Global One Communications Pte Ltd - n

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Global One Communications Pte Ltd - n ...





    5 JUNE 2000

    I. Introduction

    1. Global One Communications PTE Limited (“Global One”) is pleased to submit its comments in response to the two consultative documents released by the Info-Communications Development Authority (IDA) on 17 April 2000. In this filing Global One addresses both the “Code of Practice for Competition in the Provision of Telecommunications Services” and the consultation document titled

    “Interconnection/Access in a Fully Liberalized and Convergent Environment”.

    2. Global One fully supports the IDA‟s objective of promoting entry and investment; ensuring the global competitiveness of users in Singapore; enhancing the scope and quality of available services; and guaranteeing the fair operation of markets through appropriate regulation of dominant carriers and the establishment of a cost-oriented and non-discriminatory interconnection regime. Global One has consistently advocated market liberalization and choice in telecommunications markets and believes that these objectives can be recognized through policies encouraging market access, fair competition, full sector specific and competition law regulation of dominant service providers, and the provision of cost-based interconnection services. The two consultative documents follow naturally from the recent proceedings

    concerning the entry of StarHub and the 1 April 2000 further liberalization of the market. Global One is very pleased to participate in this proceeding which will establish the ground rules for competition, both at the policy level and at the critical implementation level. Global One very much supports the direction taken by IDA and submits comments herein on these critical issues.

    3. Global One, previously a joint venture among Deutsche Telekom, France Telecom and Sprint, is now fully owned by France Telecom. Global One has a wholly owned operating entity in Singapore. This entity is a competitive supplier of voice and data services pursuant to its Service-Based Operator (both Individual and Class) licenses as well as Leased Circuit and VANs licenses. Global One is now expanding its presence in Singapore in view of the recent SBO license grants and in anticipation of IDA granting an FBO license to Global One.

    4. On a regional basis, Singapore has become a very important location for Global One. Successful acquisition of the two SBO licenses and the FBO license will enable Global One to develop Singapore initially into the regional headquarters for South East Asia, and potentially as the Asian headquarters in the future. Certainly the outcome of this proceeding will influence the exact degree of investment and presence that many carriers, including Global One, make in Singapore. Global One is very hopeful that the results of the proceeding will serve as a pro-competitive model for other markets around the world, and not just those in Asia. More information about Global One, France Telecom, and Global One‟s Singapore activities in found in Annex 1.

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    5. Global One serves the business, consumer and carrier markets world-wide, with a special focus on multinational companies and their suppliers, distributors and customers. Global One has a clear vision of Singapore as a high technology information/knowledge and services driven market in which it participates as both a reseller and facilities based carrier. As such, Global One has a strong market interest in this proceeding and its outcome.

    6. Global One very much supports the adoption of a Code of Practice and applauds the IDA for the pro-competitive positions articulated in the published draft. Global One looks forward to the final IDA Code of Conduct proposal and will submit further comments on that document. In contrast to some similar documents issued by regulators around the world, the IDA‟s proposed Code is generally clear, concise, and extremely well-reasoned. As such, the proposed Code will do much to encourage vigorous market entry and to ensure full competition in the Singapore telecommunications sector. Notwithstanding the above, however, experience in other countries has shown that no matter how promising a proposed regulatory initiative is, the success of any regulatory initiative always lies in the government‟s

    resolve to implement and, more importantly, to enforce effectively those rules. 7. The terms and conditions on interconnection are probably the most critical aspect of any meaningful liberalization program. Interconnection is a major input for any new entrant‟s ability to successfully enter a market. At the same time it is a bottleneck (i.e., essential facility) provided by a entity with market power with whom the buying new entrant competes. The incentives of the dominant carrier in providing this monopoly services are clear (e.g., deny, delay, degrade and over-price).

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    Interconnection issues range from price levels and cost structures to unbundling,

    equal access, numbering and provisioning. Cost-orientation using incremental costs

    and non-discrimination (particularly in terms of what SingTel provides to itself and

    to others) are key interconnection principles. Global One generally supports the

    positions taken on this issue by IDA but proposes more details on implementation


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    II. General Views

    A. The IDA Must Always Consider the Effects of its Actions on the Entry Decisions of Firms

    1. Economic regulation should concurrently address two equally important primary

    missions. The first mission is to ensure that a dominant firm cannot exercise

    market power and engage in anti-competitive conduct against its rivals. As the

    IDA recognizes, such anti-competitive conduct by dominant carriers could take a

    number of forms including denying access and interconnection to competitors of

    essential facilities (? 7.4.2); raising rivals costs via pricing abuses (? 7.3); predatory

    pricing (? 7.3.1); price squeezes (? 7.3.2); foreclosing competition in adjacent

    markets (? 7.4); cross-subsidizing its services (? 7.4.1); using proprietary customer

    confidential information to the detriment of competitors; and having advance

    notice of network changes and other information that SingTel‟s competitors will

    need to know. Global One will address the IDA‟s specific measures to mitigate a

    dominant firm‟s conduct in Part III of its comments.

