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Buenos Aires, June 2005Buenos Aires, June 2005
Tariff regulation in the Chilean telecommunication market
GOVERNMENT OF CHILEMinistry of Transport and
Telecommunications
Telecommunications Subsecretariat
Applicable legal and regulatory Applicable legal and regulatory frameworkframework
• The General Telecommunications Act (Act No. 18.168 of 1982) and the amendments thereto, in particular the provisions of Article 24 bis, 25 and Section V, on tariffs.
• Regulations governing the procedure for, announcement of and participation in the tariff-setting process, as laid down in Section V of the General Telecommunications Act (Act No. 18.168) (Supreme Decree No. 4 of 2003).
Tariff regulation: Tariff regulation: Normative aspectsNormative aspects
• Tariff freedom (the general rule)• Services affected under the Act (Articles 24 bis
and 25)§ Services provided by public service licensees
and intermediaries through interconnection arrangements. Metering, billing, charging and collection services provided to carriers by public service licensees (Supreme Decree No. 95 of 1994).
§ Tariffs for services provided under interconnection arrangements enable these licensees to charge for the cost of using their networks.
Tariff regulation: Tariff regulation: Normative aspectsNormative aspects
• Basic principles of tariff-setting:§ Tariffs charged to users reflect costs.§ Guaranteed absence of cross-subsidies between
services and tariff areas.§ Use of efficient enterprise model generates
incentives for the actual licensee to introduce technology enhancements in its network and in regulated services, thereby increasing their efficiency.
§ Through the tariff-setting process it is possible to pass on to the consumer the efficiency gains made by the company as a result of its improved management coupled with technological advances.
Tariff regulation: Tariff regulation: Content aspectsContent aspects
• Efficient company (Act 18.168, Art. 30A and F):§ Provides only regulated services.§ Only those costs that are essential to their
provision.§ Using available technology.§ Maintaining quality.§ Determination of costs of each service: investment
and operation, including capital cost.§ Indivisibility of unregulated services: only fraction
of costs used, consistent with the proportion of assets used.
Tariff regulation: Tariff regulation: Content aspectsContent aspects
• Incremental development cost (IDC) (Art. 30)§ General rule: marginal cost charging
§ Plans for expansion of each service by tariff area.§ The incremental development cost is obtained for
each expansion plan.§ Exception: Long-run marginal cost
§ In the absence of expansion plans.• Total long-run cost (Art. 30C)
§ Asset replenishment plan for the efficient company.§ Average volume of different services provided.
Tariff regulation: Tariff regulation: Content aspectsContent 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: Tariff regulation: Content aspectsContent 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• Indexation
§ 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 aspectsContent aspects
TEBproposal
Elaboration of technical & economic
bases (TEBs)
Elaboration of technical & economic
bases (TEBs)
Licensee
Review and compilation of
points of disagreement
Review and compilation of
points of disagreement
Submission ofpreliminary TEBs
Licensee
Review and elaboration of
preliminary TEBs
Review and elaboration of
preliminary TEBs
Subtel
Opinions
RegisteredThird parties
RegisteredThird parties
Participantregistration
notice
Participantregistration
notice
Draft TEBs
Procedure: Procedure: Technical and economic basesTechnical and economic bases
Review and compilation of points
of disagreement
Review and compilation of points
of disagreement
Opinion
Background
Committeeof experts
Committeeof experts
Licensee
Submission of disagreementsand possible request for
assistance from committee of experts
Analysis and decision on
definitive TEBs
Analysis and decision on
definitive TEBs
Subtel
Notification ofdefinitive TEBs
Elaboration of tariffstudy commences
Elaboration of tariffstudy commences
Licensee
Procedure: Procedure: Technical and economic basesTechnical and economic bases
Tariffproposal
Review oftariff study
Review oftariff study
Ministries
Elaboration oftariff study
Elaboration oftariff study
Licensee
Report oninsistence
Report on objections& counter-proposals
Opinion
Background
Committeeof experts
Committeeof experts
Final decision
Final decision
Incorporatesor insists
Incorporatesor insists
Licensee
Ministries
OpinionsRegisteredthird
parties
