-over effects attributed to telecommunications services, and thus, it is this lever that policymakers should aim at increasing. Wireless networks are often the most cost-effective way of reaching rural and remote areas, especially with the advent of tehcnologies that use lower frequencies with a wider reach.
• Provide a level field for competition in allocating spectrum. Spectrum plays a fundamental role in the development of competition. Firstly, as spectrum is limited and there is a minimum amount of spectrum needed to operate, the number of licences that can be made available in any given place is very small; this leads, naturally, to concentrated markets (even six locally concurrent licenses, which is rare, implies a minimum Herfindahl-Hirschman Index of 1,667, which is in the range of what is considered a “moderately concentrated market”). Secondly, not all spectrum bands are equal. Higher frequency bands, although they can accommodate more bandwidth, have lower reach, which translates into a larger number of radio base stations required for similar coverage than if lower frequencies are used; this in turn implies higher investment requirements, which influences costs and end-user prices. Thirdly, spectrum is valued very differently by different players; as a rule, incumbents value it more than new entrants, which mean that unmanaged spectrum auctions may provide less scope for new entrants. Policymakers have to consider these three facts when managing spectrum to encourage effective competition.
Tools for measurement and analysis in the LAC region
8. With the rapid evolution of telecommunication services that require spectrum, and with the difficulty of expeditiously pulling regulatory levers to respond to the always-changing technological environment, spectrum management requires detailed long-term planning backed up by certain tools (some of which have been in use for a long time) and objective periodic measurements.
• National frequency allocation tables (NFAT). Allocations are entries in a table which set out the use of a given frequency band for use by one or more radio communication services. Frequency allocation tables, which have been in use for a long time, describe which radio communication services can be provided in each portion of the spectrum. These tables should comply with international agreements and technical characteristics, but can be adjusted depending on national priorities and policy objectives. These tables are updated frequently. A good practice is to have a well-defined process for changing allocations, with documented support behind the decision.
• Spectrum inventories and licensee database. An exhaustive mapping of all spectrum, whether licensed or not, is fundamental for its management. The database should include all relevant information (area, licensee, granting and expiration dates, conditions and obligations, etc.). A good practice is to make the database public and easy to access, updated on an on-going basis.
• Long-term planning. A prospective long-term public document that outlines plans for spectrum use, including short-term actions (e.g., future auctions) as well as areas that will be studied and evaluated (e.g., possible allocation changes) is a good tool that can provide greater certainty to the market and allows regulators to focus their efforts. Though encompassing several years, this document should be updated at shorter intervals of time, reflecting potential changes mostly attributed to accomplishment of short-term objectives, technological advances,international agreements and user and market trends and developments. This document could also contain a plan to release spectrum based on the expected need for all or some of the telecommunications services.
• Measurement of efficient use. Measuring how well spectrum is being used is crucial to measure “efficiency,” a loosely used word. Though occupancy and data rates are two of these measures, they are far from perfect, as they fail to take into account certain critical aspects mostly associated with the value generated (e.g., public safety and emergencies). At any rate, measuring periodically how spectrum is being used (e.g., number of users, intensity of use, data rates, data transported, investment) gives a reasonable picture of how well objectives are being met, especially when compared among players using similar bands attributed to similar or identical services. There are no standard ways to measure efficiency in a comprehensive manner; several indicators need to be measured and normalized, taking into consideration the specific characteristics of each market.
• International benchmarking. The evaluation of spectrum efficiency relative to other countries provides important insight into how well spectrum is being used to meet objectives. As such, standard definitions of indicators, including processes for measuring and collecting data, must be applied.
Overview of the situation in the LAC region
9. Mobile communications have become ubiquitous in the LAC region. From lacklustre penetration in the late 1990s, today they have become the preferred way for voice communication and broadband access. The advent of prepaid mobile plans, which allow users to control telecommunication spending without recurrent financial commitment and to top-up with very small amounts, has dramatically increased the number of users. The combination of decreasing prices for mobile access and the growing use of new devices (e.g. smartphones and tablets), as well as burgeoning use of Internet applications, has meant the demand for spectrum has substantially increased.
10. Historically, LAC countries have not been generous with the licensing of spectrum. In 2003, on average only 104 MHz had been assigned to mobile operators, equivalent to less than 38% of the amount licensed in OECD countries. By 2011 this number had increased to 195 MHz, but it still represented only 46%. As of September 2015, following several years of intense regulatory activity in the region, the average had grown to 311 MHz (Figure 2.1). Though the amount of licensed spectrum grew by 60% in only four years, it is still below the OECD (less than 60%) and well below the ITU recommendation of spectrum required. For 2020, ITU recommends that 1,280-1,720 MHz be made available for wireless communications (ITU, 2006); LAC countries have only assigned around 20%.
11. Spectrum management and its licensing to service providers have resulted in the adoption of different approaches in the LAC region: from a full “command and control” regime, where regulators are the central axis in the assignment and other relevant usage rules (service regulation, secondary markets, etc.), to a fully liberalised market, where regulators mostly just dictate rules to avoid interference. As in most of the world, the LAC region still exercises significant command and control over the spectrum, its assignment, and the rules and obligations that govern its use for the provision of mobile telecommunications services.
12. Before the liberalisation of markets in the early 1990s, most licenses were awarded through a comparative selection (sometimes called a “beauty contest”). Interested parties were evaluated in terms of their announced plans (investment, coverage, prices to end consumers, etc.) and licenses were awarded to those candidates that best suited the regulator’s formula. In practice, though, this award system was extremely discretionary and non-transparent, deterring the entry of players. In fact, almost as a rule, all fixed line telecommunications providers were awarded a mobile license, as they were deemed to be the natural candidates. Some, though not all of the LAC markets, went on to create a duopoly structure, similar to the one defined in the United Kingdom and the United States when they first licensed additional players. The market was considered to be relatively small, primarily aimed at business users, and the licensing process and competition was not considered by many to be a priority for governments.
13. In the 1990s, beginning in the United States, a substantial change in the approach to licensing spectrum took place. Though alternatives had been tried to comparative selections (e.g., lottery) some of the advantages of auctions began to bear fruit. Observing these experiences, countries in the LAC region also embarked on assigning spectrum through auction processes. While it took some time for their widespread introduction most countries now carry out one of several forms of auctions to assign spectrum to private users. Since 2007, more than 35 processes of spectrum assignment have been concluded, with proceeds exceeding USD 7.25 billion, with only a few being carried out through a comparative selection process (Table 2.1).
14. The sums paid per spectrum assignments have varied substantially in recent years (Figure 2.2). That being said, except for a few assignments, where the high price paid can be explained by specific characteristics of the market and the timing of the auction, normalised prices (that is, US cents per MHz per population) tend to be under USD 0.05. It is important to emphasise that these prices are not fully comparable, as several countries impose recurring spectrum fees, which affect the price of spectrum at the outset.
15. One of the main pillars of the evolution of spectrum use relies on a successful migration from analogue to digital terrestrial television, aimed to free the 700 MHz band , as digital terrestrial television is much more efficient in using the spectrum. This is a band especially useful for mobile communications due to it’s propagation characteristics. This allows the 700 MHz signals to more easily penetrate buildings and walls while covering larger geographic areas with less infrastructure and therefore at a lower cost. Though most OECD countries have already completed the analogue switch-off, Latin America is lagging. Most countries plan on ceasing analogue transmissions by the end of the decade, though a few are expected beyond 2020.
Policies to promote efficient use of spectrum
45. First, it is important to state some general principles to promote the efficient use of spectrum. The term “efficient use” can refer to several broad objectives, which in turn makes it hard to establish uniform metrics. This is even truer when comparing very different services. For example, discussions for changing the allocation of the digital dividend spectrum, which meant comparing broadcasting to mobile broadband, entailed not only evaluating the economic value of each sector, but also the social value of both. Other comparisons that could render meaningless statements are those were spectrum used for military or national security are evaluated vis-à-vis traditional telecommunication services. Thus, it is of utmost importance to define the objective to be accomplished with the measurement of efficiency.
47. An almost unsurmountable challenge that arises is that significant parts of the spectrum are not subject to market incentives. This is the case for almost all spectrum held by the state or governments. It could also be argued that the same statement could be made of that spectrum which, though allocated, has not been assigned. As spectrum cannot be stored, unused spectrum has a significant opportunity cost.
48. As an almost universal rule, government agencies (military, national security, transportation, etc.) receive spectrum assigned directly for free and are restricted from using it for other applications other than their own. Many of the considerations for such policies are subjective and follow a public policy (if not political) agenda. One possible way to promote a more efficient use of such spectrum is to create certain incentives (which imperfectly mimic market-based incentives) to optimise such use. One good example is an “administered (or administrative) incentive pricing” regime, where fees have been replaced by prices set by a regulatory authority attempting to reflect the opportunity cost of the spectrum while at the same time incorporating potential incentives (which then promote an efficient use). Ofcom in the United Kingdom has used this methodology successfully since 1998, with subsequent reviews. As a consequence of such policy, Ofcom cites the release of 384.5 MHz used by radio astronomy, the return of some UHF spectrum used by the police in Scotland, and the removal of legacy fixed links in the 4 GHz point-to-point band. In any case, acknowledging that spectrum used by public agencies or other non-profit organisations has an economic value, which the economy as a whole is paying, ought to create incentives for a more efficient use.
49. Another policy that potentially increases efficient use of the spectrum and which has recently been discussed or implemented in several countries is spectrum trading and the development of secondary markets. Spectrum trading brings more flexibility to the conformation of better market structures, allowing spectrum to be transferred to those that value it the most, provided that conditions for spectrum trading are well designed setting clear conditions and timely procedures. Subdivisions and regroupings of licenses based on market prices will most likely produce a more efficient solution. For example, the Australian Communications and Media Authority allows combining or subdividing existing licenses to form new licenses, but the subdivisions cannot be smaller than the “standard trading unit” (STU – defined as an area of 5 minutes by 5 minutes of arc, approximately 9×9 km, with 1 Hz frequency band). New Zealand defines radio spectrum in terms of property rights (MRR – Management Rights Regime); management rights spectrum can be sold to service providers (“right-holders”) and subsequently traded between them. In the United States, spectrum trading is an incipient reality; licenses are tradable and they can be converted to other uses (though regulatory sanctioning is required). The United States also allows leasing and subleasing of spectrum; several agreements have been reached since 2003, when it first published leasing rules.
50. All these policies imply transferring the rights-of-use (and the obligations that the licenses carry), either temporarily or permanently (until the expiration of the license) and are fraught with barriers, either economic or regulatory. Administrative processes are lengthy and complicated, regulatory approval is usually required, and incentives for current holders are low due to scarcity (either because spectrum might be worth more in the future or because they might need it for future expansion).
51. Nevertheless, as they are incipient and too early to assess their impact, good practice in this area is to gear resources towards understanding these figures and closely follow international trends. At least in theory, they provide a market-based approach to a better use of spectrum and as such, are worth considering. Although legal, competition restrictions must be taken into account and technical issues (most importantly, interference) need to be incorporated into any trading framework, it creates a mechanism not only to mend any deficiencies that could have arisen during the original licensing process but also to adjust to the evolution of the market.
52. In addition to unlicensed and LSA/ASA agreements, spectrum sharing is another policy that would increase spectrum efficiency use. In principle, this term refers to multiple wireless systems operating in the same frequency band, without causing interference to other users, through at least one of several dimensions (time, space, or geography) and could be administrative, technical, or market-based. According to a study done in Europe (Werbach & Mehta, 2014), the average occupancy rate for a dedicated band was below 10% of the band’s capacity, so there is significant space to increase its use. As concerns over spectrum scarcity increase, sharing may well become the norm in the future, as it increases supply and provides greater access to a scarce resource. Sharing involves a process of continual reallocation, including even reallocation to different services, such as data and broadcasting. Needless to say, if well implemented, sharing reduces waste and increases efficiency.
53. One of the main criticisms of spectrum sharing is the limitations to manage interference between different users; this is the main reason why spectrum has traditionally been licensed for exclusive use. It is often mentioned that, absent usage rules, sharing can lead to the “tragedy of the commons,” whereby increasing the number of users results in lower quality of service for everyone. Nevertheless, technological advances (e.g., cognitive radios, which are designed to be able to use several spectrum channels), regulation (e.g., rules of “etiquette” and co-operative approaches that govern common usage), and economic incentives (pricing and penalties) are helping alleviate most of the existing concerns. There is still a long road ahead, but sharing promises to address demand for increased spectrum for broadband services. LAC regulators should follow international developments in this respect, as other countries are bound to face spectrum scarcity problems earlier than in the region and thus are impelled to work out the details and hurdles in its implementation. As with the implementation of secondary markets, there are important competition considerations that have to be taken into account.
54. Spectrum refarming has proven to be a frequently sought out tool that significantly increases spectrum use efficiency. Refarming – defined as changing the use of frequency bands – has been quite common for some time, but it attracted little attention due to limited demand for spectrum and the sparsity of usage and ownership. Due to technological advancements, spectrum scarcity, and ever-changing social demands, refarming is now not only common but in many cases contentious. Some types of refarming (e.g., from broadcasting to broadband) are fiercely defended and opposed by several parties, and thus take a long time to be approved and implemented. Other types of refarming (e.g., reallocating spectrum from fixed to mobile networks) can also be quite contentious but are much easier to justify. Finally, the most common ones (e.g., the evolution of wireless telecommunication technologies, from analogue to LTE) occur in a somewhat seamless manner.
55. Most spectrum refarming requires regulatory intervention through a lengthy and expensive process (e.g., allocation of the digital dividend, incentive auctions in the United States to free up additional low-frequency spectrum for broadband beyond the 700 MHz). It usually implies the displacement of providers and end-users and requires new equipment (CPEs/handsets and network), which could be costly. It should, though, be promoted once the alternative uses of the spectrum have been evaluated (as described in sections 1 and 2 of this Chapter).
56. Refarming can also bring more competition to existing providers, and as such, it should be carried out in a competitively neutral fashion. It should not create any artificial advantages or disadvantages to any of the players. For example, spectrum used for fixed networks has usually been awarded for much lower prices than spectrum used for mobile networks. From an economic welfare perspective, it is hard to argue against fixed spectrum being used for mobile telecommunications. Nevertheless, allowing this to happen without an economic compensation mechanism to level the playing field creates unfair distortions that could significantly damage the market and create unjustified advantages to certain players that have arisen from a regulatory quirk. Implementing rules for technological neutrality, as well as flexibility on the use of the spectrum, is a way to facilitate refarming agreements among market actors aimed to improve an optimal use of spectrum.
57. Spectrum refarming that is more akin to technological upgrades is much easier to be implemented. The original refarming of mobile technologies (from analogue or 1G to 2G, and from 2G to 3G, or even from 2G CDMA to 2G GSM) met significant restrictions from regulators, but further upgrades have gone extremely smoothly. These refarmings are now understood as what they really are: spectrum being utilised for IMT that operators choose to use more efficiently to provide better and cheaper services. Some countries still require regulatory approvals for operator-centric refarmings, which, in essence, complicate, slow, and make upgrading a network more expensive. As long as interference restrictions are met and band re-segmentations are not required (as the spectrum used for iDEN requires if it were to be used for traditional mobile networks) or do not affect interoperability in the market, these refarmings should not only be allowed but also promoted. Regulatory intervention against this practice could hamper the evolution of wireless telecommunication services, the deployment of last-generation networks, the increase in competition, the creation of social and economic welfare, and the better use of spectrum.
Spectrum planning, management, and control
16. For spectrum to be rationally and efficiently used across borders, international coordination is necessary. At the highest level, the governance of spectrum use on a global basis is one of the main responsibilities of the International Telecommunication Union (ITU), a specialized agency of the United Nations, mostly carried out through its Radiocommunication Sector (ITU-R). The mission of the ITU-R is, among other things, “to ensure rational, equitable, efficient and economical use of the radio-frequency spectrum by all radiocommunication services, including those using satellite orbits, and to carry out studies and adopt recommendations on radiocommunication matters”(ITU, 2016). It helps meet the ITU’s objective of maintaining and extending international co-operation among all the Member States of the Union for the improvement and rational use of telecommunications of all kinds”. Its activities are centred on ensuring interference-free operations of radiocommunication systems by implementing the Radio Regulations and regional agreements, establishing recommendations intended to assure the necessary performance and quality in operating radiocommunication systems, and seeking ways and means to ensure good use of the radio-frequency spectrum and satellite-orbit resources and to promote flexibility for future expansion and new technological developments. The ITU-R holds periodic world (WRC) and regional (RRC) radiocommunications conferences. WRCs are held every three to four years in order to review and, if necessary, to revise the international treaty governing the use of the radio-frequency spectrum and the geostationary and non-geostationary satellite orbits (jointly referred to as Radio Regulations). During these conferences frequency assignments and allotment plans are revised. RRCs are conferences of either an ITU Region or a group of countries with a mandate to develop pan agreement concerning a particular radiocommunication service or frequency band; these conferences cannot modify the Radio Regulations.
17. At the regional level, the Inter-American Telecommunications Union (CITEL), an entity of the Organization of American States (OAS) is a key body related to spectrum. Its main objectives are centred in coordinating the rules needed to facilitate infrastructure deployment and telecommunication service delivery, harmonizing radio frequency spectrum to reduce the cost of providing wireless services, training in information and communications technologies (ICT), and helping countries devise telecommunications development strategies. The Caribbean Telecommunications Union (CTU), which is an intergovernmental organization, which is an intergovernmental organization dedidated to facilitating the development of the sector in the region, also plays a relevant role.
18. LAC countries are active in all these international fora. Common regional positions are important for the development of the sector and for more effective positions at meetings for international negotiations. More on LAC’s participation in international fora, and especially on regional ones, is addressed on Chapter 7 on regional integration.
19. Another key element of spectrum management relates to taking into account the economic impact of spectrum resources. As an essential scarce input for the provision of broadband, spectrum has an immense value for the economy. As fixed telecommunication infrastructures, in many LAC countries, do not have nationwide coverage, wireless broadband has become the alternative way to access the Internet, and as such, it is a key input for the digital economy. It is thus important that decisions that influence the way spectrum is managed – whether in terms of attribution, allocations, or assignments – are evaluated within a framework that considers value creation and externalities. An appreciation of externalities for the potential effects on GDP, job creation, investment, social welfare, and consumer and producer surpluses is essential.
20. It is very important to consider the potential alternative use of spectrum. This has been critical in assisting LAC countries to benefit from the digital dividend, as auctions enabled the market to assist in determining the value of the different uses of spectrum for the economy. The outcomes generally indicate that the market for mobile services places a higher value on spectrum than other potential forms of use and that there is still likely unmet demand of several hundred MHz –( AHCIET et al, 2012c). If countries are to meet the ITU spectrum requirement recommendation. This means alternatives will have to be constantly evaluated through authorities having the necessary tools and skills to do so but also with the acknowledgement that market forces can assist in revealing the knowledge held by the private sector. Spectrum needs differ among countries in the region depending on different issues as intensitivy of use of mobile broadband, coverage, penetration and so forth
21. A challenging area in spectrum management can be decisions about which bands are allocated for use by public authorities, such as emergency services. In any such decision a good practice can be to undertake a cost benefit analysis. By assessing information about alternative uses of the spectrum it is possible to compare the costs and benefits and thus make better decisions that fit national needs and government objectives. Part of such analysis needs to look at questions on how best to meet objectives including the most efficient delivery of public services, alongside the consideration of spectrum management. By way of example, in 2015, the Australian Productivity Commission examined the best way to secure a mobile broadband capability to meet the long term needs of Australia’s public safety agencies (PSAs) – the police, fire, ambulance and emergency services. To do this they were asked to:
• undertake a ‘first principles’ analysis of the most efficient, effective and economical way of delivering mobile broadband capability to PSAs by 2020
• consider the most cost-effective combination of private and public inputs, services and expertise to deliver the capability
• consider aspects of this capability such as national interoperability across jurisdictions and agencies, coverage, integration of voice services, security, capacity, resilience, sustainability of arrangements into the future and compatibility with end user devices
• consider domestic and international developments that might be applicable to Australia.
22. The economic valuation of radio spectrum is a challenging, if not daunting, task. Firstly, it necessarily requires a multi-year evaluation – 10 or more years – in a sector characterised by technological breakthroughs and discontinuities. Few envisaged, for example, the high rate of smartphone uptake around the world. Secondly, country-specific and market conditions influence any valuation. Thirdly, even among similar players and uses, the value for each player could be significantly different depending on specific circumstances. Assigning the spectrum to a player that values it the most does not necessarily mean that the value to the economy is maximised; this is part of the rationale behind spectrum caps, which try to protect competition by pre-empting possible spectrum hoarding, which increases barriers to entry. Fourthly, the valuation might require a comparison of distinctly different things, as was the case of broadcasting and broadband. In such scenarios, certain aspects are very hard – if not impossible – to measure. In countries where most households predominantly access free-to-air (FTA) television broadcasting, either because of income restrictions or because pay television infrastructure is not ubiquitous, the social value of the service is high and challenging to quantify.
23. There are three broad approaches taken to measuring the value of the spectrum to an economy (OECD, 2014):
• Economic welfare. This approach is based on estimating consumer and producer surpluses. Consumer surplus is defined as the difference between the amount each consumer is willing to pay and the actual price of the service. Producer surplus is usually defined as the difference in price and the marginal cost of production. This methodology is meaningful given that it includes both the effect of lower prices and the increase of the subscriber base, as well as the production function, which considers the cost of providing the services. Though simple enough in theory, the actual estimation requires evaluating demand and supply curves, and thus, will require a significant simplification of assumptions. Even more, when the analysis is a multi-year forward looking exercise, the evolution of demand and supply curves will need to be incorporated. Special attention needs to be paid to the fact that, on the demand side, many services are bought in bundles, and on the supply side, services are provided through a multiservice platform.
• Economic contribution. Another way of valuing spectrum use is to measure the total value added created in the economy. It looks at the different stages of the value chain to produce the service and estimates how much value added is created in each one of the steps. For example, it considers how much investment and labour are required to build and run a network, how much effort is necessary to distribute, market and sell the services, and how much is required for customer care. In broadcasting, a crucial link in the value of a chain is the development of content. This approach is simple as it is based on input-output tables, which are usually available, but it does not fully account for all indirect externalities and fails to estimate consumer surplus and broader productivity increases.
• Productivity increase. This third approach tries to estimate the impact on the economy attributed to the use of services provided through the spectrum. For example, a given workforce could be able to produce more output if it were aided by mobile communications (for example, better routes for the delivery of goods could be chosen, reducing time spent and increasing deliveries at any given period). Higher productivity translates into higher GDP: Recent extensive research to estimate the effects of broadband have been undertaken from a number of sources, but significant work still needs to be carried out.
24. It is important to emphasise that spectrum in the LAC region carries more relative weight and relevance for broadband access and use than in OECD countries because fixed networks are much less developed. At the end of 2014, fixed broadband penetration in Western Europe was 32.8%, whereas in the LAC region it had reached 7.9%. Wireless broadband in the area is much more a substitute to fixed broadband than a mere complement. Millions of people will mostly only have access to broadband networks through infrastructure that relies on the use of spectrum. Spectrum then is playing a fundamental role in reducing the digital divide, not only between developed and emerging economies, but also within countries themselves, becoming an important tool for tackling inequality and bridging income gaps. In a large geographical region, where between 15% and 20% of the population live in rural areas, spectrum can often enable the provision of broadband services more efficiently from a cost and deployment perspective.
25. As technology evolves, consumer preferences change, and the relative value of spectrum changes, policy makers have the obligation to facilitate the transition from less to more valuable uses of spectrum. Spectrum is a public good, and as such, policy makers should ensure that it maximises public benefit.
26. Managed market-based approaches have proven effective in maximising public value. These require a market-based approach to licensing spectrum (usually through auctions, see below), few barriers for sharing and transferring spectrum holdings, few or no technological requirements, greater license flexibility, and rules that guarantee that the market for services is competitive.
27. Moreover, institutional issues arise with spectrum management since the use of spectrum affects not only the telecommunication and broadcasting industries, with their overall impact on the economy and social welfare, but also other users such as the certain government tasks (e.g., transport), the military, public safety agencies, and the research community. As needs and objectives might not be fully aligned, or could even be divergent, a whole-of-government approach is needed. In addition to international coordination, there is a need to ensure also high-level national coordination.
28. From a broad perspective, there are two potential institutional arrangements:
• Single institution. A single entity is responsible for all aspects of spectrum management at the national level. It is in charge of planning, licensing, and monitoring spectrum. This model centralises decision making, and, if the entity is fully autonomous, it has all the required attributions to take a long term perspective based on welfare creation. By way of examples, IFT, Mexico’s recently established regulator, Ofcom in the United Kingdom, and the Australian Communications and Media Authority (ACMA) follow this model.
• Shared responsibilities. This is the most common model, with responsibilities assigned to different government entities based on various criteria.
– In the United States the FCC administers spectrum for non-federal use (business, state and local, government, entertainment, commercial, private), whereas the National Telecommunications and Information Administration (NTIA), a unit of the United States Department of Commerce, administers spectrum for federal use (national defense, law enforcement and security, transportation, resource management and control, emergencies). The Interdepartment Radio Advisory Committee, chaired by the NTIA, ensures coordination between the two agencies.
– Some countries divide spectrum management by service (e.g., broadcasting and telecommunication services), such as in Colombia, where the Autoridad Nacional de Televisión (ANTV) oversees TV broadcasting and grants spectrum licenses, ICT Ministry oversees TV radio broadcasting and grants spectrum licenses while the Agencia Nacional del Espectro (ANE), is in charge of planning, managing, allocating all services (including broadcasting), and gives technical support to the Ministry of ICT that is in charge mainly of the licensing phase in the spectrum management process for the remaining services.
– Other models incorporate the federal and state dimensions. For example, in Germany, the Bundesnetzagentur (BNetzA), reporting to the Ministry of Economics and Technology, regulates several public utilities (telecommunications, electricity, gas, post, and railway). The German Federal Council (Bundesrat), the legislative body that represents the sixteen federal states at the national level, is a member of the advisory council of BNetzA
29. No model is without pitfalls, but even in those were there are no shared responsibilities and there is significant autonomy, coordination among the different institutions is essential to guarantee that all objectives are met.
30. Spectrum resources have important implications for competition dynamics. For example, decisions taken on setting spectrum caps on operators, while conducting spectrum auctions, are likely to shape the market in subsequent years. Likewise, spectrum planning and management tasks are key decisions for the future of communications, both from an operational (e.g. assigning spectrum to mobile stations) and a strategic point of view (e.g. band segmentation plans, migration schedule). Given the highly technical nature of these issues and their important implications for competition in communication markets, regulatory authorities should have the authority to conduct spectrum auctions or, at a minimum, be able to establish competition-related conditions for spectrum auctions. The government should in any case be able to retain control of the bands used for government-related purposes (e.g. military, police) under the framework laid down
31. In all cases, especially in those countries where the communications authority is not in charge of assigning spectrum, it is essential that all parties work closely with the competition authority in order to guarantee that spectrum use promotes effective competition. In this respect, the relationship in Chile between the Subsecretaría de Comunicaciones (Subtel) and the Fiscalía Nacional Económica (FNE), which is responsible for defending and promoting competition, demonstrates good practice.
32. Spectrum harmonisation, defined as the uniform allocation of radio frequency bands across entire regions, is one of the main roles of governments. Harmonisation aims at minimising radio interference along borders, facilitating international roaming, and sharing the economies of scale that arise from international standards and the creation of large markets. The ITU, as the United Nations agency responsible for radio communication, is the entity in charge of coordinating harmonisation at the global or regional level.
33. The benefits of harmonisation are clear, but the process to reach consensus is not. Whereas certain parties argue towards complete and compulsory harmonisation, others argue for a more liberal stand that would allow for more autonomous management and the emergence of new policies (e.g., spectrum trading) that would direct spectrum towards those that value it the most. Nevertheless, it can be argued that the approach taken so far – of an intense degree of harmonisation – has served the industry very well and is one of the main success factors behind the advent of wireless digital telecommunication services, leading to lower costs of technology, for the benefit of consumers.
34. Independently of the each country’s approach to spectrum management, it is imperative that all LAC countries actively participate in all global harmonising forums (ITU-R and the preparatory conferences). It is also important to strengthen the role of regional organisations, namely, the Caribbean Telecommunications Union (CTU) and the Comisión Técnica Regional de Telecomunicaciones (Comtelca), as well as increasing their participation in and the role of the Inter-American Telecommunication Commission (CITEL).
35. Moreover, spectrum licensing frameworks are key to managing spectrum consistently. From a high level perspective, there are three possible licensing agreements:
• Exclusive assignment. A licensing of a given band to a party that has exclusive rights over its use has been a common model in the assignment of spectrum. The original rationale behind this was that, because of technological limitation, interference could be a major problem, which could be minimised by giving the rights-of-use to only one party. How spectrum is assigned, though, can vary widely from the type of band and country (e.g., direct assignment, beauty contest, auction, lottery, etc.). These licenses come with restrictions on how spectrum is used, in order to avoid interference to other users in other bands.
• Unlicensed spectrum. Sometimes also referred to as open or free spectrum, unlicensed spectrum (or license-exempt spectrum) can be used by any entity for any private or public purpose. In practice, in order to minimise interference, equipment using unlicensed spectrum must comply with certification rules, as well as adhere to certain standardised protocols. Most importantly, there is no regulatory protection against interference. Unlicensed spectrum is adequate for services and devices based on low-power radiation, where potential interference can be managed in a reasonable way. Wi-Fi spectrum, which is unlicensed, has become one of the most common means to access broadband networks. Other technologies and devices which use unlicensed spectrum are Bluetooth (which allows communications over very short distances), ZigBee (low-power wireless communications mesh network, also for short distances), WirelessHART (used for monitoring industrial processes and power consumption), WirelessHD (used for high-definition television sets), WiGig (for multi-gigabit transmissions at very short distance), and RFID (automatic identification of tagged objects or living entities).
• Licensed Shared Access (LSA) and Authorised Shared Access (ASA). Of recent conception, LSA/ASA allows spectrum that has been licensed to be used by more than one entity. It aims at introducing additional licensed users at a given band, further increasing spectrum efficiency and unlocking additional spectrum capacity. Though it could potentially lower overall industry costs and accelerate spectrum harmonisation, these licensing frameworks have not fully taken off and are not mainstream in any country yet, as by definition the use of the spectrum is binary (either one or the other can use it at the same time, location, and frequency) and thus requires clear sharing rules that guarantee predictable quality of service.
36. The exclusive licensing agreement has been the traditional approach to granting private entities the use of spectrum. It has been successful in that it has allowed, within a framework of legal and operating certainty, wireless telecommunication services to grow rapidly and become ever more diverse. Unlicensed spectrum has become a widespread complement for the last 100 feet (or shorter) of communications networks, either wireless or wireline. With the advent of machine-to-machine communications, it will become much more widely used.
37. The LSA/ASA approach has only recently being developed. Though its theoretical benefits – better use of a scarce resource, especially when it is underutilised – cannot be argued against, it poses certain technical issues (interference), most of which are currently being resolved. It is also facing opposition from incumbent exclusive-license holders that acquired their spectrum through an award procedure. Other types of agreements to use underutilised spectrum, such as white spaces. White spaces are part of the spectrum which is left unused, mostly because it is required for historical technical reasons, such as the use ofguard bands or between adjacent analog broadcasting channels to avoid interference. Advances on modulation techniques and technical characteristics of equipments allow for using and sharing these “white spaces”. This can potentially increase the amount of spectrum available for IMT, but their widespread adoption is not imminent in the very short term. There is relevant experience on white spaces use to make more spectrum available, such as research and projects on dynamic spectrum and television white spaces carried out by Microsoft.
38. As a general practice, following historically successful worldwide trends, authorities should continue granting exclusive spectrum licenses for IMT. More spectrum should be identified for such purposes; IMT spectrum which is not being used should be put up for grabs following a well-thought out medium to long-term strategy based on maximising spectrum efficiency and competition. Additionally, unlicensed spectrum should be promoted, as its complementary value to licensed spectrum is well proven and has become a hotbed of technological development. Given the worldwide success of Wi-Fi technology, and the extremely important role it plays in mobile traffic offloading, policy makers in the region should conduct needs assessment for unlicensed spectrum, to avoid congestion (promoting for example the use of the 5Ghz band). LSA/ASA regimes and other approaches such as white spaces should be experimented with caution. LAC countries could use international experience in the making to better use these regimes, as there are significant advantages to be gained from the success and failures of first movers.
39. As a rule, all regimes should be as flexible as possible, imposing minimal requirements, except when interference is an issue that compromises services and spectrum efficiency. Many unforeseen issues could potentially be dealt with ex-post regulation. In order to increase legal certainty, regulatory regimes should explicitly allow for such intervention if certain conditions, expressed ex-ante, are met. Where certain conditions have been imposed during the licensing process, such as coverage and utilisation, these should be well-defined and measurable.
40. It is well understood that legal certainty and the existence of strong institutions foster an environment for long-term investment and innovation, reducing the cost of capital, and increasing risk-taking. There is significant creation of economic and social welfare when rules are clear and the process to adjust them to a changing marketplace, to technological advancements, and to shifts in social and economic needs is based on careful evidence assessment and involves a public discussion.
41. All licensing regimes require legal certainty. Specifically, exclusive licensing arrangements require strict rules of temporary property rights and protection from interference. Deployments of telecommunications infrastructure typically need significant up-front investments, which then have a long useful lifespan. Thus, licensing terms should reflect this characteristic: long terms with high renewal expectations are accompanied by constant investments in network upgrades. Uncertainty in the renewal of licenses usually translates into insufficient investment towards the end of the license term, which then reflects into poor levels of quality of service and lack of supply. This situation gets exacerbated in the case of short licensing terms, as insufficient investment periods become more frequent. In general, spectrum licenses should be awarded for periods of more than ten years. Conditions for renewal should be known well in advance and the proceedings should be conducted through open and transparent procedures.
42. Long licensing regimes together with clear high-probability renewal processes do not mean that authorities cannot revoke licenses; governments should always keep enough powers to do so under pre-defined circumstances, such as law infringement (especially in recurrent breaches) and inefficient use. Another situation that should be considered is long-term spectrum planning and the possibility of attribution changes. The advent of digital terrestrial television and the possibility to use the 2.6 GHz band for IMT has proven that revocation can be needed for better spectrum use, and, as such governments should be able to appeal to this evidence.
43. Some countries, such as the United Kingdom, looking to increase certainty surrounding spectrum licenses, removed predefined license terms. Nevertheless, the regulator can revoke any license for spectrum planning purposes with a five-year notice. It thus guarantees that it can recover any spectrum in case it is required to do so, but at the same time ensures that services using such spectrum are not degraded and that deployment investors can use the spectrum for a reasonable time to make a sensible business case.
44. There are certain situations that should be avoided if possible. The need for greenfield renewal after expiry, creates uncertainty on several fronts (likelihood of renewal and price). In some of the recent renewal processes in the LAC area there was no clarity on the price; in another case in the region, this, together with a long and uncertain injunction process, has left the 2.6 GHz band idle. Pricing of licenses, and, more importantly, renewals of licenses, should be transparent, known in advance as much as possible, and non-discretionary. In addition, policy makers should monitor the evolution of the market and define in advance any update on conditions for renewal of licences, if needed.
Spectrum assignment procedures
58. Historically, spectrum has been assigned by several distinct methods. Licenses can be awarded by non-market based procedures, such as through a direct administrative procedure. This assignment procedure is widely used to grant government agencies the use of spectrum, but was also prevalent in monopolistic markets when spectrum was awarded to incumbents. Some recent examples of direct spectrum assignments include ICE in Costa Rica, Arsat in Argentina (2012)
59. Spectrum has also been awarded through other procedures, which lack market incentives. The FCC in the United States in 1992 awarded licences through a lottery process. Since consolidation was later allowed, significant value was transferred by a process with a random component from public to private hands. The FCC abandoned this process and moved to an auction-based system. LAC countries have not used lottery assignations. Except for very specific situations, these types of assignments should be avoided, as they are not efficient from an economic perspective. The OECD supports market-based mechanisms to assign spectrum.
60. All other assignment mechanisms fall into the contest category, but it is important to point out that not all contests are market driven. The most widespread mechanism is one of comparative selection where the license is awarded to the participants that submit the best plan based on a series of promises usually linked to some aspect of “social” or “public welfare” (e.g., coverage, technology, investment, prices, financial strength, etc.). This type of assignment could potentially render non-transparent results, as it can easily be designed to favour a certain operator. In practice, there is a significant arbitrary and discretionary component in such procedures, as some criteria might not be fully relevant to judge appropriateness and the weights given to the different variables are many times subjective.
61. The price paid for the spectrum under the contest model tends to be low (or non-existent), which implies there may be a subsidy from the State to a private stakeholder. Contests do not allow for a real valuation of the economic value of spectrum resources, as there is a situation of asymmetrical information between the regulatory authorities and the operators. Comparative selection procedures have been common in the region but there is increasing use of auctions.
62. Auction theory is a complex area where significant progress has been made in recent years. Auctions are recognised as being the most efficient method for assignment. Well-designed auctions provide the right incentives for players to use spectrum efficiently and to price it accordingly. Needless to say, one of the main reasons auctions have become common in the industry, including in the LAC region, is that they tend to generate important revenues for governments.
63. Auctions are an efficient assignment mechanism. They allow answering two questions simultaneously: whom to assign the spectrum to and how much to charge. Well-conducted auctions have detailed rules published in advance; prices paid by winners are defined by all players in terms of their strategy and skills. Auctions allow efficient assignment of spectrum to the players that value it most. They also help answer the preeminent question of value. Auctions, if well designed, can be an invaluable price discovery mechanism, leaving to the regulator the more basic question of setting a minimum reference price. It is a process that avoids the pitfalls of other alternatives, becoming significantly less discretionary and increasing certainty to markets.
64. There are several types of auctions. In sealed price auctions, all pre-qualified participants submit one bid. In a sealed first-price auction, the license is awarded to the highest bidder, who then pays its proposed price. In ‘Vickrey Auctions’, or sealed second-price auctions, the license is awarded to the highest bidder, who in turns pays the second highest price.
65. In ascending price auctions (English auctions), participants progressively increase their bid. The auction is over when there are no more bids; the winner is the entity that offers the highest bid. In descending price auctions (Dutch auctions), the auctioneer sets a price and progressively lowers it until one of the bidders accepts it. English and Dutch auctions can be done in successive rounds, where all participants submit a bid; the bidding information is then made available to participants, who then proceed to the next round.
66. Multiple round auctions are advantageous in that they are easy to understand by participants. Giving information to participants after each round increases confidence to all players involved. Nevertheless, it is a mechanism that can be distorted by players, by, for example, signalling during the process or even colluding.
67. Combinatorial auctions have become common in many countries to address such issues. These are auctions for the simultaneous sale of more than one item, such as blocks of spectrum bands with geographical delimitations. Participants place bids on combinations of the items on offer and the winning bids are those that maximise overall value to the auctioneer. The larger the number of items on offer, the more complex determining the winners becomes, and the more uncertainty for operators to ensure that the final distribution of spectrum matches their preferences, which can discourage participation. The maximising solution could potentially mean leaving some items unassigned. These auctions have been used in Canada and the United Kingdom.
68. In principle, any auction can incorporate restrictions and obligations. Some of the most common ones are spectrum caps (where bidders cannot exceed maximum spectrum holdings) and coverage obligations. Given the investments required to deploy a nationwide network, it makes sense to implement clearly defined and reasonable coverage obligations for operators being awarded spectrum. This can provide some certainty about the future coverage of networks.
69. Ambitious coverage obligations are difficult to enforce and may increase regulatory risk and any obligation to be imposed, should be carefully designed in order to balance benefits from larger coverage against lower auction receipts for the State and slowing market entry and competition. However, this does not mean that providing coverage for rural areas where network roll-out is less or even non profitable cannot be included among the set of obligations to be fulfilled. Extending mobile broadband and telephony access and/or introducing competition in rural areas may be advisable, and a case-by-case analysis is needed to take the adequate coverage obligations in each case in order to maximise benefits for citizens.
70. Some elements in assignment procedures to promote competition should be highlighted. Auctions can be designed to promote competition in the marketplace. A common restriction is the setting of spectrum caps, which, even though they can potentially reduce the number of participants in the auction, avoid spectrum hoarding, eliminate pre-emptive strategies, create some equilibrium in spectrum holdings, and increase spectrum use efficiency. Spectrum caps are common in OECD countries, where they are widely used for encouraging entry and addressing situations of dominance. In order to promote competition, special care should be taken to continue to ensure that smaller players have access to sufficient spectrum resources, by putting in place spectrum caps or set-asides in auction design (i.e. reserved blocks for entrants where incumbents or dominant operators cannot bid), bearing in mind the balance between higher and lower spectrum bands. Caps have been used in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico and Peru; they vary widely as they respond to the specific characteristics of each market at the time they were set. For example, Mexico has set a cap of 80 MHz in its latest AWS auction. Colombia applies different caps for lower (30 MHz below I GHz) and higher frequency bands (85 MHz). Caps are usually updated whenever more spectrum is auctioned or when consolidation activity results in spectrum accumulation which is deemed to affect competition in the marketplace.
71. In addition, consideration should be given to introducing a spectrum floor. This novel approach, recently introduced by Ofcom in the United Kingdom, will not accept an outcome to a combinatorial bidding process that does not offer a specified amount of spectrum to at least one newcomer. In effect, this gives a preference for a lower bid from an entrant over a higher one from an incumbent.
72. Other commonly used elements are the incorporation of obligations to offer wholesale services for the hosting of MVNOs. As addressed in Chapter 3 on competition and infrastructure bottlenecks, entry of MVNOs, can be further facilitated via obligations imposed in the license. For example, the regulator can also introduce mechanisms to make the competitive environment more favourable to MVNOs by making national roaming obligatory among operators, so that MVNOs can offer the same coverage as MNOs. Although non-facilities-based competition exerts a limited discipline on facilities-based carriers, non facilities-based entry may be a legitimate entry strategy for new players. In addition, facilitating resale may enhance the value and therefore incentives to invest in new infrastructure.
73. Other issues that have arisen in dealing with spectrum are related to the clearing of the bands. Some countries (Colombia and Brazil) have opted to impose this obligation as a condition to be awarded the spectrum license. It is bound to become more common, as more spectrum is allocated to IMT but is occupied by other tenants (e. g., the 600 MHz band in the United States). Well-designed migration processes and clearing of bands obligations during the auction could be an efficient way of dealing with the issue and could accelerate the deployment of wireless broadband networks.
74. Governments should avoid restricting assignment only to existing players. This goes against promoting competition and implies that the government is administratively deciding what the market structure ought to be instead of leaving this to market forces. Also, generally speaking, ‘beauty contests’ are not recommended, as they tend to be subjective, operators tend to underpay the real value of the spectrum, and economic rents are transferred to private companies.