    2. The second and equally important mission of economic regulation is to find ways

    to remove pro actively all direct and indirect barriers to entry. Indeed, because

    competition is not a zero sum game (i.e., the discredited notion that one firm can

    be made better off only if another firm is made worse off) and the goal of

    restructuring is to move from a market characterized by one firm (i.e., monopoly)

    to many firms (i.e., competition), then removing a broad range of barriers to new

    entry is one of the overarching goals of the entire liberalization effort. As the

    IDA itself recognized in its executive summary, therefore, “while the limits on

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    entry into the Singapore telecommunications market… has created the potential

    for the development of a competitive telecommunication market”, in order or

    this potential to be realized… a suitable regulatory regime must be put into place.

    (Emphasis in original). Examples of barriers to entry include…

    3. Direct and indirect barriers to entry can take many forms in the telecoms

    industry. Incumbent created barriers to entry include control of essential

    bottleneck facilities (e.g., local loops, central offices, backhaul capacity, and cable

    landing facilities). The inquiry does not end here, however. Regulatory policies

    can also unintentionally act as barriers to entry as well. These regulation induced

    barriers to entry can include fees to dig up the streets, local franchise fees,

    compliance and administrative costs (e.g., reporting and tariffing expenses);

    build-out requirements (both in terms of capacity and geographic scope), hidden

    universal service fees, and even regulatory capture and delay.

    4. Entry into a telecommunication market is an extremely time and capital intensive

    endeavor, and will only occur if the new entrant believes that entry will be

    profitable. A firm‟s decision to enter any market can therefore be described as

    the “entry condition” ; i.e., entry will only occur when:

    (a) Post-Entry Profit (d) minus

    1(b) Inherent (exogenous) Entry Costs (x) minus

    2(c) Incumbent or Regulation-Induced Entry Costs (endogenous) (e) plus any

     1 Exogenous entry costs are essentially the costs of doing business e.g., marketing, billing, repair and

    maintenance, legal, construction costs, and the like.

    2 Examples of regulation-induced endogenous entry costs can range from mere compliance costs (e.g., USO fees, reporting requirements, tariff filings, license applications, etc.) to fees for digging up the streets or 70468446.doc 6 Last printed 8/12/2010 12:13:00 PM

    (d) Spillover Effects (s) i.e., when some firms can enter more cheaply than

    others can.

    3(e) Are greater than Zero

This maxim can be represented by the formula:

    d x e + s > 0

    5. Post entry profits might be (loosely) defined as revenues minus average cost

    (excluding amortized sunk costs). This margin must be sufficient to cover any

    sunk costs (x, e) the firm must incur upon entry (and, to possibly, exit). Sunk

    costs are akin to a non-refundable deposit, and as such substantially increase the

    risk of entry. Sunk costs can be either a result of the capital expenses for

    technology and marketing necessary to enter a market (exogenous sunk costs) or

    the result of incumbent behavior and regulatory decisions (endogenous sunk


    6. Virtually every decision, past and present, that the IDA makes alters one or more

    variables in the entry equation (with the exclusion, by assumption, of x). For example

    (but not limited to), retail and wholesale price regulation will affect d; and

    regulatory requirements for entrants, particularly relevant to this proceeding, can

    local franchise fees. Similarly, spectrum auction and or user fees can also be significant regulation-induced endogenous entry costs. Incumbent-induced entry costs can include anything from inflated network upgrade costs to interconnection and provisioning delays. One real-world example of an endogenous sunk cost is the cost of physical collocation in an incumbent‟s submarine cable landing facility. That space cannot be easily duplicated. The incumbent knows this, and rationally prices collocation in a manner akin to an “entry tax.”