Registeredthird
parties
ProcedureProcedure: : TariffTariff--settingsetting
Substantiatingreport
Final decision
Final decision
Constitutional andlegislative review
Constitutional andlegislative review
Elaboration & signatureof tariff decree
Elaboration & signatureof tariff decree
Tariffdecree
Consultations
BackgroundComptroller-General of the Republic
Publication oftariff decree
Publication oftariff decree
Official Bulletin
Possibleobjections
Ministries
Ministries
Clarification of thetariff process
Clarification of thetariff process
Ministries
Processing of tariff decree
ProcedureProcedure: : TariffTariff--settingsetting
-380
(20) 20 5 5 30
(Subtel calls for TEB proposal for new licensees)
-360
Presentationof TEB
proposal
0 20 25 30 70
-340 -290
Preliminary TEBs
Presentation of disagreements and request for committee of expert (CoE) assistance
Subtel calls for CoEassistance
CoEreport
3 5 2
80
Request for clarification
CoEclarification
report
DefinitiveTEBs
90
180
-180
Presentation of tariff study
120
300
-60
Report on objections and counter-proposals
30
Report on themodifications and
insistence
-30 0
330 360
30
Substantiatingreport and Tariff
Decree
Presentation of tariff study
-180
CoE report
Participantregistration
5
-365
Participantcomments
-355
15
OpinionsTariff study
10 10
30
-180
210
5
Setting-up of CoE
OfficialBulletin
announcementlaunchingprocess
DraftTEB
10
40
Setting-up and swearing-in
of CoE
-270
Start of tariffstudy
announced
ProcedureProcedure: : TariffTariff processesprocesses
• The main services regulated in the contextof public service licensees for mobiletelephony correspond to:
§ Interconnection at network termination points§ Access to other telecommunication service
licensees§ Administrative functions (metering, charging,
billing, collection, balance management)
TariffTariff regulationregulation: : TariffTariff aspectsaspects
• The main services regulated in the contextof public service licensees for fixedtelephony correspond to:
§ Interconnection at network termination points§ Access to other telecommunication service
licensees§ Administrative functions (metering, charging,
billing, collection, balance management)
TariffTariff regulationregulation: : TariffTariff aspectsaspects
FixedFixed and and mobilemobile telephonytelephony marketmarket: : CurrentCurrent situationsituation
ChileanChilean marketmarket: : FixedFixed lineslines
Evolution of fixed telephony: Lines in service and penetration (1990-2004)
6.57.9
9.4
11.011.6
13.2
15.6
18.3
20.4 20.621.6
22.4
20.5 20.722.1
0
500 000
1 000 000
1 500 000
2 000 000
2 500 000
3 000 000
3 500 000
4 000 000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
0
5
10
15
20
25
Lines in service Penetration
ChileanChilean marketmarket: : MobileMobile subscriberssubscribers
Evolution of mobile telephony: Mobile subscribers and penetration (1990-2004)
0.1 0.3 0.5 0.6 0.8 1.4 2.2 2.86.5
15.0
41.1
47.4
59.6
34.0
22.2
0
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
0
10
20
30
40
50
60
70
Lines in service Penetration
ChileanChilean marketmarket: : Internet Internet connectionsconnections
Evolution of Internet connections(June 2000 – December 2004)
468 227
578 316
674 646631 526
658 828
569 306 570 828
483 773460 859
326 432
2 411 7 879 31 882 66 722
115 715
188 454
263 572
352 234
424 016
478 883
0
200 000
400 000
600 000
800 000
Jun - 2000 Dec - 2000 Jun - 2001 Dec - 2001 Jun - 2002 Dec - 2002 Jun - 2003 Dec- 2003 Jun - 2004 Dec - 2004
Switched
Dedicated
ChileanChilean marketmarket: : PenetrationPenetration indicatorsindicators
Nota: Para el caso de la penetración en los hogares la información corresponde a la encuesta CASEN 2003.
Penetration of fixed telephony, mobile telephony and Internet in ChileDecember 2004
20.7
51.6
59.6
67.3
5.0
12.6
0 10 20 30 40 50 60 70 80
Fixed lines per 100 inhabitants
Fixed lines per 100 households
Mobile subscribers per 100 inhabitants
Mobile subscribers per 100 households
Internet connections per 100 inhabitants
Internet connections per 100 households
Note: In the case of household penetration, the information is drawn from the CASEN 2003 survey.
ResultsResults: : TariffTariff processesprocesses
• During the most recent period, theregulatory body conducted a series of tariffprocesses with the aim of establishingregulated tariffs for the services in questionin the various market segments.
• The processes covered public servicelicensees for mobile and fixed telephonyand intermediate service licensees.
• They involved a review of the tariff decreesrelating to the dominant enterprises and mobile and rural companies, bringing othercompanies into the arena.