75. Finally, some countries in the LAC region include conditions in spectrum auction procedures such as the distribution of tablets, or contributions for universal service funds that can create distortions with the risk of reducing the cost-effectiveness of public funds. These programmes should be run independently from spectrum auctions and in general, cross-subsidies from spectrum fees to fund public interest programmes should be avoided.
76. One of the most challenging tasks authorities face when licensing the spectrum is setting a fair price. There is no doubt that the market is best positioned to determine the value of the spectrum, but this alternative is not always available. Auctions are the best price discovery mechanism, but there is still the need to set a minimum reference price, that can be different from one auction to another
77. There are basically five different ways to estimate the value of the spectrum. In practice, regulators need to perform all of them and then adjust the value depending on the objectives being sought and other specific conditions to the problem at hand. For example, if few bidders are expected at a given auction, the reference price plays a fundamental role in an auction. The main reference for the minimum price is given by the avoided cost methodology (described below), as it reflects the indifference point, which considers that an operator would not pay less than what it would cost it to find an alternative solution to accommodate future demand. An auction would then throw up a price between the avoided cost price and the net present value of cash flows obtained by using the spectrum.
78. Any estimation of the value of spectrum should be approached with caution, especially when valuing the future use of spectrum, as this is essentially a forward looking exercise where many factors may vary substantially in the medium and long term. It can be done through benchmarking, econometric analysis, avoided costs, business case or opportunity costs.
79. Benchmarking is probably the most common spectrum valuation methodology. In essence, it compares prices paid at other similar auctions (national, regional, or international) in a normalised fashion (usually price per MHz per population). It is simple and easy to explain, but its main pitfalls arise because real value depends on several factors, such as market potential, spectrum already allocated, competition level, license periods, additional fees and so forth, which a simple price comparison does not consider. This can be addressed by performing econometric analyses (described below).
80. It should be emphasised that the comparison, to be fair, should consider total price paid (that is, not only the amount paid at the auction but also any recurring fees linked to the spectrum tenancy) as well as the assignment methodology (that is, it is not advisable or sensible to compare an auction price with a the price paid at a ‘beauty contest’, as this last assignment most likely does not reflect a market price). Chile awarded the 700 MHz band for 0.1 cents/MHz/pop in 2014, whereas Brazil, almost at the same time, licensed it for 25 times as much.
81. The value of the spectrum depends on a large number of variables. Accounting for them makes the benchmarking of different prices more reliable. Some variables that need to be considered reflect the general conditions of the market (GDP per capita, population, urbanisation, etc.), while others are intrinsic to the spectrum and the auction (band, amount of MHz on offer, timing, duration of the license, market structure, etc.). An econometric analysis where price is the dependent variable can be performed using some of these variables as controlling factors. The main disadvantage of this methodology arises from the lack of enough data points to be able to incorporate several independent variables. Attention needs to be given to the definition of the controlling variables, as they could be measured differently in different countries, and thus, the analysis could render spurious results.
82. The estimation of avoided costs is based on calculating the cost reduction obtained by a given operator by being able to use additional spectrum. The model assumes that operators have to satisfy increasing demand, which entails a different cost structure if more spectrum is made available.
83. Network capacity can be increased by technological improvements, frequency reuse, increase in the number of radio base stations, simultaneous use of different networks (for example, Wi-Fi local networks or buying capacity from other operators), or, ultimately, using additional or a different band of the spectrum (due to its propagation characteristics, higher frequencies allow for more capacity reducing coverage per base station, while lower frequencies, conversely, allow for higher coverage per base stations, but less bandwidth capacity). Avoided cost is defined as the investment required to deploy the first four options without being able to use additional spectrum. The estimation is intrinsic to each market and does not depend on any benchmarking analysis. It can be estimated for each operator in the market. Its main disadvantage arises from the scant information regulators have about the cost structure of operators, as well as the need to build a hypothetical network as complement to existing networks. It also requires estimating future demand, which recent history has proven to be extremely difficult in the LAC and elsewhere. This methodology is widely used by operators, as they can easily estimate their own avoided costs.
84. The value of the spectrum can be calculated estimating the business case, or the cash flow of the business using the spectrum. The main assumption behind this methodology lies in that an operator would never be willing to pay more than the net present value of the cash generated by the business. It is usually the most realistic way to estimate the price of the spectrum for new entrants.
85. It is important to mention that the avoided cost methodology is a comparison of the discounted cash flow of two distinct business cases: with and without spectrum. Both require the estimation of the cost of capital, which can, from a regulator’s perspective, become a contentious issue.
86. Opportunity cost is defined as the value created when something is put to an alternative use. In the case of the spectrum, it is the value not generated when it is used for one alternative instead of another. This methodology is used to compare the value of the spectrum used for different telecommunications services (e.g., mobile versus fixed, mobile versus satellite, broadcasting versus IMT). In practice, calculating the opportunity cost of the spectrum relies on estimating avoided costs and discounted cash flows, as well as estimating the economic externalities generated by each of the alternative uses. For example, many of the economic and social benefit estimations of the value of the digital dividend comprised a detailed analysis of the opportunity costs of the spectrum.
Digital television, digital dividend, and analogue switchover
87. The digital dividend – the 700 MHz band in LAC countries – is, without any doubt, at the heart of all digital inclusion initiatives in the region, as it promises to bring broadband access to areas not reached by existing networks and lower the price of service. Compared to other IMT bands, the 700 MHz band has significant propagation advantages; more coverage is attained with every cell site.
88. This band was allocated to broadcasting services in most LAC countries, with intensity of occupation varying significantly. With the advent of digital television, which allows more channels with higher quality to be transmitted through the same bandwidth, less spectrum can be assigned to broadcasting without compromising either the number of signals transmitted nor their quality, enabling also for a greater choice of television channels and licenced broadcasters, which could lead to increase competition in broadcasting and the development of more local content. This transition constitutes a unique opportunity to release spectrum resources, as a result of greater spectrum efficiency, and make them available for advanced mobile services such as mobile broadband.
89. With the possibility of using this spectrum for mobile broadband in the LAC region, the case to change the allocation of the band seemed reasonably straightforward. Nevertheless, the debate was quite intense and lasted several years. By 2010, two years after this band had already been auctioned for IMT and one year after the analogue switch-off of full power television had been completed in the United States, LAC countries had just started the debate to change its allocation. Most countries have already proceeded with the change and some have even auctioned this spectrum (Bolivia in 2013; Brazil, Chile, and Argentina in 2014). This is a good example of transferring spectrum to more beneficial uses, responding to technological evolution and the demands of society. Nevertheless, the migration to digital television has not been a smooth process in the region, as it involves significant investment on both sides of this two-sided market (broadcasters and households). Even though digital signals are already being transmitted almost everywhere, the switch-off is still many years away in most countries (Table 4); broadcasters have been reticent about ceasing analogue transmission, as the installed base of digital TV sets in the region is still low. Insufficient incentives and lack of information, as well as limited purchasing power, have made the transition very slow. As free over-the-air television is deemed to be extremely important from civic, cultural, and social perspectives, forcing the switch off unilaterally is not considered to be an option; Free To Air (FTA) television is the only affordable television service for many households. As broadcasters have prominent positions in this area of public policy and have influential lobbying skills, the debate is still open in most countries. Nevertheless, all countries are moving in the same direction and the spectrum being freed from the switch-off will be used more efficiently from an economic and social perspective based on a broader consideration of all potential costs and benefits.
90. Another important part of the debate has been the choice of standard for digital TV. Most countries in South America opted for the Brazilian standard (ISDB-Tb, based on the Japanese standard); in turn, the debate to choose the standard in Brazil, concluded in 2006, was quite heated and lasted several years. Brazil opted to modify the Japanese standard and then proposed neighboring countries to adopt it. Peru, Chile, Argentina, and Venezuela announced their decision in 2009, followed by Ecuador, Bolivia, Uruguay, Nicaragua, Costa Rica, and Paraguay in 2010. The widespread adoption of this standard will give it reasonable economies of scale (more than 450 million people), which can help bring down equipment costs and ensure innovation and R&D related investment. Countries that opted for other standards will achieve similar or higher economies of scale as they can ‘piggyback’ on larger and more developed markets such as in Europe and the United States.
91. Another important issue that arose after the digital dividend was allocated to IMT regarded the segmentation of the band. The United States, which adopted its own band plan in 2007, assigns a total of 60 MHz to mobile broadband and 24 MHz to a public safety broadband network. The Asia-Pacific Telecommunity (APT) published its recommendation of harmonised frequency arrangements in 2010; the arrangement allows for a full use of the 90 MHz, 30 MHz more than the US plan. Though discussions were intense, with some urging the adoption of the American band plan, most LAC countries opted for the APT standard. Argentina was the first country to announce its intentions in 2011, but Colombia was the first to officially adopt it in 2012; it was followed almost immediately by Mexico, Panama, Ecuador, Chile, and Costa Rica. Only two countries, Bolivia and Paraguay, opted for the United States band plan. The adoption of a harmonised plan in the region is important, as it will ensure interoperability, will allow economies of scale, and will minimise interference problems.
92. As the LAC region switches off the analogue broadcasting networks, there are many aspects to be considered for a smooth transition. Public funding will most likely be required. The first issue to be considered is that the population needs to be well informed about the transition and what it means to them. Some countries have not raised awareness enough among citizens; these campaigns take a long time to catch up, but once they have been understood, an important part of the burden shifts to the population and the transition speeds up, reducing the need for aggressive campaigns to subsidise decoders and television sets. Broadcasters also face significant costs to migrate their networks to the digital standard; commercial broadcasters usually have no trouble meeting these costs except for small networks, though public networks could potentially need public funding. Better quality and the possibility of multiplexing, in principle, make a reasonable business case for action in this respect. Concluding the analogue switch-off is important, as it allows countries to reap earlier the benefits of the 700 MHz band. According to some estimates (Flores-Roux, 2013), each year that its use is delayed has an impact of around 1% of GDP six years later. This supports why subsidising the transition to digital television is the correct strategy, but a well-planned and orderly transition, as well as targeted subsidies, will minimise the cost.
93. This Chapter addressed policy considerations regarding spectrum management. First, it highlighted that spectrum management frameworks should be transparent and stable and have as their main goal the encouragement of investment and competition in order to increase availability and penetration of telecommunication services, while considering value creation and externalities on GDP, job creation, investment, social welfare, and consumer and producer surpluses. In this sense, national spectrum licensing frameworks (for the different types of agreements such as exclusive, unlicensed and LSA/ASA) are key for managing spectrum consistently and establishing legal certainty so that deployments and upgrades of infrastructure can be implemented under long-term perspective and with high renewal expectations.
94. The main tools to be used for spectrum management are national frequency allocation tables (NFAT), spectrum inventories, licenses database, long term planning, and measurements of efficient use. Moreover, when proceeding with the challenging task of economic valuation of radio spectrum, policy makers can choose between the tools of econometric analysis, benchmarking, avoided costs, business case and opportunity costs.
95. Moreover, this Chapter raised important implications of spectrum management for competition dynamics. Close collaboration with the competition authority is advised and flexibility in assignment, not only in terms of technological neutrality, but also in terms of service (“service neutrality”) should be sought. Setting spectrum caps, spectrum trading, development of secondary markets, spectrum sharing and spectrum refarming are also tools policy makers can use to potentially increase competition and the efficient use of spectrum.
96. While spectrum may be assigned via non-market based procedures (such as direct administrative or lotteries) and different contest procedures (such as comparative selection), this Chapter has shown that the most efficient mechanism of spectrum assignment is through auctions. Well-designed auctions are less discretionary, increase the certainty of markets, and can be an invaluable price discovery mechanism, leaving the regulator with the role of setting a minimum reference prices, setting aside blocks for entrants and/or establishing restrictions (such as caps) and obligations (such as coverage or offering wholesale service to MVNOs) when necessary for attaining policy goals.
97. Finally, this Chapter addressed the current challenges related to the digital dividend (the 700 MHz band in LAC countries) and the switch-over to digital terrestrial television. To ensure a smooth transition and a greater spectrum efficiency, it was stressed that well-planned orderly transitions, awareness campaigns for the population, combined with targeted subsidies (for decoders or migration costs of broadcasters), will help to minimise public and private costs involved in the transition.
1. See http://www.pc.gov.au/inquiries/completed/public-safety-mobile-broadband#report
2. See http://research.microsoft.com/en-us/projects/spectrum/default.aspx
3. See http://www.acma.gov.au/Industry/Spectrum/Radiocomms-licensing/Spectrum-licences/spectrum_21 In addition, in February 2016, ACMA outlined its strategy for addressing the growth in mobile broadband capacity in its work plan based on its experience. See http://www.acma.gov.au/Industry/Spectrum/Spectrum-planning/About-spectrum-planning/mobile-broadband-strategy-caps-off-decade-of-work
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Costa Rica (2010a), Decreto Ejecutivo sobre la Definición de Estándar de Televisión Digital y reforma Crea Comisión Especial Mixta Analizar e Informar Rector del Sector Telecomunicaciones posible Estándar Aplicable País e Implicaciones Tecnológicas, Industriales, Comerciales y Sociales de Transición (Executive Decree on Standard Definition Digital Television and reform Creates Special Joint Commission analyze and report possible Rector Telecommunications Sector Applicable Standard Country and Technological Implications, Industrial, Commercial and Social Transition) N° 36009 MP-MINAET, www.pgrweb.go.cr/scij/Busqueda/Normativa/Normas/nrm_texto_completo.aspx?param1=NRTC&nValor1=1&nValor2=67968&nValor3=80763&strTipM=TC.
Costa Rica (2010b), Informe Final de la Comisión Mixta de TV Digital sobre el Estándar de Televisón Digital Recomendable a Costa Rica (End of the Joint Commission on Digital TV Digital Television Standard Recommended report to Costa Rica), http://new.infocom.cr/wp-content/uploads/2014/02/INFORME-FINAL-TVD-Comision-Mixta-25-11-10.pdf.
Costa Rica (2011), Decreto Ejecutivo sobre la Creación de la Comisión Mixta para la Implementación de la Televisión Digital Terrestre en Costa Rica (Executive Decree on the Establishment of the Joint Commission for the Implementation of Digital Terrestrial Television in Costa Rica), No. 36775-MINAET, https://cgrfiles.cgr.go.cr/publico/jaguar/USI/normativa/2011/DECRETOS/DE-36775.pdf.
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ITU (2011), Telecommunications Regulation Handbook. International Telecommunications Union, Geneva, www.itu.int/pub/D-PREF-TRH.1-2011.
ITU (2016), “ITU-R Mission Statement”, www.itu.int/en/ITU-R/information/Pages/mission-statement.aspx.
Katz, R (2015), Directrices de política y aspectos económicos de asignación y uso del espectro radioeléctrico (Policy guidelines and economic aspects of allocation and use of radio spectrum) www.itu.int/es/ITU-D/Regional-Presence/Americas/Pages/EVENTS/2015/0831-NI-cosydirc.aspx.
New Zealand (2005), Review of Radio Spectrum Policy in New Zealand, International Telecommunications Union and Ministry of Economic Development, www.itu.int/osg/spu/stn/spectrum/spectrum_resources/general_resources/report_NewZealand.pdf.
OECD (2014), “Wireless Market Structures and Network Sharing”, OECD Digital Economy Papers, No. 243, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jxt46dzl9r2-en.
Toledano (2014), Une gestion dynamique du spectre pour l’innovation et la croissance (A Dynamic Spectrum Management for Innovation and growth), www.mission-spectre2014.fr/fileadmin/ressources/fichiers/Rapport_Mission_Spectre_J-Toledano.pdf.
AHCIET (2012a), Gestión y asignación del dominio público radioeléctrico (Management and allocation of public radio), Asociación Iberoamericana de Centros de Investigación y Empresas de Telecomunicaciones. Montevideo, URL: www.gsma.com/latinamerica/wp-content/uploads/2012/06/GSMA_DocFinal.pdf.
AHCIET (2012b), Hacia una Gestión Eficaz del Espectro. Reflexiones y Recomendaciones de Acción (Towards Effective Spectrum Management. Reflections and Recommendations for Action), Asociación Iberoamericana de Centros de Investigación y Empresas de Telecomunicaciones, Montevideo, http://cet.la/blog/course/hacia-una-gestion-eficaz-del-espectro-reflexiones-y-recomendaciones-de-accion/.
Australian Government Department of Communications (2015), Spectrum Review Report Commonwealth of Australia, Canberra, www.communications.gov.au/publications/spectrum-review-report.
Benkler, Y. (2012), Open wireless vs. licensed spectrum: evidence from market adoption. Harvard Journal of Law and Technology, http://jolt.law.harvard.edu/articles/pdf/v26/26HarvJLTech69.pdf
CEPAL and DIRSI (2013), “Banda ancha móvil: la urgencia de acelerar su despliegue” Banda Ancha en América Latina: más allá de la conectividad (Broadband in Latin America: Beyond connectivity) Chapter 5, pages 131-150), http://repositorio.cepal.org/handle/11362/35427.
CSMAC (2008), “ Definitions of efficiency in spectrum use”, Commerce Spectrum Management Advisory Committee Working Group 1, www.ntia.doc.gov/files/ntia/publications/spectral_efficiency_final.pdf.
GSMA (2015), Key Considerations in Mobile Spectrum Licensing Latin America, Groupe Speciale Mobile Association, London, www.gsma.com/latinamerica/mobile-spectrum-licensing-latin-america.
GSMA (2014), Assessing the Socio-Economic Impact of Identifying the L-band for IMT Services, Groupe Speciale Mobile Association, London, www.gsma.com/spectrum/wp-content/uploads/2014/11/GSMA-Bluenote-Report-on-Assessing-the-socio-economic-impact-of-identifying-the-L-Band-for-IMT-services.-Oct2014.pdf.
IDB (2015), Spectrum Management: The Key Lever for Universality, Interamerican Development Bank, Washington, DC, http://dx.doi.org/10.18235/0000072.
ITU (2012), “Exploring the Value and Economic Valuation of Spectrum”, Broadband Series, International Telecommunications Union, Geneva, www.itu.int/ITU-D/treg/broadband/ITU-BB-Reports_SpectrumValue.pdf.
OECD (2007), “The Spectrum Dividend: Spectrum Management Issues”, OECD Digital Economy Papers, No. 125, OECD Publishing, Paris, http://dx.doi.org/10.1787/231084750678.
OECD (2014), “New Approaches to Spectrum Management”, OECD Digital Economy Papers, No. 235, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jz44fnq066c-en.
PCAST Report (2012), Realizing the full potential of government-held spectrum to spur economic growth, www.whitehouse.gov/sites/default/files/microsites/ostp/pcast_spectrum_report_final_july_20_2012.pdf.
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Werbach, K. & A. Mehta (2014), “The spectrum opportunity: Sharing as the solution to the wireless crunch.”, International Journal of Communications, Feature 128-149, http://ijoc.org/index.php/ijoc/article/view/2239/1054.
CHAPTER 3: COMPETITION AND INFRASTRUCTURE BOTTLENECKS
This Chapter focuses on two fundamental issues regarding the availability of innovative and competitive broadband access services and applications. These are policy making and regulation aimed at encouraging competition among players and good practices in this area aimed at addressing key bottlenecks such as access to essential facilities to deploy broadband services. Special attention is paid to dominance issues and regulation at the wholesale level, which are key issues to be addressed by regulators in the LAC area.
1. Experience in OECD countries demonstrates that competition is key to spurring rapid broadband development. Broadband competition stimulates network rollout, higher speeds and helps lower prices, which in turn, attracts users. Another very relevant key issue, affecting both competition and investment on broadband access, is removing bottlenecks as access to existing passive infrastructure which act as a high barrier for broadband deployment by both existing operators and new entrants.
2. Broadband will only develop when markets for fixed and mobile communication networks and services are competitive. Many LAC countries lag in the development of fixed networks and still have powerful dominant operators enjoying very large market shares and weak institutional frameworks slowing the development of competition and creating a barrier to the expansion of services. These weaknesses make it challenging to meet broadband policy objectives through market forces. Encouraging competition and network deployment of mobile broadband access is especially important, as it may be the most efficient and economical way to deliver services and competitive choice for consumers in areas where high speed fixed networks are not well developed.
3. This chapter presents a set of policy and regulatory instruments, as part of the OECD/IDB broadband toolkit, to advance competition in communication networks and services in LAC countries. In addition to interconnection issues, which have already received a great deal of attention in the region, a full set of tools is proposed to advance competition in fixed and mobile markets. Moreover, removing potential bottlenecks, such as restrictive rights of way, limitations of access to poles, ducts and so forth, is of extreme importance to facilitate network deployment and foster investment by new entrants.
4. Facilitating and encouraging passive infrastructure sharing is also critical to foster the deployment of both mobile and fixed networks. This can assist in addressing outstanding challenges to foster deployment of fibre access and backhaul infrastructure for mobile networks.
Key policy objectives for the LAC Region
5. The main high-level policy objective for opening broadband markets in the LAC region is to promote competition along the entire value chain for all actors (including new entrants and alternative providers). This general policy objective can be met via some specific policy objectives such as:
• Establishing an investment-friendly environment facilitating both national and international investment, as well as reasonable regulatory certainty. Lowering, and where appropriate eliminating, administrative entry barriers, simplifying procedures, time and costs for obtaining licenses to deploy networks, as well as easy, quick and efficient access to scarce resources such as numbering and spectrum.
• Facilitating efficient access to rights of way and passive infrastructure deployed by other actors, in particular market players with a dominant position.
• Ensuring effective and efficient interconnection among the different actors.
• Facilitating demand side competition by reducing switching time and costs, promoting effective and rapid number portability in fixed and mobile markets and monitoring and controlling retention clauses and penalties for switching operators.
• Monitoring and assessing dominance in the different markets related to both mobile and fixed broadband access, taking corrective measures against any dominant position in the geographical areas lacking competition.
• Ensuring access to infrastructure controlled by dominant operators which is difficult to replicate (usually qualified as essential facilities), as well as encouraging network sharing among all market players to reduce investment and accelerate the rollout of broadband.
6. Fulfilment of these policy objectives facilitates competition and investment by operators, maximising coverage of broadband services, reducing prices for the final consumer and encouraging innovation in broadband services.
Tools for measurement and analysis in the LAC region
7. The collection and analysis of data are crucial to set and monitor implementation of policy objectives, as well as adapting specific policy or regulatory measures, as necessary, and benchmarking with other countries, as addressed in Chapter 1 on regulatory frameworks and digital strategies. In order to inform policies aimed to promote competition, the following assessments are advised:
• Collecting data on investment by market players. Such data, provided regularly by operators, should, when possible, show the type of investment undertaken by each competitor related to revenues and customers. Time series and comparisons of the volume of investments with similar countries are relevant to detect trends and potential problems.
• To monitor competition, the typical indicators that should be produced and updated regularly are: number of operators active in each market, revenues for each operator, market shares and its evolution over time (revenues/subscriptions), concentration indexes (such as the Herfindahl-Hirschman Index, HHI), evolution of prices, evolution of number portability, evolution of broadband speeds (announced and measures on real speeds). As covered later in this chapter, these indicators are needed to perform market analysis, which is the basis for taking regulatory reform measures aimed at encouraging competition.
• Infrastructure bottlenecks and issues related with difficulties to access to relevant inputs to provide services should also be assessed regularly. Key Performance Indicators (KPIs) should be defined based on data about infrastructure and other resources availability. For each of the potential bottlenecks one or several KPIs should be defined. Some key performance indicators can be provided that could be used to monitor fulfilment of policy objectives, as well as some references to existing reports from regulatory authorities that could be used to identify KPIs and data collected on infrastructure bottlenecks and access to relevant inputs (Box 1).
• With respect to rights of way, it is difficult to define meaningful KPIs, as time frames and procedures may vary for each different right of way (i.e. ducts, poles, base station sites and so forth). In addition, access to rights of way may be dependent in some cases on municipalities rather than a dominant operator. Nevertheless, it is important that the national regulatory authority has powers to facilitate access to rights of way and to monitor developments in this area given, in particular that administrative authority over rights of way may be distributed among many different levels of administration in a country. Development and publication of infrastructure maps, covered later in this chapter, is key to inform operators about availability of passive infrastructure to be used in new network deployments. The aim of the regulatory authority is to lower barriers for market players to acquire new rights of way, access existing rights of way and minimise the time required to obtain approvals (e.g. access ducts, install poles, construct towers, place antennas and so forth), applying simple and quick procedures in the whole country.
Overview of the situation in the LAC region
8. The situation in the LAC region regarding competition and infrastructure bottlenecks shows a large variation among countries. Even within each country, there is a wide variation among different geographical areas, as occurs in any other region of the world.
9. In general, in recent years there has been an increase in competition in a number of countries especially in mobile markets where new entrants are competing with incumbents. However, in comparison with most OECD countries, there is still room for more competition both in fixed and mobile broadband markets. In many of the LAC countries market shares are highly concentrated. Most new entrants in these markets also face infrastructure bottlenecks such as access to rights of way, passive infrastructure and international gateways.
10. The reasons for this lack of competition, especially in large urban areas where there is room for several operators competing on prices and services, are mainly based on the following issues:
• In a number of countries the process for granting licences is cumbersome, contracted and costly, even when there is no associated spectrum involved. In general, except for some countries that have short term plans to adapt the licensing regime, notification-based market entry models have not been adopted.
• Although most countries in the region do not have foreign investment restrictions in the telecommunication sector, there are a few exceptions where limitations on the share of foreign ownership are in place, reducing incentives for external investments. There are still a few countries where new entrants are at a disadvantage compared to dominant publicly-owned operators not subject to regulatory obligations to provide access to essential facilities. As a result, new entrants have difficulty in expanding their networks and obtaining customers.
• Termination rates for both fixed and mobile voice, although they have been reduced over the last few years, are still very high in many LAC countries compared to OECD non-LAC countries. Termination rates are still not regulated in many countries and the drivers used to set termination rates are in many cases unclear and render prices much higher than costs. This situation implies higher prices for customers and a relevant barrier for competition for new entrants that have to face high costs to deliver calls to dominant operators. It also raises the issue of on-net/off-net retail price differentiation that hampers competition for new entrants.
• A minority of LAC countries still focus on retail price regulation (typically price caps for fixed and even mobile voice) with the aim of protecting consumers. At the same time, there is an insufficient focus on wholesale regulation focused on facilitating access to essential facilities for new entrants. As addressed in the section on good practices, if competition is ensured through applying wholesale regulation, retail regulation may be reduced to the minimum or even not applicable, as prices will be disciplined by market forces and retail regulation may interfere with innovation and competition.
• Except for a few exceptions, in the LAC region the concept of “dominance” is considered in the regulatory framework, as well as the application of regulatory measures to solve competition issues derived from dominant market positions. However, in a relevant number of cases dominance is not analysed regularly, dominant operators are not regulated, or the regulation imposed is ineffective, due to judicial litigation by the dominant operator, lack of enforcement, or lack/inadequacy of reference offers.
• An important regulatory tool that has been used in a large number of OECD countries in order to ensure effective market access by new entrants and reduce the dominant position of incumbent fixed telecommunication network operators is the implementation of local loop unbundling (LLU). Unbundling and bitstream access have helped provide a foothold to new entrants and, in particular, to Internet Service Providers (ISPs) in the broadband market. In the majority of the LAC countries LLU and bitstream access is not imposed on dominant operators, or when imposed, has not been effectively used by alternative operators, due to high prices, lack of enforcement, and/or non-adequate reference offers. This has not allowed for competition for fixed broadband from new entrants in those geographical areas, such as in large cities, where LLU can be a tool to encourage competition. As developed further in the section on good practices, LLU is one of the regulatory options that can be applied to encourage competition for fixed broadband particularly in the absence of alternative infrastructure competitors (e.g. cable television broadband operators) exerting enough competitive pressure, but mobile broadband extension and competition is also important, and regulatory measures in this area must also be addressed. In the mobile sector some countries have imposed national roaming obligations to allow for the phased deployment of infrastructure by new entrants to help overcome the market advantage of incumbent mobile operators. This measure has been helpful in creating mobile competition but often needs to be supplemented by wholesale pricing agreements that allow fair access to the incumbent’s network by new entrants. Allowing market entry by mobile virtual network operators (MVNOs) is also important to create competitive conditions in the mobile market. Again, a key requirement for the success of MVNOs is the wholesale price for access to the networks of mobile network operators. Just a few of the LAC countries have initiated regulation permitting MVNO market access. There are, however, novel initiatives such as the “Red Compartida” (shared network) proposal under discussion in Mexico, where a new network infrastructure is to be deployed using a public-private partnership model with the aim of providing network access to MVNOs as well as to MNOs and even fixed network operators, in rural areas (see more detail of this project in Box 2).
• Ensuring access to rights of way for ducts, poles and base stations is a key regulatory requirement in the LAC region and an essential part of the broadband toolkit. In many cases there are no national rules or regulation which grant right of way access and municipalities have a large margin of discretion to impose very high fees to access rights of way, delay or even forbid deployments and to impose unreasonable conditions. This is an issue of concern for operators and discourages investments. As discussed in the next section, there are relevant experiences in the LAC region as well as in OECD countries outside the region of good practices aimed at reducing barriers to rights of way access that can be used to improve market access and facilitate passive infrastructure deployment.
• Infrastructure sharing of fixed networks, apart from wholesale supply obligations for dominant operators, is not developed sufficiently in the LAC whereas infrastructure sharing in the mobile market is relatively more developed. In some cases sharing of mobile infrastructure has resulted from regulation, as is the case for Chile. In some LAC countries public passive infrastructure has been made available to new entrants, for example in Peru and Brazil, where the passive infrastructure from the public electricity utility is shared by law with telecommunication operators .
• Internet exchange points (IXPs) are widely available in the region but unevenly distributed, with the highest number of well-functioning exchanges in the South American sub-region followed by the Central American and Caribbean sub-regions. Brazil has been a leader in increasing the number of IXPs in its territory from a single one in 2004 to 23 by 2013. However, there are still a number of countries without such infrastructure. This results in higher costs and lower quality of service for managing internet traffic, which in many cases could be exchanged at a national level, especially for alternative operators. Additionally, lack of effective IXPs is also a disincentive for the development of local data centers that should also be fostered in the region, and will be the subject of a forthcoming study to be undertaken by the IDB for the LAC region.
• International bandwidth high costs and CDNs deployment is another issue that needs to be addressed to lower retail prices and increase competition and quality of service in LAC Region. These issues are address in Chapter 7 on Regional Integration.
11. In general, the authorisation system for operators should be as simple, prompt and inexpensive as possible. For those services not using scarce resources, such as spectrum that cannot be allocated to a large number of players, a notification-based system can be used. Such ease of market entry, as the experience in most OECD countries shows, facilitates competition and can also be adopted in the LAC region.
12. An example of an efficient market entry regime is the case of Colombia. Following the approval of the ICT Law in 2009, market entry requirements for telecommunication operators, other than those using spectrum, are limited to a registration process. The process is fairly rapid and not burdensome. The provision of a communication service that uses radiofrequency spectrum requires a prior authorisation or license from the Ministry. The ICT Registry, under the responsibility of the Ministry, can be modified and updated. Moreover, when an operator provides a new communications service, or stops supplying one, it must inform the ICT Registry of such changes. New entrants are required to provide information on the legal and natural persons undertaking the registration, a description of the network and services to be provided and the use of scarce resources, such as spectrum.
13. The registration-based authorisation process is usually not linked or specific to any service (same registration requirements for all services) facilitating entry for convergent operators. In general, registration should not have associated high fees (it can be without charge or entail a low payment to cover expenses for registration). The registration process can be very simple, for example notification using a predefined format and, as in many OECD countries, authorisation is granted if there is no feedback from the regulator within a short period (e.g. two weeks or a month). The registration process is also used to collect fees, send notifications to operators and for other regulatory purposes, such as data collection.
Foreign ownership restrictions
17. In general, foreign ownership restrictions in the telecommunication sector have been lifted in most of the region although some countries limit the percentage of foreign participation in telecommunication markets. However, in the broadcasting sector foreign ownership restrictions are widely used.
18. Telecommunication markets have very large associated infrastructure costs requiring a long recovery period. This means that market players with large funds to invest and having easy access to financial markets are the ones better placed to invest relevant sums, and most of these actors are transnational and not located in the country where the investment will take place. This situation is especially challenging for small countries, but it also applies for large countries, and for example, in most of OECD countries where a number of operators are not national, but transnational actors.
Administration of scarce resources (spectrum, numbering)
19. The availability of spectrum is a key issue to foster competition in mobile markets and, as emphasised in Chapter 2 on spectrum policy, the development of broadband in the LAC region will depend on more spectrum being made available for mobile broadband services. This is also a relevant issue to accelerate the digital switchover for television services, in order to allow the use of the digital dividend to expand the use of mobile broadband services. Furthermore, authorities should ensure that this spectrum is fully available in order to ensure that availability of future mobile broadband services will not be delayed.
20. Well-defined policies and procedures for number allocation and management is also a relevant issue. Periodical reviews of the numbering plans for different services must be carried out, with the aim to anticipate future needs, allowing for the provision of new emerging services needing public numbering (for example for M2M services discussed in Chapter 7). It is important to set well-defined procedures allowing market players to request numbers and to ensure that they are assigned rapidly by the relevant authority, and verifying that there is an efficient use of numbers. One-off fees for number assignment should in general be oriented to cover the cost of numbering management, and any recurrent fee should be aimed to foster efficient management by the operator. High fees should be avoided since they may deter or disincentives growth of services and/or entry by new actors.
Interconnection for fixed and mobile voice services
21. Providing telecommunication services requires interconnection among operators since customers of each operator need to connect to customers of other operators. For this reason, ensuring that operators interconnect in an effective way is a key requirement of regulatory policy. All of the countries in the LAC region have established obligations to interconnect. However, as there are no incentives for operators with large market shares to facilitate interconnection, regulatory authorities should take action to ensure that interconnection takes place promptly and effectively. The following good practices help to ensure that interconnection is not a barrier for competition:
• Requiring the publication of a reference offer by dominant operators where all the technical issues, prices for interconnection and other ancillary services, procedures for requesting interconnection, time for provision, procedures for incident management, for quality of services, penalties for not meeting published offers and any other relevant issues should be included. The regulator must review the reference offer and take into account inputs from all operators (both dominant operators and new entrants) to ensure its adequacy. Reference offers should be issued and reviewed regularly to amend any problems and to adapt them to changing costs and technological conditions.
• Ensure that prices for interconnection are cost-oriented. In many cases, and especially when there is an asymmetric situation in terms of market shares, there is a clear incentive for dominant carriers to increase costs for rivals by setting high termination rates. This can result in significant costs for new entrants, in particular as interconnection is crucial in the early stages as they build up their customer base. Although in certain cases negotiation among operators may lead to low prices for termination, there is a need to monitor and, in most cases, to directly regulate prices for interconnection. Regulated prices for termination rates can be based on costs in order to facilitate low rates, ensuring at the same time that the cost for providing the termination service is covered.
• Interconnection also will remain important for all-IP networks which are replacing the public switched telecommunication network (PSTN) for fixed services, including voice services. 4G Mobile Networks are also evolving to using IP for voice. In this context reference offers for interconnection should facilitate a smooth transition to managed VoIP interconnection among operators, and, when technically feasible, ensuring the implementation of IP interconnection protocols and procedures in order to improve the efficiency and effectiveness of interconnection among operators that are using IP networks for managing voice services.
Interconnection for Internet services
22. The provision of Internet services also rely on interconnection with other operators. Many, if not most, of the content and applications accessed by consumers are hosted by a different operator than the one providing Internet access to the customer. However, there are important differences between voice and Internet services justifying a different regulatory treatment:
• A much larger proportion of the Internet traffic consists of connection to resources provided by content and application providers in foreign countries. Although more and more of this traffic is being managed by Content Distribution Networks (CDNs) hosting content at a national level, still a significant part of the traffic is international and the interconnection model is different and more complex than in the case of voice.
• Internet interconnection has largely been based on peering (direct traffic exchange between two operators) using bill & keep models (no payments made among operators provided that traffic is in general symmetric). The Internet interconnection model is, however, evolving due to the large growth of internet traffic for access to audio-visual content. New actors such as CDNs have appeared and access operators would like to charge large content providers to send content to end consumers.
23. Prices for Internet interconnection have not been typically regulated and the market has provided an excellent outcome for Internet interconnection in most countries with high penetration and use of Internet services. There is, therefore, no need to apply in the LAC region similar models such as those applied for voice (regulation of termination prices and publication of reference offers). That does not mean that regulators should not pay attention to Internet interconnection. In fact, prices for Internet interconnection are higher in the LAC region than in other areas of the world and active intervention is needed in some areas to ensure sufficient competition. Recommended good practices include:
• Monitoring by regulators of prices for interconnection and evolution of interconnection models. Collecting and processing data from relevant actors in order to take informed decisions and take action when needed. The evolution of the interconnection models, driven by the increase use of Internet to access content may lead to challenges in the future, indicating it is important to detect in advance trends and potential bottlenecks.
• Promote the deployment of Internet Exchange Points (IXPs). Internet exchange points (IXPs) are platforms enabling new market entrants to compete in the Internet service market in a very efficient and cost-effective way. By using IXPs to interconnect with other networks, service providers can reduce their operational costs becoming more competitive. A better quality of service is achieved as networks can generally interconnect directly with more efficiency without a third-party network connection. In some contexts and depending on the concrete infrastructure bottlenecks, IXPs can increase the available bandwidth to the service providers which, in turn, can offer better connectivity packages to their customers. A more detailed discussion on the role and benefits of Internet exchange points and local data centres, as well as best practice is discussed in Chapter 7 (Regional and International Integration).
• Internet openness, addressed in Chapter 6 on convergence, is a very relevant issue that may have implications for interconnection among players. Regulatory initiatives in this area are focused on retail service provided to customers and in general there is no need to set any specific regulation for Internet interconnection, but disputes may occur among operators, requiring the intervention of the regulatory authority to ensure that interconnection agreements are consistent with regulation of Internet openness.
• Foster the development of backbone infrastructure and gateways. Lack of backbone infrastructures and alternatives for connecting to foreign networks is an issue in a number of LAC countries, leading to higher costs for Internet interconnection. Chapter 7 on regional and international integration addresses the situation of the LAC region and good practices in this area.
Increasing mobile broadband competition by MVNOs entry
24. Mobile providers play a key role in the provision of mobile broadband access in particular in most of the LAC countries where fixed networks have limited geographic coverage. Taking into account trends in the reduction of prices for mobile terminals, technological evolution and new spectrum made available for mobile broadband, its role is likely to increase in the next few years. For this reason, encouraging competition in this market and facilitating entry of new mobile operators is essential.
25. As spectrum is a scarce resource and given the high sunk costs in deploying mobile networks, in practical terms, the market for mobile network operators with a national footprint is limited to a small set of operators, typically from three to five. Taking into account this limitation, on the potential number of Mobile Network Operators (MNOs) able to compete for mobile services, it is important to facilitate competition from other mobile providers using mobile wholesale access from MNOs. These Mobile Virtual Network Operators (MVNOs) do not have their own mobile access infrastructure, as they use the mobile access network deployed by MNOs. Depending on the availability of their own core network infrastructure and numbering, MVNOs can be classified in several different categories, ranging from full MVNOs to resellers whose business model is based on commercialising services completely supported by MNOs.
26. MVNOs account for a small market share in many OECD countries, including Chile and Mexico, and are also present in some other LAC area countries such as Argentina or Colombia. Although the role played by MVNOs in competition is not as important as that of new MNOs entering into a market, MVNOs may increase competitive pressure on MNOs, and provide tailored offers for specific niche markets, covering retail segments not addressed by MNOs.
27. A first set of good practices should ensure that there are no regulatory barriers impeding MVNO entry, specifically:
• Specific numbering allocation for MVNO use, including a simple and prompt procedure to get blocks of numbers assigned.
• Ensure that MNOs do not set unreasonable technical or pricing conditions or establish unfair limitations disrupting the business model for the MVNOs. In principle, there is no need for ex-ante regulation if MNOs are willing to provide wholesale services to MVNOs, but if potential problems are detected, at least in a first phase of MVNO introduction, it is recommended to maintain regular meetings with both MNOs and MVNOs and, if needed, to set specific regulations aimed to avoid obstacles to market entry by MVNOs.
• In general, laws, decrees and regulations should be adapted to include MVNOs. They must be subject to number portability requirements and other obligations aimed at protecting users. In the case of resellers, portability obligations are usually the responsibility of the hosting MNO.
28. MVNOs use wholesale access from MNOs to provide their services. This means that they must have an agreement and interconnection with at least one MNO to use their network. Experience shows that in many countries these agreements take place without the need to impose regulatory obligations on MNOs. However, often where there are few MNOs with similar market shares and incentives to tacitly collude on deterring MVNOs entry, MVNOs may not be able to reach an agreement or wholesale prices are too high to allow for a sustainable business model to compete with MNOs. In such situations the national regulatory authorities could:
• Undertake an official enquiry on the reasons for lack of agreement by obtaining data from MNOs and MVNOs and, if necessary, impose regulation of wholesale access for MNOs. The obligation to provide wholesale access could be imposed on all MNOs or those having a dominant position. In certain cases a credible threat of regulation is sufficient to enable MVNOs to obtain wholesale access at reasonable terms.
• Licenses for new MNOs or new bands of the spectrum may also include clauses aimed to ensure provision of wholesale access for MVNOs.
29. In considering mergers and/or acquisitions involving two MNOs, if considered necessary, obligations for wholesale access for MVNOs can be included as part of the requirement to authorise mergers/acquisitions after a careful analysis on expected effects on competition. An interesting new initiative in the LAC area is Mexico’s “Red Compartida” (“shared network”), promoted by the Secretary of Communications and Transportation (SCT) (Box 2). This mobile network is aimed at supporting any MVNO as well as MNOs and fixed operators, particularly to improve coverage in rural areas, by acting as a neutral wholesale platform. As the “Red Compartida” had not commenced at the time of writing, it was too early to assess outcomes for competition in respect to MVNOs.
30. In summary, critical success factors that must be taken into account to foster competition from MVNOs are the following:
• Ensure that the regulatory framework allows for simple and prompt authorisations for MVNOs, addressing specifically the issue of number allocation for these actors, and that rights and obligations for mobile providers also apply to them.
• Monitor the wholesale market for the use of MNOs’ mobile access infrastructure by MVNOs, and maintain regular contacts with both MVNOs and MNOs, in order to detect refusals to provide wholesale access, or any other barrier imposed by MNOs.
• When such barriers are imposed by MNOs or refusals are detected, regulatory action may be needed to ensure the development of MVNOs. This may comprise imposing obligations to provide wholesale access, setting obligations to define a reference offer for MNOs, or even regulating prices when needed.
