telecom presentation 1-competition & the public interest-sp-feb 2012

8/3/2019 Telecom Presentation 1-Competition & the Public Interest-SP-Feb 2012

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Presentation 1

Competition & the Public InterestTelecommunications - Orientation

Panos South AsiaBangalore Feb 9-11, 2012

Shyam Ponappa

The Centre for Internet and Society, Bangalorecis-india.org


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1. Frames of Reference & Biases.

2. Goals/Objectives/Aims/Purposes.

Frames of Reference

Assumptions, beliefs, ones knowledge

- biases how we take in facts

- and what we do with them.

E.g., some years ago, the US FCC had this missionstatement:

To promote competition, and to protect the public

interest.

Implication: More competition = better.


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Contradiction of More Competition = Better

E.g.: No. of mobile operators in a service area.

Globally: 3-5 India: 12-14

UK study found maximum welfare at 4

Source: http://www.aegis-systems.co.uk/download/2021/spectrum%20management%20(india).pdf

Now, more people do seem to accept that we have toomuch competition in India, and that more is notnecessarily better.


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Example 2

Reality & Perception [our subjective take on facts]

The colour Red Light waves with aFrequency between ~480-400 THz andWavelength ~620-740 nm.

- People with certain kinds of colour-blindness may see

this as gray:

- Some people who are colour blind may not realize

that what they see is different from what others whoare not colour blind see.

E.g., a balsam flower as seen by:humans with normal vision, bees, and butterflies:

http://landsat.gsfc.nasa.gov/education/compositor/em.html

Hence the critical importance of getting other domainviews on the facts as we think we know them.


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Example 3

Truism: Maximize efficient use of resources.

The way the DOT has tried to implement this forspectrum is to ensure that each unit of spectrum ismaximally loaded by every operator.[Alt: Load total available spectrum for all users.]

Effect: Indian cities have the highest usage of eachMHz of spectrum.

Source: http://www.aegis-systems.co.uk/download/2021/spectrum%20management%20(india).pdf


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Implications

Indian operators have much higher costs, because of:

- Advanced spectrum management technologies


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- More towers closer together

the distance between macro cell sites in the denseurban areas, where traffic is heaviest, is now less than

100 metres in cities like Delhi and Mumbai. In contrastthe distance between macro cell sites in the centres ofthe major cities of other countries is significantlygreater7.

7For example around 200 metres in Istanbul, 300

metres in Munich and 350 metres in Berlin. See

Vodafone presentation to the DoT Committee on26/11/07.

So in India, where inter-cell distances in urban areasare shorter than in countries with more generousassignments of spectrum per operator, this effect leadsto a loss of capacity per MHz.

As cells become smaller, the individual buildings and

streets have a major impact on the shape of the cellboundary. Planning for contiguous coverage becomesmore difficult

The precise location of base stations becomes veryimportant. For cells with diameters of several hundredmetres there is a wide range of possible sites which arenear optimal. For cells with diameters of less than this

minimum distance there is often only one locationwhere deployment is effective. If this location is notaccessible then there are significant losses inefficiency.

http://www.aegis-systems.co.uk/download/2021/spectrum%20management%20(india).pdf


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- More equipment

for a given area of coverage.

Therefore, higher costs.

For the enabling services communications andbroadband, it is against the public interest for costs tobe higher than without these impediments.

Therefore,

- the objectives set, and

- what is measured

are of critical importance.

The first objective stated in the draft NTP-2011:

Provide high quality, affordable and securetelecommunication services to all citizens.

That is: affordable access everywhere.A good start at least in the draft NTP.


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Biases

Robert D Atkinson, President - Information Technologyand Innovation Foundation, offers a way to think

through alternatives for better decisions. His analysis ison ICT, although it can be applied to all sectors. Toquote from his conclusion, for advocates and policy-makers, differences over doctrine cause partisans toview facts differently and to focus on small segments of

complex debates, leading to a breakdown ofconstructive dialog and much talking past each other.