TariffTariff regulationregulation: : TariffTariff processesprocesses
TariffTariff regulationregulation: : TariffTariff processorsprocessors
Mobile and of the sametype:
• Bellsouth• Entel PCS• Entel Móvil• Smartcom• Telefónica Móvil• Nextel (Multikom and
Centennial)
• The processes by segment correspond to:
Fixed:• CTC• Telefónica del Sur• TelCoy• EntelPhone• VTR• Manquehue• Telesat• CMETRural:
• CTR• RTC• Megacom
Intermediate:• Entel
MobileMobile accessaccess chargescharges: : TheThe new new pricesprices
Time-based structure for access charges ($/min)
120.3
86.784.2
65.1
43.4
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Former regulatory framework Tariff Decree 2004-2009
Normal
Reduced
Night
MobileMobile accessaccess chargescharges: : TheThe new new pricesprices
Cargo de Acceso Promedio = 110 cUS$/min
Time-based structure for access charges (USD/min)
0.171
0.1240.120
0.093
0.062
0.000
0.100
0.200
0.300
Former regulatory framework Tariff Decree 2004-2009
Normal
Reduced
Night
Average access charge = USD 0.110/min
ComparisonComparison of of chargingcharging periodsperiods
Traffic distribution:
Normal rate : 61.4%
Reduced rate : 33.5%
Night rate : 5.1%
Traffic distribution:
Normal rate : 57.9%
Reduced rate : 42.1%
Current time-band structure
Time band
Working days
Saturdays
Sundays and public
holidays00:00 - 08:59 Reduced Reduced Reduced09:00 - 13:59 Normal Normal Reduced14:00 - 19:59 Normal Reduced Reduced20:00 - 23:59 Reduced Reduced Reduced
Proposed time-band structure
00:00 - 07:59 Night Night Night08:00 - 13.59 Normal Normal Reduced14:00 - 19:59 Normal Reduced Reduced20:00 - 23:59 Reduced Reduced Reduced
Time band
Working days
SaturdaysSundays
and public holidays
Access Access chargescharges: : DecreasingDecreasing pricesprices
Access charge 2004-2008 ($/min)
76.4277.2676.81
77.2077.5977.98
70.00
72.50
75.00
77.50
80.00
0 1 2 3 4 5 6
Local Local accessaccess chargescharges: : Normal Normal raterate
Local company access charges by primary zone(in pesos as at December 2003)
0
1
2
3
4
5
67
8
9
10
11
12
13
14
Aric
a
Iqui
que
Ant
ofag
asta
Cop
iapó
La S
eren
a
Ova
lle
Los
And
es
Qui
llota
San
Ant
onio
Val
para
íso
San
tiago
Ran
cagu
a
Cur
icó
Primary zones
($/m
inut
e)
CTC ETPH CMET VTR (*) MNET TSAT TSUR TCOY
Local Local accessaccess chargescharges: : Normal Normal raterate
Local company access charges by primary zone(in pesos as at December 2003)
02468
1012141618202224262830
Talc
a
Lina
res
Chi
llán
Con
cepc
ión
Los
Áng
eles
Tem
uco
Pun
ta A
rena
s
Val
divi
a
Oso
rno
Pue
rto M
ontt
Ciu
dade
sM
edia
nas
Déc
ima
Reg
ión
Coy
haiq
ue
Pue
rto A
ysén
Primary zones
($/m
inut
e)
CTC ETPH CMET VTR (*) MNET TSAT TSUR TCOY
TelephoneTelephone lineline serviceservice
Local company telephone line service per tariff area(in pesos as at December 2003)
6 6327 655 8 044 8 059 8 179 8 090 8 012
9 701 10 131
14 722
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
Santiago Valpara íso Concepción Antofagasta,La Serena
and Chillán
Iquique,
Quillota, Los
Andes, Curicóand Linares
Arica, Copiapó,
Ovalle, San
Antonio, Talca,Los Ángeles and
Punta Arenas
Rancagua andTemuco
Valdivia,Osorno andPuerto Montt
Coyhaique Isla de Pascua
Tariff areas
($/Lin
e-m
on
th)
Buenos Aires, Buenos Aires, JuneJune 20052005
THE ENDTariff regulation in the Chilean
telecommunication market
by Roberto Baltra T.by Roberto Baltra T.AdviserAdviser, Subsecretario de Telecomunicaciones, Subsecretario de Telecomunicaciones