• An additional mechanism to foster MVNO development may be to include clauses aimed at ensuring provision of wholesale access for MVNOs when providing new MNOs licenses, or when clearing mergers among MNOs.
National Roaming Agreements
31. National roaming agreements allow for full coverage at a national level for those operators with a more limited footprint. It takes a substantial amount of time for any new entrant to establish national coverage. With this in mind, in the interim, it makes sense to utilise a network from another operator in areas where the new entrant has not yet deployed their network. Ensuring national roaming agreements by means of specific regulation can assist new entrants deploy their networks faster and compete against established players. As the costs of deploying mobile infrastructure are in general substantially lower than those for fixed access networks, it is advisable to establish sunset clauses to ensure such national roaming obligations only remain in force for reasonable period (typically four to six years) to encourage investment from new entrants to deploy their own infrastructure.
32. National roaming is also relevant when licences for mobile services are provided on a regional basis. In this case, national roaming agreements allow services to be provided at a national level for regional operators once they have entered into a national agreement with other MNOs. National roaming agreements may also be useful in providing service in rural areas where an MNO believes that there is not a business case for deployment.
33. National roaming agreements are in many cases a natural outcome of the market and policy makers should ensure that there are no legal barriers to prevent such agreements (Box 3). In specific cases, especially in large countries where nation-wide network deployment can take a long time for new entrants, it is necessary to impose obligations on the dominant operator to provide national roaming for new entrants at a reasonable price in specific areas. Such obligations can be limited in duration, providing an incentive for the new entrant to extend their infrastructure. National roaming can also be set as a condition for spectrum licenses, as analysed in the next chapter.
34. The ICT sector has been one of the most innovative areas in recent years with many new services and technologies emerging, increasing consumer welfare and reducing the cost of providing better services. It is very important to ensure that an adequate framework exists for innovation and experimentation with new services. ICT policies, in general, and broadband services in particular must ensure that there are no regulatory barriers for new emerging services, establishing an innovation-friendly market open to new technological advances and service experimentation.
35. In this context, regulatory authorities should also as a general rule refrain from regulating emerging services too early except where justified as, for example, for consumer protection, national security or other specific issues. When new products or services are launched, it is often unclear what the barriers to competition will be so that it is advisable to let the market reach a more stable state before imposing obligations aimed at increasing competition. This will also help to avoid picking winners or restricting technological developments. That being said, authorities should monitor emerging markets to take action when and if required.
36. Number portability is one of the key tools for competition for fixed and mobile services. A prompt, effective and simple number portability process allows consumers to switch from one operator to another, encouraging competition. When no number portability process is available or the process is slow, cumbersome or fails in a relevant number of cases, customers refrain from switching operator, making other pro-competitive measures ineffective.
37. Although the use of broadband services does not entail the use of fixed or mobile numbering, broadband services are often contracted bundled with fixed and/or mobile voice services, meaning that number portability is also relevant in the context of creating competition for broadband services.
38. The experience and tools in implementing number portability have advanced during the last ten years. As an example, in many OECD countries porting numbers can take less than a day. In many of these countries number portability does not incur costs for customers. The main success factors for number portability are shown in Box 4.
Customer retention and SIM locks
39. Some commercial strategies, from mobile and fixed operators, are based on less expensive up front offers for a service or a bundle of services and/or handheld subsidies locking in customers by preventing them from switching provider for a fixed duration. In these cases users can sometimes face high penalties if they would like to switch providers before the end of this period. Although bundling of services and handheld subsidies are not per se poor outcomes for some customers, long customer retention practice, which often range from 24 to 36 months, can be harmful for competition in the short term.
40. Good regulatory practice in this area can include:
• Reducing the time that customers are locked into a contract for services and ensuring that once the initial contract is over that there is no further lock-in period allowing customers to switch provider whenever they wish to do so. Any penalties imposed on customers who change provider during the lock-in period should reflect the time left in the contract period.
• Where handheld subsidies are provided, the price for the terminal should be transparent on the bill and customers should have the choice, during the contract period, to purchase the terminal outright.
41. Locking of SIM cards is another practice used by mobile operators subsidising terminals. When SIM lock is in use, the terminal can only be used for the operator providing the subsidy, and consumers cannot use it to access service from another operator. To foster competition it is important that regulations require an obligation to provide SIM unlock codes when requested by the customer, once the contract is finished, or a reasonable period allowing for cost recovery for the operator has passed. Unlocked handsets are also a means by which users can select another operator when roaming in another country such as through purchasing a local SIM card. In the section about consumer protection (Chapter 12), issues related to these issues will be also addressed.
42. Deployment of broadband services in multi-dwelling buildings is usually undertaken by providing ducts inside the building to access each home or directly deploying cable on the façade of the building. This is usually done by the operator deploying the access infrastructure, although there can be regulations in force to include the corresponding passive infrastructure in new dwellings. The inability of new entrants to access in-building wiring can be a barrier to competition in the broadband market. Where buildings are already wired it is often difficult for a new entrant to install a competing wire either because of opposition by the homeowners’ association or because of engineering difficulties.
43. In order to foster infrastructure-based competition and reducing high market entry costs for new entrants, facilitating broadband availability and minimising civil works in buildings, regulatory authorities could:
• Impose the obligation for the building developers to deploy vertical wiring passive infrastructure in new buildings, setting rules on size for ducts to allow for the deployment of networks from several operators and using different technologies (e.g. fibre, copper), as well as providing chambers for operators’ connection to the in-building wiring (Box 5).
• Regulators should consider promoting in-building infrastructure sharing, namely for fibre cabling for individual apartments, and avoid exclusivity agreements. In this context, some European Union countries have imposed symmetrical obligations for the party deploying in-house wiring based on national law, namely Spain, Portugal and France (BEREC, 2011b). In Finland all in-house wiring belongs to the house owners and is therefore not included in the wholesale market definition. Such an arrangement also takes place in Sweden and Korea where, in addition, a very effective framework has been developed for labelling new buildings depending on their fibre connectivity. This framework, in Korea, has played a major role in transitioning to “fibre-ready” multi-dwelling buildings (Box 6). In the LAC region, promoting and regulating in-building infrastructure should focus mainly in urban areas with high rise buildings. In smaller villages and suburban areas, the emphasis of regulatory action should be put on simplifying management of rights of way by municipalities.
• A summary of some applications of these practices in selected countries can be provided (Box 6).
Rights of way for passive infrastructure deployment
44. Passive infrastructure accounts for a large part of the cost of building telecommunication networks and represents a very high part of the sunk costs for network deployments. For example, civil works (ducts, poles and so forth) account for a 68% of the total of the first year costs for deploying a new fibre network(OECD 2008).
45. Passive infrastructure is not only expensive, but also takes a long time to deploy, constituting a clear entry barrier for infrastructure-based competition. This issue is especially relevant for new entrants, which contrary to the case of incumbent operators, do not own a pre-existing access network inherited from the monopoly era. Due to this reason, passive infrastructure deployment and sharing should be in general facilitated and encouraged by policy makers and regulators, provided that lowering costs via infrastructure sharing do not raise concerns on reduction of competition.
46. The key policy area to be addressed in facilitating passive infrastructure is the regulation of rights of way. Absent any national or regional regulation on rights of way, local administrations (municipalities) are the relevant administrative bodies in charge of authorisation/denial or imposing conditions (such as fees or dates to get permission) for carrying out civil works in a public space.
47. The lack of harmonised procedures, rights and duties at a national level may effect very negatively on plans for deployment not only of fixed, but also on mobile networks. Operators in these cases face a complex situation where conditions, time and costs for deployment are different in each municipality, raising costs for deployment in a non-predictable way, and adding uncertainty on the amount of time required to start deploying. It may also be the case that national, regional and local regulations of right of ways overlap, rising disputes among administrations and adding judicial burden for operators, leading to additional costs and delays for deployment.
48. For these reasons, it is important for national authorities to:
• Enact national harmonised administrative procedures for access to rights of way, ensuring consistency and predictability in the application of these procedures across a country. It is also important to ensure clarification of jurisdiction for both granting rights of way and settling disputes and co-ordination among the public authorities involved.
• To develop a reasonable system of compensation for access to and use of municipal public rights of way. Costs incurred by the municipality related to the associated civil works must be covered, but fees for civil works licenses should be limited to avoid discouraging investment. Benchmarking with similar successful countries can provide a guide on these maximum fees. Ensuring that operators investing in ducts are subject to a set of obligations for remediation and maintenance of ducts, masts and any other passive infrastructure deployed is also advisable.
• Setting maximum times for obtaining licences (depending on the type of civil work implied) is also important to reduce uncertainty and help operators to schedule their network deployments.
• One-stop shopping procedures for rights of way and related administrative procedures can significantly reduce the administrative burden on operators during the planning phase of network deployment, and ultimately lead to greater coverage. Time savings accrued in the planning phase could also enable operators to realise revenues more quickly and start competition as soon as possible.
• It is also important to provide advice and guidelines to municipalities on right of way management. Even when there is an existing national law harmonising procedures, local administrations play a key role applying the regulation. In many cases, municipalities lack resources and/or knowledge to apply the corresponding procedures. To solve this, clear and concise guides may be prepared by the national authorities, including models for forms, and other key aspects.
• As in any other policy area, regular contacts and seminars with local administrations and operators help to identify aspects for improvements in the regulation of rights of ways as well as to anticipate future needs and bottlenecks.
49. Costa Rica and Canada are two examples of good practices in Right of Way regulation. Costa Rica sets a delimitation of powers among the different public bodies for co-ordinated and expedited approval required for installation or expansion of telecommunication networks in Decree No. 36159-MINAET-S-MEIC-MOPT. Among other issues it includes directives for municipalities, periods and due dates for responding to requests of rights of way. In Canada, the CRTC has wide ranging authority to settle disputes between operators, between operators and municipalities or other public authorities on rights of way and can make recommendations on expropriating property to ensure rights of way through private land. Although operators need to obtain the consent of municipalities to obtain rights of way, the CRTC can intervene and where an operator cannot reach agreement with a municipality, the CRTC can grant permission and set the conditions to access the rights of way.
Passive infrastructure sharing
50. Fostering passive infrastructure sharing is a good policy practice that can significantly reduce initial costs for network deployments, facilitating competition and investment in active network deployments. Additional benefits can also be obtained from the reduction in damage to existing infrastructure during excavation work. Some examples are provided below on fostering passive infrastructure deployment and sharing (Box 7).
51. Some specific good practices aimed to foster passive infrastructure sharing are:
• Setting obligations for dominant operators owning ducts, masts, and any other passive infrastructure to share them at regulated prices with alternative operators, even when the passive infrastructure belongs to a parent company (e.g. electricity utility).
• “Dig-once” policies may also be applied, encouraging diverse utilities (gas, electricity, telecommunications, water) to adhere to a common shared planning to dig. This can reduce investments for all parties involved, minimise troubles and inconvenience in the public space and help to better organise deployment and future maintenance.
• When planning new public infrastructures, such as highways, it is usually worth investing also in deploying ducts that could be used by any operator under open access cost-based conditions to deploy their own networks. This is especially useful when there is a lack of backbone or backhaul infrastructure.
• A relevant part of the passive infrastructure deployed by other utilities such as gas, water or electricity companies can also be used for telecommunication services. Utility companies performing civil works that are fully or partly financed by public means could be required to meet reasonable requests from telecommunication companies for civil works coordination in order to deploy high-speed broadband networks. This is for example the case in the European Union, where Directive 2014/61/EU, from May 15 2014, on reducing the costs to deploy high-speed broadband networks addressed these types of obligations.
52. In order to ensure efficient use and sharing of passive infrastructure, access to accurate information for operators on its availability is key. This implies development of IT systems showing geo-referenced information on this infrastructure as well as supporting processes for requesting its use, provision and maintenance. When the passive infrastructure to be shared is from the dominant operator, the implementation of these systems can be part of the obligations imposed on its access. When passive infrastructure to be shared includes also elements provided by other utilities and or other infrastructures, the corresponding project to implement and collect data from different organisations should be managed by the administration. An example of an infrastructure atlas managed and launched at 2012 by the German Regulator can be shown by way of example (Box 8).
53. Building a complete infrastructure atlas including geo-referenced information and processes support is challenging and takes substantial time and resources, not only for the administration, but also for operators and utilities involved in providing data. Some challenging issues in this area are the following: defining formats for the information to be sent by the different actors owning passive infrastructure to ensure that the information can be aggregated in a meaningful way; ensuring that the information to be provided by different actors is up to date and verified; providing functionalities to allow for coordination among actors; restricting access to authorised agents , and ensuring the provisions of geographical and technical data that can be useful for operators intending to use the passive infrastructure. A step-by-step process can be followed to start with simple information and functionalities that can be useful for encouraging infrastructure sharing, incrementally refining functionality and data to be provided.
Network sharing and co-investment
54. Network sharing and co-investment strategies are increasingly used by operators to reduce investments and risks associated with network deployment. In the context of mobile services, these strategies have been applied for sharing sites for base stations, including ancillary services such as electricity, masts, antennas, or even network elements (Box 9). In the context of fixed services, ducts and in-building wiring have also been shared among operators.
55. Network sharing and co-investment are especially relevant for alternative operators that could not realistically undertake large scale deployments in the access network on their own, or when the deployment of new networks or technologies require substantial investments that can be shared by several actors In this sense, such agreements can be seen as an opportunity rather than a threat to competition. As noted in Chapter 4, network sharing can be a useful tool to enable governments to achieve the availability of network infrastructure in rural areas or elsewhere given particular circumstances (Box 10) and/or to promote an efficient use of infrastructures or investments.
56. Although co-investment agreements and network sharing can in general be encouraged, especially when there is not a business case for the deployment of several competing infrastructures, these agreements should be monitored. This is because, in certain cases, the conclusion of these agreements may facilitate behaviour conducive to lower the level of competition with respect to fully independent partners (e.g. with parallel networks). In general, agreements for sharing passive infrastructure are less prone to raise competition concerns, as there is a lot of room for differentiation among operators sharing ducts or base station sites. One relevant issue to be monitored is the risk of foreclosure by some operators to others, not allowing them to enter into sharing/co-investment agreements. Competition authorities and communications authorities should monitor and take actions in the case that any sharing/co-investment agreement may raise abuse of market power positions or reduce competition.
Access to essential facilities for alternative operators
57. New players usually face an unbalanced situation when entering the market since rolling out the infrastructure needed to provide services takes a long time to deploy and requires large investments. Historical operators owning access networks, often deployed during a monopoly period, have a privileged position compared to these new entrants, as they can use these essential facilities to leverage their market position, and deter market entry by new actors. Experience around the world shows that these operators (former monopolies or other operators having acquired the infrastructure of the former monopoly) enjoy significant market power in fixed broadband markets. This is due to their control of access to essential facilities and in many cases they are in a position to leverage this market power to foreclosure competition with alternative operators. Access to essential facilities at reasonable prices for alternative operators, not able to deploy their own infrastructure in the short term is very important to foster competition in the short term, and may allow sustainable infrastructure-based competition in the long term.
58. The most important essential facilities are located in the access leg of the networks and typically include ducts and any other passive infrastructure, copper local loops, fibre to the consumer’s premises and bitstream services. Thus, access to essential facilities is a key to fostering competition, and in many cases it is necessary to impose regulatory obligations to operators owning such infrastructure.
59. Promotion of infrastructure-based competition for the long term may imply facilitating service-based competition in the short and medium term. This enables access for alternative operators to essential facilities from dominant operators to allow them to start competing while they build their own infrastructure.
Market analysis and dominance
60. Regulatory decisions to require access to essential facilities, price regulation and other associated measures are usually based on a market analysis carried out periodically under a pre-defined methodology set in the regulatory framework and publicly available to facilitate regulatory certainty (Box 11). The aim of this market analysis is to identify situations of “dominance” or “significant market power”. Several varying definitions of “dominance” are applied in competition law and ex-ante regulation in different countries, but all of them in some way or another apply the concept of market power high enough to act similar to a monopoly in terms of ability to raise prices and/or reduce quality in order to increase profit independent of other firms in the market or consumer pressure. As addressed below, dominance is not an issue just in relation to market shares, although high market shares usually point to dominance. Other relevant factors focusing on barriers to entry, market performance or economies of scale should also be considered when assessing dominance.
61. When no dominance is demonstrated, that is the market is deemed to be competitive, there is no need to regulate access to essential facilities for alternative operators. If dominance is found, usually regulatory measures must be taken to ensure competition. A careful analysis should be done when setting regulatory measures aimed to solve dominance issues. Regulatory obligations should be proportionate, oriented to solve the key aspects leading to dominance, and are imposed just on the operators having a dominant position (also known as “asymmetric” regulation in contrast to “symmetric” regulation that is applied to all operators in the sector).
62. As defined by the ITU , essential facilities in telecommunication network markets may include public rights of way, support structures such as poles and conduits, local loops, telephone numbers and frequency spectrum. New entrants typically require access to these facilities in order for competition to be feasible. Duplication of these facilities may be either technically difficult, or more often, economically inefficient. Control of essential facilities can give an incumbent numerous advantages over new entrants. For example, an incumbent can use its control over essential facilities to increase competitors’ costs or to discriminate them by providing inferior quality to these essential facilities, hence making competitors’ services less attractive to end-customers. As a response to this competition issue, the essential facilities doctrine (EFD) predicts that the owner of an essential or bottleneck facility should be mandated to provide access to that facility at a reasonable price.
63. The market analysis process is typically divided as follows:
• Market definition: definition of the set of products to be included in the market, as well as the geographical scope. It is based on substitutability among different products (for example cable and fibre broadband services are typically included in the same market) as well as on homogenous conditions for competition in a geographical area (for example, very different competitive situations may be found in rural and urban areas).
• Dominance analysis: based on different aspects such as market shares, control of essential facilities which are difficult to replicate, financial resources, economies of scale and scope, barriers to entry, potential entry, ability to influence prices, and so forth.
• Analysis of potential competition problems that are derived mainly from two situations: vertical leveraging (this applies where a dominant firm seeks to extend its market power from a wholesale market to a vertically related wholesale or retail market, applying tactics such as bundling or cross-subsidies) and horizontal leveraging (this applies where a dominant operator seeks to extend its market power to another market that is not vertically related). Competition problems associated to vertical leveraging are usually related mainly to refusal to deal on or deny access, discriminatory use or withholding of information, delaying tactics, bundling/tying, quality and price discrimination, and application of excessive or predatory prices for certain services.
• Imposition of obligations: When dominance is found, one or more obligations are imposed to the dominant operator/s focusing on areas, which create dominance in the market.
64. Specific good practices in this area should include:
• Making transparent the market analysis methodology to be applied as well as rules for imposing obligations and including them specifically in the regulatory framework. This will allow for regulatory certainty (very relevant to foster investment), as well as to support regulatory obligations if challenged in courts by operators.
• As technology and competition trends evolve, market analysis for each market should be reviewed periodically (ideally, the period between market reviews should be included in the regulatory framework) and obligations for operators must be lifted if no dominance is found in the new analysis, maintained, or adapted if needed. In general, market reviews should be carried out around every three years, depending on the pace of evolution in the corresponding markets and resources available in the communications authority. It is also important to take into consideration that market analysis must be prospective, in the sense that the most relevant issue is not the existing situation, but the future evolution during which the regulatory measures will be in place.
• Experts with good knowledge of competition law, economics and telecommunication markets are needed to carry out market analysis. Additionally, data collection is crucial (powers are needed to request non-public information from operators, and procedures must be implemented to keep confidentiality) and data processing and analysis if needed. This implies that, as covered in Chapter 1, the communications authority must ensure that experts and resources are available to carry out periodic market analysis.
• Declarations of dominant positions should be based on a set of parameters, which also take into account the structure of the market. Relying only on market shares, as is done in some countries in the LAC region may oversimplify dominance analysis, leading to false positives when relatively high market shares are not based on advantages derived from a dominant position, or false negatives, inhibiting regulatory measures that would be needed to foster competition.
• Emerging services should not, in general, be subjected to regulatory obligations, and any dominance analysis should be undertaken once the market is stable enough.
• Geographical segmentation of markets can also be used in order to analyse whether competition exists in a market if it is considered that the competitive situation differs in a significant way in different geographical areas. In some cases, urban areas enjoy a competitive situation with several operators using their own infrastructure, and with none of them exhibiting a dominant position, while in rural areas there may be just one operator having a clear dominant position and which may require regulatory remedies. If this is the case, market analysis can be segmented geographically, adapting obligations according to each situation. When these differences exist, relevant geographical data is needed to take the most adequate decisions. In the same manner as for other regulatory measures, a cost-benefit analysis should be done to ensure that the outcomes are necessary to solve the problem detected.
• Preliminary market analysis must be subject to public consultations, providing an adequate period and procedures for stakeholders’ feedback. This will allow the correction of errors, solve misunderstandings and in general, to increase the robustness of the market analysis. Additionally, many of the issues that may be challenged in Courts can be anticipated and addressed in advance. Once the public consultation is finalised, it is also good practice to include responses to comments in the final market analysis.
Solving competition problems derived from dominance
65. When one or several operators are in a dominant position, competition problems may arise, hindering or even deterring competition from alternative operators. One potential problem is vertical leveraging, where the dominant operator uses its market power at the wholesale level to leverage its position at the retail level (this is the case of dominant operators with exclusive access to a network where no other infrastructures are available). Horizontal leveraging may also occur, for example, a dominant position in one service (telephony) can be used to extend dominance to other services (broadband access), via bundling or cross-subsidies. Direct entry deterrence may also take place when access to essential facilities for alternative operators is simply refused. Moreover, in general, other problems typical of monopolistic situations such as exploitative behaviour or allocative inefficiencies may also result.
66. When facing dominance situations, Communication Authorities must impose regulatory obligations aimed to solve the specific competition problem and consistent with the objectives set in the regulatory framework. Good practices for regulatory obligations include:
• The set of potential obligations for dominant operators should be listed in the regulatory framework, in order to provide regulatory certainty to stakeholders (and specially, dominant and alternative operators).
• When selecting the most appropriate and effective remedies, the communications authority must select the least burdensome and simplest to apply in order to avoid imposing high costs that could reduce welfare for consumers, reduce incentives for investments, and make regulatory monitoring and enforcement more complex and uncertain.
• A careful analysis should be undertaken of the implications of the obligations for static efficiency (in general related to short-term reduction of prices for final services) and dynamic efficiency (related in general with incentives for investment, innovation, and long-term sustainability). Static efficiency in the short term must not compromise medium and long term efficiency.
• Any regulatory measure must be imposed with the aim to develop sustainable long-term competition with the future absence of regulation. One of the objectives of regulatory authorities is to avoid the need to regulate in the long term, developing sustainable competition (usually infrastructure-based competition, but not necessarily always if there are enough incentives for infrastructure sharing among actors). This does not mean that complete infrastructure-based competition must be the only focus in the short term. Service-based competition based on use of incumbents’ essential facilities by alternative operators (as for example, local loop unbundling) may be a way to facilitate infrastructure-based competition in the long term as alternative operators invest using revenues obtained from service-based competition to reduce their reliance on competitors’ infrastructure.
• Fostering competition at the retail level usually means that regulatory action should be taken at the wholesale level, avoiding retail price regulation that may protect consumers, but in general does not foster competition. This means that Communication Authorities must look for competition problems at the retail level and impose regulation, if needed, at the wholesale level. If competition problems are found at the retail level, regulatory measures should be in general aimed to ensure access for alternative operators to wholesale inputs, in order to allow them to replicate incumbent’s retail offers and compete in price and quality at the retail level using not only wholesale inputs from the incumbents, but also their own infrastructure.
• The imposition of burdensome obligations to dominant operators or any real pro-competitive regulatory asymmetric measure may be challenged in courts, implying that the regulatory framework must clearly provide adequate powers for the imposition of regulatory obligations.
Regulation at the retail level
67. Regulatory measures at the retail level are aimed to impose specific obligations on maximum prices (cap prices), approval of tariffs or restrict any behaviour from the dominant operator to encourage competition. As noted, the main regulatory tools to solve dominance problems are in the scope of wholesale services, but it is worth analysing some of the regulatory tools used in the region as well as in OECD countries in other regions.
68. Price cap regulation is in general applied to avoid high charges for customers when the market is not disciplined by competition. It has been applied (and it is still applied in some countries in the LAC region) for fixed and mobile services. Price cap regulation is also applied in certain cases in the context of extending broadband services (refer to Chapter 4) to encourage broadband use by communities with low incomes (refer to Chapter 5 on affordability).
69. Price approval requirements by the Communications Authority are also applied in a small number of countries in the LAC region. In general, this model is cumbersome for both, the operators (who have to wait for regulators’ approval before launching a new offer) and for the regulator, that must ensure a prompt response and devote relevant resources for this offers analysis.
70. There is, however, one context where price approval requirements are a useful tool that is applied in many OECD countries. This is for margin squeeze tests. In those national markets where competition from alternative operators is based on the use of wholesale inputs provided by the dominant operator, there is a risk of anti-completive practices based on margin squeeze for alternative operators. The dominant operator may make offers that cannot be reproduced by alternative operators using wholesale inputs at regulated prices in order to reduce the number of competitors in the long term. When there is a risk of margin squeeze for alternative operators, dominant operators are requested to send their planned offers for approval before making it public (typically one or two months before, to allow for analysis by the Communications Authority). The Communication Authority performs a “margin squeeze test” to check replicability by alternative operators using regulated wholesale inputs applying a publicly available methodology. If the offer is not replicable, the dominant operator is allowed to launch the new retail offer only in the case that they will reduce the price of the wholesale inputs. Otherwise, the offer cannot be launched.
71. The application of margin squeeze tests is a good practice to be considered in dynamic markets with alternative operators intensively using wholesale inputs. It should be considered that its effective application is resource consuming, and sometimes it is complex to forbid the application of low price offers by the dominant operator that, although they may harm competition in the long term, are viewed as attractive by some consumers in the short term.
72. The application of margin squeeze tests is especially advisable to address competition problems derived from the bundling of telecommunication services where there exists a dominant position in the provision of that element for the services of others. Here, alternative operators need to be able to compete offering their own bundles using their own infrastructure combined with regulated inputs from the dominant provider. This is different to predatory prices (selling below costs) that are forbidden by competition law in most countries. When applying margin squeeze tests, it is especially important to adequately select the cost-accounting models to be applied, as well as to get relevant and updated data on actual costs for the operators.
73. By way of example, in 2013 the European Commission adopted Recommendation 2013/466/EU on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment. This recommendation requires European Communication Authorities, to put in place obligations to ensure economic replicability of retail offers of undertakings with significant market power (SMP) and therefore preventing them from engaging in margin squeeze practices. Based on the experience of Communications Authorities BEREC developed a guidance document to provide information on how to conduct the economic replicability test and more generally ex-ante margin squeeze tests in practice
74. Retail price regulation in the context of mobile services is seldom used. Ensuring that there are enough competitors using their own infrastructure (e.g. 3-5 MNOs are the typical number of MNOs in countries with thriving competition) and MVNOs adding competitive pressure is usually enough to allow the market to compete in prices and quality of service. Still, in some countries there may be an issue with on-net/off-net retail price differentiation applied by operators with a high market share. This differentiation is applied with the aim to retain market share discouraging consumers to switch to a new entrant with low market shares, when these new entrants face high costs for termination in the network of the ones with high market shares. As a consequence, on-net/off-net differentiation may harm competition.
75. On-net/off-net differentiation competition problems may be addressed at the wholesale level setting cost-oriented low termination prices making differentiation less profitable and allowing new entrants to set low prices for both on-net and off-net calls. Where the differences between retail prices for on-net and off-net calls by operators with high market shares is high and impacts on competition from new entrants, regulatory action to forbid this practice can be considered.
Regulation at the wholesale level
76. In the OECD area wholesale regulation for essential facilities has been extensively used, and many countries are still applying regulatory measures, following the model of the ladder of investment (Box 12). Tools include using local loop unbundling and bitstream access, and even extending it to fibre unbundling. Other countries have lifted wholesale regulation, relying more on infrastructure competition. For those applying such regulation, there exist a great variety of wholesale access products that can be provided by dominant operators.
77. In many LAC countries there is a clear need to foster competition in the broadband market, ensuring that consumers benefit from lower prices and more investment. Wholesale regulation has been applied in some countries but it has not always been effective due to high wholesale prices, lack of technical detail of reference offers, or strategies applied by dominant operators to render it ineffective.
78. According to the ladder of investment models, the main wholesale access products than are usually regulated are the following:
• Resale is the simplest way to start competition. Reselling is based on commercialisation of complete services provided and operated by the dominant operators. Consequently it does not involve any network investment, or any differentiation by new entrants, except in prices that would depend on commercial agreements (if prices are not regulated) or the price to be defined by the regulator. As resale has a very limited effect on competition and there is no room for differentiation, wholesale regulation is not usually applied, except in certain cases forbidding non-reselling clauses set by operators.
• Bitstream consists of providing broadband access for alternative operators using the access infrastructure of the dominant operator, as well as part of the IP network, delivering the bitstream signal for the alternative operators at central and/or regional points. Depending on the characteristics of the bitstream services considered in the regulation, the alternative operator may have more or less room to differentiate, but still any retail service to be offered must be based on what is provided by the dominant operator. The use of bitstream wholesale access implies some network deployment by the alternative operators, as they must reach the IP connection points of the dominant operators, as well as to interconnect with the Internet. In general, it is not as effective for competition as other wholesale inputs such as copper loop and fibre access unbundling in urban areas where access unbundling is economically feasible for new entrants. However, bitstream can be important for competition in those countries where it is applied in rural and suburban areas. These areas have low economies of density (the investment to reach a switch is too high for a small number of customers). In these cases, where typically there is just one copper access network and often no cable operators, this is the only way to enable competition. Using bitstream access in these areas does also allow alternative operators to complete their coverage and provide services in a wide area or the whole country.
• Local Loop Unbundling (LLU) allows an alternative operator to rent the copper access loop connecting the access switch and the customer’s premises. Local loop unbundling may be full (comprising all services) or shared (where the alternative operator uses part of the frequencies for a set of services and the dominant operator uses the access loop for other services). Contrary to bitstream access, alternative operators must deploy their own network infrastructure for each access switch where local loops are rented, implying more infrastructure deployment and investment, but also more room for differentiated services. Competition based on LLU has been extensively applied in many OECD countries. LLU use is economically feasible in areas where there are a large number of local loops connected to a switch since investment is required to reach the switch and equipment to collect traffic must be co-located in the dominant operator’s premises. In the context of broadband services, LLU can be effective in increasing competition in the range of speeds provided by xDSL. This does however depend on the length of copper loops, as speed and QoS degrades with distance covered. Further information can be shown (Box 13).
• Fibre Unbundling is the evolution of LLU applied in the context of next generation networks based on fibre access. In this case the dominant operator must provide wholesale access to the fibre access connecting the customer with the access switch. Fibre unbundling is not technically feasible under some specific network architectures, and an alternative wholesale product, Virtual Unbundled Local Access (VULA) is considered by regulators in this case to facilitate access for alternative operators. Although fibre unbundling is regulated in many European countries, it is still in its early stages of implementation.
• Leased lines, Ethernet services and high speed bitstream services. These wholesale products are aimed to increase competition in the business market segment. These customers require high speeds, a very good quality of service (including guaranteed speed) as well as connections in several different premises not all of them located in urban areas, but also in foreign countries. In some cases, the market for business services is highly concentrated and just one operator accounts for a very large market share. This usually implies very high prices for business services that in turn increase significantly costs for business operations, especially those involved in the digital economy, discouraging growth. When dominance is detected and barriers to competition are high, establishing obligations to provide wholesale access for leased lines and high speed IP services (as Ethernet services that are more and used as a substitute of leased lines) may be advisable to allow alternative operators to complement their own infrastructure (typically based on fibre access aimed to provide high speed/high quality IP services needed for the business segment) in those areas where the only available infrastructure is the one deployed by the dominant operator.
• Dark fibre wholesale access is typically provided not only by dominant operators, but also by other different actors, as utilities (electricity, water or gas providers) as well as transportation providers, such as railway operators using their own passive infrastructure to deploy fibre for their own use, as well as for other providers. For this reason, dark fibre access is not in general regulated as many different actors may compete to provide these services.
• Passive infrastructure access. As noted in the section about right of ways, passive infrastructure, and especially ducts, is the least replicable infrastructure asset owned by dominant operators. Even when Rights of Ways are well managed by public administrations, deploying ducts is expensive and slow. Any operator having to deploy its own ducts would take a long time to start competing with dominant operators, and deploying access networks with a national footprint would take decades, as was the case for the PSTN. Having this in mind, facilitating access to the dominant operator’s passive infrastructure is fundamental to enable competition with a lower level of investment and less time for deployment. Passive infrastructure sharing allows also for complete differentiation in terms of services provided, as each operator deploys its own network, increasing room for competition. Passive infrastructure wholesale access obligations are usually structured around a reference offer to be prepared by the dominant operator, under the monitoring of the regulatory authority, that includes prices for the different assets to be shared, as well as procedures for provisioning, maintenance, incident management, and so forth, addressing compromises on times and penalties to be paid when conditions for providing the service are not met. Some of the key issues for success are to ensure that alternative operators know where the passive infrastructure assets are located, including geo-referenced locations and capacity available, ensuring non-discrimination compared to self-supply by the dominant operators, as well as capacity management for existing ducts. This usually implies the implementation of a passive infrastructure database accessible on-line by alternative operators.
• Access to submarine cables. The market for submarine trunk connection is in general limited to very few operators, entry barriers are high for new entrants and in many cases, infrastructure competition based on competing submarine cables covering similar routes is not sustainable. In those cases where there are no other alternative infrastructure (as can be the case for islands with just one submarine cable, or continental areas with no fixed backbone alternative infrastructure), cable operators are not only in a dominant position, but also act as a monopoly, leading to high wholesale prices or even refusal to provide wholesale services, impacting also in retail prices for broadband. When this is the case, regulation is needed to enforce access to alternative operators at regulated prices (usually cost-based), and a reference offer must be prepared by the dominant operator.
Which wholesale access products should be accessible for alternative operators
79. Each of the wholesale products described in the previous subsection are aimed to cover different needs and have different impacts in competition. In general, they can be combined, provided that prices are set according to characteristics of the corresponding product (for example, local loop unbundling should be less expensive than bitstream access, as it involves less resources from the dominant operator and more investment by the alternative operator). In fact, in many OECD countries and part of the countries of the LAC region, most or all of them are imposed in the national regulation.
80. Bitstream, local loop and fibre unbundling are used to foster competition for fixed broadband access when there is not enough infrastructure based competition (as the competitive pressure exerted by cable operators) and competition is not expected to develop absent these obligations in the medium term. In certain cases, mobile broadband can act as a complete substitute of fixed broadband, and competition from mobile providers in these cases should also be taken into account when designing regulatory measures to impose wholesale access for essential facilities for competition in the broadband market. In any case, in most situations, especially in urban areas with short loops, speeds and quality of service for fixed networks cannot be wholly replicated by mobile infrastructures at present.
81. Bitstream access is used for a quick start of competition with a low level of investment by alternative operators. Typically, many alternative operators begin by using bitstream access, and over time, they evolve to use local loop unbundling, that provides more room for differentiation in areas where local loop unbundling is economically sustainable. However, bitstream access is very relevant to foster competition in rural areas where local loop unbundling may not be profitable for alternative operators.
82. Local loop unbundling is one of the most relevant regulatory tools to foster competition in urban areas for fixed broadband access from alternative operators without their own access infrastructure when dominance exists. Although LLU is complex to implement, it may render good results in terms of competition allowing alternative operators to develop their network and increase competitive pressure for markets where the dominant operator enjoys a very large market share and prices are high. This was the case for Mexico and IFT, the Mexican regulator has introduced this obligation, together with resale and bitstream access in 2015 (Box 14).
83. Passive infrastructure access and especially duct access foster infrastructure based competition where operators competing can deploy their own active network infrastructure, fostering complete differentiation and innovative services based on different network technologies. Duct access is useful not only to foster competition for fixed broadband access, but also to foster competition in mobile broadband. The increased penetration and use of mobile broadband has caused increased growth of the traffic to be handled by base stations. When mobile operators can access to existing ducts, they are renting them to connect base stations to their core networks deploying their own fibres. Additionally, mandating duct sharing for the dominant operator may also reduce the need for civil works and digging, reducing any inconvenience to the public at large. Thus, in general, imposing obligations for duct access fosters infrastructure-based competition, reducing the need for investments, while preserving incentives for innovation.
84. Wholesale access obligations for submarine cables are in general needed when there are no other alternatives for operators to cover the route where the cable is deployed in order to avoid high prices and/or refusal for access that would reduce competition and increase prices at the retail level. However, while wholesale access obligations are important when there is no alternative infrastructure, encouraging (and in some cases funding) alternative infrastructures (other submarine cables, or when possible, fixed backbones) to let competition develop in the long term.
85. Leased lines and high quality IP wholesale products are aimed at introducing competition for business services and should be considered when a dominant position is detected for these services. It is important to note that products, configuration and competition dynamics for the business services markets are usually very different to mass markets, and a specific analysis should be carried out. In any case, high prices and/or low quality for business products are a very relevant issue influencing productivity and ability to compete by businesses in the country.
86. Finally, price regulation for reselling is seldom used, as its influence on competition is very limited, and dark fibre is usually provided by other actors such as utilities that are not subject to telecommunications regulation (dark fibre and network deployments by utilities are addressed in the next chapter).
How to apply wholesale regulation
87. Wholesale regulation is key in fostering competition in markets where one operator accounts for most of the market share, where there is insufficient infrastructure competition and new entrants need to get access to essential facilities, which are not replicable in the short term. This is the case in most of the LAC countries. However, wholesale access is not regulated in many cases, and in others, while at least part of the wholesale products are regulated, the obligations are not effective. This is especially relevant in the context of fixed networks, where access network deployment takes a lot of time and resources. The key wholesale access obligations are focused on facilitating access to bitstream services, local loop unbundling, leased lines and other high quality wholesale products aimed at the business segment, passive infrastructure access and trunk segments based on submarine cables. Regulating wholesale access implies setting prices as well as technical conditions and procedures for access.
88. Wholesale prices for dominant operators are usually set under a cost-based assumption. This means that the regulatory authority must perform a careful analysis of costs involved for the wholesale inputs to be regulated. Regulatory cost-accounting is a complex discipline involving specialised knowledge and extensive data. Additionally, setting too low wholesale prices discourage investments by the dominant operator subject to the obligation, while setting too high regulated prices render the obligation ineffective, as alternative operators would not use these wholesale inputs. The key good practices for setting prices are:
• Experts on regulatory accounting must be involved in price setting for wholesale access. Knowledge and experience in applying different cost models is needed.
• Extensive information on the accounting for the services involved is needed and must be provided by the dominant operator on a regular basis. This information must be audited by a third party and the regulator must also review the key aspects of the information provided by the dominant operator.
• Depending on the information available as well as the context and purpose for the wholesale regulation, different cost models can be applied when performing cost accounting exercises (Box 15).
• One relevant issue when applying cost-models is to select the most adequate modelling technique. Top-down modelling attempts to measure costs starting from the firm’s actual costs as set out in its accounts. This method does not involve detailed network modelling. Instead, a top-down model separates the firm’s assets and costs into service groups, and then adds the extra costs associated with interconnection to arrive at an estimate of LRIC. The bottom-up approach develops the cost model on the basis of the expected demand in terms of subscribers and traffic and sets the network design and estimates the related costs on the basis of a network engineering model. There are advantages and disadvantages of both models (Table 3.1). Selection on the cost model to be applied should take into consideration data available, resources available, as well as impact on competition and investment for both access seekers and access providers.
• Regulated prices must be reviewed periodically to adapt to the evolution of costs as well as effects of the wholesale regulation in the evolution of the market. When there is a significant difference between wholesale prices applied at the moment of enacting the regulation and costs obtained from the cost accounting exercise, it can make sense to define a glide path to facilitate a smooth non-disruptive adaptation of wholesale prices from the existing situation to the objective situation. Glide paths prices are defined setting descending prices along time. This has been, for example, the model applied for reduction of termination rates by a relevant number of Member States in the European Union.
• The information on how regulated prices are set must be published (except confidential data from the dominant operator) and be subject to public consultation. This helps improve the methodology, correct errors, and anticipate potential conflicts among operators or judicial challenges by any of the stakeholders involved.
89. Technical specifications and procedures are as relevant as prices. When technical specifications are not well defined, there is room for the dominant operator to hinder access and make it ineffective. Well-defined processes covering all the areas involved are also very important to ensure a prompt and effective access. Related good practices in this area are:
• Impose an obligation on the dominant operator to publish a reference offer where all technical, procedural and price issues are covered. This reference offer should be aligned with the obligations required, address all the issues defined by the regulator, as well approved by the regulator before its publication. A deadline must be set for the publication of the reference offer.
• Taking into account the complexity and the many aspects involved in the contents of a reference offer, it is good practice to have regular meetings with both the dominant and the alternative operators while in the process of elaborating the reference offer in order to ensure that all aspects are well covered and that the reference offer can be used in an effective way by alternative operators.
• The definition of processes and deadlines for each step is key in ensuring that issues are solved in time, do not delay provision of essential facilities and ensure an effective operation (including incident management and maintenance). These processes should also include providing regularly information to the regulator and alternative operators about key performance indicators, as well as penalties for not meeting objectives. In order to make effective these processes, specific IT systems may be needed to automate as much as possible key processes as provisioning or incidence management.
• Non-discrimination is an important issue which needs to be addressed and monitored by the regulator. As a principle, alternative operators must face the same conditions when accessing the dominant operator’s wholesale products as the dominant operator’s retail business faces. Terms for access, prices, and times for provisioning and incidence management should be as similar as possible.
• Ensuring that reference offers are completely effective for competition is a long process that usually takes many years. The experience from OECD countries shows that reference offers are incrementally improved based on experience on its application, as well as on conflict resolutions between the dominant operator and alternative ones using the reference offer. Fortunately, there exist plenty of experiences on preparing and tuning reference offers in many OECD countries. That being said, context conditions differ from country to country, and adaptations to the local context is always needed.
• Benchmarking with other countries, as well as maintaining a network of contacts among regulators in different countries is a very valuable tool to refine reference offers as well as to gain valuable experience. This is the case of BEREC, the Board of European Regulators for Electronic Communications Services, that (among other issues) is a forum for sharing experiences in the context of regulatory action, allowing for a fluid exchange of views and experiences. The LAC area could also benefit by building network of regulatory experts to exchange information.
Functional and structural separation of operators
90. Functional separation, sometimes referred to as operational separation, attempts to achieve non-discriminatory conduct of an operator with significant market power in the provision of access products and in downstream competition. It requires a dominant operator to separate, but not sell, its network infrastructure (or wholesale services) from its retail services division. The key feature of functional separation models is that the network provider is required to operate at arm’s length from downstream service operators providing competitors and the incumbent’s own retail operations with non-discriminatory equivalent services.
