Antitrust Agency Action
In the past decade, Chile has developed one of the most liberal and advanced telecommunications markets in Latin America. Development has reached the stage where the market is ready for broad band services, particularly broad band access to the Internet. Different players in the local telecommunications market are developing plans to operate in this new broad band environment. Some are already launching their services (eg, VTR, a cable operator who is offering broad band access to the Internet through its cable network).
The telecommunications regulator (SUBTEL) has also considered other forms and technologies in connection with the development of broad band services. This is reflected in the technical regulations issued during 1999.
On October 22 1999, SUBTEL enacted Resolution 1,498, setting forth technical regulations applicable to the wireless local loop (WLL). The resolution defined the service as a "public service of wireless telephony in the 3,400 to 3,700 frequencies band", which will operate fixed radio links in the band mentioned, notwithstanding the use of other transmission means. Therefore, WLL is considered a public telephony service.
The technical regulation applicable to WLL (ie, Resolution 1,498) was not only important because of its specific definition, but because it stated that only three WLL licenses would be awarded. As only a limited number of licences are being issued, a public conest to award them must be held (pursuant to Article 13C of the Telecommunications Act).
In Chile, telecommunications public contests are not awarded as a result of pure economic considerations, but rather on the merits of the technical projects submitted. Merits are evaluated in accordance with the 'service excellency evaluation method' set forth in the public contest rules.
SUBTEL accordingly called for a public contest and issued the public contest rules (purchased by 30 interested local and foreign parties). Following the criteria established in resolution 1,498, the public contest rules state that:
- a maximum of three licences will be awarded for the service area, which will cover the entire country;
- licences will be awarded to render wireless local telephony services (mobile excluded), which comprise switching and transmission of signals provided as private circuits;
- each participant must specify the coverage area that its technical project will cover in each semester within five years (maximum);
- evaluation of the service will involve the geographic advances each semester, weighed against the corresponding average population density in each county of the national territory (and discounted at an annual 12% rate); and
- participants must submit two bank bonds, guaranteeing (i) the seriousness of the offer (approximately US$525,000) and (ii) due and timely fulfillment of the project (for approximately US$20 million).
The date to submit the proposals (with corresponding technical projects and guarantees) was initially scheduled for March 2000. SUBTEL has since moved the date twice, in consideration of participant requests, and allegations that it was difficult to structure projects that were capable of (i) reaching the maximum score, and (ii) being economically sound. The date was finally scheduled for the end of May 2000.
The public contest process caused participants to voice their dispproval to both SUBTEL and the local government antitrust agency. Resolution 1,498 included a declaration stating that the purpose is to add a level of competition, to ensure the final user (ie, the customer) is not limited to the current public local telephony licensees.
The argument put to the local antitrust agency stated that only the big players with a dominant position in the market (or affiliates thereof) would be able to win the contest and obtain the licences. Factors promoting this inequality included:
- setting forth the national territory as maximum coverage area;
- considering advances in coverage versus time as the premium method to evaluate the excellency of the service offered; and
- requesting the submission of bank bonds for amounts exceeding US$21 million.
The local antitrust agency considered the merits of this argument. In order to avoid irreparable damage, the agency issued an injunctive order on May 10 2000, pursuant to which the effects of the resolution have been suspended until the dispute is resolved.
Developments of this kind may lead the market to expect a resolution against SUBTEL and Resolution 1,498. Expectations are that the antitrust agency will order an amendment thereof, so that it effectively promotes competition. A new public contest will then be called for under conditions where:
- more than three licences are awarded with less band width each (currently 100 mHz per licence);
- the service area is not the entire national territory for all licences (it has been suggested that a portion will be for the whole country with less band width, and a portion will be for a specific region); and
- the amounts of the bank bonds are proportionally decreased.
Notwithstanding that the result in this case appears to be positive from a competition perspective, given the timeframe of a case before the antitrust agency, the current situation of WLL in Chile may raise a question about competitiveness in the broad band services market. Cable and asymetric digital subscriber line (ADSL) operators may take advantage of the situation in the interim.
For further information on this topic please contact Francisco J Illanes or María Gracia Cariola at Cariola Diez Perez-Cotapos y Cia Ltda by telephone (+56 2 360 4000) or by fax (+56 2 360 4030) or by e-mail ([email protected] or [email protected]).
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