GOVERNMENT OF CHILE Ministry of Transport and Telecommunications Telecommunications Subsecretariat Tariff regulation in the Chilean telecom m unication m arket Buenos Aires, June 2 0 0 5 Buenos Aires, June 2 0 0 5
Applicable legal and regulatory Applicable legal and regulatory fram ew ork fram ew ork
Tariff regulation: Normative aspects Tariff regulation: Normative aspects The General Telecommunications Act (Act No. • 18.168 of 1982) and the amendments thereto, in particular the provisions of Article 24 bis, 25 and Section V, on tariffs. Regulations governing the procedure for, • announcement of and participation in the tariff- setting process, as laid down in Section V of the General Telecommunications Act (Act No. 18.168) (Supreme Decree No. 4 of 2003).
Tariff regulation: Normative aspects Tariff regulation: Normative aspects Tariff freedom (the general rule) • Services affected under the Act (Articles 24 bis • and 25) � Services provided by public service licensees and intermediaries through interconnection arrangements. Metering, billing, charging and collection services provided to carriers by public service licensees (Supreme Decree No. 95 of 1994). � Tariffs for services provided under interconnection arrangements enable these licensees to charge for the cost of using their networks.
Tariff regulation: Content aspects Tariff regulation: Content aspects Basic principles of tariff-setting: • � Tariffs charged to users reflect costs. � Guaranteed absence of cross-subsidies between services and tariff areas. � Use of efficient enterprise model generates incentives for the actual licensee to introduce technology enhancements in its network and in regulated services, thereby increasing their efficiency. � Through the tariff-setting process it is possible to pass on to the consumer the efficiency gains made by the company as a result of its improved management coupled with technological advances.
Tariff regulation: Content aspects Tariff regulation: Content aspects Efficient com pany (Act 18.168, Art. 30A and F): • � Provides only regulated services. � Only those costs that are essential to their provision. � Using available technology. � Maintaining quality. � Determination of costs of each service: investment and operation, including capital cost. � Indivisibility of unregulated services: only fraction of costs used, consistent with the proportion of assets used.
Tariff regulation: Content aspects Tariff regulation: Content aspects I ncrem ental developm ent cost ( I DC) (Art. 30) • � General rule: marginal cost charging � Plans for expansion of each service by tariff area. � The incremental development cost is obtained for each expansion plan. � Exception: Long-run marginal cost � In the absence of expansion plans. Total long-run cost (Art. 30C) • � Asset replenishment plan for the efficient company. � Average volume of different services provided.
Tariff regulation: Content aspects Tariff regulation: Content aspects Efficient tariffs (Art. 30E) • Generate revenue equivalent to the IDC (marginal cost). � In case of more than one regulated service in a tariff � area, equal profit margins. Where expansion plan provides for unregulated services: � only fraction of IDC used, in keeping with the proportion of asset usage. Definitive tariffs (Art. 30F) • Only where there are economies of scale. � Efficient tariffs increased until total long-run cost � reached. Inefficiencies minimised. � Where efficient company provides unregulated services: � only fraction of total long-run cost used, in keeping with the proportion of asset usage.
Tariff regulation: Content aspects Tariff regulation: Content aspects Capital cost rate (Art. 30B) • � Risk-free rate of return. � Company's systematic risk. � Risk premium. � Capital cost rate = Risk-free rate + Systematic risk * Risk premium I ndexation • � An index is determined for each service. � Based on published input price indices. � Representative of cost structure of the efficient company.
