GOVERNMENT OF CHILE Ministry of Transport and Telecommunications - - PowerPoint PPT Presentation

Buenos Aires, June 2 0 0 5 Buenos Aires, June 2 0 0 5

Tariff regulation in the Chilean telecom m unication m arket GOVERNMENT OF CHILE

Ministry of Transport and Telecommunications Telecommunications Subsecretariat

Applicable legal and regulatory Applicable legal and regulatory fram ew ork fram ew ork

• The General Telecommunications Act (Act No.

18.168 of 1982) and the amendments thereto, in particular the provisions of Article 24 bis, 25 and Section V, on tariffs.

• Regulations governing the procedure for,

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

Tariff regulation: Tariff regulation: Normative aspects 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: Tariff regulation: Normative aspects Normative aspects

• Basic principles of tariff-setting:

Tariffs charged to users reflect costs. Guaranteed absence of cross-subsidies between

services and tariff areas.

Use of efficient enterprise model generates

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

Through the tariff-setting process it is possible to

pass on to the consumer the efficiency gains made by the company as a result of its improved management coupled with technological advances.

Tariff regulation: Tariff regulation: Content aspects 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

• f costs used, consistent with the proportion of

assets used.

Tariff regulation: Tariff regulation: Content aspects 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: Tariff regulation: Content aspects 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:
• nly fraction of IDC used, in keeping with the proportion
• f 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:
• nly fraction of total long-run cost used, in keeping with

the proportion of asset usage.

Tariff regulation: Tariff regulation: Content aspects 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.

Tariff regulation: Tariff regulation: Content aspects Content aspects

TEB proposal Elaboration of technical & econom ic bases ( TEBs) Elaboration of technical & econom ic bases ( TEBs)

Licensee

Review and com pilation of points of disagreem ent Review and com pilation of points of disagreem ent Subm ission of prelim inary TEBs

Licensee

Review and elaboration of prelim inary TEBs Review and elaboration of prelim inary TEBs

Subtel

Opinions Registered Third parties Registered Third parties Participant registration notice Participant registration notice Draft TEBs

Procedure: Procedure: Technical and economic bases Technical and economic bases

Review and com pilation of points

• f disagreem ent

Review and com pilation of points

• f disagreem ent

Opinion Background Com m ittee

• f experts

Com m ittee

• f experts

Licensee

Subm ission of disagreem ents and possible request for assistance from com m ittee

• f experts

Analysis and decision on definitive TEBs Analysis and decision on definitive TEBs

Subtel

Notification of definitive TEBs Elaboration of tariff study com m ences Elaboration of tariff study com m ences

Licensee

Procedure: Procedure: Technical and economic bases Technical and economic bases

Tariff proposal Review of tariff study Review of tariff study

Ministries

Elaboration of tariff study Elaboration of tariff study

Licensee

Report on insistence Report on objections & counter-proposals

Opinion Background Com m ittee

• f experts

Com m ittee

• f experts

Final decision Final decision I ncorporates

• r insists

I ncorporates

• r insists

Licensee Ministries

Opinions Registered third parties Registered third parties

Procedure Procedure: : Tariff Tariff-

• setting

setting

Substantiating report Final decision Final decision Constitutional and legislative review Constitutional and legislative review Elaboration & signature

• f tariff decree

Elaboration & signature

• f tariff decree

Tariff decree

Consultations Background

Com ptroller-General of the Republic

Publication of tariff decree Publication of tariff decree

Official Bulletin

Possible

• bjections

Ministries Ministries

Clarification of the tariff process Clarification of the tariff process

Ministries

Processing of tariff decree

Procedure Procedure: : Tariff Tariff-

• setting

setting

• 380

( 2 0 ) 20 5 5 30

( Subtel calls for TEB proposal for new licensees)

• 360

Presentation

• f TEB

proposal

20 25 30 70

• 340
• 290

Prelim inary TEBs Presentation of disagreem ents and request for com m ittee of expert ( CoE) assistance Subtel calls for CoE assistance CoE report

3 5 2 80

Request for clarification CoE clarification report Definitive TEBs

90 180

• 180

Presentation of tariff study

120 300

• 60

Report on objections and counter-proposals

30

Report on the m odifications and insistence

• 30

330 360 30

Substantiating report and Tariff Decree Presentation of tariff study

• 180

CoE report

Participant registration 5

• 365

Participant com m ents

• 355

15 Opinions Tariff study

1 0 1 0 3 0

• 180

2 1 0

5

Setting-up of CoE

Official Bulletin announcement launching process Draft TEB

10 40

Setting-up and sw earing-in

• f CoE
• 270

Start of tariff study announced

Procedure Procedure: : Tariff Tariff processes processes

• The m ain services regulated in the context
• f 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 Tariff regulation regulation: : Tariff Tariff aspects aspects

• The m ain services regulated in the context
• f 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)

Tariff Tariff regulation regulation: : Tariff Tariff aspects aspects

Fixed Fixed and and m obile m obile telephony telephony m arket m arket : : Current Current situation situation

Chilean Chilean m arket m arket: : Fixed Fixed lines lines

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

6.5 7.9 9.4 11.0 11.6 13.2 15.6 18.3 20.4 20.6 21.6 22.4 20.5 20.7 22.1

500 000 1 000 000 1 500 000 2 000 000 2 500 000 3 000 000 3 500 000 4 000 000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 5 10 15 20 25 Lines in service Penetration

