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Mobile termination rates in Latin America & the Caribbean

Michael MingesSenior Market Analyst

Mobile Termination Rates (MTRs)

• Wholesale price to terminate a call from another mobile or fixed network in a mobile network

• Mainly relevant with “Calling Party Pays” where the termination charge is established by the network being called and paid by the network making the call

• In general, charged on a per minute basis

Reasons for regulating MTRs

• Termination in each mobile network is a monopoly

• World Trade Organization (WTO): Reference Document

• Reduce anti-competitive behavior and other market distortions

European Union

• Identifies markets for ex-ante regulation • Applies 3 criteria:

– Significant entry barriers – Markets whose structure will not lead to effective competition

within relevant time frame – Application of competition laws are not enough to solve market

failures

• One retail market and six wholesale markets have ex-ante regulation including wholesale market #7: Termination of voice calls on individual mobile networks

WTO: Reference Document

• Interconnection based on costs that are transparent and reasonable

• Public availability of interconnection negotiation proceedings

• Transparency of interconnection agreements• Major providers to make publicly available

interconnect agreements or a reference interconnect offer

U

se o

fcu

rren

t cos

ts

(LR

IC)

Evolution of cost models for MTRs

Use

of

curr

ent c

osts

(FA

C-C

CA

)

Use

of

hist

oric

al c

osts

(F

AC

-HC

C)

Leve

l of M

odel

Evo

lutio

n

Tarif

f Cap

Neg

otia

tion

Source of Data Benchmark Benchmark

Top-DownBenchmark, Top-Down, Bottom-Up

Increase in Competition

Adapted from: Centro de Modelamiento Matemático, Universidad de Chile. Reporte Preparado para la Comisión de Regulación de Telecomunicaciones de Colombia. Mayo 2007.

Latest recommendation European Union

• Efficient operator• Implies symmetric MTRs • Current costs, “bottom-up” using

LRIC• Efficient technology: NGN &

2G/3G• Only costs that would be avoided

if voice termination for others was not provided

COMMISSION RECOMMENDATION of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU (2009/396/EC)

7.32

9.96

3.33

7.05

0

2

4

6

8

10

12

2009 2010 2011 2012

US cents per minute

Baseline

Recommended

Average MTR in EU

Adapted from COMMISSION STAFF WORKING DOCUMENT accompanying the RECOMMENDATION

Converted to US cents using May 9, 2009 exchange rate

Regulatory Schemes for MTRs in Latin America & the Caribbean (LAC)

CountryAsymetric / symmetric rates

Ex – ante Chile Symmetric

Colombia Symmetric

ECTEL Symmetric

Peru Asymetric

Only regulated when operators cannot reach agreement

Argentina Symmetric

Brazil Asymmetric

El Salvador Asymmetric

Venezuela Symmetric

Trends in LAC

• MTRs have not fallen by much over last few years in LAC

• LAC has the second highest regional average MTR in the world

0

5

10

15

2004 2005 2006 2007 2008

0

5

10

15

Europe LAC SSA MENA AP

US cents per minute

LAC

2009

MTRs in LAC US cents per minute

0

5

10

15

20

25

30

35

BrasilUruguay

VenezuelaECTELBelize

NicaraguaEcuador

PerúChileJamaicaMexico

ArgentinaParaguayBolivia

Rep. Dom.Trin. & Tob.ColombiaHondurasPanamaGuyana

0

5

10

15

20

25

30

35PPPUS centsLAC PPPLAC US cents

Other MTR issues

• Peak / Off-peak• Variation by operator• Variation by origination• Variation by region• Taxes and other adjustments• Timetable• International termination• Pass-thru to retail tariffs

MTRs in Uruguay

6

3

3

3.79

3

6

ANCEL CLAROMOVISTAR

Uruguayan Pesos per minute

http://www.ursec.gub.uy/scripts/templates/portada.asp?nota=Contenidos/Consultas%20Publicas/interconexi%F3n/Interconexion&Despliegue=DATOS_big.asp

Taxes & other adjustments

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

Taxes

MTR

Mark-up

Brazil, price of mobile off-net call (Sao Paulo, Vivo->Oi), US$, 2009

0.00.51.01.52.02.5

2005 2006 2007 2008

Current prices

Constant prices

Chile, MTR, Peak rate (Ch$ / second)

116118120122124126

Dec-07 Jun-08 Dec-08

Colombia, MTR in current pesos

Timetable

• Glide paths• Annual reductions• Periodic adjustments

Mobile subscriptions per 100 people, 2008

0102030405060708090

100

CubaBoliviaHaiti

Costa RicaGuyanaBelize

NicaraguaCanadaMexico

Peru

Dominican Republic

Suriname

BrazilLAC

HondurasEcuadorParaguayColombia

Chile

United States

GrenadaBarbadosEl SalvadorVenezuelaGuatemala

JamaicaSt. LuciaUruguayBahamasSt. VincentPanama

Trinidad & Tobago

ArgentinaDominica

St. Kitts & NevisAntigua & Barbuda

MTRs, competition & use

142170

137189125

158

119114165

102

112

96

143

195

154

496

138308220

356

311

211

124129

198

216176156

163

84

93

0

1000

2000

3000

4000

5000

6000

7000

$0.00 $0.15 $0.30

Low MTRHigh HHI

Low MTRLow HHI

High MTRHigh HHI

High MTRLow HHI

Her

finda

hl-H

irsch

man

Inde

x,

2008

Minutes of

use per month

MTR, 2008, US$

LACcountrie

s

769396102

114119125129138142143

154156158162163

189191195198

216220

308311

356367

447492496

589697

0 100 200 300 400 500 600 700

ArgentinaBrazilPeru

S. AfricaSwitzerland

TurkeyItaly

VenezuelaJapan

GermanyChile

ColombiaSpain

HungaryEgypt

MexicoTaiwan

SwedenUK

FranceRussia

MalaysiaThailand

KoreaIsrael

SingaporeHong Kong

China*India

CanadaUSA

RPP

CPP

Minutes of user per month, 2008

CPP

RPP

Conclusions

• There is a wide divergence in LAC in respect to both MTR regulation and the rates themselves

• The average MTR in LAC is relatively high in comparison to other developing country regions

• Variety of policies regarding cost model, timetables and symmetry

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End

minges@tmgtelecom.com