91. Structural separation goes further than functional separation. It requires the separation of a vertically integrated firm not only operationally but also in terms of ownership, into: a company owning the local access network, providing wholesale access (the network operator); and the rest of the company that provides retail services. The separation of ownership is intended to eliminate the incumbent’s incentives to discriminate.
92. Functional and structural separation is complex to implement and can substantially effect the structure of the dominant operator. For this reason, both should be considered as a last resort regulatory measure to be applied only when the rest of the regulatory measures available are not sufficient nor effective to solve the competition problem in a determined market and after a careful impact analysis shows that benefits to be obtained are greater than costs and when wholesale access regulation is considered as insufficient. Although functional and structural separation in the telecommunication sector have not been applied in the majority of OECD countries, there are some existing experiences in the OECD area that can be used as a reference and the recommendation of the OECD council concerning structural separation in regulated industries can also be used as a general reference on issues to take into account (OECD 2011b).
14. Although most countries in the LAC region have liberalised telecommunication markets and, in general, operators are privately owned, there are some state-owned operators in certain countries. Publicly-owned operators have traditionally taken strategic decisions on investment, prices, coverage and innovation based on very different drivers than private operators, leading in some cases to budgetary issues and potential conflicts among commercial and public policy objectives. At the same time, these state-owned operators, when operating in competition with the private sector, should also compete on an equal footing. This situation can be challenging for both, the policy maker and the state-owned operators.
15. Good practice in this area should be based on several key aspects:
• Both private and state-owned operators must be subject to the same regulatory framework and when possible there should not be special exemptions for state-owned operators (for example, exemptions on fees to be paid or automatic granting of licenses or contracts). However, it may be necessary to impose asymmetric regulation on a state-owned operator (usually the incumbent operator) because it is found to be dominant in one or more markets, just as for private-owned operators when they are in a dominant position. Universal service obligations are usually imposed only on a dominant operator (sometimes state-owned) in that it has the most extensive infrastructure.
• State-owned operators should have the flexibility needed to compete with the private sector. For practical purposes, they should be subject to similar conditions for contracting services or budgeting and financing network deployments and launching new services . A careful review may be needed to shift the setting of specific social objectives from the state-owned regulator to the scope of the governmental action, to avoid conflicts and promote healthy competition. For example, network deployments in rural areas where there are not enough returns to cover investment, but where action is needed to ensure access, should be funded by different sources than the public operator revenues, and tenders and conditions for deployment and access should not favour or penalised public-owned operators. Chapter 4 addresses in more detail the role of publicly owned operators in the implementation of broadband extension plans.
• It is very important to ensure the independence of the communications authority as well as separation of powers between ministerial agencies in charge of policy making and ministerial agencies in charge of controlling state participation in the operator.
16. Applying in practice these recommendations is challenging and politically complex, and is one reason why in OECD countries state-owned operators have been privatised.
93. Although significant advances have been made in terms of competition in the LAC region over the last few years, in general there is insufficient competition, and a need for regulatory measures to foster entry and investment by new operators, as well as to encourage price competition and innovation.
94. Good practices to foster competition in both fixed and mobile broadband markets include:
• Improved authorisation and licensing processes for new entrants which in many countries are still burdensome. Licensing processes should be faster, simpler and fees for registration should be as low as possible, aimed to cover associated costs, following when possible a registration based authorisation process not linked or specific to any service.
• Foreign investment restrictions in the broadband access market, where they exist, should be lifted to maximise funding of networks and service deployment needed in the area, as well as to foster competition. Most of the LAC countries do not apply restrictions to foreign investment.
• In order to ensure a level playing field, state-owned operators should be regulated and operate under similar rules and regulations as private operators as possible. The administrative body responsible for overseeing the ownership of state-owned operators should be separated from policy making administrative bodies
• Interconnection prices for fixed and mobile voice are still high in a number of LAC countries leading to on-net/off-net differentiation, raising prices for voice services and limiting competition by small operators and new entrants. As broadband services are usually sold together with voice services, this also effects broadband competition. Ensuring that interconnection prices are public and cost-oriented and in line with prices paid in other regions where there is a thriving competition is good practice. At the same time, ensuring rapid and efficient number portability procedures in both fixed and mobile services is critical to facilitate switching by consumers and to develop competition. Those countries that have still not implemented number portability, should prioritise this issue.
• The prices for internet interconnection are in general very high in the region resulting in high retail prices for broadband access. Regulators should encourage IXP deployment, development of local data centers, foster backbone deployment (see Chapter 7 on regional integration), ensure Internet openness (see Chapter 6) and monitor prices for internet interconnection.
• Regulatory authorities should as a general rule refrain from regulating emerging services too early except where justified such as for consumer protection.
• Customer retention practices must be monitored and if periods for customer retention are too long, regulatory measures can be taken to limit the lock-in period and set conditions for customer retention thus helping to improve competition.
• Network sharing and co-investment should be encouraged, in general, by regulators and any administrative barrier for co-investment should be lifted as this can significantly reduce investment needed to provide services. Regulators should however monitor network sharing and co-investment agreements and set conditions when needed to prevent undesirable negative impacts on competition.
• Rights of way are an important area where national administrations and regulatory authorities can take measures to reduce barriers to entry. National harmonising administrative procedures, setting rules for quick and reasonable fees, one-stop-shopping procedures, as well as guidelines for municipalities are all important to ensure that operators do not face high administrative barriers to deploy networks.
95. In the context of mobile broadband, which can play an increasingly key role in the region for network expansion and competition for broadband services, competition can also be fostered by:
• Auctioning more spectrum for broadband mobile access, encouraging new entry in the market (see Chapter 2 on spectrum management).
• Reviewing the regulatory framework to ensure that MVNOs have no regulatory barriers to enter the market, and if needed, impose regulatory obligations to MNOs to facilitate wholesale access for MVNOs.
• Imposing obligations for national roaming access when needed to facilitate competition from new entrants while they are deploying their network.
• SIM lock-in practices should be monitored and regulation may be applied to ensure SIM unlocking for customers under reasonable circumstances e.g. when the terminal has been completely paid for.
96. In the context of fixed broadband, competition can also be fostered by ensuring that in-house building wiring is not a barrier for competition, regulating existing in-house building wiring sharing, as well as enacting regulation to ensure an adequate passive infrastructure in new buildings configured to accommodate several competing in-building wires.
97. Dominance is a key factor preventing competition since dominant operators are in a position to set high prices, hamper or prevent entry by new actors. Taking this into account, analysis of dominance in relevant markets must be performed regularly since it provides the evidence-base to apply regulatory measures to dominant operators aimed to facilitate entry of new market actors. Good practices in this line include:
• Performing dominance market analysis under a regular basis (each 2-4 years) using recent data collected from operators, and applying sound methodologies that should address not only market shares, but also other structural parameters in the market. A preliminary market analysis must be subject to public consultation
• Operators must have clear powers set in the regulatory framework to impose regulatory measures derived from market analysis. These regulatory measures should be justified, be adequate to address the competition problems, and should be the least burdensome possible.
98. In general, the regulatory measures applied should be focused on the wholesale market and aimed to facilitating access of alternative operators to essential facilities. Bitstream, local loop unbundling, fibre unbundling, duct access, trunk services supported by submarine cables and wholesale access to leased lines are the typical wholesale access measures to be considered.
99. Setting cost-based maximum prices for wholesale access and ensuring that an adequate and effective reference offer is prepared by the dominant operators are key issues to ensure success and create competition. The extensive experience in OECD countries can be used to address these issues
In 2012, the Peruvian government published the Law No. 29904, (Ley de Promoción de Banda Ancha y Construcción de la Red Dorsal Nacional de Fibra Óptica). The law states that telecommunications companies have the right to access and use the infrastructure of electricity and hydrocarbons companies. Access cannot be denied unless it threatens the continuity of these services. For details see: https://www.osiptel.gob.pe/repositorioaps/data/1/1/1/PAR/ley-29904-promocion-banda-ancha-rdnfo/ds014-2013-mtc.pdf
See, for example the Ley 8660 de Fortalecimiento y Modernización de las Entidades Públicas del Sector Telecomunicaciones, enacted by the Costa Rica Regulator, SUTEL, aimed to set a more flexible framework for the public telecommunication operator, ICE (https://sutel.go.cr/sites/default/files/normativas/fortalecimiento_y_modernizacion_de_las_entidades_publicas.pdf
It may not always be necessary to regulate interconnection prices in an asymmetric situation if compensation charges are reciprocal. If that is the case and one party tries to charge more than its cost, it faces the problem that traffic flows may reverse and it will end up being the net payer. This is what happened in the United States in the 1990s. Some incumbents set their reciprocal compensation rates too high, and instead of receiving money, they had to pay it out as new entrants promptly set up modem banks to receive dial-up Internet access calls from incumbent customers. That being said, cost may differ among the incumbent and new entrants, and a reciprocal rate model, may not be fair. Adding to that, high reciprocal rates may harm competition from alternative providers in the context of fixed and mobile telephony.
Actual prices must remain below the caps, which are fixed at the same level as the termination rates (for voice and SMS), and national data roaming may not be price above USD 1.38 cents (COP 25.63)/MB in 2013, USD 1 cent (COP 19.36)/MB in in 2014 and USD 0.68 cents (COP 13.09)/MB from 2015 on.
Public unrestricted access to all information on passive infrastructure may be not advisable as this may be considered as sensible information for security reasons and in that case, controlling and granting limited access to specific persons or companies in the need to use the information may be advisable.
http://en.wikipedia.org/wiki/Base_transceiver_station, “BTS is also referred to as the radio base station (RBS), node B (in 3G Networks) or, simply, the base station (BS). For discussion of the LTE standard the abbreviation eNB for evolved node B is widely used”.
The exact construction of the arrangement can resemble business process outsourcing, financial lease, ownership and sub-contracting.
SK Telecom, NSN successfully complete Evolved Packet Core virtualization proof-of-concept, November 25 2013, http://fr.nsn.com/news-events/press-room/press-releases/sk-telecom-nsn-successfully-complete-evolved-packet-core-virtualization-proof-of-concept
Website of Japanese tunnel association http://www.jmcia.or.jp/
MBNL agreement announced in 2007. http://mbnl.co.uk/about-us/
Vodafone and Orange announce RAN share in the UK, 2007. http://www.theguardian.com/media/2007/feb/08/digitalmedia.mobilephones.
Vodafone announces agreement with Cornerstone in 2009. Press commentary noted that the prior agreement with Orange had not resulted in any significant sharing. http://www.mobiletoday.co.uk/news/industry/7317/New_network_sharing_deal_for_O2_and_Vodafone_sidelines_Orange.aspx
Vodafone has explained the sharing arrangements on its website. http://blog.vodafone.co.uk/2012/11/20/better-coverage-fewer-masts-your-complete-guide-to-our-network-joint-venture/
EE and Three announce 4G sharing arrangements. http://www.computerweekly.com/news/2240213694/EE-and-Three-sign-passive-network-share-deal-for-rural-UK
InfoDev “Telecommunications Regulation Handbook”. https://www.itu.int/ITU-D/treg/Documentation/Infodev_handbook/5_Competition.pdf
See “Next Generation Access Networks and Market Structure” (http://www.oecd.org/sti/ieconomy/48460232.pdf)
See “Recommendation of the OECD council concerning structural separation in regulated industries” (http://www.oecd.org/daf/competition/recommendationconcerningstructuralseparationinregulatedindustries.htm)
BEREC (2011), BEREC Report on Open Access, BoR (11) 05. http://berec.europa.eu/doc/berec/bor_11_05.pdf
BEREC (2014) BEREC Common Position on geographic aspects of market analysis (definition and remedies), BoR (14) 73. http://berec.europa.eu/eng/document_register/subject_matter/berec/regulatory_best_practices/common_approaches_positions/4439-berec-common-position-on-geographic-aspects-of-market-analysis-definition-and-remediesCRC (2013) Comisión de Regulación de Telecomunicaciones “Resolución 4112 de 2013” http://colombiatic.mintic.gov.co/602/articles-3863_doc_norma.pdfERG (2006) Revised ERG Common Position on the approach to Appropriate remedies in the ECNS regulatory framework. http://pfs.is/upload/files/erg_06_33_remedies_common_position_june_06.pdf (Accessed on February 23rd, 2016)
ERG (2009), Report on Next Generation Access – Economic Analysis and Regulatory Principles. ERG (09) 17. http://berec.europa.eu/doc/publications/erg_09_17_nga_economic_analysis_regulatory_principles_report_090603_v1.pdfEUR-LEX (2016). Access to European Union Law. http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52002XC0711%2802%29 (accessed on February 23rd, 2016)
IFT (2015) OREDA: Oferta de Referencia para-la Desagregación del Bucle Local (Reference Offer for-the local loop unbundling) www.ift.org.mx/sites/default/files/oreda_telmex.pdf (Accessed on February 23rd, 2016)
ITU ICT (2016) The ICT Regulation Toolkit http://www.ictregulationtoolkit.org/en/home ( Accessed on February 23rd, 2016)
JMCIA (2016) Japan Mobile Communications Infrastructure Association http://www.jmcia.or.jp/ (retrieved on February 23rd, 2016)
MINETUR (2011) Real Decreto 346/2011 Ministerio de Industry, turismo y comercio (Royal decree 346/2011, Ministry of Industry, turism and trade) http://www.minetur.gob.es/telecomunicaciones/Infraestructuras/Normativa/1.-%20Normativa%20de%20aplicaci%C3%B3n/REAL%20DECRETO%20346_2011.pdf (accessed on febraury 23rd, 2016)
MINTIC (2013) “Resolución 449 de 2013” www.mintic.gov.co/portal/604/w3-article-3799.html (Accessed on February 23rd, 2016)
OECD (2008), “Public Rights of Way for Fibre Deployment to the Home”, OECD Digital Economy Papers, No. 143, OECD Publishing, Paris. http://dx.doi.org/10.1787/230502835656
OECD (2011a), “Competition assessment toolkit”. http://www.oecd.org/competition/assessment-toolkit.htm
OECD (2011b), Next Generation Access Networks and Market Structure. DSTI/ICCP/CISP(2010)5/FINAL. http://www.oecd.org/sti/ieconomy/48460232.pdf.
OECD (2014), “Wireless Market Structures and Network Sharing”, OECD Digital Economy Papers, No. 243, OECD Publishing. http://dx.doi.org/10.1787/5jxt46dzl9r2-en
OECD (2015) report on “Competition and Market Studies in Latin America” www.oecd.org/competition/competition-and-market-studies-in-latin-america-2015.htmOECD (2003a), “Developments in Local Loop Unbundling”, OECD Digital Economy Papers, No. 74, OECD Publishing. http://dx.doi.org/10.1787/233065827862
OECD (2015) Competition and market studies in Latin America 2015: The case of Chile, Colombia, Costa Rica, Mexico, Panama and Peru www.oecd.org/competition/competition-and-market-studies-in-latin-america-2015.htm
OSIPTEL (2008) Decreto Legislativo 1019 Ley de acceso a la infraestructura de los provedores imporantes de servicios públicos de telecomunicaciones. (Legislative Decree 1019 law on access to infrastructure imporantes providers of public telecommunications services.) https://www.osiptel.gob.pe/repositorioaps/data/1/1/1/par/solucion-de-controversias/files/DL_1019_NormasInterconexion-ST.pdf (accessed on February 23rd, 2016)
PGMC (2012) “Resolução nº 600, de 8 de novembro de 2012” (Resolution No. 600 of November 8, 2012) Legislação Agencia Nacional de Telecomunicaçoes. Legislation. Telecommunication National Agency www.anatel.gov.br/legislacao/ (accessed on February 23rd, 2016)
United States Code (2015) “Broadband Conduit Deployment Act of 2015” http://eshoo.house.gov/wp-content/uploads/2015/10/10.22.15-Dig-Once-Bill-Text.pdf ( accessed on February23rd, 2016)
URCA (2015) Infrastructure sharing regulations. http://www.urcabahamas.bs/download/035843400.pdf (accessed on February 23rd, 2016)
SCT (2016) Red compartida (Shared network) http://www.gob.mx/sct (accessed on February 23rd, 2016).
SEGOB (2016) Decreto por el que se expiden la Ley Federal de Telecomunicaciones y Radiodifusión, y la Ley del Sistema Público de Radiodifusión del Estado Mexicano; y se reforman, adicionan y derogan diversas disposiciones en materia de telecomunicaciones y radiodifusión.( Decree by the Federal Telecommunications Act and Broadcasting Act and the Public Broadcasting System of the Mexican State of issue; and amending, supplementing or repealing certain provisions in telecommunications and broadcasting.) www.dof.gob.mx/nota_detalle.php?codigo=5352323&fecha=14/07/2014 (accessed on February 23rd, 2016)
SUBTEL(2014a) Licitación 700 MHz: SUBTEL define frecuencias para Entel, Movistar y Claro (700 MHz tender: SUBTEL defined frequencies for Entel, Movistar and Claro_ www.subtel.gob.cl/noticias/5246-licitacion-700-mhz-subtel-define-frecuencias-para-entel-movistar-y-claro (accessed on February 23rd, 2016)
SUBTEL (2014b) Bases del concurso público para otorgar concesiones de servicio público de transmission de datos en las bandas de frecuencias 713-748 y768-803MHz (Bases of the public tender for granting concessions for public service data transmission in the frequency bands 713-748 y768-803MHz ) http://www.subtel.gob.cl/images/stories/apoyo_articulos/concurso_700/bases_700.pdf (accessed on February 23rd, 2016)
SUTEL (2015) Consulta Pública al reglamento sobre el uso compartido de infraestructura para redes públicas de telecomunicaciones (Public consultation to the regulation concerning the shared public telecommunications networls) https://sutel.go.cr/sites/default/files/audiencias/reg-01904-2015.pdf (accessed on February 23rd, 2016)
Vivo (2013) Oferta Pública de Referencia de Roaming Nacional. (Public Offering Reference National Roaming)www.vivo.com.br/portalweb/ShowPropertyServlet?nodeId=/UCMRepository/CONTRIB_093690 (accessed on February 23rd, 2016)
AHCIET (2013), Operadores Móviles Virtuales en América Latina. http://cet.la/blog/course/operadores-moviles-virtuales-en-america-latina/
APEC (2011), Survey Report on Infrastructure Sharing and Broadband Development in APEC Region. http://publications.apec.org/publication-detail.php?pub_id=1184
BEREC (2010), “BEREC Common Statement on Next Generation Networks Future Charging Mechanisms/ Long Term Termination Issues”. BoR (10) 24 http://berec.europa.eu/doc/berec/bor_10_24_ngn.pdf
Chung, H. (2010), “Developments in Cable Broadband Networks”, OECD Digital Economy Papers, No. 170, OECD Publishing. http://dx.doi.org/10.1787/5kmh7b0s68g5-en
CRC (2013), “Strengthening competition policy in Latin American countries: The application of competition law in the telecommunications sector”. Centro Regional de Competencia para América Latina. M. Cave, A. A. Avgousti, A. Foster. http://www.crcal.org/guias-y-estudios/estudios/estudios-de-sector/doc_download/12-strengthening-competition-policy-in-latin-american-countries-the-application-of-competition-law-in-the-telecommunications-sector
GSMA (2014), License Renewal in Latin America. http://www.gsma.com/spectrum/wp-content/uploads/2014/02/GSMA-Report.-Licence-Renewal-in-Latin-America.-2014.pdf
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OECD (2003b), “The Benefits and Costs of Structural Separation of the Local Loop”, OECD Digital Economy Papers, No. 76, OECD Publishing, Paris.
OECD (2009), Network externality premiums and International Telecommunication traffic exchange. DSTI/ICCP/CISP(2008)4/FINAL. http://www.oecd.org/sti/broadband/42583547.pdf
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OECD (2015), OECD Digital Economy Outlook 2015. OECD Publishing, Paris.
http://dx.doi.org/10.1787/9789264232440-enOECD (2014), “International Traffic Termination”, OECD Digital Economy Papers, No. 238, OECD Publishing. http://dx.doi.org/10.1787/5jz2m5mnlvkc-en
ANNEX: NUMBER PORTABILITY IMPLEMENTATION IN THE REGION
19. According to information provided by the regulator, mobile number portability will take effect when the new mobile operator enters market in 2016
20. While the rules only ‘require’ porting within the same island, CBL (one of the fixed providers) ports between islands within this timeframe (on their network and if a number is ported from the BTC network to the CBL network).
CHAPTER 4: EXTENDING BROADBAND ACCESS AND SERVICES
EXTENDING BROADBAND ACCESS AND SERVICES
This Chapter focuses on good practices aimed at ensuring that broadband infrastructure and services are as widespread as possible. Leading mechanisms and tools at the disposal of policy makers are described to extend broadband access, such as through national broadband plans, universal service funds and public-private partnerships.
1. A clear precondition to foster broadband use by people and business is the availability of broadband infrastructures and final services in the geographical area where potential users are located. Any demand-side policy assumes that potential users have at their disposal broadband access and services or is designed to overcome barriers that may not result from availability of infrastructure (e.g. skills).
2. Ensuring that broadband networks and services are developed to attain the greatest national coverage and use is a priority for most governments. Policies aiming to promote competition, private investment, and independent regulation have been tremendously effective in extending coverage. By doing so, they reduce the size of that segment of the market that requires alternative approaches to meet policy goals. In those areas where markets cannot fulfil all policy objectives a range of further approaches are possible. Policies aimed at increasing access, in such instances, can be addressed in national broadband plans using tools such as “universal service funds” or through legal obligations imposed on operators, such as using spectrum licences that have coverage objectives, or via public funding aimed to foster network deployments and broadband service provision in specific areas. Even here, the market may play a role through the use of tools such as public tenders for competitive bidding to find a provider that best meets delivering the infrastructure and services required, an approach successfully used by Colombia.
3. Together with increasing competition, extending the availability of broadband access is one of the key challenges that need to be addressed in the Latin American and Caribbean area. A diverse and sometimes challenging geography (e.g. the Amazon basin rainforest or small Caribbean islands) combined with low incomes, a lack of basic infrastructure (e.g. electricity grids) result insufficient broadband access infrastructure in large geographical areas. This is the case for many rural and remote areas, where population density is low and where fewer incentives for investment by the private sector exist. This limits access to the wealth of content and applications available on the Internet. In turn, this constrains the opportunities for people to participate in the economy, increase their civic engagement and for the country as a whole to benefit from the potential productivity gains broadband access makes possible.
4. Policy objectives for extending broadband access have often been articulated around concepts similar to those found for telephony. These can be “universal service” (availability of the service in a residence or carried with the individual through wireless devices) and “universal access” (availability of the service accessible in a public space, such as at telecentres). Although the economic and social objectives that served as the original foundation for universal service for fixed telephony remain valid today, objectives on universal access acquire a new dimension with the expansion of high-capacity networks and the evolution of social needs. In order to extend broadband access and services data are needed to identify coverage gaps and bottlenecks in the LAC region. In addition, government policies must be implemented together with funding where objectives are not met by the market and monitoring undertaken of their effective use. In this regard, ongoing collaboration between the public and private sectors is crucial, as it allows for creating synergies and mobilising resources and expertise (Broadband Commission, 2014a).
5. The challenges of extending coverage for broadband access are not new, nor exclusive to the LAC countries. Many experiences in the area and in other regions of the world exemplify successful policies to extend broadband access. Additionally, the evolution of wireless technologies allows for new ways to extend broadband access, including via mobile broadband, which extends access at lower prices and at a more rapid pace than traditional fixed technologies. Nonetheless, fixed networks play a key role including for backhaul and must be an integral part of any plan.
6. This chapter examines current policies to expand access in LAC countries, focusing on demonstrated good practices and experiences with their adoption.
Key policy objectives for the LAC Region
7. Facilitating wide availability of broadband access at affordable prices for all segments of society, including for people with low incomes and living in rural areas, is the main policy objective. Fulfilling this goal requires that two related policy objectives are addressed:
• Encouraging private investment aimed at extending broadband access. Most of the good practices aimed at fostering competition by lowering barriers for investment can and should be used to encourage private investment to extend broadband access. This is the case, for example, in simplifying licencing requirements, lifting foreign investment restrictions, simplifying and harmonising rights of way acquisition, or encouraging network sharing and co-investment. These issues are further addressed in Chapters 1 and 3.
• Solving critical bottlenecks for infrastructure deployment and use. In certain situations, these critical bottlenecks, such as addressing the availability of high-speed backbones or backhaul infrastructure cannot be addressed adequately by private initiatives thus requiring active public policies which will allow for sustainable infrastructure deployment by private actors in the access portion. Bottlenecks for infrastructure deployment are further addressed in Chapters 2 and 7.
8. These policy objectives are usually set down in a comprehensive manner through National Broadband Plans (NBPs) where policy makers provide clear objectives, taking into account the level of development in the country, existing coverage gaps by fixed and mobile broadband networks and the level of competition (Chapter 1). Such policy objectives should also take into account the broadband demand side since encouraging demand will also stimulate the rollout of broadband networks by the private sector (Chapters 5, 8, 9, 10, 11, 12 and 13).
Tools for measurement and analysis in the LAC region
9. Setting broadband objectives and preparing plans may not be sufficient for expanding broadband access if attention is not paid to metrics which allow policy makers to assess progress in meeting the desired goals. Establishing an effective and powerful oversight mechanism is important in order to promote better performance from managers and stakeholders, evaluate how a broadband plan affects targeted beneficiaries, determine resource allocations, improve planning, and to provide input for decisions regarding the strategic direction of the broadband plan. In this context it is also important that the national authorities have the necessary legal powers to obtain the necessary data from market players. Using broadband metrics to compare performance relative to other countries in a region can also provide an indication on how national policies are working.
10. Key metrics and data required to determine objectives and monitor advances in broadband access include data on geographical/households coverage and speed for broadband access. This information can be collected from operators (both fixed and mobile) and processed and analysed by the authorities or regulator in charge of policy measures to address broadband access extension. The nature of the Internet means that they can also engage in their own independent assessment of network availability and performance, including through new tools such as apps that enable users to provide information. In the United States the FCC is one regulator using this tool , and Anatel in Brazil has also an initiative in this line (Box 1). Regular updates of data must be undertaken to check advances as well as to identify critical bottlenecks.
11. Measurements of broadband availability and access should address geographical coverage as well as the share of population (households) where broadband coverage is available. This implies that data on the availability of broadband access for households in a geographical area, in addition to the geographical coverage in that area, is important. As explained in the section on good practices, broadband maps are a key tool to be used for this purpose.
12. Speed and quality of services is also important for broadband access since low speeds or poor quality may make it difficult or impossible to use certain Internet applications and services. Regular collection of data on real speeds and quality of service (QoS) parameters should be undertaken. Although this data can be requested from operators, real speeds and QoS parameters, such as on delay, can also be collected directly from the network (Box 1).
13. When evaluating national broadband plans it is useful for any LAC country to compare their performance with others in the region, as well as other reference regions. For example, OECD countries provide comparative data enabling members to view their performance relative to others, and the DigiLAC initiative from the IDB is aimed, among other uses, to compare the situation in the LAC region regarding broadband access (Box 2). Comparisons with broadly analogous countries are also often undertaken (e.g. Chile compares its performance with other Latin American countries, while South Africa compares itself with the other BRICS). In the United States the FCC is required by legislation to make comparisons with at least 25 countries in its annual report on advanced services.
14. Peer reviews are also useful to assess broadband access extension plans. Peer reviews consist of the systematic examination and assessment of the performance of a country by other countries, with the ultimate goal of helping the reviewed country to improve its policy making, adopt good practices, and comply with established standards and principles. Peer review is also a useful tool for assessment of policies aimed at extending broadband access. The methodology developed by the OECD (2003) has been extensively applied, including by other international organisations, and could be also applied in the LAC area for the assessment of National Broadband Plans. The examination is conducted on a non-adversarial basis, and relies heavily on mutual trust among the countries involved in the review, as well as their shared confidence in the process. When a peer review is undertaken in the framework of an international organisation, the Secretariat of the organisation also plays an important role in supporting and stimulating the process. With these elements in place, peer reviews tend to create, through a reciprocal evaluation process, a system of mutual accountability.
Overview of the situation in the LAC region
15. According to the information provided by countries in the LAC region for this report, as well as information publicly available, policy makers are keenly aware of the challenges for extending broadband. Many have taken action in different areas with a special focus on rural areas, underserved peri-urban areas or for other people with particular challenges.
16. Although countries in the LAC region lag the most advanced countries regarding broadband access and use (Figure 1), significant advances have taken place in recent years in several countries in the LAC region in terms of broadband access availability, use and skills. The ICT Development Index (IDI) published regularly by the ITU adds to the information provided by the aforementioned Broadband Development Index prepared by the IDB (2014a). Countries such as Costa Rica, Suriname, Brazil and Colombia have advanced in a very significant way their position in the ICT Development Index from 2010 to 2015, reflecting a wider availability, use of broadband access as well as an increase in skills on ICTs. It should be noted though that the average increase in IDI level was substantially higher for countries in mainland Latin America (1.09 points) than for the Caribbean and Caribbean-facing countries (0.73 points) (ITU, 2015).
17. Despite advances in a few countries, many challenges, common across the LAC region, remain in providing adequate broadband:
• The geography of many areas is especially complex for deploying broadband networks. This is the case for the Amazon basin that extends to Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname and Venezuela, but also for other densely forested areas in Central America. Additionally, there are other mountainous areas or small Caribbean islands with sparse populations and lack of backbone infrastructure where network deployments are likely to be expensive and expected revenues may be limited for one let alone multiple operators. If these areas do have service they may not be offered at competitive prices due to monopoly power.
• Affordability issues are still a major challenge in the LAC , as a relatively large segment of the population has relatively low incomes in the LAC region, resulting in a lower take-up of broadband services and reducing the incentive for private investment. Nonetheless experience with competition in mobile markets demonstrates operators will develop tools such as prepaid services to adapt to particular circumstances if the initial challenge of deploying infrastructures can be overcome. These issues are further analysed in Chapter 5. In some countries and regions there is a lack of basic infrastructure necessary for network operation (e.g. electricity). The availability of roads for access to roll out infrastructure and for maintenance of network infrastructure is also an issue in remote areas. Even when electricity is available, in most rural areas there is a lack of backbone and backhaul infrastructure, which makes deployment of both fixed and mobile networks very challenging and expensive, discouraging even further private investment.
18. Many of these issues such as the lack of basic infrastructure cannot be solved by policy measures specific to broadband. This means concurrent public policies in other areas must be taken to ensure effective development of broadband access. This requires close co-ordination among different sectors of the government in charge of infrastructure planning.
19. With a few exceptions, most of countries in the region have developed national broadband plans or digital agendas that include specific actions on extending broadband access or have defined objectives or projects aimed to increase coverage. In addition, most countries define broadband access in a technologically neutral way. Nonetheless, a number of broadband plans, and the associated funding for network deployment, are aimed at specific technologies, even when several different technologies could fulfil the policy objectives.
20. The national broadband plans and projects in Latin America and the Caribbean that focus on extending broadband access differ in scope, the level of detail, specific objectives, and the funding and collaboration models between the public and private actors. Many of these plans are ambitious, well-designed and address the key issues required to extend broadband access. Some of the weaknesses of these plans, which will be addressed in the section on good practices, are:
• Key indicators aimed at measuring progress in attaining policy objectives are not defined or are defined in a very general way and, in many cases, not directly related to the actions defined in the broadband plan. This makes it difficult, or even impossible to assess fulfilment of policy objectives.
• In a number of cases, regular updates on the achievement of the broadband plan objective are not made public. Transparency and accountability in this area are needed so that stakeholders’ can provide input to improve plans as well as to ensure that citizens can monitor advances. Increased transparency also provides an incentive for public authorities to implement broadband plans efficiently.
• Inventories of available fixed broadband infrastructure and maps are not in general publicly available at the national level in LAC countries. In a number of cases this also applies to the available coverage of mobile broadband. As highlighted in the next section, collecting and aggregating this information is complex and resource-consuming. However, obtaining clear and detailed information on where coverage is lacking is crucial in order to focus policy measures on priority issues and experience shows that operators themselves become the largest users of this information.
• Although the most ambitious and well-designed broadband plans in the LAC region benefit from stakeholder involvement in the design and implementation phases, there is little evidence to show that some plans have benefited from public consultations. As noted in Chapter 1 when addressing digital agendas, lack of stakeholder involvement raises the risk of defining policy objectives that are not aligned with real needs, as well as setting measures that are unrealistic or very difficult, if not impossible to meet.
• Broadband national plans aimed at deploying broadband access infrastructures must be co-ordinated with other projectes to encourage demand and build the skills needed for individuals, businesses and governments to reap the benefits of the digital economy. Policy makers should take into account that demand-side policies can represent an equally, or even greater, challenge and should be taken into account even from earlier phases of digital economy development. Coordination issues are addressed in Chapter 1 and demand-side policies in Chapters 5, 8, , 10, 11, 12, 13 and 14.
• When the regulatory framework does not clearly separate responsibilities, it also results in an overlapping of powers among different institutions that can undermine an effective management of broadband plans, as described in Chapter 1 on regulatory frameworks and digital agendas. This is the case for plans where the responsibilities of the ministry in charge of telecommunication policy, the regulatory authority and/or federal or municipal institutions are not clearly delineated.
21. The most frequent source used for funding broadband extension is a Universal Service Fund (USF). Contributions to any USF may be obtained from several sources, such as contributions from operators, revenues from spectrum licences, specific taxes for broadband extension, public government budget. Annex 2 shows detailed information on the universal service funds in the LAC region. Additionally, IDB (2014b) has developed a comparative study on different USF in the LAC region and in other parts of the world. It has been observed that in a number of countries USF contributions are not always disbursed on extending the network and the funds remain unspent, often resulting in large surpluses. This suggests that the capacity to develop and implement projects aimed at extending broadband access has proven to be insufficient.
22. In a number of cases, fees from spectrum auctions are used for funding of universal service. Although such fees can be an important source of funding, they only become available when new licences are issued and are a ‘one-off’ source of funds whereas spectrum licence fees provide a continuous source of funding allowing for better planning of broadband extension projects. However, caution should be taken to ensure that the level of annual spectrum licence fees are not determined by the financial needs for universal service projects since this may raise costs for mobile operators which are reflected in end-user prices. Spectrum management an policy-making in the LAC are further addressed in Chapter 2.
23. In the LAC region, as in other areas of the world, contributions from operators for the USF are usually based on total revenues for each operator (i.e. a percentage of revenues is set as a contribution for the USF, typically around 1%-2%). In general, there are no exceptions for small operators, nor a minimum threshold for revenue contributions.
24. Authorities can sometimes meet part of their broadband coverage policy objectives by exemptions from specific fees. For example, through lower or not applying spectrum licence fees in rural areas, or through lowering fees paid for the USF when specific objectives for broadband access are implemented by an operator. This can be the case for publicly or privately owned operators.
25. An important means to extend mobile broadband coverage is to incorporate in spectrum licences coverage obligations to ensure that mobile broadband access is also available in rural areas and that a certain percentage of the population will have broadband and mobile telephony access. Coverage obligations will also affect the valuation of spectrum licences by operators. In a number of cases, spectrum licences include conditions to provide connectivity to specific premises, such as schools and to apply special rates, provide free services for low-income citizens, or to provide terminals for schools. This is for example, the case in Peru when renewing the license for Telefonica de Peru.
26. USFs were first used in the LAC region to invest in rural telephony and install payphones in remote areas. As USF objectives evolve, the schemes can be used to extend broadband access and coverage to households, and when needed, to provide broadband connections to telecentres in underserved areas, schools and other public institutions or satellite broadband in remote areas. These funds can also used to invest specifically in backbone and backhaul networks in areas lacking trunk connectivity with the aim to foster access network investment by network operators. Furthermore, some objectives can relate to demand side issues and funds used encourage demand by low income consumers and spur or digital literacy plans.
27. The method for the selection of the operator that will obtain the subsidy to develop projects for broadband extension varies across the region and according to the type of project. A tendering process is used for many projects, encouraging operators to bid and compete to obtain the subsidy, while in other cases, the project is directly awarded to the incumbent operator or to public-owned operators that are in charge of providing rural broadband or to provide wholesale access networks to be used by other operators.
Mechanisms to extend broadband access
28. The best mechanism to develop nationwide broadband is to foster investment by the private sector through measures such as lowering administrative barriers to deployment, providing regulatory certainty for investors, encouraging network sharing and so forth. Having said that, the market will not provide broadband in certain situations access to meet policy objectives. When this is the case, several mechanisms are available as options for public authorities.
29. These mechanisms can be classified as obligations (e.g. obligations to provide coverage in a certain area), incentives for operators to cover broadband access gaps (e.g. subsidies or reduction of fees for rural deployment) or direct funding of broadband infrastructure (e.g. public-private partnerships and deployment of public-funded backbones).
30. It should be noted that policies on extending broadband access availability, as stated in Chapter 1, should always be coordinated and complemented with policies aimed to encourage demand, as adequate taxation regimes and programs addressing affordability (Chapter 5), digital skills programs (Chapter 8), encouraging ICT use for business (Chapter 9), e-health and e-governement programs (Chapters 10 and 11) and building consumer trust (Chapters 12 and 13).
31. Obligations aimed at extending broadband access. Any obligation imposed on operators regarding coverage should be carefully assessed against the costs and benefits. This includes comparing the expected positive effects (e.g. the number of households to be covered) against other potential implications (e.g. the cost of extending the network in less profitable areas or the effects on competition resulting from higher costs to an operator or cross-subsidies applied).
32. Universal service obligations (USO) for telephony services are usually in force in most OECD countries. However, the compulsory provision of fixed broadband access, with a minimum speed at affordable prices for all citizens in all geographical areas, is seldom imposed as part of, universal service obligations. Countries such as Finland, Korea, Spain and Switzerland are an exception in that broadband access has been included as part of USOs. Even in those countries, a great deal of effort and investment was devoted via national and regional broadband plans to increase coverage in rural areas before considering universal broadband access as a right for all citizens (Box 3). In addition, a key difference across countries that introduce such policies is the definition they apply to broadband in terms of guaranteed baseline performance levels to be delivered (i.e. the threshold speeds to be delivered).
33. Licenses for fixed telephony have also traditionally entailed obligations to cover rural areas where the cost for providing the service may be high relative to the expected revenues. Historically, this has usually included the deployment of fixed pay-telephones in small villages. With network convergence, a shift is taking place from service-specific licences to a general authorisation framework so that these type of universal service obligations evolve, similar to models applied in many OECD countries, where a competitive bid process is put in place to provide universal service, and the cost is assessed by regulatory authorities and shared by operators or funded by the state. Obligations for deploying pay-telephones can also be re-assessed in areas where penetration and coverage for mobile voice are high.
34. In the context of mobile broadband, obligations to be imposed on operators are defined in terms of specific network rollout obligations that are typically set out in the licence conditions or spectrum auctions. Once more, careful analysis must be performed when setting coverage obligations. Too lax coverage obligations may result in losing opportunities to ensure mobile broadband access in areas where there are not enough economic incentives to deploy network infrastructure. On the other hand, obligations that provide for extensive geographical coverage in a short time may impose an excessive burden on an operator. It is important that all MNOs in a country, with a similar license, have the same obligations although for new entrants the time required to fulfil obligations may differ from MNOs already operating in the market given that these actors have a first mover advantage.
35. One additional issue to be taken into account when setting obligations associated with spectrum licences is the inclusion of obligations to finance other objectives not directly related with coverage and the provision of mobile services, such as providing terminal equipment to certain communities (e.g. schools), or funding ICT skills programs. While these are laudable objectives, in general, including such obligations in the conditions for licences usually may result in market distortions. Any initiative to increase demand or policy objective not directly related with coverage, quality and services should be separated from auction proceedings and be funded using other sources such as universal service funds.
36. Incentives for operators to extend broadband access are aimed at bridging the investment gap in areas where expected returns do not justify network deployments. These incentives can be articulated in different ways: partial or total tax exemptions, lower or no fees for spectrum licences in certain areas associated with the obligation to provide coverage, direct partial/total subsidisation of rural or backbone/backhaul deployments, or loans at reduced interest rates. In many cases these types of incentives are sufficient to enable private sector action to extend broadband access.
37. Direct funding, policy measures and incentives to extend broadband access are usually articulated via National Broadband Plans (NBPs) and Digital Agendas, which are closely interrelated. Both aim to provide a comprehensive set of co-ordinated actions involving the public and the private sector, and addressing issues both on the supply side (e.g. funding of network rollout or specific measures to encourage private investment) and on the demand side (e.g. policies on education, e-health, or e-government, aimed at fostering use of broadband access by citizens, the public sector and business). Digital Agendas, as discussed in Chapter 1, however, have a wider scope (covering issues related to access and application of ICTs in general across the economy and society) than NBPs, which are usually focused on extending broadband access and coverage. In many cases, NBPs are a part of national Digital Agendas. The next section focuses particularly in NBPs.
National Broadband Plans
38. Defining goals for broadband expansion consists of framing national social, political and economic goals and is usually done by a government Ministry. However, communication authorities have a crucial role in providing input especially on issues involving the implications for investment and competition, and in many cases they are in a good position to manage its implementation as well as to collect and manage universal service funds. Other stakeholders including operators, civil society, academia and the technical community should also be consulted and play a role in developing such plans.
39. Any NBP should include a reference to the gaps identified, clear objectives to cover these gaps, setting measurable targets, milestones and check points to identify and correct deviations, as well as the financing mechanisms and funding to be applied. The literature on the design of NBPs and examples of existing plans is rich and can further be found within the body of work produced by OECD (2011), IDB (2014b), ITU and other authors such as Calvo (2012). This section will address mainly good practices on the design, funding, execution and assessment of NBPs, with an emphasis on issues related to the extension of broadband access.
40. The first step prior to defining and implementing public interventions, is to ensure that existing bottlenecks for infrastructure deployment by the private sector are addressed. In this context, it is of special relevance to ensure that rights of ways are simple, inexpensive and quick to be obtained and that existing passive infrastructures owned by the State or utilities can also be used for broadband access deployment. Chapter 3 on competition and infrastructure bottlenecks elaborates further on these issues.
41. The next key step when designing a National Broadband Plan is to identify areas needing public intervention to fill the gaps in the availability of broadband. This requires collecting and aggregating data on the availability of broadband infrastructure. Promoting broadband access differs from promoting broadband penetration; the former relates to coverage (geographical footprint where service can be accessed) and the latter to the take-up by users.
42. When considering programmes to expand coverage, policy makers need to have reliable geographical data on current service availability. A useful way to understand the landscape of current coverage is to visualise it on a map. Additionally, maps can be used to aid in the communication of a new policy including information on outcomes (e.g. “this new programme will have this effect on these geographical areas”, “role out is scheduled for this area following a given timetable” and so forth). Broadband availability maps can also be a useful tool when policy makers are looking at the status of competition among communication service providers or across different access technologies. Mapping broadband penetration rates in addition to availability and demographic indicators may also provide a good overview on the achievement of policy goals in different locations and this may be useful for work that informs broader questions (e.g. economic or social developments in areas with and without broadband).