Chilean Chilean m arket m arket: : Mobile Mobile subscribers subscribers

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

0.1 0.3 0.5 0.6 0.8 1.4 2.2 2.8 6.5 15.0 41.1 47.4 59.6 34.0 22.2

2 000 000 4 000 000 6 000 000 8 000 000 10 000 000 12 000 000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 10 20 30 40 50 60 70 Lines in service Penetration

Chilean Chilean m arket m arket: : Internet Internet connections connections

Evolution of Internet connections (June 2000 – December 2004)

468 227 578 316 674 646 631 526 658 828 569 306 570 828 483 773 460 859 326 432 2 411 7 879 31 882 66 722 115 715 188 454 263 572 352 234 424 016 478 883

200 000 400 000 600 000 800 000

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

Chilean Chilean m arket m arket: : Penetration Penetration indicators indicators

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

Penetration of fixed telephony, mobile telephony and Internet in Chile December 2004 20.7 51.6 59.6 67.3 5.0 12.6

10 20 30 40 50 60 70 80 Fixed lines per 100 inhabitants Fixed lines per 100 households Mobile subscribers per 100 inhabitants Mobile subscribers per 100 households Internet connections per 100 inhabitants Internet connections per 100 households

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

Results Results: : Tariff Tariff processes processes

• During the m ost recent period, the

regulatory body conducted a series of tariff processes w ith the aim of establishing regulated tariffs for the services in question in the various m arket segm ents.

• The processes covered public service

licensees for m obile and fixed telephony and interm ediate service licensees.

• They involved a review of the tariff decrees

relating to the dom inant enterprises and m obile and rural com panies, bringing other com panies into the arena.

Tariff Tariff regulation regulation: : Tariff Tariff processes processes

Tariff Tariff regulation regulation: : Tariff Tariff processors processors

Mobile and of the sam e type:

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

Centennial)

• The processes by segment correspond to:

Fixed:

• CTC
• Telefónica del Sur
• TelCoy
• EntelPhone
• VTR
• Manquehue
• Telesat
• CMET

Rural:

• CTR
• RTC
• Megacom

I nterm ediate:

• Entel

Mobile Mobile access access charges charges: : The The new new prices prices

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

120.3 86.7 84.2 65.1 43.4 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 Former regulatory framework Tariff Decree 2004-2009 Normal Reduced Night

Mobile Mobile access access charges charges: : The The new new prices prices

Cargo de Acceso Prom edio = 1 1 0 cUS$/ m in

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

0.171 0.124 0.120 0.093 0.062 0.000 0.100 0.200 0.300 Former regulatory framework Tariff Decree 2004-2009 Normal Reduced Night Average access charge = USD 0.110/ m in

Com parison Com parison of

• f charging

charging periods periods

Traffic distribution: Normal rate : 61.4% Reduced rate : 33.5% Night rate : 5.1% Traffic distribution: Normal rate : 57.9% Reduced rate : 42.1%

Current tim e-band structure Tim e band W orking days Saturdays Sundays and public holidays 00: 00 - 08: 59 Reduced Reduced Reduced 09: 00 - 13: 59 Normal Normal Reduced 14: 00 - 19: 59 Normal Reduced Reduced 20: 00 - 23: 59 Reduced Reduced Reduced Proposed tim e-band structure 00: 00 - 07: 59 Night Night Night 08: 00 - 13.59 Normal Normal Reduced 14: 00 - 19: 59 Normal Reduced Reduced 20: 00 - 23: 59 Reduced Reduced Reduced Tim e band W orking days Saturdays Sundays and public holidays

Access Access charges charges: : Decreasing Decreasing prices prices

Access charge 2004-2008 ($/min)

76.42 77.26 76.81 77.20 77.59 77.98

70.00 72.50 75.00 77.50 80.00 1 2 3 4 5 6

Local Local access access charges charges: : Normal Normal rate rate

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

1 2 3 4 5 6 7 8 9 10 11 12 13 14 Arica Iquique Antofagasta Copiapó La Serena Ovalle Los Andes Quillota San Antonio Valparaíso Santiago Rancagua Curicó Primary zones

($/minute)

CTC ETPH CMET VTR (*) MNET TSAT TSUR TCOY

Local Local access access charges charges: : Normal Normal rate rate

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

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Talca Linares Chillán Concepción Los Ángeles Temuco Punta Arenas Valdivia Osorno Puerto Montt Ciudades Medianas Décima Región Coyhaique Puerto Aysén Primary zones

($/minute)

CTC ETPH CMET VTR (*) MNET TSAT TSUR TCOY

Telephone Telephone line line service service

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

6 632 7 655 8 044 8 059 8 179 8 090 8 012 9 701 10 131 14 722 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000

Santiago Valparaíso Concepción Antofagasta, La Serena and Chillán Iquique, Quillota, Los Andes, Curicó and Linares Arica, Copiapó, Ovalle, San Antonio, Talca, Los Ángeles and Punta Arenas Rancagua and Temuco Valdivia, Osorno and Puerto Montt Coyhaique Isla de Pascua

Tariff areas

($/ Line -m onth)

Buenos Aires, Buenos Aires, June June 2 0 0 5 2 0 0 5

THE END

Tariff regulation in the Chilean telecom m unication m arket

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