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Technology innovation has driven the growth of full service providers in Latin America and the Caribbean in a period characterized by the continuous decrease in the number of facilities-based telecom operators. This seemingly oxymoronic situation is easily explained: the increasing number of telecom alternatives is driven by already established players launching new services to diversify their service portfolio while the reduction in the number of operators is the result of consolidation.
This new impetus by operators to be able to become full service providers and erase the traditional boundaries in the telecom industry certainly has an impact on the finances of the various market players. Increased competition decreases profit margins while significant capital expenditures are required by operators to expand their current service portfolio and network coverage. Therefore the implementation of new technologies that translate into a reduction of operating expenditures becomes a priority to service providers. Thus besides revenue assurance planning and implementation, IP-based applications arise as the preferred approach to decrease costs while giving service providers the flexibility of transmitting voice, video or data over the same platform.
IP-based services can be described one of the major headaches of regulatory entities throughout the world. The problem arises because IP-enabled services have altered the traditional telecommunications paradigm, creating services that fall outside the traditional boundaries of the established legal framework. For example, national regulatory entities are still trying to solve issues such as:
–Trans-nationality: How to regulate services contracted in a foreign jurisdiction and with no local legal representation.
–Difficulties monitoring quality of service: How to enforce local regulations.
–Interconnection issues: How to establish agreements. How to collect taxes.
–Security issues: How to provide emergency call numbers.
–Universal fund: Would the use of IP-based applications may decrease operators’ revenue, negatively impacting its contributions to the local universal service fund?
–Technology conflicts with established regulation: Should Internet-enabled video be considered value added service or broadcasting? Is net neutrality regulation necessary?
These are a small sample of the diversity of issues that regulators must address in order to keep up with technological innovation. In other words, regulatory authorities in Latin America and the Caribbean face an uphill battle as market forces would prevent that any of these issues is solved within a short period of time.
An initial step would be the adoption of a unified telecommunications license approach that would give telecom operators greater flexibility in the provision of new services. In addition, regulatory authorities must update their current regulation so it can contemplate the massive use of IP-based application as has already been done in markets like as Barbados (VoIP rules), Colombia (IPTV is VAS) and Chile (adoption of net neutrality regulation).
Signals Telecom Consulting stresses that these initiatives are not occurring in a vacuum as broadband – both wired and wireless – will increase the number of IP-based applications users. In other words, the expansion of 3G-plus networks and government efforts to drive Internet adoption to national broadband plans (e.g. Argentina, Dominican Republic, and Panama among others) would also increase established operators pressure on the national regulatory authorities to define of there are new rules for the local competitive scenario. In those few cases where NRAs consider that they don’t have to address these issues, market players will force the authorities to make a decision through lawsuits. This is already taking place throughout in most regional markets.
NRAs must understand that the current situation is more complex than 10 years ago when the main problem was how to classify VoIP and most of the attention was directed at its impact on the impact on the retail market with the proliferation of service providers like Net2Phone and Skype. Now the addressable market for VoIP as well as other IP-based applications is greater as wired household broadband penetration exceeds 40% in many regional markets and the adoption of mobile broadband services is rapidly enlarging the number of users of voice, video, and text applications that alters the role of the mobile service provider from being an active enabler of communications through its various services (e.g. voice telephony, roaming, text messaging, long distance, etc.) to becoming a dumb pipe to be exploited by mobile virtual network operators and content providers/enablers such as Netflix, WhatsApp, or Skype. Under this scenario, what is the cost of regulatory inaction? The answer is obvious: investment.
Facilities-based operators that are not allowed to diversify their service portfolio to start offering complementary services to their subscribers will modify their investment plans to focus on high-end territories, SMEs and corporate/enterprise clients. This statement applies to both fixed operators wanting to enter the mobile market either directly (e.g. cooperatives in Bolivia) or through a MVNO (e.g. Cable Bahamas), mobile operators trying to start offering services traditionally linked with fixed players (e.g. Digicel Guyana) and fixed/mobile operators trying to offer Pay TV services (e.g. Telefonica Argentina and Claro Uruguay). Another price of inaction could be a passive aggressive approach by operators, for example, in the case of net neutrality Signals Telecom Consulting considers that there’s always the possibility of some operators degrading their broadband connection speed to prevent users from accessing Google Talk or Cuevana. The problem is exacerbated when it refers to the mobile application for the service as most mobile broadband connections are capped: how would consumer react to slower speeds (EDGE) or greater invoices at the end of the month. Also, how would fixed broadband wireless providers react to an increased used of Netflix by their users?
What is to be done? The first step – already taken by many regional governments – is to modernize the current regulatory framework in order to consider the impact of convergence and technological innovation to the old approach to service licensing, universal service plans, and spectrum policy. In relation to specific issues, the most basic step should be calling for a consultation process to obtain feedback from operators and other interested parties to understand their perspective and address their specific concerns. This should be done understanding that issuing a “comprehensive” regulation that satisfy all players might not be possible. Finally, NRAs should be careful when learning from other market experiences as what has been successful in a neighboring country might not be entirely applicable at home, but might be ideal for a specific region of the country.
Jose Otero is president of Signals Consulting. Follow him on Twitter (@Jose_F_Otero) or email him at [email protected]
