Regulation & IP-based services

Technology technology 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 during 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 undoubtedly has an impact on the finances of the various market players. Increased competition decreases profit margins during significant capital expenditures are required by operators to expand their current service portfolio and network coverage. In a nutshell the implementation of new technologies that translate into a reduction of operating expenditures becomes a priority to service providers. Along these lines besides revenue assurance planning and implementation, IP-based applications arise as the preferred approach to decrease costs during 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 instance, national regulatory entities are however trying to solve issues just as:

–Universal fund: Would the use of IP-based applications may decrease operators’ revenue, negatively impacting its contributions to the local universal service fund?

–Research conflicts with established regulation: Should Internet-enabled video be considered value added service or broadcasting? Is net neutrality regulation necessary?

Initial step

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. Should the contingency arise, 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, Colombia and Chile.

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. That is, the expansion of 3G-plus networks and government efforts to drive Internet adoption to national broadband plans would as well 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 (Voice over Internet Protocol) 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 (Voice over Internet Protocol) as then 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 to becoming a dumb pipe to be exploited by mobile virtual network operators and content providers/enablers just as Netflix, WhatsApp, or Skype. Pursuant to this agreement 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 customers. This statement applies to both fixed operators wanting to enter the mobile market either directly or through a MVNO, mobile operators trying to start offering services traditionally linked with fixed players and fixed/mobile operators trying to offer Pay TV services. Another price of inaction could be a passive aggressive approach by operators, for instance, in the case of net neutrality Signals Telecom Consulting considers that there's always the opportunity 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 or greater invoices at the end of the month. As well, how would fixed broadband wireless providers react to an increased used of Netflix by their users?

What is to be done?

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 research 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. When all is said and done, NRAs should be careful when learning from other market experiences as what has been successful in a neighboring country might not be in every respect applicable at home, however might be ideal for a specific region of the country.