He summarises four ideologies or economic doctrines:

Conservative Neoclassical (CNC)

Liberal Neoclassical (LNC)

Neo-Keynesian (NK)

Innovation Economics, also called structuralist-evolutionary, neo-Schumpeterian, or evolutionary

economics (IE)


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Network Policy & Economic Doctrines, Robert D Atkinson, TheInformation Technology & Innovation Foundation, October2010:http://www.itif.org/files/2010-network-policy.pdf

Ideology & ICT Policies

SP, Business Standard, November 4, 2010http://organizing-india.blogspot.in/2010/11/ideology-ict-policies.html

CNCs [Conservative Neoclassicals]

- Less concerned with fairness,

- Less likely to expect market failures.

- Bias: pure competition.Network and broadband markets in which governmentsdo not intervene are considered to be competitive, andrequire no unbundling or price prescriptions.


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LNCs [Liberal Neoclassicals]

- Concerned with fairness, as are NKs and IEs.[Neo-Keynesians; Innovation Economics/ neo-

Schumpeterian/ Evolutionary Economics]

- Accept that telecommunication markets are notcompetitive, and that there may be market failures.

- LNCs and NKs would use policy to increasecompetition in different ways.

- LNCs expect more competition to lead toincreased consumer surpluses. LNCs favour regulatedcompetition, viewing more competition as better.

- NKs want more competition through directedgovernment subsidies, e.g. for municipal broadband orto small companies (which they consider less rapaciousthan large corporations).

- IEs: broadband markets have economies of scale, andthat increased competition could result in excessiveand redundant investments. Duplication of existing,expensive infrastructure is inefficient investment. IEsview communications infrastructure as a generalpurpose technology that drives economic activity,innovation and productivity. [Note:This is my bias.]

Therefore, they advocate policies that invest in higher-speed broadband, and in extending network services tomore people, favouring a national broadband policy.

The US National Broadband Plan defines broadband asa Transformative General Purpose Technology, andmost countries practise IE. Irrespective of theireconomic philosophies, most countries have embarkedon aggressive broadband plans.


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Competition

Essential for efficiency and consumer choice regulation alone is not an adequate substitute -- but

inappropriate for access to spectrum, at least indeveloping economies (assumption: that there issufficient capacity for open access on payment).

Limited Competition with Regulation

An oligopoly may be appropriate in sectors wherenetwork economics apply, more so in developing

economies.

Readings: Economics of Networkshttp://www.stern.nyu.edu/networks/site.html e.g., The New Economy and Beyond, Dennis W. Jansen Ed., Texas

A&M University

Ch 5: Competition policy in network industries: an introduction

Nicholas Economideshttp://www.stern.nyu.edu/networks/Economides_Competition_Policy.pdf

This need for limited competition is because of theneed for results:

a) Readily accessible, ubiquitous broadband services;

b) Of good quality;

c) That are affordable (reasonably priced in Indias cost

structure).


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Recall: Draft NTP-2011 Objective

Provide high quality, affordable and securetelecommunication services to all citizens.

Competition: Optimum Level

To achieve these, there is an optimum level ofcompetition beyond which problems arise from excesssupply: competitors cut prices in an unsustainablespiral with no stable equilibrium. This problem is a

manifestation of the empty core in Game Theory(Core Theory, Lester G. Telser see article on airlines:Competition, Open Skies and Bust?, SP, BS 2005:[http://organizing-india.blogspot.com/2008/04/competition-open-skies-and-bust.html] which is applicable totelecommunications.

Game Theory

A zero-sum game between 2 players is one in whicheach player wins or loses what the other loses or wins.Ones gain = the others loss. E.g., tennis.

A non-zero-sum game is one in which both players maygain, as the game is not strictly competitive. This isdifferent from strictly competitive zero-sum games.

Such games have both competitive and cooperativeelements. Players engaged in a non-zero-sumsituation have some complementary interests, andsome interests that are in opposition. This holds goodfor many real-life situations.E.g., the Prisoners Dilemma:


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Two criminals are captured by the police. Thepolice suspect that they are responsible for a

murder, but do not have enough evidence toprove it in court, though they are able to convictthem of a lesser charge (carrying a concealedweapon, for example). The prisoners are put inseparate cells with no way to communicate withone another and each is offered to confess.