43. Broadband maps are also useful to users. Maps can assist users to better understand the availability of services at their location and to compare this performance with other geographical locations. To meet such requirements a map may have to provide information at a detailed geographical level and for each location viewers should be able to access at least some references to service providers, such as their names or contact points to get more information on prices and other service conditions. The social and economic benefits through this kind of usage of a map may be large, if well designed for users to take advantage of this information.
44. Broadband maps have also commercial utility for a variety of stakeholders. They can be used to inform entities that provide services (e.g. e-commerce) as well as help existing and new players plan to meet the level of demand and the roll out of network facilities in a location. They can also contribute to more effective infrastructure investment. In the United States, for example, the national broadband maps assist business to identify the proper funding and targeted areas for universal service fund allocations (Box 4).
45. In summary, preparing and publishing a broadband map is a good practice that, although resource-consuming, will render excellent results not only in terms of policy decisions on the focus of broadband national plans, but also in terms of competition analysis, as well as to provide information to stakeholders.. A good example on broadband maps for the LAC countries showing key information for countries, regions and municipalities is the infrastructure maps developed by the IDB under the Digilac Initiative (Box 4).
46. When setting goals for broadband national plans, preference can be given to projects with high social returns that benefit groups residing in rural and low-income urban areas, with the knowledge that the market is likely to serve other areas. These projects can be prioritised according to a comprehensive assessment of the social and economic situations of these areas, including household income and poverty levels, demographics, existing infrastructure, and the cost-effectiveness of any project.
47. An important issue to take into account when analysing broadband gaps and the need for intervention is affordability, which is a particular challenge for the LAC region. In most of the rural areas lacking broadband access, affordability of broadband services (as analysed in chapter 5) is a very relevant issue to ensure the take-up of broadband. This implies that policy actions, for example, should not be restricted to availability of broadband access, but should also be reinforced with targeted subsidies to low-income people combined with ICT training (Affordability issues are further addressed in Chapter 5 while Chapter 8 looks into skills for the digital economy). It is also important to understand current commercial and technological trends and how the market could evolve without public support. Although subsidies may appear to be required in the short term, this might not be the case in the medium term for specific areas.
48. Another important action when designing and implementing NBPs is making sure that NBPs are co-ordinated with other initiatives in digital agendas and ICT plans. The availability of broadband is linked with many other areas which NBPs need to take into account. These include a broad range of government responsibilities, such as law enforcement, finance, education and training, environment, health, industry, transport, regional and rural development, science, technology and innovation.
49. Digital government plans (or e-government plans) and e-health plans need also to be co-ordinated with NBPs. For example, from a geographical perspective, it is important to ensure that the communication infrastructure is deployed in some regions before engaging in programmes to promote ICT skills. Closer co-ordination would serve to ensure that all parties have realistic goals and assessments of the factors that will ensure their successful achievement.
50. Furthermore, it is crucial to guarantee stakeholders’ envolvement in the process of designing NBPs. When defining goals for broadband expansion, stakeholder input is needed to ensure a correct identification of needs and potential bottlenecks, as well as to ensure that the goals which are set and the initiatives to be taken are targeted and feasible. A good practice is to create a council, “platform” or forum to involve institutions, vendors, operators, business users and consumers. Another tool used in some OECD countries is “town hall” meetings where stakeholders debate issues and address areas of public interest.
51. Even when key stakeholders have been involved in the definition of goals, national broadband plans should be subjected to public consultation in order to get additional feedback from all stakeholders, ensuring that the parties concerned can provide input. Publication of responses received as well as the rationale for rejecting or accepting suggestions received is a good practice that helps increase transparency. Local authorities can also provide key inputs in terms of the definition of needs, objectives, as well as on the articulation and implementation of broadband plans in municipalities.
52. Setting measurable targets and periodic assessment of fulfilment of objectives plays a central role in the success of NBPs. In order to do so, goals defined in NBPs must be measurable and procedures and tools should be defined to assess how they are met in a regular way. Government should typically set targets in terms of geographic and household coverage, as well as minimum and/or average transmission speeds. Other quality of service measures can also be defined to ensure support to services that are sensitive to specific requirements (e.g. for VoIP or some e-health applications). The period over which targets should be met needs to be well defined and the progress in meeting targets should be monitored on a regular basis enabling corrective measures to be taken if needed.
53. When setting measurable targets, governments and regulators may use references based on best practices in the LAC region, or when it makes sense, in other regions, such as the OECD area. Broadband plans should cover a period of between five to seven years given that markets and technology change too rapidly to plan for longer periods. Establishing not only long-term targets but also short-term ones is also advisable as it allows for quick gains and assessment.
54. Increasingly, targets for national broadband plans and digital agendas are being set for the adoption rather than for the availability of broadband. This requires governments to specify a different set of indicators and policies, addressing those socioeconomic groups that have been slower in adoption of ICTs. Stimulating broadband adoption can also help in providing an incentive to invest in broadband infrastructure, for example by creating demand through policies aimed at the take-up of broadband by government entities (municipalities, schools, hospitals, police and so forth). A further good practice is to publish periodic reports subjected to audits and related to the assessment of achievements in terms of coverage, access (e.g. population penetration) and usage.
55. Traditionally, broadband availability has been understood as fixed broadband access. However, wireless technologies have evolved rapidly in recent years, and mobile broadband can be in many cases a good alternative for fixed technologies, especially in rural areas with scattered population and where deploying fixed access infrastructure to households is especially challenging and costly.
56. For this reason, when possible, technological neutrality should be a guiding principle when setting targets for broadband extensions. Broadband access can be provided using many different technologies, such as copper, fibre, Wi-Fi, cellular networks or satellite. Each of them have different implications in terms of costs, speed supported, quality of service, and so forth, and can be sufficient for some applications. Allowing for a range of different technological proposals to cover broadband access goals expands potential options, increases competition, and at the end of the day improves the cost/benefit relationship. It also allows for a more transparent process, providing a level playing field for all actors and avoiding selecting “winners”.
57. One of the reasons for the lack of broadband access is the absence of transport infrastructure at the core network (backbones) or the infrastructure connecting these backbone networks with the access switches or base stations (backhaul networks). This is the case for rural areas, including in the LAC region where there are fewer incentives for investment to extend nationwide backbones. In such cases, funding backbone/backhaul infrastructure with contributions from operators, direct funding by the administration or a combination of both via public-private partnerships, may help to bridge this gap and enable access infrastructure deployment by operators.
58. Insufficient backbone and backhaul networks, especially in rural areas, is a problem in many countries in the LAC region and a number of governments have launched ambitious projects to roll-out backbone/backhaul networks (Box 5). These facilities are aimed at providing transit connectivity for operators, which in turn are expected to invest in rolling out the “last mile” to households in the area covered by funded backbone/backhaul networks.
59. Some good practices when designing projects to deploy backbone/backhaul networks are:
• All market participants with technical and managerial ability to roll-out the network should have the possibility to bid for projects.
• Before launching a project, it is important to ensure that there are commitments from broadband access providers that they will use the financed backbone/backhaul network and extend coverage for broadband access networks.
• Open access clauses for the future use of backbone/backhaul networks should be set down ensuring that all market participants, and not just the one deploying the network, are able to use it for connecting their own access networks. Provisions on conditions for access, including guides for pricing and non-discrimination, should be set and be made public from the outset.
• Backbone and backhaul networks should be designed to take into account estimated future growth of Internet traffic. To avoid future congestion fibre is likely the best technology, although in specific cases where fibre cannot be deployed or is too costly due to geographical characteristics, microwave links can also be considered. In this case, special attention should be paid to future capacity upgrading.
• Backhaul capacity should be designed in order to facilitate fixed and mobile broadband. Base stations supporting mobile broadband access need high speed fibre-based connections to cope with the growing need of bandwidth, and backhaul/backbone networks availability is essential to enable mobile broadband access at reasonable speeds.
• Structural or functional separation may be considered as a means to ensure a non-discriminatory access to backbone networks. Under this model, the operator deploying and operating the backbone network is limited to providing wholesale services to other operators ensuring that all retail operators are treated in a non-discriminatory way. This is the model applied in Brazil with Telebras and in Mexico with Telecomm (Box 5). Structural or functional separation is often considered as a measure of last resort used when other measures do not succeed in ensuring under open access conditions.
60. Mobile networks usually cover a large proportion of a country or a region for which a license is issued. Where service levels are not sufficient there may be justification to use public funds to assist in extending and upgrading mobile broadband access networks. All market participants should have the opportunity to opt for the network upgrade subsidy, and open access conditions should be set to allow for infrastructure sharing among all operators to encourage competition at the retail level. Infrastructure sharing and open access conditions can be part of national roaming access conditions. Specific provisions on speed and capacity to be supported should be included in the conditions for obtaining the funds.
61. New spectrum auctions can include specific provisions for coverage in rural area, lowering (or even exempting) regular fees to be paid for spectrum, in order not to impose a high burden for a new operator that is expected to compete with existing players with no obligations for coverage in the corresponding rural area. This form of exemption has already been used in the LAC region.
62. Technological neutrality is an issue to be taken into account: objectives on extending broadband access should not be limited to wireless broadband, and when possible, funding for extension of broadband access should be open to any type of technology and operator, including fixed operators, provided that requirements on speeds, quality of service parameters and costs are fulfilled.
63. Extending fixed broadband access networks are usually part of NBPs initiatives. Fixed broadband access, however, has not been traditionally subjected to coverage obligations, and there are areas in the LAC region where no broadband access service is available and no copper access exists to provide DSL service. In certain cases this is because network operators consider these areas as unprofitable to invest in telecommunication infrastructure and public support may be warranted in order to provide citizens living in these areas with broadband access.
64. When requiring open access in publicly funded network expansion, it can be specified that the operator receiving public funds provide bitstream or unbundled wholesale services for other operators. Generally, for rural areas, bitstream is much more effective to facilitate access, since unbundling is too costly in rural areas with a low population density and insufficient economies of scale to justify unbundling by other operators. However, if new fixed access deployments are fibre based, there may be room for fibre unbundling since fibre covers much larger distances and other fibre cables can be aggregated in a single point. Networks originally built for cable television and upgraded for broadband have less distance constraints than those built for telephony.
65. Policy makers should also incorporate minimum speeds and quality of service parameters into their plans. Any publicly funded project aimed at extending broadband access should delineate the geographic area to be covered and the minimum download/upload speeds to be provided. These speeds are usually set in terms of averages for each connection. Definitions of the precise threshold of transmission rates that determines whether Internet access is considered broadband vary substantially by country and over time as demand and technology evolves. At the low end, broadband is often defined as download speeds of at least 256 kilobits per second (kbit/s) for the purpose of data collection. This is the definition used by the OECD, the ITU, the United Nations Conference on Trade and Development, and the Partnership for Measuring ICT for Development, a consortium of international organisations and agencies.
66. The key consideration is to set minimum speeds and quality of service parameters that enable information flows in a continuous and uninterrupted manner, with sufficient capacity to provide access to data, voice and video applications that are common or socially relevant to users. When connecting education centres or hospitals, for example, sufficient speeds are needed to cover all potential uses, such as telemedicine. When connecting individual households more modest speeds could be considered if this allows larger areas to be broadband-enabled given the available resources.
67. Policy makers need to evaluate the costs and benefits of investment in NBPs by conducting an estimate of costs and impact assessment. The objective is to select initiatives, which deliver both strong immediate aggregate demand effects, such as the employment created by rolling out networks, and strong longer-term aggregate supply-side effects, which would increase the productive capacity of the economy, as an improved foundation for commerce and communication. It is important to ensure that broadband plans are targeted, cover short-term objectives, and ensuring that government contributions directly relate to public service goals.
68. The provision of broadband in public premises at adequate speeds and quality of service is key to ensuring that communities and individuals can reap the benefits of the digital economy. In universities and schools, for example, it is important to ensure that students can benefit from the wealth of content and applications available on the Internet to support the educational process as well as to foster the acquisitions of digital skills. This is further analysed in Chapter 8. In hospitals and health centres, as considered in Chapter 10, the availability of broadband access is also key to enable the use of e-health applications that contribute to increasing the quality and efficiency of public health provision. In government offices, it is also essential to spur digital government initiatives and increase the efficiency and quality of public services delivery, as discussed in Chapter 11.
69. Moreover, in geographical areas where broadband access is not available or the penetration is low, other public buildings or spaces (such as public squares) may also act as an anchor for broadband connection by enabling, for example, the provision of broadband services in these premises for citizens, similar to services provided by public libraries. For these reasons, provision of broadband access in public premises is generally prioritised in broadband plans. It is good practice to first assess the need, feasibility and potential impact of broadband access deployments aimed at connecting public premises, and especially educational centres and telecentres, where communities can take advantage of spaces already equipped with computers to have broadband access (Box 6).
Universal Service Funds
70. Projects to extend broadband can be funded in several ways, ranging from direct full subsidisation by the public sector, mixed public-private funding, to setting incentives for network deployment by private operators (for example, through tax reduction/exemption or loans at reduced rates). Comprehensive plans for broadband extension may combine several of these mechanisms for funding, depending on the level of the access gap, funding needed to bridge gaps not covered by market forces, fiscal impositions that may be applied to operators without adversely effecting investment and competition, and the availability of public funding.
71. The constitution of USFs allows for aggregating and managing in a simple and comprehensive way different sources of funding, to increase transparency of funds management and enable the implementation of broadband plans.
72. Different models for providing funds and rules for using the USF are applied in each country in the LAC region as well as in the OECD countries. Some OECD countries collect USF contributions from operators and the funds can only be used to finance universal service obligations and are not available to invest in broadband projects. Other OECD countries, as well as most of the countries in the LAC region, use USFs to pay for a wide range of different broadband projects. These are not necessarily limited to infrastructure deployment but also demand side programmes such as improving digital literacy, improving affordability and development of e-government and e-health applications.
73. It is important to note that the original purpose of USFs – such as extending of the PSTN to rural areas – is still relevant in most LAC countries. Nonetheless, given the ability of mobile networks to provide telephony and the growing relevance of broadband networks to provide a range of services, as well as acting as backhaul networks, policy makers should consider adapting such USF programmes. In this respect, a case-by-case analysis is needed, taking into account a series of factors that will be analysed in the following sections. Annex 2 provides information on USFs in the LAC region.
74. First, policies can be put in place to provide direct funding by the public sector to fullfill universal service goals. Providing broadband access to people in both urban and rural areas, as well as to those in the LAC region with lower incomes is fundamental to achieve digital inclusion. The level of financial support for broadband extension projects depends on many factors such as existing gaps in broadband coverage, priorities for other investments in infrastructure (e.g. water or electricity) and the availability of public funds.
75. Secondly, contributions from operators to the USF are another, and potentially important, mechanism for financing broadband expansion. Setting an adequate level of contributions to USFs from operators is complex and there is not a one-size-fits-all rule. Policy makers should analyse data on the financial returns for operators, existing incentives for investments, the availability of public funding, as well as compare the burden imposed and its implications on investment and competition relative to the benefits to be obtained. Benchmarking with similar and reference countries is also a useful tool to set an optimal level of USF contributions from operators.
76. Regular contributions from operators based on their revenues allows for a steady stream of funds to address requirements for broadband expansion. As such, this can be considered as an option, provided that the burden to be imposed on operators is reasonable. Imposing high contributions to the USF from operators could also discourage other critical investment in the region. In addition, when there is a lack of competition, as is the case in many LAC countries, the additional burden for operators would be automatically transferred to consumers via increases in prices for telecommunication services. Conversely, setting too low contributions to the USF may not be optimal, since covering all broadband deployment projects with public funding may not be feasible in the region.
77. Therefore, a balance should be found between the burden to be imposed on operators and funding requirements needed to complement public funding in order to implement broadband plans, taking into account the potential effect on investments by operators and final prices as well as the real needs to fund universal services based on operator’s contributions. When possible, and if governmentbudgets allow it, contributions should gradually transition to being funded by general government revenues, bearing in mind that imposing high burdens on operators may have the effect of preventing broadband development and hindering its positive economic and social spillovers (OECD, 2014b).
78. Accumulating contributions to the USF without disbursement on broadband access projects, or disbursing substantially less than contributions collected would extract rents from operators, affecting the incentives for investment without benefiting consumers. When this occurs, as is the case in certain countries in the LAC region, there is a need to reinforce management capabilities to invest in projects with the funds obtained or to adapt the level of contributions from operators to fit the existing ability to implement USF projects.
79. It is important to note also that the level of USF contributions should be reviewed regularly. When broadband access is successfully extended and broadband penetration increases, improvements in quality and speeds may rely more and more on market competition. This means contributions from operators can be reduced, providing more room for competition and private investment. Finally, in a pro-competitive regime favouring market entry, it can make sense to set a minimum revenue threshold for contributions to the Universal Service Fund. This would lower barriers for new entry and simplify the management of the Universal Service Fund.
80. A third mechanism used to finance broadband access is through revenues from spectrum licenses and cross-subsidies between services. Some countries in the LAC region use, for example, spectrum license revenues as a source for universal service funding. Although spectrum revenues can be an important source of potential funds, the availability of such funds is unpredictable. This is because spectrum auctions only take place periodically and the outcome of auctions is not known in advance. As a result, auction earnings can be used to supplement USF but should not be relied on for planning purposes. Similarly, income from fines imposed on operators for infringing regulations do not provide for a predictable source of revenue for USF funds.
81. Applying cross-subsidies between services, using revenues from one service to subsidise other service, for extending broadband access is not advisable, and any contribution from revenue obtained from a telecommunication specific service should be avoided. This is because tariff rebalancing can be an essential requirement for the creation of effective conditions for competition and, distorting prices through cross-subsidisation, is likely to have a negative effect on affordability and demand for other services.
Selection of providers for broadband access extension in the LAC Region
82. When possible, publicly funded infrastructure deployment projects should be awarded using a transparent, open and competitive process where a variety of operators can tender and offer the use of different technologies, speeds, quality of service, operational support, future upgrading of a network, and so forth. This may also offer increased levels of co-funding and reveal actors knowledge on the actual costs of meeting policy objectives or result in more beneficial offers (e.g. wider coverage). This allows for better outcomes and the potential to foster competition among operators.
83. Special attention should be paid to the scope of the project since, for example, breaking up projects to cover smaller geographic areas can provide an opportunity for small operators to take part in the bid, fostering competition and allowing for diversification and experimentation with different models for deployment of broadband networks. However, in other projects, for example nationwide backbone networks, management and implementation may be more complex, such that it is necessary to use larger players with experience and adequate financial and management capacity.
The interrelation between public and private sectors when extending broadband access
84. There are several issues to be taken into account in the relation between the public and he private sector when extending broadband access. Some of them are the considerations on the potential implications of public funding for competition among private providers; the opportunities brought by Public-Private Partnerships; and finally, the role public owned operators can play in closing the access gap.
85. First, as discussed in Chapter 3 on competition and infrastructure bottlenecks, ensuring fair competition among telecommunication providers is key to enabling good quality of service and lower prices for broadband access services. Any broadband expansion plan or project involving public funding must take into consideration the potential implications for competition to avoid distorting the market or inhibiting future competition. In order to address this potential concern, the following good practices can be applied:
• In geographical areas where competition for broadband service with adequate quality of service is already present, or where there is room to foster competition (lowering for example administrative barriers), policy makers should, in principle, abstain from funding access infrastructure projects. Experience shows that well-functioning competitive markets can foster positive outcomes in terms of prices, speed and quality of service; in such areas public intervention may distort a competitive market. At the same time, the use of public funds in such areas diverts these resources from geographical areas that may be underserved by the market. In the European Union the legal framework does not allow for public funding of NGA deployments in areas considered as competitive (Box 7).
• In general, any partially or totally public funded network deployment should promote open access by enabling the use of the access infrastructure by all operators. Open access clauses should be inserted in tender documents stating price conditions, and also technical and other requirements needed to ensuring access from other operators.
86. Secondly, the public and private sectors can complement each other through Public-Private Partnerships (PPPs). PPPs can be an efficient model for structuring public funded broadband access extension plans or projects that take advantage of synergies that benefit both private and public interests, and that ultimately contributing to increasing the welfare of consumers.
87. The role for public authorities in PPPs should in general be focused on defining objectives and specific targets; setting conditions and clauses for deployment and operation of a network; contributing with funding; selecting private partners to execute the project; and monitoring and assessing projects. The role of the private sector, and specifically operators and technology suppliers, is to implement their know-how on efficient network technologies and deployment, as well as to contribute on project management and execution. Therefore, PPPs should be structured such that the comparative advantages and natural roles for each partner are used in the most efficient manner. There are many different experiences and models of PPP that can be used. Examples can be found in the OECD and IDB documents included in the references. The OECD has established principles for public governance of public-private partnerships to assist with good practices in this area (Box 8).
88. Finally, fully or partially public-owned operators may play a role in extending broadband access and are already present in a number of LAC countries. Most of these public-owned operators already act on broadband expansion projects, deploying rural and backbone/backhaul networks.
89. In the LAC region publicly-owned operators are often in a position to take a leading role in the execution of national and rural broadband plans. In many countries in the region, they control a national-wide copper access network deployed for fixed telephony services, as well as much of the backbone and backhaul networks that can be upgraded and extended rather than rolling out new networks. That being said, it is important to ensure that public-owned operators are not treated favourably relative to other operators based just on the fact that they are publicly owned. Taxation of publicly-owned operators, licenses, obligations and conditions for providing broadband services should be in principle the same as for any other operator, and any different treatment (such as obligations to provide access to essential facilities) must be based on regulatory decisions (e.g. because they have a dominant market position and should not be related to an ownership structure).
90. Any broadband subsidy for public operators should be granted under the same transparent and open access conditions, with any obligations applied being similar to those imposed on any other operator. When possible, subsidies for broadband access expansion must be awarded based on competitive bidding, open not only to publicly owned operators, but also to any other operator fulfilling pre-requisites for participating in the bidding process. It is also important to ensure that publicly-owned operators have no additional obligations compared to other operators, such as providing universal service for specific communities at lower prices or in rural areas without compensation for any additional costs born by the operator.
91. Exemptions for public operators from contributing to universal service funds, paying for spectrum licenses or any other financial burdens applied to private operators, or more favourable conditions to use the public infrastructure in exchange for universal access projects should be in general avoided. Such exemptions are not always transparent and may distort competition between public and private operators, and make it more difficult to apply competitive processes for universal access projects.
92. Publicly-owned operators can also be used in certain situations as a wholesale provider deploying backbone or access infrastructures to be used by other operators at the retail level. For example, Telebras, a publicly-owned operator in Brazil, has a mission to implement a broadband plan aiming to provide coverage in rural areas, schools, and other locations where there is a lack of coverage provided by the market. Telebras operates mainly as a wholesale infrastructure provider for other operators. Other countries in the LAC region and in the OECD area have also applied this model. Although separating the wholesale level and the retail level is attractive in terms of non-discrimination, and is applied in specific OECD countries, there is not a consensus on its merits. There is a potential risk of infrastructure re-monopolisation if all retail operators rely on a single wholesale access network, and loss of potential efficiencies in retail-wholesale integration. However, for broadband expansion plans aimed at providing coverage in areas where there would otherwise be insufficient infrastructure, such a model may be necessary and considered as good practice. The merits and risks of such a practice must be analysed on a case-by-case basis.
93. This Chapter focused on good practices to extend the availability of broadband access. While the private sector is expected to have a central role in expanding infrastructure and services, sound regulatory frameworks that lower administrative barriers to deployment, provide legal certainty for investors, promote competition and investment are also crucial. Once the existing bottlenecks for infrastructure deployment by the private sector have been addressed, policy makers should identify areas or locations needing public intervention.
94. National Broadband Plans (NBPs) usually set out the guiding policy objectives for broadband expansion. They should be done in a comprehensive manner, in coordination with stakeholders, Digital Strategies (if present) and demand-side policies; provide clear objectives and both short and long-term measurable targets; take into account the different levels of development among regions; map coverage gaps by fixed and mobile broadband networks; assess the existing level of competition; and implement a routine evaluation of target’s fulfillment. Furthermore, NBPs should be guided by technology neutrality principle, allowing market actors with different technologies to bid for coverage projects, giving preference to those with high social returns (that connect public premises and benefit disadvantaged groups, for example).
95. After assessing the policy objectives the next step is selecting mechanisms to meet these goals. Policy makers can choose to impose obligations, set incentives or provide funding for closing access and usage gaps. Obligations, when revised for the new requirements and uses of high-capacity networks and directly related to coverage and quality (demand-related objectives should be met through other procedures), could be aimed at extending broadband access in certain areas and tied to licensing frameworks and spectrum assignment. Incentives could be carried out by partial or total tax exemptions, lower or no fees for spectrum licenses in certain areas, or loans at reduced interest rates. Direct funding of broadband infrastructure, usually articulated via NBPs and Universal Service Funds (USFs), should be in the reach of all market participants equally and awarded in a transparent and competitive manner, with the inclusion of infrastructure sharing and open access conditions. USF are used to aggregate and manage different sources of funding, such as contributions from operators based on revenues, general government revenues and, complemented in some cases, by spectrum auction earnings. Well-functioning USFs rely on transparent and effective management processes, steadier streams of funds, consider the financial returns of operators in order to not over-burden them and impact investment, avoid cross-subsidies so as not to distort prices, and review USF contributions regularly through benchmarking exercises and economic analysis.
96. Furthermore, the public and private sectors can complement each other through Public-Private Partnerships (PPPs). PPPs can be an efficient model for structuring public funded broadband access extension plans or projects that take advantage of synergies that benefit both private and public interests, and that ultimately contribute to increasing the welfare of consumers.
97. Finally, public-owned operators may also have a role to play, but licenses, obligations and conditions for providing broadband services should be in principle the same as for any other operator, and any different treatment should be based on regulatory decisions (due to a dominant market position, for example, and not to ownership structure). Broadband subsidies for public operators should be granted under competitive process open to any operator fulfilling prerequisites.
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ANNEX 1: NATIONAL BROADBAND PLANS IN THE LAC REGION
ANNEX 2: UNIVERSAL SERVICE FUNDS IN THE LAC REGION
2. See http://www.itu.int/net4/ITU-D/idi/2015/
3. There is one specific case where incomes for a specific service (termination for international calls) is used to set the contribution for the USF
4. See http://www.mtc.gob.pe/comunicaciones/concesiones/renovacion_telefonica.html
5. These mechanisms are further described and addressed a report by Broadband Commission (2014b).
6. OECD, Recommendation of the OECD Council on Broadband Development, 2004 http://www.oecd.org/sti/ieconomy/recommendationoftheoecdcouncilonbroadbanddevelopment.htm and OECD, Recommendation of the Council on Principles for Internet Policy Making, 2012 http://acts.oecd.org/Instruments/ShowInstrumentView.aspx?InstrumentID=270
CHAPTER 5: AFFORDABILITY, GOVERNMENT CHARGES AND DIGITAL INCLUSION
AFFORDABILITY, GOVERNMENT CHARGES AND DIGITAL INCLUSION
This Chapter focuses on good practices aimed at increasing the affordability of broadband services and digital inclusion. It does so by presenting mechanisms that help reduce the costs of services and devices, taking into consideration taxation and government charges. It also examines the promotion of further digital and financial inclusion by using ICTs to address barriers that emanate from factors such as affordability or for people with special needs.
1. ICTs and specifically broadband are general purpose technologies that can be applied to a wide range of economic and social activities. Their positive effects on development have been well documented. More widespread use of ICTs translates into more social development and general economic growth. Given the large economic and social positive externalities of ICTs, governments should promote their use. This role requires, among other things, to make ICT adoption and use affordable: policies should aim to reduce the “affordability gap”, defined as how many people or households do not access ICT services because their cost exceeds their capability to incur in such expenses.
2. As competition generally brings about more investment, better quality, more supply, and lower prices, the creation of a competitive framework is the single most important initiative that authorities can take to increase affordability. The difference in consumer demand that theoretically exists between any given market structure and a fully competitive market is usually described as the “market gap”. It can be efficiently addressed with comprehensive policies that promote competition and lower barriers to entry. Yet, even with a perfectly competitive market, there may exist market failures preventing areas or groups that can be reached commercially without some form of intervention, commonly referred to as the “access gap” (Navas-Sabater et al., 2002).
3. The recognition that some areas or groups, given they live in isolated areas or cannot afford certain services, do not benefit automatically from competitive markets has prompted several interventions from governments, among them universal service and community access policies (further discussed in Chapter 4). This Chapter focuses on the particular market failure caused by the affordability dimension of the “access gap”, a major challenge especially to the urban poor in Latin America and the Caribbean LAC).
4. Apart from community access, universal policies and retailing innovations, affordability can also be influenced by taxation and other government-imposed charges, which will be treated in this Chapter. This can refer to all charges imposed by different levels of government at different stages of the value chain (among them, direct sales tax, spectrum usage, rights of way and other fees levied on communications networks deployment, import duties, labour taxes, universal service funds, regulatory levies and fees). Taxation by different government agencies throughout the production chain to provide telecommunication services is an important cost element in the sector, and thus directly influences affordability. For mobile communications, the GSM Association (GSMA) estimates that total tax and fee payments as a proportion of mobile revenues were on average 31.9% for a sample of 26 countries, of which seven countries are in the LAC region (GSMA & Deloitte, 2015) . The price of some smart-phones with greater functionality may also be a barrier for some disadvantaged groups to reap the benefits of digital inclusion, though this is being rapidly addressed by market forces as occurred with feature phones.
5. Closing the access gap and spurring digital inclusion requires not only ensuring that services are available and affordable. It also requires that these services are relevant and accessible for disadvantaged groups. While the Introduction addresses Sustainable Development Goals (such as targets for the digital inclusion of women) and Chapter 4 delves into the issue of connecting rural populations, this Chapter will analyse issues related to digital inclusion such as financial inclusion and accessibility for people with special needs. This discussion should be complemented by efforts towards other important ‘demand-side’ issues, such as skills (Chapter 8), digital local content (Chapter 9) and consumer trust (Chapters 12 and 13).
Key policy objectives for the LAC region
6. The main policy objective should be to encourage more people, businesses, and governments to increase their use of ICTs. This is easier said than done: penetration still lags behind in LAC countries, businesses have not fully incorporated ICTs in their processes, and usage is still low by international standards. This general objective can be disaggregated into more specific goals:
• Expand connectivity. Policymakers should promote the widespread adoption of ICTs by tackling the barriers that have hindered a more accelerated growth path. Actions could include the promotion of competition, skills to effectively participate in the digital economy, a more neutral taxation system, the development of local content, and incentives to promote ICT usage in the private and public sectors (addressed in Chapter 9 on business uptake and in Chapter 11 on digital government, as well as in Chapter 10 on e-health and Chapter 8 on education and skills for the digital economy).
• Increase affordability. Governments should aim at increasing affordability not only through expansion of services, but also through more specific policies and regulation that have a positive influence on lowering pricing of services and devices and through targeted redistribution mechanisms aimed at tackling market failures.
• Encourage financial inclusion. The use of mobile telephony and broadband for mobile banking can bring poor people into the formal financial system in a relatively low cost way, although challenges related to privacy and security need to be addressed (Chapter 13).
• Advance the inclusion of persons with special needs through the use of ICTs. The use of ICTs helps reduce many of the obstacles that people with special needs face, thus empowering them to be fully included in economies and societies. ICTs can work as an enabler of integration for persons with special needs.
Tools for measurement and analysis in the LAC region
7. ICTs are a rapidly changing industry, with constant innovation, where today’s cutting-edge technologies quickly become outdated. Governments need to constantly track and benchmark progress towards a set of measurable indicators. This, in turn, will aid the development and modification of national policies in a timely fashion to better meet objectives.
8. As affordability is a relative concept, there is no precise indicator that gives a complete picture. Prices in the market should be evaluated periodically to evaluate trends. Specifically, average and minimum available prices should be collected and compared with the distribution of income. This allows for a precise measurement of how many people and households would need to spend more of their income than an acceptable threshold to acquire broadband services. Additionally, international price comparisons are also a powerful measurement tool.
9. Taxation, at least partially, can be measured through estimated total taxes levied on total cost of ownership (TCO) and total cost of use (TCU), the difference between both indicators being the inclusion in TCO of upfront payments (activation and terminal equipment). Other fees along the value chain (as explained below) can be benchmarked with international data. As a reference, the GSMA has been publishing annual statistics on taxation of mobile services for over a decade.
10. Progress of access to ICTs by people with special needs can be measured through general indicators that track the percentage of individuals with special needs that have adequate access, as well as the existence of infrastructure that supports such access. The ICT Consultation in support of the High-Level Meeting on Disability and Development at the sixty-eighth session of the United Nations General Assembly (ITU, 2013) proposes a full set of indicators for monitoring and advancing the needs of people with disabilities/special needs, but the effective implementation of a that measurement agenda is still an unfinished task.
11. On the one hand, access to ICTs by people with special needs is based on impairment type technology, availability of accessible ICT products and services across markets, and affordability. On the other hand, progress towards enabling conditions also has to be measured, e.g. inclusion of ICTs in disability legislation, awareness rates of people with special needs on the use of ICTs, the share of GDP spent on research and development relating to ICT-enabled solutions for people with special needs, and total patents filed or awarded to ICT-enabled solutions for people with special needs. Other more specific indicators relate to healthcare, education, professional and lifelong learning, employment, independent living, government services, and participation in political and public life. Finally, financial exclusion can be measured based on data regarding the share of population using traditional as well as mobile banking.
41. The Sustainable Development Goals include, in Goal 9, the objective of significantly increasing access to information and communications technology and striving to provide universal and affordable access to the Internet in least developed countries by 2020. Thus, affordability of broadband services has become a worldwide priority and a task for all stakeholders; governments and businesses included.
42. Affordability is defined in terms of the relative burden of paying for broadband services with a given income, for a given set of benefits derived from access. Thus, broadband affordability can be increased by three different, non-mutually exclusive, ways: by increasing income, by lowering prices (especially entry-level prices), or by increasing the utility derived from broadband access (such as by shifting the perceived importance broadband access in people’s spending priorities).
43. Increasing income at the national level is one of the main objectives of almost every government. Though broadband uptake plays a relevant role in increasing income, governments take much more comprehensive approaches to economic development. Thus, increasing affordability through higher national income is beyond the scope of the present chapter.
44. Transfer mechanisms for targeted segments of the population – especially, the most disenfranchised, the elderly, women, rural households or even SMEs – could potentially increase affordability. These could be implemented through a voucher system (as was done in the United Kingdom from 2010 to 2015 for SMEs) or direct subsidies to operators to lower prices, which in effect have the same influence as income increases. This is the case for Colombia’s Plan Vive Digital for strata 1 and 2, the poorest of six strata into which the population is divided by considering several socio-demographic variables, and the Connected Households Program in Costa Rica, which aims to help people in vulnerable conditions from quintiles 1, 2 and 3, to access ICTs. General transfer schemes, such as the conditional cash transfer programs that have become widespread in the LAC region (as of last count, 18 countries had such programs) also increase affordability, but allow beneficiaries to choose how to spend the money. By construction, their impact on broadband uptake is lower than a direct broadband-only subsidy.
45. Apart from the transfer mechanisms outlined above, governments have many tools at their disposal to efficiently lowering broadband prices. The Alliance for Affordable Internet (A4AI), a global coalition of private, public, and non-for profit organisations , has identified five common success factors to increase broadband affordability addressed in several chapters of this toolkit:
• Enhanced competition. Competition has proven to bring about investment, better quality, and lower prices. Liberalised markets with an open and competitive environment, have, overall, more affordable services than markets with imperfect competition (see Chapter 3 on competition and infrastructure bottlenecks). Nevertheless, competition alone is not sufficient, as it needs to be effective. Independent regulators with enforcement capabilities, a clear licensing regime, technology and service-neutral rules, as well as a regulatory framework that minimises barriers to entry are common characteristics of markets where competition has thrived (see chapter 1 on regulatory frameworks and digital strategies). Since around 1990, most countries in the LAC region have embarked on a liberalisation of their telecommunications sector. Starting with the privatisation of the public national incumbent, they moved on to creating regulators (not all of them independent) and allowing competition. Some approaches worked better than others; a second wave of regulatory restructuring is now starting to reach the region. Competition and governance frameworks are now being reviewed. Mexico, with the creation of a constitutionally autonomous regulator and the implementation of asymmetric regulation, provides an example of how much the approach has changed in the last quarter of a century.
• Effective broadband strategies, usually set forth in national broadband plans. As shown in Chapter 1 on regulatory frameworks and digital strategies, many countries in the LAC region have developed broadband plans in the last decade. As explained in Chapter 1, for them to be successful, they need to address not only supply (deployment of networks, especially in underserved areas) but also demand (awareness, prices, digital and language literacy, relevant content, government services). These plans must be time-bound and measurable. One example is Colombia’s Plan Vive Digital, launched in 2010 and setting out three overarching goals to be achieved over five years: increase by a factor of three the number of municipalities reached by at least one fibre optic network; connect to the Internet at least 50% of microenterprises and SMEs, as well as 50% of households; and increase by a factor of four the number of broadband connections nationwide. It also aimed at having shared access in all towns of more than 100 inhabitants. Through a private-public partnership, it built a fibre optic network reaching more than 62% of municipalities. It also started overhauling the regulatory framework to allow for full convergence and established rules for promoting local software and content providers. Certain import taxes were reduced or eliminated. Digital literacy courses were developed and implemented. For the last published report, Colombia ranked second on the A4AI affordability index. Another example is Costa Rica’s PNDT, which defines goals such as “100% of the Elderly Daycare Centers with an Intelligent Community Centre in operation by 2021” and “100% of the CEN-CINAI (Nutrition and Education Centres – Comprehensive Care Child Centers) will have Technology Corners by 2021”. Each of these goals is assigned to an institution that is accountable for it, they have a defined budget and their implementation progress is evaluated annually.
• Efficient spectrum allocation. As described in Chapter 2, spectrum is a scarce resource essential for providing wireless telecommunication and broadcasting services. As such, it needs to be managed efficiently and, given its huge opportunity cost, should be made available promptly on a competitive and non-discriminatory basis. It should be assigned through transparent processes that guarantee that economic and social benefits are maximised. As a case of good practice in the region, Peru made slow progress in its telecommunications sector during the first fifteen years after privatization, but it has recently adopted new measures to catch up with the rest of the world. It has recently promoted competitive access to spectrum, even though it was a laggard in addressing the potential benefits of the digital dividend only a few years ago. The government has already auctioned the AWS, 2.5 GHz and 2.3 GHz bands, more than has been done in other countries in the region.
• Infrastructure sharing models. Deploying broadband networks requires large capital disbursements and ongoing operational expenses which in effect act as significant barriers to entry. As explained in chapter 3 on competition and infrastructure bottlenecks, infrastructure sharing can potentially reduce broadband provision costs (up to 80%, according to some estimates). Regulators have the tools to monitor, encourage, and when efficient, mandate infrastructure sharing, not only for passive (e.g. towers) but also for active infrastructure (e.g. backbone); or even go further by mandating other types of resource sharing, such as spectrum (described in Chapter 2). Sharing translates into a more efficient use of capital, accelerates deployment, is more environmentally friendly and, most importantly, translates into lower industry costs that allow for lower prices, and thus, increase affordability. Passive infrastructure sharing is not widespread in the LAC region. Many countries have attempted, but have not fully accomplished, setting rules for sharing towers, ducts, and poles. As noted in Chapter 3, in 2012 Chile published the new “Antenna Law” (Ley de Antenas), which not only transferred certain regulating powers to local authorities, but established basic rules for mobile telecommunications tower deployment. Among the several aspects that were regulated was mandatory sharing of towers.
• Universal access to affordable Internet services. For countries for which broadband prices, even after accounting for some or all of the previous success factors, remain a barrier for adoption, shared services play an important role for uptake. These services, either for free or for a minimum fee, can be made available at community centres, public plazas, schools, libraries, and other anchor institutions. They are important in very poor urban areas as well as rural communities. More information on extending broadband access is included in Chapter 4. Increasing benefits derived from broadband access
46. A third way of increasing affordability is by changing the relative value of broadband services and increasing the utility (benefits) derived from accessing the Internet. The higher the benefits, the more people will be willing to pay for broadband access, changing the relative importance of Internet in their spending priorities, provided that incomes are high enough to allow for expenses further than very basic goods and services. People must have a reason to access the Internet: user awareness and digital literacy are critical, but so are relevant content and experiences. Governments can play a fundamental role in increasing the benefits of accessing the Internet, from providing basic services and simplifying the interactions between governments and citizens, to sending and receiving payments. Such actions will increase demand and increase the value of broadband as an enabler of development and inclusion.
Taxation and other government-imposed charges
47. Given the potential influence ICTs have on social and economic development, as well as on reducing inequality, government charges in the sector should be a matter of national policy where the cost-benefit analysis of the government charges should be carefully analysed. There are some general guidelines that help maximise adoption and use and minimise distortions:
• The tax regime should be simple, transparent, and easy to understand. Simple systems are easier to comply with, minimise arbitrage opportunities and evasion, and decrease operating costs.
• The taxation regime should be fair, not imposing unreasonable burdens to any party and should not be regressive.
• Sector specific taxes should be avoided unless it is clear that benefits are larger than costs. The analysis should include externalities arising from higher penetration and use of broadband. In some cases, higher tax rates on one sector might even mean lower government revenue (through lower spending in that sector and lower sector growth).
• The same argument applies for sector specific tax incentives, which distort the allocation of capital in the economy. Even accounting for spill-over effects and externalities, incentivising ICTs through tax subsidies or spending programs might not be the best approach to achieving public policy objectives.
• Administrative fees should be set as close as possible to the real cost of providing the services. Extracting government fees throughout the production process could potentially lead to inefficient allocations of capital. It could stifle growth and investment, and could potentially increase ICT usage inequality.
• Taxation regimes should be competitively neutral. Even in the face of sector specific taxation, all players should be imposed the same levies. They should also strive for technologically neutrality.
48. A lack of access to formal financial services does not mean that unbanked or under-banked people do not conduct any type of financial activities. People without access to formal financial services usually find alternative mechanisms for saving and protecting themselves. Informal services to manage financial resources are known to this population but they are often risky and expensive.
49. ICTs have been influencing the expansion and convenience of financial services since the early stages of computing and telecommunications. Automated Teller Machines (ATMs), Telephone Banking, Internet Banking (e-Banking), and Point of Sale (POS) have made transfers, withdrawals, and debit and credit payments effortless activities. These applications continue to evolve and they bring a new set of solutions and challenges. Online peer-to-peer (P2P) transactions, crowdsourcing, virtual wallets, and digital money, and completely branchless banks have been reducing costs of traditional banking and changing the way consumers with access to fixed and/or mobile broadband access financial services. Most importantly, ICTs are able to address two of the most important barriers to financial inclusion: affordability and availability.
