International Benchmarking in the context of WTO commitments by Patrick Xavier School of Business Swinburne University of Technology Melbourne ITUWorkshop(3)

2 The February 1997 WTO Telecom Agreement’s ‘Reference Paper’ on regulatory principles Over 75 countries that have signed the WTO agreement also accepted the agreement’s so-called “Reference Paper” on regulatory principles (mainly entirely but a few countries accepted it only in part).

3 The February 1997 WTO Telecom Agreement’s ‘Reference Paper’ on regulatory principles Thailand has so far accepted the Reference Paper only partially but will be under increasing pressure to accept it in full, not only because of its membership of the WTO but also of ASEAN & APEC.

4 The February 1997 WTO Telecom Agreement’s ‘Reference Paper’ on regulatory principles 1. Competitive safeguards 1.1 Prevention of anti-competitive practices in telecommunications Appropriate measures shall be maintained for the purpose of preventing suppliers who, alone or together, are a major supplier from engaging in or continuing anti-competitive practices.

5 The February 1997 WTO Telecom agreement’s ‘Reference Paper’ on regulatory principles 1.2 Safeguards The anti-competitive practices referred to above shall include in particular: (a) engaging in anti-competitive cross- subsidization; (b) using information obtained from competitors with anti-competitive results

6 The February 1997 WTO Telecom Agreement’s ‘Reference Paper’ on regulatory principles 1.2 Safeguards ( c) not making available to other services suppliers on a timely basis technical information about essential facilities and commercially relevant information which are necessary for them to provide services.

7 Implications for TOT TOT should note the prohibition of cross- subsidization. Thus in its efforts (and negotiations with the government/regulator) to re-structure its prices in preparation for increasing competition, TOT can refer to the requirement to do so in the WTO reference paper (where such re-structuring reduces cross-subsidization).

8 Implications for TOT [Of course, TOT should also note that this WTO principle prohibits cross-subsidization for anti-competitive purposes.] Benchmarking the price re-structuring that has occurred/is occurring in other countries will also provide valuable information that can be used in such negotiations with the regulator, especially in the absence of reliable, detailed cost information.

9 Interconnection in the WTO Reference Paper In an earlier presentation, the importance of interconnection charges and conditions was noted. The provisions of the WTO reference paper relating to interconnection has important implications for TOT.

10 Interconnection in the WTO Reference Paper 2. Interconnection 2.1 This section applies to linking with suppliers providing public telecommunications transport networks or services in order to allow the users of one supplier to communicate with users of another supplier and to access services provided by another supplier, where specific commitments are undertaken.

11 Interconnection in the WTO Reference Paper 2.2 Interconnection with a major supplier will be ensured at any technically feasible point in the network. Such interconnection is provided: (a) under non-discriminatory terms, conditions (including technical standards and specifications) and rates and of a quality no less favorable than that provided

12 Interconnection in the WTO Reference Paper for its own like services or for like services of non-affiliated service suppliers or for its subsidiaries or other affiliates; (b) in a timely fashion, on terms, conditions (including technical standards and specifications) and cost-oriented rates that are transparent, reasonable, having regard to economic feasibility, and

13 Interconnection in the WTO Reference Paper sufficiently unbundled so that the supplier need not pay for network components or facilities that it does not require for the service to be provided; and ( c) upon request, at points in addition to the network termination points offered to the majority of users, subject to charges that reflect the cost of construction of necessary additional facilities.

14 Interconnection in the WTO Reference Paper 2.3 Public availability of the procedures for interconnection negotiations. The procedures applicable for interconnection to a major supplier will be made publicly available

15 Interconnection in the WTO Reference Paper 2.4 Transparency of interconnection arrangements. It is ensured that a major supplier will make publicly available either its interconnection agreements or a reference interconnection offer (RIO).

16 Interconnection: Dispute settlement 2.5 Interconnection: dispute settlement A service supplier requesting interconnection with a major supplier will have recourse, either: (a) at any time or (b) after a reasonable period of time (which has been made publicly known) to an independent domestic body (which may be a regulatory body) to

17 Interconnection: Dispute settlement resolve disputes regarding appropriate terms, conditions and rates for interconnection within a reasonable period of time, to the extent that these have not been established previously.

Regulation of Interconnection charge Many countries prefer to regard the determination of interconnection charges as a matter to be negotiated between telecommunications service providers. However there is usually provision for the regulator to arbitrate if negotiation fails to reach a satisfactory outcome.

Regulation of Interconnection charge European Union member countries require an operator with market power to make a Reference Interconnection Offer (RIO) based on LRIC. Where cost information for calculation of LRIC is not available, the regulator may prescribe interconnection charge based on “best practice”.

Regulation of Interconnection charge The EU approach is being increasingly used in non-EU countries as well and it is likely that the Thai telecommunications regulator will consider its use here.

Regulation of Interconnection charge The possible/likely use of “best practice” interconnection charges makes it important to “benchmark” interconnection charges applying in other countries. Even where cost data are available for estimating LRIC (or other cost-based charges), benchmarking other countries charges can provide a “reality-check” on estimates made.

22 Charges for terminating calls in the fixed network (in parity US$ cents per minute) 1999

23 Charges for terminating calls in the fixed network (in parity US$ cents per minute) 1999

24 Charges for terminating calls in the fixed network (in parity US$ cents per minute) 1999

25 Charges for terminating calls in the fixed network (in parity US$ cents per minute) 1999

26 Charges for terminating calls in the fixed network (in parity US$ cents per minute) 1999

27 Charges for terminating calls in the fixed network (in parity US$ cents per minute) 1999

28 Lowest charges for terminating calls in the fixed network (in parity US$ cents per minute) 1999

Interconnection charge as % of local call rate (in parity US$ cents per minute) 1999

31 Interconnection charge as % of local call rate (in parity US$ cents per minute) 1999

32 Interconnection charge as % of local call rate (in parity US$ cents per minute) 1999

33 Lowest interconnection charge as % of local call rate (in US$ cents per minute) CountryInterconnection Local call % chargerate UK % Canada % Australia % Germany %

34 Implications of the interconnection provision in the WTO agreement for TOT Further develop cost information upon which to base calculation of LRAIC for interconnection. Further develop international benchmarking of interconnection charges, including trends over time.

35 Implications of the interconnection provision in the WTO agreement for TOT Note that the requirement on TOT to provide interconnection is not necessarily a disadvantage. Indeed incumbent operators in many countries are finding that revenue from (wholesale) interconnection charges is a fast growing source of funds and are seeing interconnecting service providers as important high margin customers.

36 Implications of the interconnection provision in the WTO agreement for TOT Nor is it necessarily in TOT’s competitive interests to set as high an interconnection charge as would be allowed. This is because there are advantages in new entrants continuing to use TOT’s facilities rather than be driven too quickly to construct their own networks (because of high interconnection charges).

37 Implications of the interconnection provision in the WTO agreement for TOT Thus TOT will need to exercise considerable judgement in determining the appropriate interconnection charges Information/data from international benchmarking to assess what other operators have done (and with what effects) can help in making right judgements.