Procedure: Technical and economic bases Procedure: Technical and economic bases Participant Participant Licensee registration registration Elaboration of Elaboration of notice notice technical & econom ic technical & econom ic bases ( TEBs) bases ( TEBs) TEB proposal Draft TEBs Subtel Review and Registered Review and Registered Third parties elaboration of Third parties elaboration of prelim inary TEBs prelim inary TEBs Opinions Subm ission of prelim inary TEBs Licensee Review and Review and com pilation of com pilation of points of points of disagreem ent disagreem ent
Procedure: Technical and economic bases Procedure: Technical and economic bases Licensee Review and Review and com pilation of points com pilation of points of disagreem ent of disagreem ent Subm ission of disagreem ents and possible request for assistance from com m ittee Background of experts Subtel Analysis and Analysis and Com m ittee Com m ittee decision on decision on of experts of experts definitive TEBs definitive TEBs Opinion Notification of definitive TEBs Licensee Elaboration of tariff Elaboration of tariff study com m ences study com m ences
Procedure: : Tariff Procedure Tariff- -setting setting Licensee Elaboration of Elaboration of tariff study tariff study Tariff proposal Ministries Opinions Registered Review of Registered Review of third third tariff study tariff study parties parties Background Report on objections Com m ittee Com m ittee of experts & counter-proposals of experts Opinion Licensee I ncorporates I ncorporates or insists or insists Report on insistence Ministries Final Final decision decision
Procedure: : Tariff Procedure Tariff- -setting setting Ministries Final Final decision decision Substantiating report Ministries Elaboration & signature Elaboration & signature of tariff decree of tariff decree Tariff decree Background Com ptroller-General of the Republic Ministries Clarification of the Possible Constitutional and Clarification of the Constitutional and tariff process objections legislative review tariff process legislative review Processing of Consultations tariff decree Official Bulletin Publication of Publication of tariff decree tariff decree
Procedure: : Tariff Tariff processes processes Procedure Presentation of CoE CoE disagreem ents Start of tariff Presentation report clarification and request for study Presentation of of TEB report com m ittee of announced tariff study proposal Setting-up and expert ( CoE) Official sw earing-in Bulletin Draft assistance of CoE announcement TEB launching - 380 - 360 - 340 - 290 - 270 - 180 process - 365 - 355 20 5 5 10 30 3 5 2 1 0 1 0 ( 2 0 ) 90 5 15 Participant 70 0 20 25 30 40 80 180 registration Participant com m ents ( Subtel calls for Request for TEB proposal for clarification new licensees) Subtel calls for CoE assistance Definitive Prelim inary TEBs TEBs - 180 - 60 - 30 0 - 180 5 3 0 120 30 30 2 1 0 Opinions 300 330 360 Tariff study Presentation of Report on the Setting-up of tariff study m odifications and CoE insistence Substantiating Report on objections and report and Tariff CoE report counter-proposals Decree
Tariff regulation regulation: : Tariff Tariff Tariff aspects aspects The m ain services regulated in the context • of public service licensees for m obile telephony correspond to: � Interconnection at network termination points � Access to other telecommunication service licensees � Administrative functions (metering, charging, billing, collection, balance management)
Tariff regulation regulation: : Tariff Tariff Tariff aspects aspects The m ain services regulated in the context • of public service licensees for fixed telephony correspond to: � Interconnection at network termination points � Access to other telecommunication service licensees � Administrative functions (metering, charging, billing, collection, balance management)
Fixed and Fixed and m obile m obile telephony telephony m arket m arket : : Current situation situation Current
Chilean m arket m arket: : Fixed Chilean Fixed lines lines Evolution of fixed telephony: Lines in service and penetration (1990-2004) 4 000 000 25 22.4 22.1 Penetration Lines in service 21.6 3 500 000 20.7 20.5 20.6 20.4 20 3 000 000 18.3 15.6 2 500 000 15 13.2 2 000 000 11.6 11.0 9.4 10 1 500 000 7.9 6.5 1 000 000 5 500 000 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Chilean m arket m arket: : Mobile Chilean Mobile subscribers subscribers Evolution of mobile telephony: Mobile subscribers and penetration (1990-2004) 12 000 000 70 59.6 60 10 000 000 47.4 50 Lines in service Penetration 8 000 000 41.1 40 34.0 6 000 000 30 22.2 4 000 000 20 15.0 2 000 000 6.5 10 2.8 2.2 1.4 0.6 0.8 0.5 0.3 0.1 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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