50. In the centre of the disruptive effect of ICTs for financial services are mobile financial services, or mobile money applications. Mobile money applications comprise not only basic transfers and transactions offers, but also savings, credit and insurance. Despite the possibilities offered by mobile money to include a large proportion of the unbanked population, there are still many barriers that block widespread adoption, regulation being the major one. In order to unlock the potential of mobile money in the LAC region, the following good practices could be encouraged:
• Allowing non-traditional financial institutions to provide financial services to business and personal customers: adapting financial frameworks for non-banks is key for harnessing the potential of ICTs;
• Simplifying the process of opening accounts: “Know your customer” (KYC) requirements, such as formal address and identification, increase operation costs, reducing the affordability of services and acting as a deterrent for vulnerable populations;
• Reducing capital requirements for financial services providers: requirements need to be proportional to the risks undertaken in order to enable smaller agents and non-banks to offer these services;
• Relaxing conditions for agents that can execute certain operations, such as cash in and cash out, in order to expand the geographical coverage of simple financial services;
• Improving the conditions for international remittances, one of the fastest growing uses of mobile banking: regulations tend to be restrictive and many countries allow inbound remittances but forbid outgoing services; and
• Promoting interoperability of systems: while mandating the implementation of specific interoperability models rather than spurring a market based approach may slow deployment, initiatives that encourage interoperability are desirable.
51. In this ecosystem, governments can play an important role in spurring mobile banking, as they have the capacity to use these systems to transfer money, make payments (e.g. salary payments, social security, benefits and redistribution disbursements, subsidies) and receive payments (e.g. services, taxes, fines). They have the potential to catalyse the system by adding significant volume that could allow service providers to reach economies of scale faster.
52. For widespread adoption, the value proposition needs to be compelling for consumers, the interface has to be user friendly, transactions should be speedy, and the system ought to be trusted by users. Building such an ecosystem is not an easy task and involves many stakeholders.
53. In the LAC region, some policy makers have realised that mobile financial services could provide a steady route for financial inclusion and are adapting their regulatory frameworks. Colombia and Brazil are examples of that (Box 6).
Individuals with special needs
54. According to the World Health Organization, approximately 5% of the world’s population has disabling hearing loss, and more than 4% are visually impaired (of which about 13% are blind). Broadband, and, more generally, ICTs, could help to reduce the exclusion and inequality that individuals with these, and other physical and cognitive challenges, face. However, in order to enable all people to fully realise their potential, broadband access without services and applications adapted to the special needs of users is not enough. In order to improve labour market opportunities and social empowerment of those people with special needs, the full potential of ICTs must be seized to meet that goal.
55. Accordingly, several goals should be outlined and specific good practices followed:
• Improve awareness, since the early stages of conception, of developing and designing ICT products and services compatible and adaptable to the needs of people with special needs;
• Include and engage people with special needs and their organisations in the design of public policies;
• Ensuring that governments lead by example and incorporate into their day-to-day routine ICT products and services that fit the needs of people with special needs. Including requirements that take into account the needs of people with special needs in public procurement is a key tool for fostering inclusion and developing a more robust market accessible ICT products and services.
56. Article 27 of the United Nations Convention on the Rights of Persons with Disabilities (2006) recognizes the rights of people with disabilities to work on an equal basis with others, including the opportunity to make a living by work “freely chosen or accepted in a labour market” in an environment that is open, inclusive, and accessible to people with disabilities. The Convention also prohibits all forms of employment discrimination, promotes access to vocational training and opportunities for public, private, and self-employment, and calls for reasonable accommodation in the workplace, among other provisions.
57. As documented by several studies, both in developed and developing countries, working age adults with special needs experience significantly lower employment rates and much higher unemployment rates than those without special needs. Lower rates of labour market participation are one of the important pathways through which disability may lead to poverty. ICTs help people with special needs obtain employment by opening new fields of work, providing better access to education and training for existing opportunities, and allowing governments and non-governmental organizations (NGOs) to track and organize employment initiatives. People with special needs use ICTs to work, such as retail associates, telecommuting service agents, and self-employed entrepreneurs with online storefronts. In terms of training and social mobility, ICTs promote distance-learning and reduce the cost of certification for various workforce positions. Finally, governments and NGOs use ICTs to ensure accessibility initiatives are on track and to respond to evolving trends in the labour market and the ‘special needs’ community.
58. Technology is creating new tools for the diverse population of individuals with special needs, be they physical, intellectual or developmental. In some countries, a broadband connection coupled with the capabilities of Internet Protocol-based technology has created a unique opportunity to apply powerful technologies to expand the possibilities available to individuals who struggle with disabilities and cognitive impairment. The United States (Box 7), along with several other OECD countries, has been at the forefront of spurring inclusion and advancing the integration and independence of people with physical and cognitive disabilities and special needs.
59. Colombia also provides a good example of initiatives implemented to improve the accessibility of ICT products and services for people with disabilities (Box 8).
12. A crucial aspect of broadband uptake in the LAC region is affordability. Affordability is a relative concept that should be gauged against income in the population. It reflects the monetary effort that households and businesses should make to access the service. In the OECD-IDB Questionnaire, when asked about the main barriers for the uptake of online and ICT services in middle and low income groups of the society, LAC countries ranked “high prices for devices/services” as the more pronounced hindrance (Figure 1).
13. As a rule of thumb, prices that exceed 5% of disposable income substantially dampen demand (Galperin, 2012). Wide income inequalities exacerbate the situation, as low income households tend to have a much lower income than the average. In Brazil and Mexico, the bottom of the pyramid (defined as those households located in the bottom three income deciles) has an average household income of around 30% of the national average. As both national averages stand at around USD 1,400 PPP per month, a 5% maximum expenditure in telecommunication services would translate into around USD 20 PPP. Such an amount allows for notably limited access.
14. High income households (two top deciles), who have telecommunication services penetrations generally above 90%, tend to account for around 50 to 60% of total household spending in telecommunication services. As a percentage of their disposable income, the amount spent is usually well below the 5% threshold. The bottom of the pyramid accounts for only 5 to 10% of total telecommunication revenues. On average, household spending is well below the 5% threshold due to the fact that ICT penetration is scant. Of those households that actually spend on ICTs, the average spending significantly exceeds the threshold (Box 5).
15. Although mobile telephony charges have decreased steeply in recent years, fixed telephony and broadband have witnessed, in contrast a less substantial reduction on prices. Mobile operators have taken a role to invest and develop service innovations in LAC through the launch of offers such as prepaid services and daily tariffs for mobile broadband. As a result, more affordable services are now offered and at least 8o% of the mobile access in the region is based on prepaid (GSMA, 2015).
16. Nevertheless, in terms of affordability, average offers in the market tell an incomplete story. A much better picture of the situation is given by the least expensive option available in each market, under the assumption that access is important even if consumption amounts are capped (and usually very expensive on a per unit basis). In the second quarter of 2015, the cheapest available offers for fixed broadband ranged from USD PPP 14.92 in Brazil to more than USD PPP 50 in Argentina and Venezuela. For mobile broadband (1 GB plans), plans ranged from USD PPP 3.35 in Costa Rica to more than USD PPP 30 in Venezuela and Ecuador (Figure 3).
17. For fixed broadband, in the five years to 2Q2015, prices for the cheapest plans did not change substantially in the LAC region. Three countries (Nicaragua, Bolivia and Honduras) saw large decreases, but they are still three of the most expensive countries. Nine countries saw marginal increases, whereas seven saw marginal decreases. The average cheapest regional price went down by less than 10% (excluding Venezuela) in the same period (Figure 4).
18. In relative terms, six countries had fixed broadband minimum prices of less than 2% and six above 5% of GDP per capita. For mobile broadband, all countries except one offer plans priced under 5% of GDP per capita, with ten of them under 2% (Figure 5). Roughly speaking, these numbers translate into around half those percentages in terms of income per household. As households buy other telecommunications products (mainly, voice services), these minimum expenditure percentages are a mild burden for the average consumer, but an almost unsurmountable one for the bottom of the pyramid.
19. Affordability is still an important hurdle for broadband adoption in the LAC region, as prices are still high when compared to income levels and wealth distribution, especially for the most economically disenfranchised segments of the population. A number of LAC countries have started to address this issue. Many operators in the LAC offer “social” service plans (“popular” in Brazil, “social broadband” in Costa Rica). Some governments have subsidised access devices (tablets for students in Colombia and Mexico, while Costa Rica has a subsidy to buy a computer with Internet access for families assessed to be living in poverty). Most countries have free Internet access in certain public places (in Costa Rica there are four programs financed by Fonatel pursuing that objective – Connected Communities, Equipped Public Centers, Connected Public Spaces and Solidary Broadband). There are cases of increasing affordability by lowering taxation (low income plans in Brazil and Colombia’s “Vive Digital”). Though not specific to telecommunication services, most countries have income redistributions policies that have also increased affordability of ICT services.
Taxation and other government-imposed charges
20. Taxation is necessary in any economy to finance current government spending, support public investment, and redistribute income among citizens. That being said, taxation affects supply and prices, impacting demand and reducing affordability. Hence, the fiscal regime that applies to the ICT sector has to be put in perspective with other national goals. Government intervention also needs to consider spending programs, including income support to low-income households.
21. ICTs are general purpose technologies that have a positive measurable effect on growth and productivity. From a theoretical perspective, as these technologies have positive economic externalities and generate other social benefits, they are a potential candidate for goods and services that could be promoted by the state, including by reducing the tax burden on supply, adoption, and usage. The argument is the following: a more neutral tax structure that takes into account positive externalities, lowers barriers to affordability and increases investment, which could bring economic and infrastructure development, could increase productivity and employment; affecting education, healthcare, and overall development, which in turn could bring about growth and additional tax revenue for government.
22. In practice, however, many governments apply additional and sometimes substantial industry specific taxation on telecommunication services. Revenue collection may be carried out efficiently and at a low cost, as the sector is a significant part of the economy concentrated on a handful of very large formal corporations. For example, the two largest telecommunication companies in Brazil accounted for 6.3% of the revenues collected from the 20 largest taxpayers in 2014 (11.2% if Petrobras, the state-owned oil company, is excluded). Higher tax revenues collected by a small number of large taxpayers in the short term often may take precedence over longer-term potential economic and social benefits for development and may have other detrimental effects where it is, for example, not neutral (e.g. favouring one technology over another).
23. This creates a dilemma, as overtaxing the sector to generate current fiscal revenue conflicts with applying a more neutral taxing approach (or, at least, applying the general taxation regime) that promises to have a more positive effect, less distortive, on the economy in the future. Most countries in the LAC region have chosen the first option. Most studies arguing for neutral taxation, however, concentrate on the value of the second option.
24. There are many ways to develop a taxonomy of taxes. This report groups them into three almost non-overlapping categories. It is important to stress that many payments to governments are not strictly considered taxes, but their effect is similar to levying a tax so they are included in the following classification.
25. The first are general taxes are the broad-based taxes that usually apply to all activities in the economy and should be considered the basis for evaluating how much distortion special taxes cause. These taxes comprise, on consumers, value added taxes (VAT), sales taxes, or their equivalent. On companies, these are regular taxes that are imposed on profits, as well as non-recoverable taxes on investments goods (e.g. product-type VAT). Labour contributions (social security, payroll taxes, etc.) and other taxes that apply to all players in the economy also belong in this category. Of course, actual broad-based taxes often have numerous exemptions and exclusions for distributional, administrative or political reasons
26. The second, special taxes or fees to consumers, which are taxes levied on the sales price and take several different forms, all of which have a negative effect on demand:
• On overall spending on a specific product or service. This is usually an additional percentage on a consumers’ bill, in addition to VAT. For example, Mexico applies a 3% “special tax” on all telecommunications services except Internet and public and rural telephony. It was imposed in 2010 together with other tax rate increases (VAT and income tax). Since 2003, Colombia has applied a 4% differentiated VAT on mobile services. This tax finances sports at the national and state level. The Dominican Republic charges a 10% excise tax and a 2% tax to finance the regulator and projects for universal service. In El Salvador, at the end of 2015, the government approved the application of a 5% tax on telecommunication services to finance security plans.
• On usage. These are special taxes on usage, which can either be charged on the actual price (sometimes at different rates for different services – calls, SMS, data) or on a per-event basis (call, SMS); they are sometimes defined as a percentage of price, sometimes as a fixed amount. For example, Jamaica imposes a surcharge of around USD 0.004 per mobile voice minute.
• On terminal equipment and handsets. A terminal device is indispensable for access to telecommunication networks; these devices (modems, handsets, dongles, cable boxes, tablets, computers and so forth) are expensive and represent an important overall percentage of the total cost of access to ICTs, even though they could potentially be financed or subsidised by operators (at the cost usually of raising switching costs or charging more for services). Taxes on such devices become a barrier to access (especially for people with lower incomes) and can hinder take-up of newer services and technologies. These taxes can take several different forms (e.g. higher VAT rates, “luxury tax,” constant amount per unit, higher import duties). Some countries have gone even further, applying different rates for different types of devices (e.g. feature phone vs smartphone, or even exemptions if the price is under certain amount) or even different origins (e.g. imported vs locally manufactured). For example, in 2010 Argentina imposed a 26.63% import duty on mobile phones, LCD monitors, and PCs; it has recently been reduced to 20.5%. Ecuador imposes quotas on the import of smartphones. Many of these taxes are driven by the need to increase government revenue or influence the international balance of payments, but others are used to give incentives to local production or to address current account imbalances.
• On activation or on installed base in service. Some countries impose a one-time fee per new connection. For example, Jamaica has a 0.8% surcharge on the value of the SIM. Brazil charges R$26.83 (around USD 8) per new connection. Some countries in the LAC region apply yearly fees for active users; for example, Brazil has imposed this fee (of R$13.42, or around USD 4 per connection per year) for many years.
27. The third and final classification, are special taxes/fees to network and service providers. Operators and service providers pay a myriad of different government charges. Some of these payments are explicitly labelled as taxes, while others are linked to permits, the use or exploitation of publicly owned resources, or to special regulatory conditions. This category can be grouped in five types:
• Special taxes on revenues or profits. Certain countries apply a tax as a percentage of revenues on network and service providers. Brazil, on top of the USF contribution, imposes a levy of 0.5% for a technological development fund. Sometimes, a different tax rate applies to profits from telecommunication service providers. Panama applied different rates until 2013.
• Regulatory contributions:
– Universal service funds contributions. As shown in Chapter 4 on the extension of broadband access, operators are sometimes obliged to make payments for funds aimed at increasing universal service. These payments take several forms, but they are usually calculated as a percentage of revenue, such as Brazil’s 1% FUST contribution.
– Licensing and permit contributions. Most regulators charge administrative fees for issuing permits and licenses to operate. In many countries these fees are either for processes that could be considered unnecessary or are above the cost of providing the license.
– Inspection fees. Some countries charge a fee (either on a per event basis or on a yearly basis) to inspect and verify networks. Brazil’s Fistel (Telecomunications Inspection Fee), which charges a fee for verifying installation (TFI) and an annual payment for inspection (TFF).
– Other regulatory levies. Some regulators impose a charge to support regulatory activities. There are certain countries that impose charges for other goals, such as Brazil’s Technological Development Fund (Funttel), which receives 0.5% of revenues to foster innovation in the sector, or Costa Rica’s Fonatel contribution, which can range from 1.5% to 3% of the gross income of operators, depending on the projects to be financed each year.
• Exploitation of publicly owned resources. The deployment of telecommunications networks entails the use of many publicly owned resources, such as buildings, rights of way, public spaces and land, poles, towers, ducts, etc. Governments usually set charges on these resources, sometimes well above costs; although strictly speaking they are not taxes, they do have similar effects on the production function. Many of these levies represent a substantial part of local income for cities and municipalities, so setting them close to true costs might prove politically difficult. As a general rule, it is recommended that government levies for these concepts be set at the true costs (the so-called Diamond-Mirrless Efficiency Theorem ). Of course, when publicly owned resources are scarce (as the appropriate public space to deploy towers could sometimes be), other mechanisms to reflect scarcity should be used instead. See chapter 3 on Competition and infrastructure bottlenecks for good practices in this area.
• Spectrum fees. The rights to use spectrum are the ultimate example of exploitation of publicly owned resources, and as such, deserve to be treated separately. Spectrum can represent a significant cost of building and operating a telecommunications network. Chapter 2 addresses the most important aspects of efficient spectrum management. The OECD recommends using auctions as the most efficient way to charge the right price and let spectrum be assigned to those who value it the most. Whereas some countries license spectrum with only an upfront payment, others have opted for a two-part fee, composed of an initial payment (usually the amount offered by the bidder during the auction process) and annual spectrum usage fees. Assuming the cost of capital is the same for public and private funds, in terms of net present value these two amounts are theoretically equivalent. Nevertheless, such annual government charges impose costs incurred by all players and thus, it most likely trickles down to final prices; it could also have effects on competition, as on a per unit basis, spectrum that is more heavily used pays lower spectrum unit fee. This is an important consideration for smaller players, who, on a proportional basis, pay higher spectrum annual fees than larger players.
• Special import duties and custom taxes. In most LAC countries, a significant percentage of network equipment (hardware and software alike, such as switches, base stations, computer systems) is imported. These taxes affect the production value-chain and, as such, should be carefully considered; they could even distort certain decisions, such as using more spectrum instead of installing more radio base stations. Import duties could also translate into underinvestment, compromising quality and supply (especially in remote areas and less profitable deployments).
28. There is an additional tax which does not fit into the taxonomy described above, as it mostly affects directly consumers living abroad. Especially in highly regulated environments with monopolistic provision of services, some countries apply high surcharges on international incoming traffic. Such a measure would have negative implications for the provision of international telecommunication services (OECD, 2008).
29. While less prevalent in the LAC region than in Africa and some parts of Asia, the practice of applying surcharges to the termination of incoming international calls can also lead to market distortions. In some cases, they entail additional costs for the state due to enforcement (e.g. where an arbitrage opportunity is created such as in the case of so-called SIM box fraud). In addition this can lead to double taxation for consumers in the country making the call including in the LAC region. The end result is higher prices and supressed demand, often affecting the diaspora (who tend to be less well off in the countries where they are living) when calling family and friends in the countries applying the surcharges.
30. With so many different taxes and charges applied to telecommunications services, a straightforward cross-country comparison is extremely hard. An aggregate comparison can be done by evaluating how much tax is levied on handset acquisition and service costs over the expected life of the service contract (total cost of ownership – TCO). Though this approach reveals how substantial the additional charges are, it does not allow estimating the level of distortion caused by the different charges.
31. According to the GSMA, which periodically assesses taxes in the mobile sector worldwide, LAC countries charged on average 20.1% on TCO in 2014. For the set of countries analysed in previous studies , from 2010/2011, total tax on TCO increased from 17% to 18.4% (Figure 6). For the 27 OECD countries tracked by the GSMA (excluding Turkey, which currently taxes mobile services at 38.32%), total tax went from 20.0% to 20.95% in the same period.
32. Most LAC countries apply some sector specific taxes along the production chain. Most of these taxes end up affecting end-user prices, which in turn decrease demand and affordability. These charges also have implications for the deployment of networks, which have a negative effect on supply, quality, and coverage. They can also distort choices if not applied in a technologically neutral manner, something that is particularly important in an industry with dynamic technological change.
33. While communication services have become widespread in the LAC region (109% penetration of mobile telecommunication services, for example, according to GSMA), a large proportion of low income populations are still largely excluded from financial services. Average banking penetration for high-income OECD countries is 94%; in the LAC region, an average of 51.3% of the adult population has accounts in financial institutions (e.g. banks) (World Bank, 2014).
34. Although there has been considerable growth (around 10 percentage points) in account ownership in financial institutions in the region (World Bank, 2014), some population groups remain at the top of exclusion levels in the use of financial services – women that are not heads of households, youth, pensioners, students, people with lower income and education levels, and the rural population (OECD, 2013).
35. ICTs, especially mobile telephony and broadband, are becoming key enablers of financial inclusion. Online banking, payment and transfers are increasingly used means to access financial services across the world. Mobile services have played a central role in connecting lower income populations. Mobile financial services are bringing financial services to millions of unbanked and under-banked people. As of 2014, more than 250 services had been deployed in 89 countries, most of them in the Sub-Saharan region, home of the successful case of M-Pesa, but LAC has also seen its share of mobile financial service deployments, with currently around 50 active ones (Figure 7) (GSMA, 2014).
36. Despite having a mobile financial accounts penetration of only 2.1% (World Bank, 2014), the LAC region has witnessed the highest growth of mobile financial services subscriptions in the world, with the number of financial accounts growing by 50% between December 2013 and December 2014 to reach 14.9 million registered accounts (GSMA, 2014). It should be noted though that the number of active accounts is less than half of that figure, that is, 6.2 million, and small in comparison with the 61.9 million accounts in Sub-Saharan Africa.
37. The LAC region has the particularity of having high levels of people using accounts to receive government transfers (9%). Among other regions in the world, it lags only high-income OECD countries, with 17.2% of people receiving transfers in this fashion. The LAC region is also ahead of other regions, with the exception of the OECD countries, in respect to use of credit card and debit card, 18% and 27%, respectively (World Bank, 2014).
38. Along with having a more developed financial sector and use of financial services, the implementation of government programmes of cash transfers in the LAC region has probably acted as an important force for bringing people into the formal financial sector, hence minimising the demand for mobile financial services when compared to other regions of the world. As will be explored further on, governments can play an important role in harnessing ICTs, mobile telephony and broadband to spur more inclusive development.
Individuals with special needs
39. The prevalence of individuals with special needs in Latin America and the Caribbean have been reported to range, although methodologies may vary, from 2.9% in the Bahamas to 23.9% in Brazil (CEPAL, 2012). In total, around 12%, or 66 million individuals, in the Latin America and Caribbean live with at least one disability, such as, visual and mobility limitations, hearing and speaking disabilities and intellectual and developmental limitations. This last group, that includes people with mental or cognitive disabilities, is according to CEPAL the ones that find the most challenges in integrating themselves in social and economic activities in the LAC region.
40. A key challenge for the LAC region is in collecting basic statistics on people with disabilities in the region. Gathering disaggregated data on their specific limitations, gender, income, use of technologies is an even more difficult task for certain countries. This lack of knowledge on the condition that these individuals face contributes to the fact that people with special needs continue to be part of the groups with lower incomes. When tackling the issue of digital inclusion, initiatives that target enhancing both affordability and accessibility of ICTs are crucial for enabling all individuals to benefit from the digital dividends.
60. This Chapter focused on good practices aimed at increasing the affordability of broadband services and digital inclusion. It presented three different ways on how affordability could be increased: by increasing income (such as through transfer mechanisms for targeted segments of the population); lowering prices of broadband services (such as through enhanced competition, effective broadband strategies, efficient spectrum allocation, infrastructure sharing models and universal access programmes); and increasing the utility of accessing the Internet (such as by enhancing digital awareness, literacy and the provision of local content).
61. Additionally, this Chapter analysed the effects of government charges such as taxation in final prices of broadband services and ICT devices. Good practices to maximise adoption of broadband services in this area relate to developing simpler, more transparent and neutral tax regimes; not imposing unreasonable burdens to any party; avoiding sector specific taxes; and setting administrative fees close to real costs of providing the services.
62. Finally, good practices were presented on furthering digital and financial inclusion. On financial inclusion, it was stated that to unlock the potential of ICTs for financial services it would be necessary to : adapt financial services frameworks to include non-traditional financial institutions; simplifying processes of opening accounts; reducing capital requirements for financial service providers; promoting interoperability of systems; and encouraging user friendly and trust-worthy systems. On expanding digital inclusion, particularly for people with special needs, it was highlighted that it is was crucial to improve awareness of developing and designing ICT products and services compatible to the needs of people with special needs, including and engaging people with special needs in the design of public policies, and ensuring that governments lead by example in this matter.
A4AI (2014), Affordability report 2014. Alliance for Affordable Internet. Available at http://a4ai.org/affordability-report/report/DIRSI BROADBAND PRICE DATABASE (2015), Information available at http://dirsi.net/web/web/en/news-and-events/news/new/dirsi-publishes–broadband-in-latin-america–market-prices-and-trends-.
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GSMA (2014), Mobile Taxes and Fees. A Toolkit of Principles and Evidence. Available at http://www.gsma.com/publicpolicy/wp-content/uploads/2014/02/Mobile-taxes-and-fees-A-toolkit-of-principles-and-evidence_fullreport-FINAL1.pdf
GSMA (2015), 2014 State of the Industry. Mobile Financial Services for the Unbanked. Available at http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf
GSMA and DELOITTE (2015), Digital inclusion and mobile sector taxation 2015. Available at http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/06/Digital-Inclusion-Mobile-Sector-Taxation-2015.pdf
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Hammond (2000), Reassessing the Diamond/Mirrlees Efficiency Theorem, Stanford University. Available at http://web.stanford.edu/~hammond/prodEff.pdf
Hellen Keller National Center “HKNC Communications Technology for People who are Deaf-Blind” https://www.youtube.com/watch?v=-OE6zr1TXQo
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ITU (2013), Taxing Telecommunication / ICT Services: An Overview. Available at https://www.itu.int/dms_pub/itu-d/opb/pref/D-PREF-EF.TAX-2013-PDF-E.pdf.
ITU (2013), The ICT Opportunity for a Disability-Inclusive Development Framework. Synthesis report of the ICT Consultation in support of the High-Level Meeting on Disability and Development of the sixty-eighth session of the United Nations General Assembly. Edited by the International Telecommunications Union. September 2013. Available at https://www.itu.int/en/action/accessibility/Documents/The%20ICT%20Opportunity%20for%20a%20Disability_Inclusive%20Development%20Framework.pdf
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BARRANTES, R., GALPERÍN, H., AGÜERO, A. and MOLINARI, A. (2007), Asequibilidad de los servicios de telefonía móvil en América Latina, Oportunidades móviles: Pobreza y acceso telefónico en Latino América. Diálogo Regional Sobre Sociedad de la Información/IDRC-CRDI.BARRANTES, R. and GALPERÍN, H. (2008). Can the poor afford mobile telephony? Evidence from Latin America, Telecommunications Policy 32, 521-530.
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1. The average for the eight LAC countries included in the GSMA/Deloitte study is 28%. The countries are Panama, Uruguay, Ecuador, Chile, Colombia, Brazil and Jamaica.
2. See http://www.gsma.com/publicpolicy/tax/research-and-resources.
3. Connected Households Program, launched as one of the programs from the National Strategy for Universal
2. See http://www.gsma.com/publicpolicy/tax/research-and-resources.
3. Connected Households Program, launched as one of the programs from the National Strategy for Universal
Access and Solidarity Service, known as crdigit@l.
5. See Hammond (2000) “Reassessing the Diamond/Mirrlees Efficiency Theorem” available at http://web.stanford.edu/~hammond/prodEff.pdf
6. For many developing countries import duties and customs taxes are an important source of revenue and their reduction is likely to entail significant short-term revenue loss for those countries. Hence an abolition/reduction of special import duties should be carefully considered and coupled with measures to meet incompressible revenue needs.
7. See for example OECD “Time to terminate termination charges?” 13 June 2014. http://oecdinsights.org/2014/06/13/time-to-terminate-termination-charges/
8. The 2011 study did not include Panama, Jamaica, and Uruguay
9. More on www.a4ai.org.
10. This is a clear example of the Laffer curve. A Laffer curve refers to the concept of taxable income elasticity. It states that tax revenue will be zero at the extreme rates of 0% and 100% and that there should be at least one rate that maximizes taxation revenue. This implies that potentially lower tax rates could translate into higher government revenues, or, vice versa, that higher tax rates do not always increase revenue.
CHAPTER 6: CONVERGENCE
This Chapter addresses trends in network and service convergence, its implications for broadband competition, innovation and investment dynamics, and provides a set of good practices to respond to opportunities and challenges. It examines changes in the whole value chain of broadband access and services and the need for them to be addressed in a holistic manner, covering not only network infrastructure and traditional service providers, but also content, application and the so-called over-the-top providers (OTTs). This Chapter highlights the main policy and regulatory practices on convergence related to convergent regulators, convergent licensing regimes and bundling practices, as well as issues related to Internet openness.
1. Historically, distinct communication networks and their underlying technologies provided voice, data, radio and television services. Today, communication networks are shifting towards IP-based solutions that allow, in conjunction with developments in terminal devices, access to IP-based applications on a multitude of devices, a multi-layered process that can be termed digital convergence. Convergence between traditional telecommunication operators and content providers (e.g. video delivery), has increasingly led to new products and service offerings by all players in the Latin American and Caribbean (LAC) region.
2. This process of transition from the PSTN (public switched telephone networks) to IP-based networks is closely linked to market-based broadband developments. Broadband has facilitated convergence and convergence has stimulated demand for new services, which in turn has been a catalyst for the growth of broadband. Therefore, consideration of convergence plays an important role in the development of a forward-looking broadband strategy.
3. Convergence is fostering competition, content creation, collaboration, interoperability, mobility and product and service innovation. At the same time, however, convergence poses new challenges for businesses, consumers and governments in the LAC region, some of which are described below and addressed later in this Chapter.
Effects of convergence
4. The implications of convergence can be considered in three major categories:
• Disruptions to the traditional communication industry. Due to technological innovation, digitalisation and increased connectivity, previously separated value chains (such as fixed/mobile and telecommunication/broadcasting) are evolving into mixed value chains of access, which include content distribution service and device providers. Convergence has encouraged the upgrading and remixing of new configurations of products and services. The advent of the so-called over-the-top (OTT) players is having profound implications for the traditional telecommunication and broadcasting industry. Among them, the creation of new business models has blurred the lines between fixed and mobile communication services, as well as between telecommunication and content providers. For example, the removal of the boundary between fixed-wireless and cellular connectivity, and between broadcasting and Internet services, through catch-up television, video-on-demand, streaming, cloud-based television and others.
• Increased choice and new vulnerabilities for consumers. Users are at the centre of digital service delivery by their increased empowerment in deciding what they want to access, when and where. They also are creating their own content and services and becoming entrepreneurs. Increased availability of broadband and convergence trends are fostering the rise of the “on demand” market, which is connecting consumers and producers directly and enabling customisation of goods and services. At the same time, the advent of new services is changing the relationship between suppliers and consumers and the digitalisation of media is increasing data security and privacy vulnerabilities, requiring consumers to assess more carefully what they are sharing and contracting.
• Regulatory boundaries have become less clear challenging governments’ ability to deal with cross-cutting issues. Prior to convergence, communication regulation was dealt with in separate silos and regulators would only have to deal with a few established traditional players. However, convergence has made the borders between different sectors of policy and regulatory frameworks less clear, affecting the ability of regulators to impose and enforce regulations and requiring co-operation among government departments and regulators to address cross-cutting issues. Jurisdictional issues are also becoming more relevant, as regulators and other national bodies may find difficulties to implement their national legal frameworks on services provided by players established in other countries. Additionally, the rise of new technologies and players has been driving policy makers to rethink their traditional approaches, creating opportunities to lift some legacy requirements and to build, as much as possible, more technologically neutral and future-proof regulatory and policy frameworks. In many cases, this has led to a review of regulations and regulatory bodies leading to a merging of existing bodies.
5. This Chapter aims at bringing awareness of the opportunities and challenges brought forth by convergence in the LAC region. As broadband speeds increase and the networks become more capable of delivering added-value services, policy makers in the LAC area will have to deal in the coming years with issues related to, for example, adaptation to their own communications governance models to convergence trends, treatment of bundles and convergent offers and Internet openness.
6. While Internet openness is a multidimensional concept including technical, economic, social and other aspects (OECD, 2016), this Chapter will address a limited set of policy and regulatory issues related to Internet national governance arrangements, traffic prioritisation and network neutrality, zero rating, liability of Internet intermediaries and IPv6 (Internet Protocol version 6). Issues related to convergence of communication providers with other adjacent sectors of the economy, such as banking, transport, tourism and so forth will not be touched upon in this chapter, but the principles introduced in this section should offer a good start to consider other cross-sectorial implications of ubiquitous connectivity.
Key policy objectives for the LAC region
7. The evolving and multi-layered convergence of networks and services is driving policy makers to reassess their policy and regulatory frameworks in order to adjust them to current and future developments. In order to do so, policy objectives such as the ones exemplified below should be at the centre of convergent policy:
• Expand access to and use of services, applications and content. Users should be at the centre of communication policies. Policy makers should focus on frameworks that ensure that consumers and businesses benefit from expanded choice in the context of convergent networks and services with respect to connectivity, access and use of IP-based services, applications, content and terminal devices. Consumers should be able to access any service at any time and from any place, and the regulatory framework should not only allow, but also facilitate the development of convergent services empowering consumer choice and ensuring consumer protection and enforcing consumer’s rights, irrespective of the supporting technology and type of provider supplying the service.
• Encouraging investment and competition in a convergent environment. Policy makers should establish an environment conducive to competition and investment, so that the multitude of bundled or standalone voice, data and video services in the IP convergent world provided by different actors as access and content providers can proliferate and reach users in an affordable and efficient manner (further addressed in Chapter 3 on Competition and Infrastructure Bottlenecks).
• Promoting free flow of information and innovation. Governments should promote the free flow of information within and outside their borders to spur innovation, knowledge sharing and trade. To facilitate the objectives policy makers need to uphold the open, distributed and interconnected nature of the Internet and ensure the well-functioning of its architecture and interoperability.
Tools for measurement and analysis in the LAC region
8. In order to assist policy makers in fulfilling their objectives, it is crucial to conduct regular assessments of the rapidly changing and converging communication ecosystem. To construct a policy framework adapted to the emerging challenges of convergence, policy makers should be informed by sound evidence. Some of the indicators below offer a roadmap of possible areas where data is needed for understanding some of the convergence issues presented here:
Understanding the main players in the converging ecosystem
• Number of subscribers and revenues of integrated service operators (offering either fixed and mobile services or voice and broadcasting services) and data on market shares and evolution trends (such as recommended in Chapter 3 on Competition and Infrastructure Bottlenecks).
• Data on Over-the-top Internet (OTTs) providers competing for “traditional” communication services (such as voice and audio-video services or VoIP), including collection of number of subscribers, revenues and any other data that would be relevant to understand competition trends and evolution of the market.
Assessing the state of bundled services
• Collection of data on bundled services such as the number and percentage of bundled services, prices paid, data caps and length in time of the offer (Figure 1).
• Development of methodologies for market analysis of convergent offers.
Benchmarking the Internet’s openness
• Quantitative and qualitative information compilation and analysis of complaints or reports of blocking and throttling by consumers and service providers (including conflicts between operators).
• Collection of information on peering and transit agreements for monitoring the interconnection market.
• Collection of information on bottlenecks and restrictions to openness across the whole value chain for broadband-based services (network providers, as well as content, application and terminal equipment providers).
• Collection of data on zero rating offers, when they are permitted and exist. Information about any other offers where broadband access to contents and application is restricted is also useful to assess trends, bottlenecks and dominance issues.
• Measuring the extension of use of IPv6 in the country and the proportion of government services supported by IPv6 (Box 1).
9. Improving network parameters collection, surveys and statistical systems to measure the changing access and use of communication networks by consumers, businesses and institutions in order to provide reliable measures of convergence is an ongoing exercise and particularly important for being prepared for convergence trends.
10. A major challenge to benchmarking convergence resides on the fact that the majority of regulatory authorities do not have the legal competency to request information from many of the service providers (e.g. OTT) that do not classify as their traditionally regulated communication service providers. This absence of mandate affects the assessment of the impact of these new services and reduces the ability of regulators and policy makers to have a clear picture of market developments and the fulfilment of policy objectives.
11. The solution to this challenge may be to expand the scope of the information gathering mandate, while paying attention not to over-burden firms and taking advantage of new data collection and analysis methods, e.g. the exploitation of large volumes of data or “big data” (OECD, 2015) may serve in the future to satisfy policy information requirements. New methods for collecting statistical information and the data produced by them have been receiving considerable attention due to their timeliness, detail and frequency. They are likely to be increasingly used by national statistic offices and regulators to complement their traditional statistics on issues such as quality of service, security incidents and price statistics (Reimsbach-Kounatze, 2015).
Overview of the situation in the LAC region
12. The LAC region has seen different levels of development in the implementation of convergence-related regulation and policies. While some countries in the region have been at the forefront of some issues and policy development, such as on network neutrality and IPv6, a general overview of the region shows that most countries still have not addressed key issues related to convergence. It may be the case that many of these emerging issues have yet to affect LAC countries as much as some OECD countries, due to the higher broadband penetration in the latter. This is likely to change, however, as broadband penetration rates increase in the LAC region.
34. Policy makers need to respond to the changes brought about by convergence, over broadband networks, with a whole-of-government approach. This is because these changes touch on a number of different sectors and this increases the chance of overlap between the responsibilities of different agencies and ministries. It is important to address all market actors in any review of legal and regulatory frameworks to ensure a balanced approach across all services. The emergence of OTT content service providers and the popularisation of triple- or quadruple-play service bundles, including premium content, for example, have made boundaries between content and data transmission difficult to draw (OECD, 2014). Other issues, such as must-carry/must-offer obligations, copyright and retransmission issues are not easily classified in any of the two categories (audio-visual content or telecommunication regulation). Convergent trends have very relevant effects on competition dynamics among broadband and content/application providers that need to be analysed taking a holistic approach. Likewise, cross-sector mergers and acquisitions and market analysis (of fixed and mobile, content providers and telecommunication providers or OTTs) have a profound influence on the need to reinforce collaboration between competition and communication authorities.
35. There are several types of institutional arrangements that address regulatory convergence when assigning powers to the different agencies in OECD countries. Some combine powers of ex-ante with ex-post regulation, such as in the Netherlands; others combine ex-ante regulators of several sectors into a single body, such as in Australia; and others go beyond to create a unique regulatory authority for all sectors acting both ex-ante and ex-post, such as in Spain. In general, converged regulators address in a holistic way convergent regulatory issues, and to serve as a one-stop shop for stakeholders, simplifying regulatory decisions, saving public resources and facilitating knowledge sharing.
36. Converged regulators integrating powers for both audio-visual and telecommunication services, including content-related issues for video/television services, can assess and take regulatory measures on the full value chain of communications services (from networks to content), identify bottlenecks and detect possible leverage of market power in adjacent markets (such as bundling issues). Converged entities that combine both ex-ante and ex-post powers have a better ability to co-ordinate regulatory decisions, and improve consistency, coherence and enforcement.
37. Any reform seeking to address convergence should be complemented with new tools, procedures and updating information requirements. This is especially the case given the challenge of collecting data from OTTs and analysing their effects on broadband markets to inform policy making and regulation. By way of example there is a need to take into account substitutability of new services wrought through convergence as well as ensuring the availability of statistical and technical skills and resources to undertake competition analysis. As well as Mexico in the LAC region, other OECD countries that have recently introduced a converged structure for their communication authorities include Hungary, the Netherlands and Spain. These countries join those such as Australia, Canada, the United Kingdom and the United States.
38. Licensing requirements in broadcasting and telecommunication should be reduced to the minimum necessary, to allow a facilitated entry of new providers and to promote innovation and competition. This can be a notification-based, class-licensing approach, as is already the case for telecommunication services in most OECD countries. One of the few exceptions to this rule would be services using scarce spectrum resources, where licences involved coverage and QoS obligations, that should be consulted with the regulatory authority to ensure that competition is encouraged. In a converged environment, the difference between telecommunication and audio-visual services may no longer be as relevant, especially in the scenario where audio-visual services are provided over the Internet. Here, it is advisable to keep licensing requirements as low as possible. Some countries in the Latin American and Caribbean region have made considerable progress in this respect. Peru, in 2006, Colombia, in 2009, and Mexico, in 2014, for example, have recently taken steps to simplify licensing requirements for most services (Box 4).
39. For licensing, Colombia and Mexico, take a similar approach to that of the European Union and only require previous notification to the relevant authority (Box 5). In the United Kingdom, for example, television services are licensed by Ofcom in an approximate time frame of 25 working days (non-committal) for a USD 3 500 fee. Video-on-demand services are licensed by the ATVOD (The Authority for Television on Demand) based on providers’ revenue, starting at some USD 250.
40. In general, operators should be allowed to provide any service, facilitating economics of scope and enabling of convergent offers, on a national basis, which would promote economies of scale and any potential issue for competition and obligations should be addressed following a market analysis.
41. Broadband IP-based networks facilitate a bundling of communication services. These range from basic double-play to triple and quadruple-play offers of fixed and mobile broadband Internet access, pay-television, fixed telephony and mobile voice. Operators in the LAC region are increasingly including innovative services in their bundles, such as those resulting from partnerships with OTT providers as well as those such as home monitoring, mobile payments, e-learning applications, computer security, and cloud storage services.
42. Bundles can be beneficial to consumers to the extent that it allows them to purchase several services with a significant discount over the sum of prices for stand-alone equivalents (OECD 2011, OECD 2006) and can also reduce complexity of subscribing to multiple services of multiple providers. Conversely, bundling of services may also complicate choices for consumers by increasing complexity, thus making price comparisons more difficult, and reducing bill transparency. Operators may also benefit from bundling practices as it may lead to cost savings, via economies of scope and scale or simplified distribution and marketing, which in competitive conditions should, in turn, benefit consumers via price reductions. Bundling services also allows for the use of a sole technology platform (such as through the use of “boxes” that allow for the provision of triple play bundles over the same device (OECD, 2011).
43. One of the biggest challenges of bundling practices for policy makers, however, is to determine its impact on competition. Operators that are in a position to offer bundles based on their own infrastructure may leverage dominance from one market to other markets and alternative operators may not be able to compete on an equal footing. This is why competent authorities should take into account bundling as a potential barrier to competition when performing market analysis, while also taking into account potential benefits that these offers may bring to consumers. Some good practices in this area are summarised below:
• Obligation to provide separate prices for standalone services and billing. A lack of transparent information about services and their prices makes consumer price comparisons more difficult and may lead to market inefficiencies. To facilitate consumer choice it is good practice to require that the prices of bundled services are provided separately. Regulators and consumer-protection agencies should encourage providers to make available more information on the characteristics of packages they are selling and to make prices clear and understandable for consumers. Many regulators, including in LAC area, have sought to increase bill transparency by issuing regulation that requires operators to disaggregate the prices of each service component (including handsets, if included) in the bundle. These practices are in line with what is set out in the OECD Consumer Toolkit and its application to communication services (OECD, 2008; OECD, 2010; OECD, 2013). Additionally, websites and tools that can help users compare bundled offers are beneficial to consumers and lead to stronger price and service competition. Regulators are in a good position to provide these tools to the public (Box 6).
