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Module 4: Other key issues to be addressed in creating an enabling legal and regulatory framework to encourage internet use for business development
A holistic legal, regulatory and policy framework is a critical part of the fully enabling environment that governments should seek to create. This module provides brief overviews and examples of other key issues that can also be considered and explored as governments move to truly encourage internet use for business development, especially by SMEs.
I. Promoting competition
The elimination of barriers to entry, and the introduction of competition in the ICT sector, will generally provide benefits not only to ICT-related SMEs, but to all SMEs in general.
Box 9. Case Study: Voice over Internet Protocol, the Philippine experience
In May 2005, the Philippines' telecommunications regulator issued rules which classified Voice over Internet Protocol (VoIP) as a value-added service (VAS). Under Philippine laws, its classification as a VAS, rather than as a telecommunications service, effectively meant that commercial offering of VoIP to the public was not limited to traditional telecommunications carriers and opened the VoIP business competition.
The mere prospect of competition led to immediate results, as long distance costs plummeted as much as 75 per cent within days of ruling that opened VoIP to competition.
To date at least six additional VoIP providers have applied with and been approved by the regulator. It is likely that the rules have also helped to spur the major telecommunications companies to proceed aggressively with broadband deployment, as demand for better bandwidth to accommodate data-related services, particularly VoIP continues to increase. Already the top two wireless providers – in heavily advertised campaigns - are competing to offer SMEs and micro-enterprises very affordable turnkey solutions to provide broadband wireless internet facilities.
Note that the benefits of competition in VoIP extend even to SMEs that are not part of the ICT sector per se, as they too now enjoy great choice and lower telecommunications costs especially with customers/suppliers in other countries. In a globalized economy, this benefit is bound to grow even more - and would make it also easier go multinational, as VoIP allows SMEs to coordinate their operatic domestically, regionally and globally.
It is, to be sure, not a simple matter to introduce competition, especially in the telecommunications market.
In most instances, dominant carriers can use their superior position to engage in unfair methods of competition that deter (or are likely to deter) new entry into the market, or restrict (or are likely to restrict) existing competition in the market, for reasons unrelated to the availability, price and quality of service that operators offer or seek to offer. Moreover, it is important to note that even in markets where a single major supplier does not exist, two or more suppliers could cooperate to engage in anti-competitive practices.
For example, a major supplier which provides essential inputs to its competitors can take advantage of its dominant market position by engaging in anti-competitive cross-subsidization – shifting costs from its competitive activities to its non-competitive activities (the operation of essential facilities), or obtaining products and services from its non-competitive arm on advantageous terms and conditions.
Another common example is when a major supplier is in a position of dominance over other suppliers in interconnection negotiations. Competition goals are often frustrated when dominant players refuse or make it difficult for new entrants to interconnect and effectively offer competing services to the public.
The two anti-competitive practices below are also common:
- Price Squeezes
- A price squeeze happens when a major vertically integrated supplier sells inputs to its downstream competitors at a price so high, relative to its own retail price, that they cannot be expected to compete profitably in the same retail market. It can occur when operators with market power control certain activities that are key inputs for competitors in downstream markets and where those same key inputs are used by such operators or their affiliates to compete in the same downstream market.
- Predatory Pricing
- Predatory pricing occurs when the major supplier sells services below marginal cost to drive competitors away and prevent new ones from entering the market, and then subsequently, increases prices to re-coup the amount lost during the price cut.
A policy choice to promote competition therefore requires both the political will and clear mandate, and technical capability to monitor – and enforce – compliance with competition rules.
Do you agree that the promotion of free and effective competition is of critical importance? Are there other goals that are more important, and that should take precedence over the promotion of competition?
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