    3 George S. Ford, Opportunities for Local Exchange Competition Are Greatly Exaggerated, Electrical Light &

    Power (April 1998) at 20-21 (available at http:/ 70468446.doc 7 Last printed 8/12/2010 12:13:00 PM

    raise entry costs (e). As such, with the exception of some exogenous entry costs (x), the IDA has direct control over all elements of the entry condition equation. For example, the IDA can control (d) (revenue minus variable cost) through regulation. Indeed both phone rates and collocation prices, loop prices, universal service obligation taxes, etc. are direct controls over (d). Spillovers are less direct, but prematurely deregulating dominant firms can reduce the use of rivals‟ spillovers. The effects on (e) of regulation deal specifically with sunk costs, but regulators are not limited to that.

    7. Accordingly, “liberalization” requires more than just creating a regulatory environment which permits licenses to be granted in a non-burdensome manner. Liberalization, in order to maximize user benefits, must also remove all possible barriers to entry and effectuate a market structure that can sustain tangible and meaningful competition in the long-run. As such, the IDA must do more than

    promulgate rules which bar anti-competitive conduct particularly by the dominant players in the market. The IDA must also: (a) always consider the effects of its decisions, from basic interconnection rules and codes of conduct to merger approvals, on the entry decisions of firms; and (b) continually analyze the impact of the dominant carrier’s actions on competitors and users in both the short and long terms.

    B. The IDA Should Make One Adjustment to its Analytical Framework.

    1. Global One supports the IDA‟s overall approach to evaluating competition.

    The draft document goes through, point by point, each of the various types

    of strategic anti-competitive conduct the IDA must be on guard against by

    dominant firms such as price signaling, price squeezes, cross-subsidization,

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    predatory pricing, bundling and undue discrimination. Global One agrees

    that these (and other) issues/examples of anti-competitive practices are very

    real concerns to new entrants and users. Global One has only one general

    issue with the IDA‟s otherwise excellent analytical framework in Section 2 of

    the proposed Code.

    2. Global One believes that the draft Code‟s proposal may rely far too much on

    a “traditional” competition law approach to issues of licensee classification

    and market power i.e., first define the product markets via a “small but

    significant non-transitory increase in price,” then define the relevant

    geographic markets (again using the “small but significant non-transitory

    increase in price” test), etc. While such a static, traditional analysis is

    appropriate for most markets, it is less clear that such an approach accurately

    reflects the dynamic changes that are occurring in the telecom/information

    markets. The economic literature increasingly indicates that such a

    traditional approach (and, in particular, an over-reliance on market

    definitions and market shares) is ill-suited for the dynamic

    telecommunications markets because it cannot adequately account accurately

    for the real potential for change that characterizes telecommunications

    4markets. In short, a traditional competition law approach may not highlight

    or capture all anti-competitive activities of firms with market power or more

    importantly, remove residual barriers to entry.

     4 What Hath Congress Wrought? Reorienting Economic Analysis of Telecommunications Markets After the 1996 Act,

    ANTITRUST MAGAZINE (American Bar Association, Spring 1997) (available at http://www.phoenix-

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    3. In the traditional competition law analysis, “good” market performance is

    usually characterized by the presence of static economic efficiencies

    (declining prices), dynamic economic efficiencies (innovation in new services

    or technologies), or both. If a market has these characteristics it is generally

    performing well and consumers will enjoy its benefits. However, this

    approach may easily mask anti-competitive practices in a dynamic

    marketplace if prices still are falling or efficiencies are still increasing. Long

    term benefits may be sacrificed by anti-competitive practices even in dynamic

    5markets. That is, price decreases and long term benefits may have been

    6greater but for the anti-competitive actions. (This is, for example, the

    essence of the pending Microsoft case in the USA).

    4. As such, Global One suggests that because the IDA as the regulator

    charged with the long-term welfare of the Singapore telecommunications

    sector reject the sole use of a traditional hornbook competition law

    approach and instead use the economic “first principles” and the Structure-

    Conduct-Performance (“SCP”) paradigm of Industrial Organization

    economics. A Structure-Conduct-Performance analysis is a better approach

    for the dynamic telecommunications industry for several reasons.

     5 See, e.g., F.M. Scherer & David Ross, Industrial Market Structure and Economic Performance (3d ed. 1990), at 4-5.

    6 See also Walter Adams, Public Policy in a Free Enterprise Economy, in The Structure of American Industry

    (7th ed. 1986, Walter Adams, ed.) (primary purpose of economic public policy paradigms should be to “perpetuate and preserve, in spite of possible cost, a system of governance for a competitive, free enterprise economy” where “power is decentralized; . . . newcomers with new products and new techniques have a genuine opportunity to introduce themselves and their ideas; . . . [and] the „unseen hand‟ of competition instead

    of the heavy hand of the state performs the basic regulatory function on behalf of society”).

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