• Monitoring the market for anti-competitive practices. Regulators and competition authorities need to work together to address problems with market dominance in bundles. Most importantly, these authorities should co-operate to develop new market analysis frameworks and tools to address issues related to bundles and cross effects, such as those between competition in content provision and competition in telecommunication and OTT services (Box 7).
44. Some additional good practices, covered in Chapter 3, on competition and infrastructure bottlenecks, can be especially relevant when addressing competition issues in a convergent world: encouraging inter-platform competition to ensure replicability of bundle offers by alternative operators and regulating when needed wholesale markets.
45. Additionally, policy makers should, when possible, treat with careful consideration exclusive long-term deals for premium content, especially when supply of these premium contents is bundled with broadband access. The impact on market competition of premium content acquisition by dominant providers should be assessed with caution and, if needed, obligations to share content can be required to ensure competition.
46. Traditional telecommunication operators have widely regarded VoIP services provided by third parties as a threat to their revenues from legacy voice services. In response, some of them have excluded, surcharged, restricted or price-discriminated the use of VoIP services, absent explicit network neutrality rules or when permitted by the regulator.
47. Any efforts to block VoIP service have not been successful in discouraging offers by content and application providers, such as Skype or Viber. Other OTT messaging applications equipped with voice features such as WhatsApp, Facebook Messenger, FaceTime and LINE, have proven popular in the LAC region as elsewhere around the world. Some operators have sought to restructure tariffs, such as by including unlimited voice and text for particular locations or destinations, or have included their own or third-party VoIP pre-installed applications in order to increase the attractiveness of their own services in the face of competition from OTTs (e.g. “TWNEL” from Tigo Colombia).
48. Authorities should analyse if and when VoIP services should be regulated in their countries against their policy objectives. In many OECD and LAC countries, regulators have taken the approach that VoIP providers that act as traditional voice operators and connect to the PSTN (having numbers assigned and a certain size of subscribers or revenue, for example) should be required to follow similar obligations. In Japan, for example, there are various requirements if a telephone number is assigned. At the same time, other countries such as Australia, implement these obligations only to network operators.
49. A neutral approach focusing on services provided rather than technology may help to clarify some issues of applying obligations and including VoIP in numbering regulation frameworks. Belize and Colombia offer an interesting example of technology neutrality, while Chile is a good case of allocating “nomadic” or “non-geographic” numbers for VoIP services (Box 8). Other issues such as number portability are likely to arise in the future in the LAC area. In most OECD countries, portability between fixed voice service and equivalent VoIP service has already been enabled. In addition, local number portability to VoIP and portability between VoIP services can become more important if they become increasingly more used in replacing existing fixed phones.
55. The Internet’s decentralised nature and openness to new devices, applications and services has played an important role in advancing convergence and in its success in fostering the free flow of information, innovation, creativity and economic growth. This openness stems from the continuously evolving interaction and independence among the Internet’s various technical components, enabling collaboration and innovation while continuing to operate independently from one another. It stems also from globally accepted, consensus driven technical standards that support global product markets and communications.
56. At the international level, the roles, openness, and competencies of the global multi-stakeholder institutions that govern standards for different layers of Internet components have served to expand the decentralised network of networks that the Internet is today. The OECD Internet Policy Making Principles (2011) offer a reference framework, not only for OECD countries, but also those in the LAC region as indicated by its endorsement by countries such as Costa Rica and Colombia (Box 10).
57. At the national level, multi-stakeholder arrangements for governing Internet issues are also advisable, such as exemplified by the case of CGI.br in Brazil or the Internet Advisory Board in Costa Rica (Box 11). Maintaining technology neutrality and appropriate quality for all broadband networks and services is also important to ensure an open and dynamic Internet environment.
58. Broadband networks are a key platform for innovation, economic opportunities and civic engagement. For this reason, the extent to which these networks are open to facilitating these objectives has become a chief concern for all stakeholders. In the network neutrality or traffic prioritisation debates, for example, different actors bring their own assessment of the value others bring during commercial negotiations for the exchange of traffic. For the most part, the system works with extraordinary efficiency with most of the thousands of networks that exchange Internet traffic doing so without a written contract or formal agreement.
59. In this increasingly converged environment, Internet Service Providers (ISPs) become gateways for content and applications as they control the final access to consumers by content providers. This does not mean that IP termination for content and applications should be regulated, as the nature of these markets tends to be two-sided, where content providers also hold considerable bargaining power, but rather that policy makers should monitor for any market failures and, above all, encourage competition for broadband access. Some good practices related to Internet openness issues are provided below:
• Policies for traffic prioritisation/network neutrality. Prioritisation of certain applications or services may raise competition concerns related to the leveraging of dominant positions or favouring one competitor against another. If there are no particular issues in a market, due to sufficient competition, and the available information suggests an efficient exchange market is in place, policy makers can forbear from direct action. This strategy is reliant on policy makers and regulators having appropriate information in areas such as the competitiveness of broadband access, the effectiveness of transit and peering markets and the efficiency of IXPs. Policy makers in some countries, including in the LAC region, have chosen to directly disallow prioritization by ISPs based on their assessment of available competition or its potential implications for competition (Box 12). In these cases, they should allow reasonable traffic management and the development of new innovative services that may need prioritisation, such as those in the telemedicine field. There should be no need in principle to act at the wholesale level, such as regulating interconnection agreements, as long as a market has sufficient competition.
• Policies to address zero rating practices. Offering certain services based on a zero rate to consumers is becoming a common practice in some countries in the LAC region. This practice may in some circumstances promote competition, in markets where there is a sufficient number of players to offer choices for consumers, and in that way benefit existing and new users by providing innovative and less expensive offers. However, zero-rating may also raise serious concerns in markets with insufficient competition, by favouring some applications or over-the-top service providers, very likely already dominant, at the expense of smaller or emerging ones. Additionally, zero-rate offers that result in “walled-gardens” may limit the Internet experience of consumers, raising public policy concerns. In this context, when zero rating is permitted, it is advisable that policy makers monitor its existence and effects, and continue to encourage competition at the broadband services level, since zero-rating becomes less of an issue when there is increased competition and higher data allowances. Directly prohibiting zero-rating may have implications for a market where there is lower competition for transit and may reduce the effectiveness of peering. Nevertheless, in any market with limited competition for access, zero-rating can affect competition among content providers. In general, zero-rating effects on competition and on consumers experience should be analysed on a case-by-case basis. Depending on the situation, regulators may consider that zero-rating should not be allowed to preserve competition and/or Internet openness, while in other situations, mainly when there is sufficient competition, it may not have relevant negative implications to justify intervention.
• Limiting liability of Internet intermediaries. Internet intermediaries (e.g. ISPs, search engines, portals) host, transmit and index and give access to content originated by third parties. These are critical attributes to fostering digital economies and the benefits this brings for meeting policy objectives. Accordingly, a good practice for policy makers is to set appropriate limitations of liability for Internet intermediaries with regard to third party content. Internet intermediaries can play an important role by addressing and deterring illegal activity, fraud and misleading and unfair practices conducted over their networks and services. Policy makers may, therefore, choose to convene stakeholders in a transparent, multi-stakeholder process to identify the appropriate circumstances under which Internet intermediaries could take steps to educate users, assist rights holders in enforcing their rights or reduce illegal content. Any policy in this regard should seek to minimise burdens on intermediaries and in ensuring legal certainty for them.
60. In mid-2014, the Internet Address Registry for Latin America and the Caribbean (LACNIC), the organization responsible for assigning Internet resources in the region, announced the exhaustion of its IPv4 address pool and expressed its concern regarding the pace of the deployment of Internet Protocol version 6 (IPv6) in the region (LACNIC, 2014). The IPv6 protocol was developed by the IETF in 1996 as a response to the evident rapid growth of the Internet after its commercialisation in the 1990s. While hardware manufacturers, network vendors and the software development community have been ready for more than a decade, the deployment and roll out of IPv6 is still at an early stage in the LAC region, as elsewhere.
61. Following the announcement by LACNIC that its pool of available IPv4 addresses reached the 4.1 million mark, this triggered stricter Internet resource assignment policies. In practice, this means that IPv4 addresses are now exhausted for Latin American and Caribbean operators. As agreed by the regional community, LACNIC’s pool of IPv4 addresses is considered officially exhausted and the Gradual Exhaustion and New Entrants policies have come into effect, introducing new procedures and requirements for those requesting resources. Some two million of the remaining addresses may be assigned during this phase, in blocks of limited sizes. In addition, an organisation may only request additional resources six months after receiving a prior assignment. Once these two million IPv4 addresses are exhausted, LACNIC members will no longer be able to receive any IPv4 assignments. During this final phase only new members will be able to request IPv4 addresses and only be able to receive one assignment from this space.
62. In 2008, OECD governments signed the Seoul Declaration on the Future of the Internet Economy which included specific mention to the transition to IPv6, declaring the need to “encourage the adoption of the new version of the Internet protocol (IPv6), in particular through its timely adoption by governments as well as large private sector users of IPv4 addresses, in view of the ongoing IPv4 depletion” (OECD, 2008).
63. Governments can facilitate adoption through a number of policy measures and actions. The following measures have been acknowledged to create some positive effects on the deployment of IPv6:
• Adoption of IPv6 within government agencies. Transition deadlines, IPv6 Days or switchover dates can incentivise regional and local governments to migrate their internal network and services to IPv6. This can be very useful in stimulating human capital development on how to implement IPv6 and more broadly stimulate the expertise among third-party service and support firms that can facilitate IPv6 deployment.
• Requirement of IPv6 compatibility in procurement procedures. Several countries have incorporated obligations for procurement of IPv6 compliant hardware (CPEs, network equipment), software (in-house applications) and services (e.g. requirement to the Internet service provider to support IPv6).
• Monitor the impact of CGNAT in the quality of service. Significant efforts have been put to ensure that IPv4 can continue to work in an environment of address depletion. However, the use of carrier-grade NAT techniques or CGNAT in large service providers is slowing down the adoption of IPv6. Authorities should encourage ISPs to provide unique and global IP addresses to their subscribers, whether IPv4, IPv6 or both. A possible action would be to monitor the effects of CGNAT in the quality of service of end-users as a tool for the regulator to detect bottlenecks in specific service providers.
• Support and promote IPv6 awareness. Building IPv6 awareness requires the collaboration between governments, the private sector and the Internet technical community. Examples of good practices are the organisation of capacity building activities to educate service providers and prepare them for the transition. The activities can be organised jointly by government, universities and ISPs. The technical community provides ongoing operational support and technical training via their outreach programmes.
• Creation of multi-stakeholder IPv6 work groups. The establishment of task forces coordinating the transition among ISPs, government entities and other players is a very effective way to encourage and support the transition to IPv6. In addition, observatories on IPv6 implementation can disseminate case studies and implementation plans used by institutions. Brazil, for instance, has formed a national IPv6 task force led by the regulator to co-ordinate efforts between government, ISPs, universities and LACNIC.
• IPv6 Research and Development. The implications of the transition to IPv6 and the implications for the network topology and availability of domestic Internet services may benefit from research and development efforts. Some examples of research projects could be the establishment of a networking environment to benchmark different migration strategies, carry out partial migrations and measure the effects on its end users, simulate incidents affecting core components of the national infrastructure and assess its costs and risks, and so forth
64. The Number Resource Organisation (NRO) , of which LACNIC is a member, recognises the role of government’s organisations in the transition to IPv6 and suggests them to coordinate with industry to support and promote awareness and educational activities; adopt regulatory and economic incentives to encourage IPv6 adoption; require IPv6 compatibility in procurement procedures; and officially adopt IPv6 within government agencies.
65. In the LAC region, a group led by Colombia, Costa Rica and Peru developed a number of policies aimed at increasing the adoption of IPv6 within Government and associated agencies. Brazil followed another approach and established a multi-sectorial IPv6 workgroup to coordinate the support to the service providers. Other countries have benefited by the support from the Internet technical community, mainly through LACNIC (Box 12).
Guiding principles for adapting regulatory frameworks for convergence
30. Given the increasing convergence towards IP broadband networks it is necessary to review whether existing policy and regulator frameworks will continue to apply and what measures should be taken to facilitate and seize the benefits of the transition.
31. A first step in assessing if the current communication policy and regulatory frameworks should be updated involves evaluating whether the reasons that inspired and justified their introduction still hold in the new environment. Such an evaluation should come from the understanding that regulation is usually applied to correct a market failure, such as lack of competitive choice, resource scarcity or to safeguard public policy objectives (e.g. widespread access, public safety, emergency communications, economic growth, privacy, consumer empowerment, security, and so forth). In some areas where traditionally there has been market failure, convergence may have created opportunities for market players to play a greater role by increasing choice and diversity and reducing scarcity, while in others market failures may still exist.
32. OECD countries have carried out regulatory reforms in the light of convergence and some of the general principles guiding these policy principles can be used as a source of good practices for the LAC region:
• Simplify. The guiding principle behind creating a regulatory framework adapted to take into account convergence should be that of simplifying rules and procedures. Complex regulatory systems increase costs of transaction, especially for new entrants and new services.
• Uphold technologically-neutral regulation when possible. Technology-neutral and device-agnostic regulatory frameworks are not only desirable, but critical to enable convergence of communication services. In a context where most services are shifting to IP-based networks and content is being consumed using a multitude of platforms and devices, it is not advisable to tie general frameworks, which do not involve scarce resources such as spectrum, to specific networks, technologies or devices.
• Promote investment along the whole value chain for broadband access services. Encouraging investment by all market players is fundamental to foster broadband access infrastructure and services. Any regulatory reform to address convergence issues should ensure that adequate incentives exist to foster investment both in the network layer (access and transit infrastructure deployment) and in the applications layer (new innovative services using broadband access).
• Promote competition and innovation. The promotion of competition and innovation should be maintained as a guiding principle of any policy reformulation seeking the benefits of convergence. Policy makers should seek to promote an environment for innovation without favouring particular platform or participants. New convergent regulatory frameworks should above all promote a level playing field.
33. Some countries have actively engaged in convergence reviews for telecommunication and audio-visual markets and can therefore provide some first-hand experience for the LAC region. For example, Australia’s 2012 Convergence Review conducted a comprehensive consultation process to inform the examination of the operation of media and communication regulation. It aimed to assess the effectiveness of the Australian framework in achieving policy objectives in areas of media ownership, content standards, production and distribution of local content and the allocation of spectrum. In LAC region, the new Telecommunications Act of Ecuador is an example of regulatory framework that takes into account convergence (Box 3).
13. For the most part, a discussion on reforming regulators to create converged agencies has not seemed to be prominent in the LAC region and currently there are no fully converged regulators. For the OECD/IDB questionnaire for this report only Jamaica reported they were carrying out studies to establish a single ICT Regulator. This would involve the potential merger of the Spectrum Management Authority, the telecommunication functions of the Office of Utilities Regulation and the spectrum functions of the Broadcasting Commission.
14. Reassessing the role of the regulator in light of current and future convergence trends is useful, in particular as it brings into focus the changes that may need to take place in regulatory frameworks, the implementation of these frameworks and avoiding inconsistent regulation.
15. A further area where little development has been undertaken is on the simplification of the licensing regime, even when no spectrum license is involved. Most countries in the region still use individual licences and/or concessions for specific services, when convergence trends call for general authorisations covering any service or combination of services. Developing more affordable broadband services and a policy framework prepared for the 21st century requires, among other mechanisms, lowering regulatory entry barriers such as through general authorisations, whenever possible.
16. The offer of multiple services over the same network is not a new phenomenon in the LAC region. Bundling of communication services, at least of two or three fixed communication services has been present in the region since the mid-2000s, driven by cable television providers who were able to provide bidirectional services, especially voice telephony and broadband Internet access. It should be stressed that television services, especially free-to-air television, still play a central role in LAC economies, as in the case of many OECD countries, despite increasing reports of “cord-cutting” trends as some users migrate to VoD subscription services. With the exception of Chile, terrestrial multichannel television subscriptions, for example, seem to have witnessed continued growth in the LAC region (Figure 2).
17. Despite their role in the region, many LAC telecommunication and cable operators have not been leaders in transitioning their networks and businesses to offer advanced services and bundles. However, this situation is changing, driven by demand and market pressures caused by OTT players competing in for customers as well as opportunities for integrated operators owning both fixed and mobile networks.
18. For this report data were gathered on the offers of leading operators in the region. Among some 97 operators (MNOs and MVNOs) in 26 LAC countries, close to 40% offered some type of bundled communication service (counting at least a double-play of fixed broadband, fixed voice, television or mobile services). The majority, that is 60% of operators, did not offer any type of bundles services. The most common bundle in LAC is the triple-play between fixed broadband, fixed voice and television; while quadruple-play offers remain rare, they are found in Brazil (Vivo, Claro and Oi), Barbados (Flow), Dominican Republic (Claro) and Jamaica (Flow). The few quadruple-play offers found tend to be flexible and allow users to choose and arrange services with different characteristics as they see fit (Figure 3).
19. Despite the lack of widespread quadruple-play offers in the region, the LAC telecommunication market shows signs of innovating on bundling offers with OTTs and other agents (such as by banks and retail shops). Indeed, the review of offers for this report point to a growing trend in the region of reaching out to partners and added services to retain and gain new customers. This is undertaken by offering a range of services via set top boxes or mobile apps of VoD content, music streaming, cloud storage (e.g. mClou from Movistra in Chile) and mobile payments (e.g. Vivo’s Zuum in Brazil, TigoMoney in Honduras and Paraguay and Orange’s M-peso). Moreover, operators in the LAC region are increasingly adding to their own services, the “premium” subscriptions of other digital partners such as Evernote (i.e. note taking and cloud storage) and Duolingo (i.e. language learning), as well as services from partners from other sectors such as e-book publishers (e.g. Vivo’s “Nuvem de Livros” in Brazil) and banks (Box 2).
20. Retail chains in the LAC region, as has occurred in OECD countries, are beginning to create their own MVNOs. This often involves converting consumers fidelity to their retail chain to minutes of calls, such as the MVNO Movil Exito (using Tigo’s network) in Colombia (Figure 4).
21. As a regulatory response to that trend, according to the OECD/IDB questionnaire, half of LAC countries have a requirement obligating operators that offer communication services as a package (or bundle) to offer the different elements on a standalone basis. In addition, whenever bundled services are sold (including offers of handsets and mobile telecommunication services), companies are also required to provide invoices with pricing information on the individual services and products in just over half of LAC countries.
22. Further to those obligations on bundles related to consumer protection and information, competition authorities and sector regulators in the region should be ready to address the challenges arising from this trend, such as, conducting market analysis, definition and competition enforcement in a rapidly changing ecosystem. In the LAC region, Colombia, Costa Rica and Nicaragua have reported they include bundles considerations in their competition monitoring frameworks. Good practices on these issues will be addressed in the next section of this Chapter.
23. In some LAC countries Voice-over-IP (VoIP) services are subject to the general telecommunications regulatory framework. In others, VoIP services are framed in specific instruments. In 2015, according to information provided by countries to the OECD/IDB questionnaires, just over half of the LAC countries (56%) had Voice-over-IP (VoIP) services subject to general telecommunications regulation. Additionally, 31% stated they had specific policies or regulations to deal with VoIP. In all LAC countries analysed VoIP is allowed and no regulatory restrictions were found. Further examples of VoIP regulation in the region are included further below (Box 8).
Content distribution and regulation
50. Convergence has given rise to new models for content distribution, where consumers have gained the ability to access content over different networks and devices and interact with multiple providers. New digital content distributors, such as OTT video providers (e.g. Magine TV, Netflix, Sling TV and Hulu), are now in co-existence and competition with traditional content providers. Moreover, users are producing content themselves. Seamless access to content providers over the Internet is fundamentally challenging the traditional location, time of day; device and technologically based regulatory frameworks that are widely in place to meet policy objectives in different countries.
51. Policy objectives in the area of media and broadcasting have traditionally included goals such as ensuring diverse ownership, plurality of opinions, meeting community standards for programmes aimed at children, protection of intellectual property rights, the production and distribution of local content and so forth. During convergence reviews long held objectives are unlikely to be changed. Rather the issue is whether existing approaches are meeting these objectives and whether modifications would better meet such goals.
52. Broadband networks bring with them changes to the nature of media consumption with some being more passive and linear, and most importantly, requiring a certain amount of scarce resources such as spectrum frequencies (e.g. television and radio) Others are more interactive, transient and allow more freedom to shift providers or platforms, such as Internet-based services. Service providers can be classified by their reach, revenue and type of content created. Accordingly, content regulation should be as technology neutral and flexible as possible, but also account for the nuances of how content is delivered and to whom.
53. Each public policy objective regarding content regulation should be periodically reviewed and any decisions taken should be applied consistently and clearly, as technological change continues and as convergence over broadband networks integrates a wider range of devices, services and content. At the same time, due consideration needs to be given to the opportunities convergence enables to meet objectives in different ways including empowering consumers, enhancing competition and innovation and upholding freedom of expression.
54. These innovations in the video delivery and content navigation technologies have convinced a majority of OECD countries to adopt a less onerous licensing regime. In many OECD countries, audio-visual services provided over the Internet are not subject to the same set of rules for traditional broadcasters and a few OECD countries have relaxed their broadcasting obligations (Box 9).
24. In OECD countries a key principle for policy making related to the digital economy has been the concept of an ‘Internet openness” with governance being approached via co-operation using a multi-stakeholder model . In the LAC region, in 2014, Brazil invited governments and other stakeholders from around the world to pursue a similar path when they gathered for the NetMundial meeting (discussed later in this Chapter). Alongside their participation in both these events a number of LAC countries have been at the forefront of international discussions on issues such as network neutrality and IPv6.
25. On network neutrality issues, some countries, notably Chile (2010), Brazil (2014), Colombia (2011) and Ecuador (2015), have taken decisions to prohibit blocking, throttling and paid prioritisation by broadband Internet access providers (Box 12). Other countries such as the Dominican Republic, Guatemala, Suriname, Trinidad and Tobago and Uruguay have been reported to be carrying out consultations on the topic. While on-going discussions may lead to a variety of outcomes, policy makers in the region appear to be inclined to lay out principles to ensure network neutrality. Based on the rationales given by the initial countries to do so, they see this as essential to stimulate competition, promote innovation at the edges and ensure that consumers are able to access any lawful content, application or service provided over the Internet. According to the responses collected from the OECD/IDB questionnaire for this report, 10 countries said they now have or are planning to introduce regulation addressing network neutrality.
26. Although principles around the concept of network neutrality have been introduced in a number of countries in the LAC region, their interpretation or implementation may vary for fixed or mobile networks and for different commercial developments. A case in point is the approach taken by some authorities for the practice of “Zero Rating”, where data for specific applications or services are not charged relative to other usage. Zero-rating is an issue currently being debated in LAC countries and careful consideration by authorities should be given to these offers on their effect on different policy objectives (such as affordability of services and competition dynamics). This discussion will be further addressed in the good practices section of this chapter.
27. Zero rating offers are becoming increasingly popular among LAC operators. Out of the 97 operators reviewed in the LAC region here, at least 23% offered some type of zero-rated offers. Examples of zero rating social media applications (such as Facebook, Whatsapp, Twitter and Instagram) can be found, within different schemes, in Barbados, Bolivia, Brazil, Colombia, Dominican Republic, Ecuador, Guatemala, Honduras, Jamaica, Mexico, Panama, Peru and Suriname. In most countries, these zero-rated services are offered under specific conditions (under a certain basic data plan, during a limited time and where VoIP services do not apply).
28. A few operators in the LAC region also offer music services (their own or under partnerships with OTTs such as Spotify, Deezer and Napster) under similar zero-rated plans that do not subtract from users’ data caps, such as the one offered by Tigo Honduras (Figure 5). Others have started offering their own zero-rated chat apps to compete with OTT services, either native in their devices or downloadable in app stores, such as “TWNEL” from UFF!, MVNO operating on Tigo’s network in Colombia.
29. Regarding IPv6, the Americas region is a leader with 12.74% of end hosts capable of undertaking an IPv6 network transaction, followed by Europe, Oceania, Asia and Africa. In the LAC region, the five leading countries in IPv6 adoption are Peru, Ecuador, Brazil, Bolivia and Trinidad and Tobago according to the measurements of their end-to-end IPv6 capabilities (Table 1). Other measurement options are available (Box 1): Measuring the adoption of IPv6 in the Internet).
66. Policy makers and regulators should prepare for the convergence of networks and services which, along with innovative offerings, have also brought a range of challenges that are already arising in the LAC region.
67. The take away from this Chapter revolves around evaluating and updating policy frameworks that can respond to the current and future effects of convergence. Policy makers should work towards developing less complicated regulatory and policy frameworks that uphold technology neutrality when possible and that promote investment, competition and innovation along the whole value chain.
68. This involves looking at the arrangement of regulators, and making sure that independent regulatory authorities are well positioned for the growing converged landscape; simplifying licensing regimes; monitoring bundling practices; enabling new business models to flourish (such as VoIP and VoD) while assessing the suitability of traditional policy objectives; and, finally, promoting Internet openness by spurring multi-stakeholder Internet governance arrangements, monitoring market failures and encouraging further competition and investment.
1. RIPE NCC measures the number of IPv6 enabled networks per country, see http://v6asns.ripe.net/v/6?s=_ALL.
2. Lars Eggart started a study using such approach in 2007, see current results in http://www.eggert.org/meter/ipv6.
3. PCH maintains a directory of Internet exchanges with traffic statistics for IPv4 and IPv6 subnets, see http://www.pch.net/ixpdir
4. Google measures the number of end hosts preferring to use IPv6 on their service infrastructure, see www.google.com/ipv6/statistics.html
5. APNIC Labs measures IPv6 capability per country using such technique, see http://stats.labs.apnic.net/ipv6
6. In February 2016, by way of example, Ofcom in its Strategic Review of Digital Communications noted the need to publish service quality performance data on all operators. Refer: http://stakeholders.ofcom.org.uk/telecoms/policy/digital-comms-review/ At the same time regulators are adjusting data collection to include the use of new technologies and therefore include all providers of such services. For example, the FCC now collects data from any actor engaged in providing Voice over Internet Protocol (VoIP) service connected to the public switched telephone network (PSTN) between the United States and any foreign point including traffic between the United States and LAC. Refer: https://transition.fcc.gov/ib/sand/mniab/traffic/
7. The new Baird study, for example, the percentage of US online households that do not pay for cable or satellite TV rose 10 18.3% from 14.1% in the prior year. http://news.investors.com/technology-click/092115-771999-aapl-nflx-akam-to-benefit-from-cord-cutting.htm
8. In 2011, this resulted in a high level meeting and led to an OECD Council Recommendation on principles for Internet Policy Making. Available at http://www.oecd.org/internet/ieconomy/49258588.pdf.
9. The Australian Convergence review offers an interesting example on how a comprehensive convergence review could be done in a country to assess both telecommunications and broadcasting issues (including media ownership and content matters). The Australian Convergence Review recommends that a common flexible and technologically neutral scheme be applied across all media platforms and that content providers characterised by having professional content (excluding then user-generated content) with large audience reach and revenue (such as “television-like” services and newspapers) should be subject to general standards established by the communications regulator and by an independent self-regulatory body with obligations seeking to promoting fairness, accuracy and transparency. See full document at http://www.abc.net.au/mediawatch/transcripts/1339_convergence.pdf
10. In March 2015, in the United States by way of example, President Obama signed an Executive Memorandum creating the Broadband Opportunity Council, an interagency group comprised of 25 Federal agencies and departments. The Council is tasked with promoting broadband deployment, adoption, and competition. Refer https://www.whitehouse.gov/sites/default/files/docs/ERP_2016_Chapter_5.pdf
11. Resolução No. 632 do Conselho Diretor da Anatel, from 7 March 2014, that approved the General Regulation for the Rights of Consumers of Telecommunication Services, available at http://www.anatel.gov.br/legislacao/resolucoes/2014/750-resolucao-632
12. In the Directive, the term “on-demand audiovisual media service” is defined as follows: ‘on-demand audiovisual media service’ (i.e. a non-linear audiovisual media service) means an audiovisual media service provided by a media service provider for the viewing of programmes at the moment chosen by the user and at his individual request on the basis of a catalogue of programmes selected by the media service provider (http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32010L0013&from=EN);
13. Some services such as telemedicine or telemetry, for example, may demand special treatment due to their specific bandwidth and latency requirements for service delivery. As the Internet is a “best effort” network of networks generally any operator only has the ability to influence such services on its own network.
14. Resolución de Consejo Directivo No. 12302014-CD-OSIPTEL, from 10 October 2014, available at https://www.osiptel.gob.pe/repositorioaps/data/1/1/1/par/reglamento-calidad-servicios-publicos-telecom/Res123-2014-CD_reglamento-calidad-servicios-publicos-telecom.pdf
15. World IPv6 Day was announced on January 2011 with five anchoring companies: Facebook, Google, Yahoo, Akamai and Limelight Networks. More than 400 participants (ISPs, search engines and content providers) joined the action and major carriers measured an increase of the percentage of IPv6 traffic from 0.024 to 0.041. Following its success, a World IPv6 Launch took place in June 6, 2012 with the intention of leaving IPv6 permanently enabled on all participating sites.
16. Internet technical organisation such as LACNIC, ISOC or NSRC and Network Operators Groups such as CaribNOG provide IPv6 training and operational support.
17. The Number Resource Organization (NRO) is a coordinating body for the five Regional Internet Registries (RIRs) that manage the distribution of Internet number resources including IP addresses and Autonomous System Numbers. Each RIR consists of the Internet community in its region. https://www.nro.net
18. IPv4 Depletion and IPv6 Deployment FAQs, https://www.nro.net/ipv6/nro_depletion_deployment_faq
19. GT-IPv6 final report, http://www.anatel.gov.br/Portal/verificaDocumentos/documento.asp?numeroPublicacao=325769&assuntoPublicacao=null&caminhoRel=null&filtro=1&documentoPath=325769.pdf.
CNMC (2014), Informe Económico de las Telecomunicaciones y del Sector Audiovisual 2014. http://data.cnmc.es/datagraph/files/Informe%20Telecomunicaciones%20CNMC%202014.pdf
EUROPEAN PARLIAMENT (2010), “European Parliament and Council Directive 2010/13/EU of March 10, 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in member states concerning the provision of audiovisual media services (Audiovisual Media Services Directive)”. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32010L0013&from=EN
CRTC (2015), “CRTC Chairman speech to the Canadian Club of Ottawa”. http://business.financialpost.com/fp-tech-desk/crtc-relaxes-quotas-on-canadian-content-for-tv-broadcasters?__lsa=cda6-e620#1
LACNIC (2014), “No more IPv4 addresses in Latin America and the Caribbean”, Anuncios, http://www.lacnic.net/en/web/anuncios/2014-no-hay-mas-direcciones-ipv4-en-lac.
OECD (2006), “Policy Considerations of VoIP” http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?doclanguage=en&cote=dsti/iccp/tisp(2005)13/final
OECD (2007), “Mobile Multiple Play: New Service Pricing and Policy Implications”, OECD Digital Economy Papers, No. 126, OECD Publishing, Paris.
OECD (2007), “Internet Traffic Prioritisation: An Overview”. DSTI/ICCP/TISP(2006)4/FINAL. http://www.oecd.org/sti/ieconomy/38405781.pdf
OECD (2007), “Fixed-Mobile Convergence: Market Developments and Policy Issues”, OECD Digital Economy Papers, No. 127, OECD Publishing, Paris.
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CHAPTER 7: REGIONAL INTEGRATION
This chapter covers aspects related to broadband access and regional integration. It addresses how broadband policy makers and regulators can benefit from a closer regional coordination, by increasing the sharing of experiences, setting of common principles or through harmonisation, when economics of scale substantiates it. This chapter also touches good practices to foster infrastructure deployment and competition of international connectivity among countries in the region and with other regions of the world. Finally, it deals with how broadband access policy making can help to encourage further regional integration, by responding to challenges and opportunities brought by development on international mobile roaming and the Internet of Things (IoT).
1. Regional integration can be defined as the process of increasing social and economic relations among countries located in a certain geographical area. This relates to broadband policies in two different ways. First, in general, policies aimed at fostering broadband use and access can serve as enablers of regional integration, by lowering barriers for the exchange of information among businesses and people in different countries. In particular, policies for the development of international broadband connectivity, such as through cross-border backbones and international submarine cables, and through services such as international mobile roaming, are critical tools for increasing regional integration. Second, reinforcing collaboration among policy makers and regulators in the region via participation in policy and regulatory networks, can also be very useful to improve existing regulatory frameworks, improve trans-border services and to foster investment.
2. This Chapter addresses the following issues related to regional integration in the context of broadband policies: regional co-ordination among policy and regulatory authorities in the region, international connectivity infrastructures (both, regional and international), international mobile roaming and the Internet of Things (IoT).
3. Broadband serves not only as a general purpose network that contributes to increasing regional integration, but also as a public policy realm in itself, where regional negotiations and diffusion of models and good practices take place. This Chapter highlights this regional policy realm and the need of improved regional co-ordination mechanisms to harmonise ICT and broadband regulatory frameworks (including technological standards) and in public policy.
4. When using broadband services, data typically flows across national borders in a seamless manner for business and consumers. Many applications and content are located in data centres in foreign countries. This means that insufficient or inefficient international connectivity can act as a bottleneck for broadband services both in terms of quality of service (congestion and reduced speed) and higher costs for the final delivery of services. For this reason, the issue of availability and competition for international connectivity infrastructure and services regional terrestrial backbones, international submarine cables, and international gateways), is addressed as a key area for policy and regulatory attention.
5. Internet exchange points (IXPs) are a fundamental building block towards the growth of local content (OECD, 2012) and the development of a competitive ecosystem of more affordable broadband services (ISOC, 2012). IXPs serve as interconnection hubs for Internet service and content providers and network operators at large. IXP participants benefit from exchanging traffic directly instead of using transit providers to exchange traffic in foreign countries, which in turn increases speed and lowers the cost of the transaction. The use of IXPs can dramatically reduce the cost of Internet service supply, enabling lower prices for final consumers and improving the reliability and robustness of the Internet connectivity within a given country or region. A further key area for regional co-operation is in the allocation and management of IP addresses, which in this case is undertaken by LACNIC. Implementation of IPv6 is an additional issue for attention, not just for regional integration, but also for ensuring international connectivity under extended IP addressing schemes, better enabling all stakeholders to meet issues arising from exhaustion of IPv4 addresses.
6. In an increasingly digital and globalized economy, convenient and affordable access to telecommunication services when visiting other countries is key to facilitating commercial and social exchanges. Lower prices for international roaming contributes to reinforcing economic integration among countries in the region, as well as with other countries in the world. Therefore, regulatory measures aimed at encouraging and facilitating the use of international roaming services, and especially mobile broadband access are also addressed.
7. Finally, encouraging the deployment and use of the Internet of Things (IoT), addressed in this Chapter, allows for extending the benefits of broadband to the physical world via machine-to-machine interactions that are increasingly used in diverse fields, such as in healthcare, transportation or agriculture. Although policies to encourage IoT development are mainly national, regional and international collaboration is especially important, as many policy aspects are related to areas such as spectrum availability, numbering, double taxation when roaming and standardization where the economics of scale involving millions of devices are critical to spur innovation, investment and development.
Policy objectives in the LAC Region
8. Policy makers and regulatory authorities should foster a culture for sharing good practices and approaches and, when possible, their experience with demonstrable outcomes. Co-ordination among LAC countries leads ultimately to better policies and encourages economics of scale, investment and competition in the region.
9. Overall, broadband policies in the context of regional integration should be aimed to lower barriers and increase competition for the use of cross-border broadband services, optimize cross-border data flows, as well as to facilitate the development of a regional market encouraging investment in the region via the application of common public policies in those areas where economics of scale are present and/or cross-border trade would benefit from aligned public policies.
10. On international connectivity, policy objectives should focus on encouraging (and funding when needed) deployment of regional terrestrial backbones, submarine cables and international gateways. Effective regional co-operation is essential to co-ordinate efforts to implement international connectivity infrastructures. Countries should also aim at developing a competitive marketplace for Internet traffic exchange to meet domestic demand for Internet bandwidth and self-sufficiency in a cost-efficient way. In order to do so, they should foster the implementation of IXPs. Most importantly, sufficient competition should be ensured and dominance issues addressed to enable all actors to benefit from international connectivity (Chapter 3 on Competition and Infrastructure Bottleneck addresses issues related to dominance and regulatory measures to be taken).
11. Regional integration implies that a flow of people, goods and data should be efficiently facilitated across borders. In an increasingly data-dependent world, users travelling outside their country of residence, or connected machines operating across borders to facilitate trade and travel, should not be burdened with uncompetitive international roaming prices. Therefore, policy objectives related to international roaming should be focused on the issues which are developed further here in the good practices section: promoting transparency for customers, as well as awareness of substitutes for international roaming, protecting them from inadvertent high bills (billshock) and inadvertent roaming, facilitating the development of trans-national roaming offers, ensuring a competitive wholesale market, and promoting competition at the retail level.
12. Finally, any regional integration policy should take a long-term perspective and be prepared for future demands and new emerging cross-border services. Online services, as such, tend to challenge national boundaries and taking into account the increasing number of connected devices, including vehicles, policy makers should be aware of future challenges and opportunities for regional agreements as well as for their national frameworks. Preparing for the future requires, for example, conducting assessments in policy frameworks to make sure that the adoption and deployment of IoT applications and services is enabled and ensuring that adequate resources are available (such as spectrum and number identifiers) and solutions which foster mobility and avoid lock-in are in place. The objective is to make sure that the encouragement of IoT development is addressed in both national and regional public policies as a relevant policy objective.
Tools and measurement for assessment in meeting policy objectives in the LAC Region
13. As with any other policy area, collecting data and empirical evidence is key to ensure that measures are aimed at addressing the key issues in an adequate manner, as well as to assess success or failure to take any corrective action.
14. In recent years, studies have been carried out to assess the level of LAC regional integration. There are indexes, for example, that aggregate indicators measuring the characteristics of the several stages of regional integration (Free Trade Areas, Customs Union, Common Market, Economic Union and Total Economic Integration). Work in other regions has looked at indicators to assess variations in the degree of regional free movement of people, trade, co-operation on statistical measurement, governance, industry, investment, energy and infrastructure (such as in the case of the Africa Regional Integration Index ) or have focused on trade, foreign direct investment, labour mobility and finance indicators to monitor progress on regional cooperation and integration, such as those used to assess integration of firms in global value chains (OECD and World Bank, 2015) or the Asia Regional Integration Indicators Database).
15. Despite these efforts, quantifying co-operation with other countries and international organisations is not a simple task. The indexes mentioned above offer a general framework for considering different proxies for tracking regional integration (defined as the outcome of policy decisions) in a broad manner. More specifically in the context of ICT/ broadband policy co-operation and co-ordination, assessments to elucidate progress in regional co-operation could include:
• Qualitative and quantitative assessment of the participation in international/regional forums and organisations, as well as the main issues discussed and policy decisions taken.
• Periodical assessment on resources applied (in terms of budget and human resources involved) and benefits obtained (even if they cannot be quantified) in order to guide international activity, as well as to set priorities in the allocation of resources for different lines of work.
16. For international connectivity infrastructures and services, measurement could include:
• Maintaining an inventory of existing infrastructures providing connectivity to other countries (such as submarine cables, international trunks and international gateways) and publishing aggregated data that protects confidentiality of sensitive information from operators.
• Monitoring traffic and prices through regular information requests to operators, complementing it with normalised benchmarking with other similar and/or leading countries. Additionally, maintaining regular contacts with operators is also useful to identify existing bottlenecks or potential needs in the future.
17. Measurement of IXPs should include the following tools:
• Data collection and benchmarking on domestic Internet bandwidth at IXPs over time relative to other countries within the region and internationally. Specific measurements that are especially useful to support policy guidance are: total available capacity at the IXP, total number of connected autonomous system numbers (ASNs) and the number of content delivery networks (CDNs) hosted at the IXP.
• Monitoring of membership fees and conditions to participate in IXPs to ensure a competitive and neutral interconnection platform.
• Establishment of measurement points at service providers to analyse the performance of the IXPs.
18. On IPv6, establishing metrics to trace the progress of its adoption in the Internet is not a simple task. Over the years, there have been many approaches and associated measurements reflecting the fact that the Internet is not a single integrated system but a collation of component subsystems, so that IPv6 measurements can be performed within the context of any particular subsystem. The list below compiles several possible measurements, at different sub-systems and therefore with a snapshot of the overall transition (OECD, 2010):
• Measurements using the routing system: the Internet routing table can be used to track the number of advertised routes that constitute the IPv4 Internet, and compare this with a comparable count of the number of routes in the IPv6 protocol. A complementary measure is to compare the number of unique autonomous system numbers contained in the routing table that indicate the number of entities that have IPv6 networks interconnected to the Internet. LACNIC has a portal to assist with IPv6 deployment which includes statistics for the region.
• Measurements using the domain name system: the domain name system can provide a useful measurement as only domain names that can be resolved to an IPv6 address will be able to be accessed. An approach is to use the most common source of popular domain names, the Alexa list, and query this set of domains over time to establish what proportion of the names have an IPv6 address. This is public information available for policy makers.
• Measurements using Internet traffic statistics: another option is to look directly at traffic volumes in IPv4 and IPv6. Although most such data is generally considered to be proprietary and is not publicly released, an increasing number of Internet exchange points publish data about their volumes of IPv6 traffic so that estimations of the adoption over time can be undertaken. Regulators could request this type of information from IXPs.
• Measurements of end client capabilities: for a client end system to be able to make a connection using IPv6, then all the Internet’s subsystems must also be functional in supporting IPv6. One simple way of measuring the number of IPv6-capable clients is to use a dual-stack service point and offer both IPv4 and IPv6 capability. Counting the number of systems that prefer IPv6 to IPv4 provides a good indication when the sample is large enough. Another measurement technique includes carrying out IPv6 connectivity tests with a sample of clients to determine their preferences. Both measurements are regularly carried out by some content providers and regional internet registries and can be accessed by policy makers.
19. Policy making and regulatory action in the area of international roaming should also be based on evidence, such as through monitoring the evolution of prices, volumes and revenues for each roaming service, and – when available – data on real costs for international roaming services. In order to collect these data from operators, communications regulatory authorities must have the corresponding powers set in the regulatory framework. Benchmarking with other countries is also very valuable to identify trends and specific characteristics of national markets compared to similar countries. Publication of costs and price comparisons should not lead to disclosure of confidential commercial information, for which aggregation of data can be considered. The Body of European Regulators for Electronic Communications (BEREC) is one useful reference on the type of measurements and indicators that can be used to monitor prices and volumes for international roaming services (Box 1).