If neither prisoner confesses, both will be

convicted of the lesser offense and sentenced toa year in prison. If both confess to murder, bothwill be sentenced to 5 years. If, however, oneprisoner confesses while the other does not, thenthe prisoner who confessed will be grantedimmunity while the prisoner who did not confesswill go to jail for 20 years.

What should each prisoner do?

http://www-cs-faculty.stanford.edu/~eroberts/courses/soco/projects/1998-99/game-theory/prisoner.html


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Payoff Matrix for Prisoners Dilemma

[Negative payoffs: Lower = Better]

Best course: Cooperate to Not Confess

The dilemma is in choosing the tradeoffs.This type of dilemma is encountered in manyreal-life situations.

For a graphic representation of the payoff matrixand key concepts such as the Nash Equilibriumand Bliss Point, see: Tatas Corus Buy: A GameTheory Analysis,SP, Business Standard, November 2, 2006http://organizing-india.blogspot.in/2008/04/tatas-corus-buy-game-theory-analysis.html

Organizing Ourselves - Readings

Organizing for Results 1: It Can Be Done HereIf we get more than just the macroeconomics right: organizing &managing ourselves in India.SP, Business Standard, February 02, 2006http://organizing-india.blogspot.in/2008/04/it-can-be-done-here.html


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Organizing Ourselves 2: Cautionary Tales & Inspiring PossibilitiesInstances and inspiring possibilities of institution building.SP, Business Standard, October 4, 2007http://organizing-india.blogspot.in/2008/04/organizing-ourselves-cautionary-tales.html

Auctions & Deadweight Loss

Source: http://en.wikipedia.org/wiki/Deadweight_loss

The effect of taxes is to decrease supply if demand iselastic, because there is less demand at higher prices.

Without taxes, equilibrium is at (P1,Q1) on the demandcurve. With taxes, the new equilibrium is at (P2,Q2).


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The triangle between P1, P2 and the Demand Curve isthe deadweight loss.

Ronald Coases paper on auctions that started it all:

The Federal Communications CommissionThe Journal of Law & Economics, October 1959http://www.jstor.org/pss/724927

Excerpts from Coases paper on broadcasting policy,1966


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Other Readings on Auctions

Pro-Auctions

1. Are spectrum auctions ruining our grandchildrens future?Martin Cave and Tommaso Valletti

info Vol 2, No 4, August 2000http://www.ictregulationtoolkit.org/en/Publication.2736.html

2. "Spectrum Auctions Versus Beauty Contests: Costs and Benefits"Andrea Prat and Tommaso Valletti

Prepared for the OECD - Working Party onTelecommunications and Information Services Policies

3. "Spectrum auctions in India: lessons from experience"Rekha Jain, IIM Ahmedabad Pergamonhttp://rru.worldbank.org/Documents/PapersLinks/spectrum_auctions_india.pdf

4. "The optimum value of scarce resources"Optimal extraction of non-renewable resources might require that those rights

be offered through auctions. But not always.Ajit Ranade, Business Standard, April 26, 2011http://www.business-standard.com/india/news/ajit-ranadeoptimum-

valuescarce-resources/433458/

5. "Auctions: Theory and Practice"

Paul Klemperer, 2003http://www.nuff.ox.ac.uk/users/klemperer/VirtualBook/VBCrevisedv2.asp

6. Paul Milgromhttp://www.milgrom.net/

http://www.milgrom.net/Auction Theory Course Material.zip

Anti-Auctions

1. Winners Curse, Chris Anderson, Wired, May 2002:http://www.wired.com/wired/archive/10.05/change.html

2. "Spectrum Auctions: 'Jhatka' or 'Halal'?"The choice is between sudden death and a slow one.

SP, Business Standard, February 3, 2011

http://organizing-india.blogspot.in/2011/02/spectrum-auctions-jhatka-or-halal.html


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3. "NTP 2011 Objective: Broadband"The Indian government has to choose between accessible, affordable services

and short-term revenue.SP, Business Standard, June 2, 2011

http://organizing-india.blogspot.in/2011/06/ntp-2011-objective-broadband.html

4. Managing SpectrumThe Empowered Group of Ministers' goal should be nothing short of a broadbandrevolution.

SP, Business Standard, November 5, 2009http://organizing-india.blogspot.in/2009/11/managing-spectrum.html

5. "The other side of the spectrum"

The presumptive loss to the exchequer from 2G allocations actually representsa huge benefit to citizens.