20. Finally, monitoring the development of IoT can be done by:
• Using proxy measures such as the number of SIM cards dedicated to IoT services (i.e. Machine-2-Machine or M2M). Despite limitations to this approach, it can provide an idea on the use of IoT and make subscriptions aimed at traditional mobile services more relevant for the uses to which they are put (something that is not possible if all subscriptions for people and M2M are bundled).
• Keeping track of market developments and spectrum use in licensed and unlicensed frequency bands to ensure availability of sufficient spectrum to meet the increasing demand for M2M/IoT services.
Regional co-ordination among policy makers and regulatory authorities
21. The American and Caribbean region is home to one of the oldest regional intergovernmental organisations in the world, the OAS, established in 1890. The fact that Latin America and the Caribbean is a region with natural inclinations for deeper regional integration, due to linguistic, cultural and political commonalities, has led historically to a significant number of attempts to increase the economic, trade and political co-operation in the region. However, the complexity and heterogeneity of the LAC region, which cannot be understated, has also spurred different sub-regional co-operation and integration initiatives, which have, as with any range of bodies, achieved different levels in meeting expectations. In the broadband policy area, the multiplicity of memberships, the number of different regional bodies, and the sometimes limited integration outcomes is a case in point.
22. In addition to international organisations with members around the world, including those with regional programmes or presence, several regional co-ordination bodies exist in the LAC region with some mandate over issues related to the supply and demand for broadband. A summary of these regional bodies and resources, with more information on their work can be found here (Table 1). An additional table with the membership of these institutions is available (Annex 1 of this Chapter). Some of these bodies have a broader mandate and strive to establish a more integrated Latin American market in general (e.g. MERCOSUR, Pacific Alliance). Others specifically focus on the ICT sector and a coordinated approach towards ICT policies (e.g. CITEL, REGULATEL).
23. Several factors drive regional integration in the LAC countries. Some of them include the geographic proximity, the engagement of political and national leaders that help on the dissemination of regulatory models and good practices, and the existence of the regional organisations that enable the implementation of initiatives to co-ordinate and collaborate on ICT and broadband issues, such as, more recently ECLAC with its Digital Agenda for LAC (Box 2). Moreover, the existence of global telecommunication operators, present throughout the LAC region, encourages the adoption and use of good practices. Likewise, the benefit of harnessing economies of scale in the region is one that is attracting increasing attention, especially in Caribbean countries (Katz, 2014).
24. Despite efforts aimed at increasing regional co-ordination on broadband policy and for more effective spaces for doing so in the LAC region, many of the policy objectives remain unrealised. This is partially because of divergent national interests, different political and economic approaches and other dynamics that may favour different regulatory models. This tendency has often resulted in regional initiatives that lack sustained support to obtain concrete and long-term outcomes for broadband policy integration in the LAC region.
25. Despite significant improvements in the last few years, persistent gaps in LAC region’s infrastructure deployment remain, posing a major challenge to both inclusive growth and public service provision. In terms of communications infrastructure the situation is no different. For historic reasons, much of the data traffic between LAC and the rest of the world, or even among LAC countries themselves, went through the United States (IDB, 2011), notably Florida and the West Coast (Jordan et al, 2013). Around 85-90% of communications with Europe, for example, still rely on undersea cables going to the United States, since the existing cable between Latin America and Europe is outdated and is only used for voice transmission. A public-private partnership initiative to deploy a new submarine fibre-optic cable between Europe and South America, linking Lisbon (Portugal) with Fortaleza (Brazil) is under discussion.
26. More recently the region has been witnessing improvement through efforts to deploy regional submarine cables, terrestrial connections and IXPs. However, the lack of competition, redundancy, high capacity connections and shorter communication paths to and, most importantly, among LAC countries still constitutes a major infrastructure bottleneck for the development of the Latin American and Caribbean digital economy and regional integration.
27. There are multiple potential landing points for submarine cables in the LAC region with only one country out of 26 with ocean access that does not have a submarine cable. Moreover, regulatory barriers do not seem to be an impediment for more international cable deployment rather the lack of submarine cables may be that the deficit of infrastructure is due to the lack of a business case propelling the private sector to invest, which could justify state or region-led initiates, including public-private partnerships to improve infrastructure deployment in the LAC region. That being said, the experience of other regions is that increased broadband penetration and demand for services associated with greater competition is a strong driver for the private sector to increase international cable capacity to support this growth.
28. Initiatives aiming at expanding the connectivity capacity and pathways of LAC countries with other regions of the world, such as the submarine cables connecting South America with the Pacific region (South America Pacific Link – SAPL) Brazil and Europe (EULALINK) and Brazil and Africa (Sputh Atlantic Express – SAEx, South Atlantic Cable System – SACS – and Cameroon-Brazil Cable System – CBSCS) , as well as the projects of a terrestrial fibre connecting South America and Central America, will contribute to address this strategic infrastructure challenge in the LAC region.
29. The Caribbean region, more specifically, has suffered several major natural disasters during recent years, which have hampered domestic investment in telecommunication infrastructure. The Caribbean region, however, has the natural advantage of laying on the path between the two much larger markets of South America and the east coast of the United States, resulting in a number of submarine cables landing in the region.
30. Currently some of these initiatives have been slow to progress. Terrestrial connections, for example, have been facing considerably more obstacles due to co-ordination problems among countries, and operators. The following section on good practices provides more details of some of these infrastructure initiatives. The regional situation overview of other key components of international connectivity such as IXPs and CDNs follows.
31. Internet Exchange Points (IXPs) are key element of Internet infrastructure. According to Packet Clearing House , there are 480 Internet exchange points operating worldwide but 84 countries do not yet have an IXP. The number and distribution of IXPs are largely the result of the availability of demand and supply, market conditions and the policy and regulatory environment in each country.
32. Broadly speaking, the LAC region is characterised by a small number of large ISPs, many of which are dominant operators acting also as multinational regional carriers. There is a relatively low rate of entry of new ISPs within the region, and this lack of new market entrants hampers the growth rate and competition in the industry overall compared to other regions.
33. Even at a time when IP transit service prices continue to decline throughout the world, significant price and performance disparities persist between primary Internet traffic hubs (such as London, Los Angeles and Miami) and those in the LAC region. Prices have fallen much slower and transit is more expensive in regions that remain largely dependent on long-haul links to Europe or the United States to gain access to international connectivity. In the LAC region, many service providers still incur the high costs of transport to and from Miami for national traffic, which obliges them to set much higher prices than when using local IXPs for domestic traffic exchange. There are, however, positive signs for change.
34. In recent years, there has been a positive evolution in the South American ecosystem. Firstly, a massive infrastructure building effort led by Brazil and Argentina has resulted in a total of 42 IXPs in these two countries. Secondly, the arrival of the CDNs at the exchange points has promoted a more active peering community, increasing the number of local and regional traffic exchange opportunities. As a result, the fibre that was used before to exchange domestic traffic between neighbouring countries in Miami is now actually used in a more efficient way to route international traffic towards North America and Europe.
35. The relatively few attempts at localising traffic exchange in Central America have met with mixed success thus far. Panama, Nicaragua, and El Salvador have deployed IXPs that are either no longer active or are not growing. Belize and Guatemala have not yet attempted to form exchanges. By contrast, the ICT Ministry of Costa Rica (MICIIT) together with multiple stakeholders as well as the regulator in Honduras initiated IXP projects in 2014 that have led to exchanges neutrally managed by non-profit associations. Despite ongoing refusal from incumbents to participate at the exchange, by way of example, the CRIX has now twenty one participants.
36. In the Caribbean, several countries formed IXPs which have attracted sufficient interest to grow significantly such as the case of St Maarten (2008), Curacao (2009) and Grenada (2011). In 2014, IXPs in Trinidad and Tobago and Jamaica were built with the engagement of regional actors such as the Caribbean Telecommunication Union (CTU), PCH and LACNIC. Other IXPs attempts in the region have had limited success due to divergent interests by the incumbent and the major mobile players operating in the region.
37. In the LAC region, a total of 11 countries lack their own IXP and still rely on expensive and slow international connections to exchange traffic originated and destined in the same country. The number of active IXPs in each country is illustrated here (Figure 2).
38. Besides IXPs, Content Distribution Networks (CDNs) are increasingly relevant for international connectivity. By 2019, Cisco predicts that CDNs will carry nearly two-thirds of global Internet traffic, up from 39% in 2014 (Cisco, 2015). Akamai, the leader in the content delivery sector, estimates that between 15% and 30% of the world’s web traffic is delivered today through their platform. In recent years, an increasing number of content providers and content delivery networks (CDNs) such as Google, Akamai and others have been entering the markets in the LAC region by interconnecting to ISPs at existing IXPs. In the LAC region, content delivery networks currently have infrastructure deployed at IXPs in Argentina, Brazil, Mexico, Ecuador and Peru. In Costa Rica, there are ongoing discussions with several content providers.
39. IXPs are a very efficient way to have direct interconnections with a large number of networks in the same location, thus increasing the quality of service of the traffic exchanged (direct paths and low latencies). The number of CDNs participating in IXPs can be a proxy of the presence of CDNs in the region. Results show that CDNs and content operators are present at least in Brazil, Argentina and Curacao although not in the same proportion (Table 2).
40. The results on CDN deployment at IXPs in Brazil and Argentina are in line with CGI.br and CABASE efforts to facilitate the construction and operation of neutral IXPs in each country. As for the Caribbean, AMS-IX Caribbean, in Curacao, seems to be the only location chosen by two CDN and content players to serve the sub-region.
41. Brazil stands out in the LAC region, and in the world, with its 13 CDNs connected to 27 IXPs. As such, most traffic delivered to the Brazilian market should therefore be hosted in Brazil, which contributes to stimulate consumption further given that CDNs use high speed connections to other networks via those IXPs.
42. Although there have been advances in recent years with several providers already leading initiatives to reduce retail roaming prices, international roaming prices in the LAC region remain high and unrelated to costs, as in many parts of the world. This is an area of concern for regulators in the region and several studies have been carried out in the LAC region with the support of the IDB. A few countries in the region are moving forward with implementing bilateral agreements to reduce prices for international roaming services, such as Colombia with Peru and Ecuador, as well as between Chile, Argentina and Peru. Furthermore, an agreement was reached in the context of the Pacific Alliance between regulators in Mexico, Colombia and Chile to share information and carry out studies related to roaming in the region (Regulatel, 2016). It should be noted that at the moment of preparing this toolkit, no country in the region was applying price regulations for international roaming services.
43. Some countries in the region such as Chile, Colombia, and Costa Rica have implemented regulation on blocking roaming by default, in order to reduce billshock and inadvertent roaming. Billshock issues have also been addressed in Chile, Peru and Costa Rica. In Colombia and Costa Rica a consumption cap is set by consumers, together with SMS notification by operators when 80% of the cap is reached and a daily SMS is available informing users of incurred charges. Billing per second and per kilobyte is mandated in Chile, to avoid unfair charging. Brazil, Chile and Costa Rica have also imposed the obligation for operators to send an SMS when roaming is activated informing users of prices for each specific service, as well as the implementation of limits for data consumption.
44. Aside from the forgoing examples, however, transparency and billshock regulatory measures for international roaming are not in place in most of the countries of the LAC region. In terms of market developments the first roam-like-at home (RLAH) offers, or plans that offer similar attributes with an additional charge, have started to emerge in the region, though – as in other parts of the world – they are still very much an exception. In addition, some of the countries included in these plans are outside the LAC region, which while a very welcome development is ahead of including LAC countries. To date the most notable RLAH offers have been between Mexico and the United States, though some exist between Costa Rica to Central American and North American countries. Experience shows that these plans are emerging where there is increasing competition in response to customer demand for more integrated plans that include regional roaming.
45. Double taxation on roaming (indirect taxes both in the visited country for wholesale services and the home country for retail services) remains an important issue in the LAC region, together with general issues on government charges and taxation for all broadband services addressed in Chapter 5. Double taxation applies to 72 percent of roaming routes in Latin America (IDB and REGULATEL, 2013). According to the GSMA, this results in price increase up to 40 percent.
Internet of Things (IoT)
46. The development of devices, applications and services under the term “Internet of Things” (IoT) and “Machine-to-Machine Communication” (M2M) is expected to grow significantly in the world, including in the LAC region. The total number of connected devices in use globally is projected to grow from 10 billion in 2013 to anywhere from 19 billion to 40 billion by 2019.
47. LAC countries view IoT as an emerging opportunity and policy makers are increasingly interested in promoting and monitoring its growth as well as removing barriers and looking at potential risks from fields such as privacy and security to consumer protection and taxation. In terms of reviewing potential barriers, countries such as Brazil have examined the taxation associated with SIM cards, used for M2M, while Colombia’s national regulatory agency is currently analysing from a technological and legal point of view the growth of its digital ecosystem to assess the needs of the sector in order to implement and recommend policies aimed at fostering IoT. Before that, Colombia studied mobile numbering policies but did not implement any specific measures.
48. Brazil has adopted measures recently to stimulate IoT deployment. In May 2014, a special tax regime for M2M systems without human intervention was introduced to foster adoption and use of the IoT. This has contributed to the growth of M2M connections in Brazil that increased from 161 thousand to 2.3 million in 2015 (Figure 3).
Regional co-ordination among policy makers and regulatory authorities
49. Regional and international co-ordination among policy makers and regulatory agencies in the LAC is key to ensure co-ordinated consistent approaches on cross-border issues, to promote agreements on issues where economics of scale are relevant to encourage investment and innovation, to negotiate common LAC positins for international for a (e.g. UN, ICANN, etc) and, to enable the sharing of experiences and good practices. Fostering a culture of sharing policy and regulatory approaches among peers not only leads to better policies, but can contribute to encourage investment in the region by facilitating the application of common views on policy aspects, leading to a more predictable and stable regulatory framework.
50. Some important steps for improving existing regional co-ordination fora or, alternatively, creating more effective ones could include:
• Building stronger and more transparent organisations: concentrated effort should be carried out to build stronger and more transparent organisations. In the LAC region, this could be done by drawing on existing good practices of other international bodies. Countries should make sure their objectives are reflected in the constitution of the regional co-ordination body, in order to strengthen ownership and their involvement in regional institutions and, increasing the benefits of membership and contributing to a more stable and relevant forum. In this aim, it could also be envisaged to carefully assess the outcomes of the different bodies and analyse whether some existing bodies could be merged in order to bundle resources and capacities.
• Moving beyond intentions: countries should aim at clear action plans with concrete project outlines, timelines for action, and performance indicators supported by realistic mid-term programmes of work and budget.
• Identifying common problems to explore common solutions: countries should seek to build a strengthen regional co-ordination mechanisms enabling them to share their experiences and conduct peer-reviews in order to identify good practices for the region.
• Involving national experts: it is important that national experts working on policy making and/or regulatory measures are consulted and take a leading role in the analytical work of regional fora. This can be undertaken in the form of expert groups aimed at specific issues that meet regularly, either physically or virtually. Relying only on a secretariat may not be feasible for regional organisations which are subject to budgetary constraints and outsourcing all of the work to consultancies limits the benefits brought by repeated and prolonged working interaction between experts within different national authorities of a region. The direct involvement of experts in outputs of regional co-ordination organisations contributes to the creation of a strong and effective network of peers that play an important component in the sharing of common solutions and for regional integration.
51. The Body of European Regulators for Electronic Communications (BEREC) is one example of a well-functioning regulatory body, serving as a key forum for sharing of information among regional regulatory authorities (Box 3).
52. Encouraging investment and competition on international connectivity in the LAC region requires a broad strategic programme, involving analysis of existing and estimated capacity needs, estimating timeframe and costs for infrastructure provisioning, and deployment of submarine cables and terrestrial backbones, as well as adapting regulatory frameworks to, among other objectives, reduce regulatory and administrative barriers to foster investment and competition. Regarding regulatory frameworks it is important to consider the following issues:
• Terrestrial international interconnection. A competitive environment allowing alternative operators to use existing connectivity infrastructure at reasonable rates should be encouraged, addressing dominance issues when present. If necessary, policy actions could be taken to implement alternative gateways using public-private partnerships and setting open access conditions for all actors, with the monitoring of regulatory authorities.
• Submarine cables. Considerations similar to those for terrestrial interconnections apply to submarine cables. The existence of alternative connections is crucial, especially in the case of the Caribbean, where submarine cables are a key infrastructure providing international connectivity. As is the case for terrestrial backbones, dominance issues should be addressed via regulatory measures to ensure access for all actors to submarine cables, and considerations such as redundancy to cope with cable failures and public funding when needed should be considered.
• Internet interconnection (peering and transit). A market-led environment is preferable for Internet interconnection and regulation for access operators is not in general recommended in this area, but intervention could be justified if competition problems are detected and competition law is not enough to successfully address these problems (See Chapter 3 on Competition and Infrastructure Bottlenecks). Once more, monitoring the market regularly and encouraging stakeholders feedback is key to take regulatory decisions when needed
• International termination rates. When possible, market-led approaches should be preferred when dealing with international termination rates. However, international termination rates should be monitored by regulatory authorities, and regulation may be needed to avoid high termination rates not related to costs. Enabling innovative businesses to reduce communication costs is an enabler for improving trade, developing service industries and improving a region’s competitiveness. Conversely, policies aiming to raise payments received from foreign carriers by increasing international termination rates may have the undesirable effect of reducing competitiveness and trade opportunities, as well as even reducing termination revenue due to surpressed demand (OECD, 2014).
53. Infrastructure deployments aiming to connect multiple countries require important co-ordination efforts among different stakeholders. The deployment of regional fibre cables (terrestrial or submarine) can be carried out in the context of bilateral or multilateral agreements, although regional organisations can play a key role in facilitating dialogue. Deploying broadband infrastructure is key to spur further investment, competition and demand.
54. Policy makers seeking to strengthen projects on regional connectivity should, in general:
• Advance actions to improve feasibility studies and other scoping projects in order to attract different sources of financing.
• Ensure that these projects are contracted and conducted in a transparent and open manner, enabling a fair and competitive environment for all operators.
• Streamline the co-ordination between different national institutions responsible for governmental decisions, particularly among Ministries of Communication/Infrastructure and Ministries of Planning/Economy.
55. Several projects of this nature are currently being carried out or are in the planning phase in the LAC region. In Central America, the AMI project (Autopista Mesoamericana de Información ) seeks to connect Central-American countries from Guatemala to Panama (Box 4).
56. In South America, the design of a fibre optic ring is being carried out within the framework of a broader infrastructure integration plan for the region supported by COSIPLAN, which plans to connect 13 countries (Box 5).
57. The establishment and operation of Internet Exchange Points (IXPs) is largely market driven and led by the private sector. Internet service providers and network operators usually decide the location and the conditions upon which they interconnect and exchange traffic. Governments have not been traditionally involved in the construction of IXPs but in recent years they have taken a proactive role in creating and enabling a conducive environment for the emergence of IXPs. This trend has been particularly true in the LAC region, in which many countries have a small number of players with limited incentives to compete.
58. In some cases, particularly in countries without an IXP, governments can play an important role by stimulating a dialogue among the different market players: network operators, ICT businesses and providers, universities and government agencies (Box 6).
59. In some countries in the LAC region, despite the existence of IXPs, the number of service providers connecting to the IXPs is very limited. When this is the case, it is good regulatory practice to remove artificial barriers such as high entry fees to connect or the obligation to have an international license to become a member of the exchange. In other cases, incumbents have declined to participate in the exchange point hampering efforts to establish an IXP. It is not advisable to force different players to use domestic IXPs but rather create an environment where the benefit for those connecting become increasingly evident to all players.
60. Governments should promote a greater national and regional dialogue and interaction between Internet service providers and other stakeholders by facilitating seminars and forums with national and international experts to promote the benefits of IXPs (Box 7).
61. Without a critical mass at the IXP, there is not a business case for CDNs and content operators to deliver traffic directly to the exchange point. Actions oriented at facilitating the interconnection of new participants at the IXP, such as incentives to deploy fibre terminations or general subsidies to compensate initial operational expenditures could support the growth of the exchange in its initial phase. That being said the costs of establishing IXPs are very modest and are quickly recouped for members by lowering their costs. This is why the most successful ISPs are voluntary industry driven initiatives (Box 8) and a lack of an IXP generally points to insufficient competition.
62. Neutral Internet exchange points with good governance and following best operational practices will attract CDN players. As for any other network, content providers and CDNs select their interconnection locations using a number of criteria. Besides cost-benefit, the neutrality of the IXPs also plays a role since networks interconnected there have the certainty that the IXP is operated with good governance and transparency.
63. The introduction of IXPs creates opportunities to develop content and services hosted in local datacentres due to several factors. First, the availability of high speed and low latency connections among ISPs enable high speed and good quality transit of local content inside the country. Secondly, ISPs have a strong economic incentive to access local content, exchanging traffic through peering agreements without the need to pay for more expensive international transit.
64. The availability of local data centres also provides an incentive for IXP deployment. In this context, promoting deployment of local and neutral datacentres is key to support the development of the local content industry that, in turn, will also encourage the deployment of IXPs, allowing for the reduction of international transit to access content. In conclusion, IXP deployment and the development of local data centres are interrelated, and policies to foster IXPs and local data centres should be co-ordinated.
65. With the increased presence of Content Distribution Networks (CDNs), the structure and organisation of Internet networks has changed for some players over recent years from a hierarchical model to a flatter one. The incorporation of specialised intermediary networks delivering content is the key factor in this transformation. Large content operators increasingly use CDNs to reach their customers in a more cost efficient and effective way. Content operators and CDNs have to interconnect with other networks to exchange traffic. The physical locations, number and types of interconnections are critical elements for the CDNs because they all influence their ability to deliver their customer’s traffic in the most cost effective way.
66. CDN interconnection at IXPs is very beneficial for both the participating networks and the CDN for several reasons. First of all, IXPs aggregate individual demand so it becomes financially and technically viable for CDNs to provide direct interconnection. Second, traffic accessed locally improves the user experience with lower latencies and also reduces the average per-bit delivery cost for the networks. Third, the network effect produced at the IXP by several ISPs accessing popular content improves the efficiency of the CDN (multiple downstream with just one upstream). Regulators should also monitor CDNs to identify barriers to competition and potential dominant positions and abuses by global CDN players.
67. Successfully run IXPs can become, on some occasions, regional references for IP-related connectivity services. LINX, AMS-IX and DEC-IX are regional hubs for Europe because they concentrate a large amount of networks with regional coverage. In reality, IXPs become regional when networks find them efficient and cost effective and grow as the market develops.. In the LAC region, the PTT Metro of Sao Paulo has the largest concentration of networks (local, national and regional) and traffic exchange on the continent. Other IXPs are aiming at becoming attractive to regional players, such as NAP CABASE in Buenos Aires and the Mexican IXP.
International mobile roaming
68. International roaming services facilitate increased convenience and productivity when travelling abroad. In a context of social and economic globalisation, as well as regional and international integration, international roaming is becoming a progressively important set of services. This is especially true for broadband access when roaming in other countries, as the use of smartphones and growing requirements to online applications become ubiquitous.
69. Extensive work has been done by the OECD on good policy and regulatory practices on international roaming. The IDB in collaboration with REGULATEL has produced a large number of reports, listed in the section on documents and references that are also an excellent reference to inform good practices. Regarding the work done by the OECD, the recommendation of the Council on International Roaming Services published in 2012 , summarises key good practices to be followed by countries in this area.
70. Countries in the LAC region should take an active role in improving consumer education and protection and promoting awareness of consumers on prices, functionality and substitutes for roaming services (such as Wi-Fi, acquisition of SIM cards in the visited countries, and use of VoIP applications), with the aim of empowering consumers to select the best option for them.
71. With this objective, policy makers and regulators should encourage domestic communication providers to make information on prices and characteristics easily available. Collaboration with consumer organisations in disseminating information on alternatives and price comparisons may also be useful. Finally, regulators and policy makers can also take an active role providing this type of information to consumers on their websites as well as providing information to consumers in the media. The information provided to consumers by Ofcom, the British regulator , the Australian Competition and Consumer Commission (ACCC) on their website as well as information provided by CRC, the Colombian regulator to consumers by video are good examples. ComReg, the regulatory authority from Ireland, by way of additional example, has created a simple tool to help consumers forecast their consumption in monetary terms (Figure 4).
72. Consumption of mobile data services is in general difficult to estimate for consumers. That being said, relatively simple tables and tools can be developed to help consumers to estimate consumption of data services based on simpler parameters such as browsing webpages, music downloading, minutes of video streaming or number of e-mails accessed while travelling abroad such as one developed by AT&T (Figure 5).
73. Awareness of roaming prices can also be reinforced by requesting operators to send an SMS to a consumer when roaming is activated, informing them on prices in the visited country, as undertaken in Brazil and Chile. Experience has shown that this measure, while not necessarily reducing prices, has led to consumers being able to make more informed choices and can be implemented rapidly by network operators.
74. In many situations, and especially for data services, consumers are not conscious of the cost incurred when using international roaming services. Taking into account the relatively high prices for international roaming services, this may result inadvertently to extremely high bills for communication services when travelling abroad. Billshock prevention measures can be put in place, empowering consumers to set limits on their consumption when travelling (typically in monetary terms, as is the case in Colombia) and setting default limits applicable to all consumers (as in the European Union). These billshock prevention measures usually include notifications when a certain consumption threshold is reached (typically 80% of the limit). Billshock measures, resulting from the decision on international roaming (Box 9), have been implemented by all European countries allowing customers to better control their consumption.
75. Citizens living in border areas must be protected from inadvertent roaming and policy makers should encourage operators to offer tariffs adapted to the use of mobile services in the border area. Inadvertent roaming issues in the LAC area, as well as best practices applied in the region has been subject to an study prepared by the IDB and REGULATEL (IDB and REGULATEL, 2013) and the recommendations included in that report can be used as a good reference by regulators and operators. In general, inadvertent roaming can be prevented by co-ordinating frequencies, location of base stations, empowering consumers to block roaming and the use of border gateways. Regulators may also publish specific regulations to ensure that operators take reasonable steps to avoid inadvertent roaming in border regions. As the technical measures to be taken may vary and evolve depending on technical evolution and standardisation of roaming features, general provisions combined with regular monitoring are usually enough to ensure that inadvertent roaming is addressed by operators in an effective way (Box 9).
76. Additionally, policy makers should look into options that help reduce prices for international roaming. International roaming is a sophisticated service involving networks from at least two countries as well as signalling, transmission, billing and customer care co-ordination. Although this complexity may result in costs being somewhat higher than domestic services, prices paid by consumers not only in the LAC region, but in most of the world, usually consumers pay much higher prices than the underlying costs of providing the service. These high prices for roaming services inhibit its use discouraging social and economic exchanges among countries and regional integration.
77. A first reason for these high prices is the lack of competition at the retail level for roaming services. Roaming services are sold in a bundle with domestic services, and the relative weight of roaming services in the bundle is low, making it less likely that non-frequent travellers will take their decision on which mobile network operator they wish to subscribe to based on prices for international roaming.
78. In an increasing global world, however, people are travelling more and more, and the use of broadband mobile access by each traveller is also increasing (access to mail, social networks, maps, etc.). This implies that consumers are starting to become more sensitive to international roaming prices, and specific offers for international roaming at local prices in all regions including the LAC area are gaining momentum, as operators have identified a market opportunity in this area (Box 10). Although the number of roam like at home (RLAH) offers in the LAC region are still few, and mainly based on add-ons to be paid by consumers, it may be expected that in the future this type of offer will increase.
79. Some market actors, such as Apple or Xiaomi , are introducing virtual SIMs, that allow for a convenient use of international roaming services without changing the SIM card in the terminal device. In the future, Virtual SIMs can exert a competitive pressure for traditional operators and, as such, their development should be monitored to ensure that there are no regulatory barriers for their use to increase competition. Where such services are available they are offered in co-operation with operators in those markets. These operators are free to set wholesale or retail prices depending on whether the service is sold directly to an incoming roamer or via wholesale offers to an intermediary, such as an MVNO using agreements negotiated by their home MNOs.
80. A second reason for high prices for international roaming services is the frequently high prices for wholesale services. A high wholesale price for roaming services in a visited country sets a high minimum level for retail prices. The market for international roaming services is far from perfect, as the number of operators selling these services is limited, it is affected by bilateral issues (buyers and sellers often exchange traffic), and there is a lack of price transparency. Having said that, competition for wholesale services has improved in recent years due to the availability of steering techniques and the increasing demand for data services, reducing prices at least in markets where there is price monitoring, as in the European Union.
81. To ascertain whether retail roaming prices are justified, regulators need to be aware of the wholesale prices in visited countries. This can only occur if there is agreement among regional regulators to obtain and share information. By monitoring wholesale prices regulators can apply pressure on mobile network operators to reduce retail roaming prices. Given that there is little competitive pressure on international wholesale termination rates in many countries, a significant reduction in roaming prices may requires co-ordinated regulatory intervention at a regional level. Any price regulation measure should consider a wide body of evidence in setting the level of retail and wholesale price caps, ensuring consistency of both caps, and especially that no margin squeeze arise.
82. A relevant issue to be taken into account is the Most Favoured Nation (MFN) principle of the WTO General Agreement for Trade in Service (GATS). The MFN principle means, in essence, that countries should not discriminate among the services and services suppliers of other members, so that any country granting more favourable conditions to another country (as would be the case for an agreement to cap prices for wholesale services) should extend this more favourable treatment to third countries. The MFN principle may be waived in some cases, such as the existence of an adequate Free Trade Agreement (FTA) between two or more countries.
83. The European Union is the best example of a multilateral agreement on the regulation of international roaming, aimed not only to reduce high prices for intra-European roaming, but also and especially to reinforce the building of an European internal market. The European Parliament have imposed a common unique regulation for all its members of the European Union comprising a whole set of regulatory measures aimed to address issues such as transparency, billshock, inadvertent roaming, as well as wholesale and retail prices. In June 2017, the next regulatory round will abolishintr European roaming charges – after a transition period since June 2015 – subject to fair use policy and sustainability, with European consumers being able to benefit from local prices when roaming in any country of the European Union.
84. Another interesting reference for the LAC region is the Gulf Cooperation Council (GCC), comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates, which had implemented an agreement using price caps with price reductions staggered over 2010 and 2011. The agreement, which was fully implemented by February 2012 and which covers price regulation for outgoing roaming calls, resulted in price reductions of up to 70 percent. The GCC Roaming Working Group is proposing to extend the existing regulation to cover incoming calls, SMS and mobile data roaming. More detailed information on bilateral and multilateral agreements can be found at (OECD, 2013). Australia and New Zealand agreed in February 2013 to regulate high trans-Tasman mobile roaming rates through a bilateral agreement and released a joint report which recommended that the regulators in both countries be provided with sufficient powers allowing them to co-operate and to intervene in the IMR market. These powers would allow the regulators to apply price caps on wholesale and retail roaming charges and regulated terms of access and mobile-local access services (MBIE et al, 2013).
85. Many of the LAC countries are members of regional organisations or have signed trade agreements inside the area (e.g. Mercosur or CARICOM) or including countries in other regions (such as the Trans-Pacific Partnership, TPP) that could be used as platforms to reach multilateral agreements. Both Mercosur and the TPP are addressing international roaming issues, with the Trans-Pacific Strategic Economic Partnership Agreement explicitly considering the possibility of regulating of wholesale roaming services (Box 11).
86. Finally, attention should be giving to cases where double taxation affects international roaming prices. Double taxation of international roaming services occurs when the government in a visited country taxes wholesale services provided to foreign operators, and the government in the home country taxes completely retail international roaming services provided using these already taxed wholesale services. This increases the prices for international roaming even more than taxes applied for domestic services.
87. The report (IDB and REGULATEL, 2013) analysed different regulatory options that could be applied to solve the issue of double taxation, ranging from bilateral/multilateral agreements among countries to tax exemptions and reclassification of wholesale international roaming services as exported services. In any case, discussion on coordinating measures at regional fora is advised to prevent double taxation. This would allow for encouraging regional trade and social exchanges among countries in the LAC region, as well as with countries in other regions.
Internet of Things (IoT)
88. In recent years organisations such as the ITU and OECD , as well as BEREC (2016b), have examined potential initiatives and approaches in relation to IoT services to identify barriers to their deployment and have produced work aimed at ensuring competition, interoperability and consumer benefits. A growing number of regulatory authorities are also looking at these questions. Some good practices that should be considered in this area include:
• Ensure that spectrum is readily available for IoT services. While most regulatory bodies do not consider spectrum availability to be a major barrier to the development of the IoT in the short term, more spectrum may be needed in the longer term to cope with the increasing demand of IoT traffic. In this regard, some regulators such as Ofcom in the United Kingdom are taking steps to make additional spectrum available and monitor its usage to predict any significant changes in spectrum demand in the long term (Box 12).
• Ensure adequate numbering space for the emergence of IoT services. The identifiers used for IoT applications in public networks are E.164 (e.g. MSISDN) and E.212 (IMSI) numbers, as well as IPv4 and IPv6 addresses. In the short and medium term, E.164 and E.212 numbers will continue to be used to identify IoT entities and regulators should make sure that the numbering space can accommodate future growth. In the long term, however, the use of IPv6 might become the preferred solution and regulators should encourage and support the migration of service providers to IPv6.
• Adapt numbering policies to ensure effective competition and avoid lock-in. As some IoT applications might require the operation of millions of IoT devices, a major issue affecting competition is the ability for consumers to switch between connectivity service providers. A potential solution, already adopted by the Netherlands and being introduced by Belgium, is to reform the numbering policies to allow large scale IoT users to be directly allocated E.212 identifiers (IMSI numbers) and effectively become Private Virtual Network Operators (OECD, 2015).
• Ensuring that existing policies do not hinder the development of the IoT. Existing regulations in sectors such as tax, health or transport could represent barriers to the adoption of innovative approaches such as smart-metering, remote health monitoring or self-driving vehicles. Some countries are also adapting their tax policies to provide incentives for IoT services to encourage its mass adoption (Box 13). Another way of fostering the adoption of IoT is to facilitate when possible experimentation programmes in innovative topics allowing for experimental temporal licenses and numbering, reducing regulatory burden for research and development of new services.
89. Policy considerations that prepare LAC countries for the future, be it on IoT or convergent services (addressed in Chapter 6), should aim at ensuring that existing and evolving connectivity and usage gaps continue to be mitigated. IoT has the potential to contribute to broader policy objectives such as public health, energy and water management (through smart grids), and environmental monitoring (addressed in Introduction); and to maximise the dividends of ICTs throughout the whole economy and society in the LAC region.
90. This chapter covered aspects related to regional integration such as regulatory and policy regional co-ordination, international connectivity, international mobile roaming and Internet of Things (IoT). Firstly, policy makers and regulators in LAC countries should seek to share their experiences and set of common principles, and harmonised rules, when feasible and justified. By doing so, countries in the region would benefit from closer regional co-ordination and increased regional integration.
91. Moreover, governments, in coordination with regulatory agencies should take an active role promoting and funding when needed (under open and competitive processes) national, regional and international backbone infrastructures. Increasing competition and lowering prices for international connectivity, such as internalising national traffic via IXPs, should be a priority to increase quality of service for broadband access.
92. Regarding international mobile roaming, consumer protection measures, as those aimed to protect consumers from billshock and inadvertent roaming should be enforced; and attentive monitoring of prices, complemented with regulatory action, if necessary, is also advisable.
93. Policy makers should encourage the development of new services, such as the Internet of Things, avoiding administrative barriers and ensuring that numbering or spectrum do not act as hindrances for future development. Furthermore, the migration of service providers to IPv6 should be encouraged and supported.
Balassa (1961) identifies in his seminal contribution these five main stages of regional integration. Dorrucci, Firpo, Fratzscher and Mongelli (2002) use this framework to construct an institutional index of regional integration and compare the path taken and status of the European Union and Mercosur.
African Union (2014), Africa Regional Integration Index, available at http://www.au.int/en/sites/default/files/newsevents/workingdocuments/12582-wd-african_regional_index_english.pdf
An Autonomous System (AS) is a group of IP networks operated by one or more network operator(s) that has a single and clearly defined external routing policy. Each public AS has a globally unique number, an AS Number, associated with it. This number is used both in the exchange of exterior routing information (between neighboring Autonomous Systems) and as an identifier of the AS itself.
A Content Delivery Networkis a globally distributed network of proxy servers deployed in multiple data centers. The goal of a CDN is to serve content to end-users with high availability and high performance.
See http://portalipv6.lacnic.net/en/ipv4-depletion-report/ In addition RIPE NCC measures the number of IPv6 enabled networks per country at http://v6asns.ripe.net/v/6?s=_ALL
Lars Eggart started a study using such approach in 2007, see current results in http://www.eggert.org/meter/ipv6.
PCH maintains a directory of Internet exchanges with traffic statistics for IPv4 and IPv6 subnets, see http://www.pch.net/ixpdir.
Google measures the number of end hosts preferring to use IPv6 on their service infrastructure, see www.google.com/ipv6/statistics.html.
APNIC Labs measures IPv6 capability per country using such technique, see http://stats.labs.apnic.net/ipv6.
The intergovernmental organisations with mandates to work on supply and demand in respect to broadband include entities such as the ITU, OECD, World Bank and UNESCO as well others in a broader sense that have remits from health to transport and use broadband in their work.
See Latin America and Caribbean international submarine cables map at http://latin-america-map-2012.telegeography.com/
El Salvador is the only country in the region with access to the ocean and no submarine cable. Bolivia and Paraguay also have no submarine cable, but are land-locked countries.
See the full interactive map of deployed and planned submarine cables at http://www.submarinecablemap.com/#/.
Packet Clearing House, Internet exchange point directory reports.
Retrieved on October 13, 2015 from http://www.pch.net/ixpdir/summary. Cisco Trends and Analysis, May 2015. http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/VNI_Hyperconnectivity_WP.html
Members of the Costa Rica Exchange point, https://www.crix.cr/miembros. Retrieved on January 2016.
Akamai’s CDN platform delivers 15-30% of the world’s web traffic. See https://www.akamai.com/us/en/solutions/intelligent-platform/visualizing-akamai/
According to the information provided by OSIPTEL, the Peruvian regulator, Peru, has signed agreements on international roaming with the following countries: Ecuador, Brazil, Bolivia and Colombia.
Besides the SMS, the operator can inform users through a phone call and/or a similar mechanism, without cost for the consumer. In addition, for roaming data with consumption limits, the operator suspends data access when the data volume contracted by the subscriber is reached.
See “Claro announces mobile calling to United States, Canada at same rate as local calls,” 12 November 2015. http://insidecostarica.com/2015/11/12/claro-announces-mobile-calling-united-states-canada-rate-local-calls/ and Christine Murray, “Facing AT&T, America Movil pledges free roaming, $6 billion network upgrade”, 16 July 2015.
Projecting the growth and economic impact of the Internet of Things, Mercatus Centre, George Mason University. http://ssrn.com/abstract=2618794
The recommendation of the OECD Council can be accessed at: http://webnet.oecd.org/OECDACTS/Instruments/ShowInstrumentView.aspx?InstrumentID=271&InstrumentPID=276&Lang=en&Book=False
In October 2014, Apple introduced new feature in their new iPad: the Apple SIM. This SIM card is reprogrammable and consumers can freely choose the operator to provide roaming among those having reached and agreement with Apple. Such SIM enables customers to choose operators from country to country without purchasing a SIM card in each countries. Currently, only a limited operators participate in such a program and the Apple SIM was not available in any LAC country in the moment of preparing this report, but in the longer term, Apple SIM may be extended to other countries and more operators are likely to reach an agreement with Apple (see http://www.apple.com/ipad/apple-sim/)
Xiaomi, a Chinese smartphone manufacturer, revealed in August 2015 that they will introduce virtual SIM function valid for 36 countries including OECD Member countries such as Canada, Japan and the Unites States in their newest operating system MIUI7. (http://xiaomiadvices.com/miui-7-details-features-changelogs/)
For greater certainty, no Party shall, solely on the basis of any obligations owed to it by the first Party under a most-favoured-nation provision, or under a telecommunications-specific non-discrimination provision, in any existing international trade agreement, seek or obtain for its suppliers the access to regulated rates or conditions for wholesale international mobile roaming services that is provided under this Article.
For greater certainty, access under paragraph 4(a) to the rates or conditions regulated by the first Party shall be available to a supplier of the second Party only if such regulated rates or conditions are reasonably comparable to those reciprocally regulated under the arrangement referred to in subparagraph (a). The telecommunications regulatory body of the first Party shall, in the case of disagreement, determine whether the rates or conditions are reasonably comparable.
For the purposes of this subparagraph, rates or conditions that are reasonably comparable means rates or conditions agreed to be such by the relevant suppliers or, in the case of disagreement, determined to be such by the telecommunications regulatory body of the first Party.
For greater certainty, such additional requirements may include, for example, that the rates provided to the supplier of the second Party reflect the reasonable cost of supplying international mobile roaming services by a supplier of the first Party to a supplier of the second Party, as determined through the methodology of the first Party.
African Union (2014), “Africa Regional Integration Index”, Working Document present at the 7th Conference of African Ministers in Charge of Integration 14-18 July 2014, Swaziland.
APEC (2012), Submarine Cable Information Sharing Project.
Balassa, B. (1961), The Theory of Economic Integration, George Allen & Ynwin Lts., Illinois.
BEREC (2013), “BEREC International Roaming Compliance Report”,Regulation (EU) No 531/512 of the European Parliament and of the Council of 13 June 2012 on roaming. http://berec.europa.eu/eng/document_register/subject_matter/berec/reports/1482-berec-international-roaming-compliance-report-regulation-eu-no-531512-of-the-european-parliament-and-of-the-council-of-13-june-2012-on-roaming.
BEREC (2014), BEREC Report on Transparency and Comparability of International Roaming Tariffs. BoR (14) 170, http://berec.europa.eu/eng/document_register/subject_matter/berec/reports/4787-report-on-transparency-and-comparability-of-international-roaming-tariffs.
BEREC (2015a), International Roaming BEREC Benchmark Data Report April 2014 – September 2014, BoR (15) 29, http://berec.europa.eu/eng/document_register/subject_matter/berec/reports/4922-international-roaming-berec-benchmark-data-report-april-8211-september-2014.
BEREC (2015b), International Roaming BEREC Bechnmark Data Report October 2014 – March 2015, BoR (15)134, http://berec.europa.eu/eng/document_register/subject_matter/berec/reports/5440-international-roaming-berec-benchmark-data-report-october-2014-8211-march-2015.
BEREC (2016a), International Roaming BEREC Bechnmark Data Report April – September 2015, BoR (16)28, http://berec.europa.eu/eng/document_register/subject_matter/berec/reports/5756-international-roaming-berec-benchmark-data-report-april-8211-september-2015.
BEREC (2016b), Enabling the Internet of Things, BoR(16)39, http://berec.europa.eu/eng/document_register/subject_matter/berec/reports/5755-berec-report-on-enabling-the-internet-of-things.
CAF (2014), Expansión Infraestructura para la Interconexión de Tráfico de Internet América Latina.
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