Uday Abhyankar, Business Standard, October 6, 2011

6. "Auctions are not always a panacea"

Ajay Shankar, Business Standard, Feb 12, 2011

http://www.business-standard.com/india/news/ajay-shankar-auctionsnot-alwayspanacea/424878/

7. "The Langur Initiative: Other Bipartisan Possibilities"Or: extending the bipartisan approach to governance and infrastructure.SP, Business Standard, January 6, 2011

http://organizing-india.blogspot.in/2011/01/langur-initiative-other-bipartisan.html

8. "'Model T' - for Telecom"We need an initiative coordinated by the PMO that optimises both services andgovernment revenues.

SP, Business Standard, December 2, 2010http://organizing-india.blogspot.in/2010/12/model-t-for-telecom.html

9. "Spectrum Reforms: Good & Bad News"

A good initiative is under way, but needs changes to work out complex issues.

SP, Business Standard, May 5, 2011http://organizing-india.blogspot.in/2011/05/spectrum-reforms-good-bad-

news.html

10. "Telecom Path-Breaker?"Does the draft National Telecom Policy-2011 reflect true brilliance or smoke-and-

mirrors? It will be a game-changer if a shared network is implementedeffectively.SP, Business Standard, November 3, 2011

http://organizing-india.blogspot.in/2011/11/telecom-path-breaker.html

11. "What Really Matters In Spectrum Allocation Design"

Thomas W. Hazlett and Roberto E. MunozApril 9, 2010


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http://ideas.repec.org/p/reg/wpaper/372.html

Excerpts

This brings the ratio of social gains to on the order of 240- to-1 in favor ofservices over license revenues.

This more than two order of magnitude difference puts spectrum allocationpolicy into sharp focus. Delicate adjustments that seek to juice auction receipts

but which also alter competitive forces in wireless operating markets areinherently risky. A policy that has an enormous impact in increasing licenserevenues need impose only tiny proportional costs in output markets to

undermine its social utility. So, for example, a new auction design that(heroically) doubled auction revenues would, if it reduced Consumer Surplus by

just one-half of one percent, produce costs in excess of benefits.

Policy makers and economists...have often looked to the sale of licenses at highprices as a success, and sales at low prices as fiascoes. Economists have

justified this enthusiasm for revenue on efficiency grounds:

The more money trans

ferred to the government in auctions, the less money thegovernment need raise via taxes... We show that restricting the productive use

of radio spectrum is, generally, a relatively expensive means to secure public

funds from the first dollar raised. Pursuing such regulatory strategies tend to bepenny wise and poundfoolish.

And both economists and policy makers have issued pro forma caveats warningagainst regulatory approaches that aim to maximize revenues. But in analyzingspecific spectrum auction results they have generally proceeded with a single-

metric approach that credits greater revenues with greater success.Klemperer (2002b) argues the case for auctions thusly: Even relativelyunsuccessful auctions, such as the Netherlands andItalian spectrum auctions,were probably more successful than the beauty contest administrative hearingsused to allocate third-generation spectrum in several other European countries.For example, the Spanish beauty contest yielded just 13 euros per head of

population, but generated considerable political and legal controversy and awidespread perception that the outcome was both unfair and inefficient

Indeed, a decade-long loss of 30 MHz in the U.S. mobile market stemmedfrom

the use of bidding credits in the 1995-97 PCS auctions a policy that waspraised in the economics literature as a way to boost bid prices in licenseauctions. The policy did indeed succeed in raising winning bids. But the winnerswere not efficient providers.

Moreover, the revenues went largely uncollected while the spectrum lay idle foryears. These policy errors cost consumers in excess of $70 billion, more than allFCC license auction revenues in total, and therebyfar out-stripping any social

gains from this source of public rent extraction. Such collateral damage of therevenue-enhancement strategy has been unanticipated in policy analysis. Itshould not be.

Open Spectrum & Shared SpectrumIn separate presentation on Spectrum and the Public Interest.

SP CIS