Association of Independent Internet Service Providers
Monday 10 May, 2004
AIISP Telecom Sector Question and Answer 1. How has TSTT abused its Monopoly position to restrict the growth of the Independent ISPs? In summary, TSTT has constrained competition of Internet Services by denying independent ISPs the following: 1. Ability to offer toll free access to its subscribers 2. Unnecessary delays for implementation of TSTT services (eg .over 12 month delays for installation of telephone lines) 3. Cross subsidization of TSTT internet DSL and dial up services which allows TSTT to undercut prices in the marketplace that cannot be sustained by independent ISPs 4. Off-island fiber for Internet access at regionally competitive prices – TSTT generally changes ISPs a 100% premium for Internet access 2. What are the options that Independent ISPs can use to offer competitive international Internet access to their customers? Although satellite affords an option, the signal degradation due to inherent satellite latency presents a quality of service problem. Moreover, the costs associated with satellite bandwidth versus fiber are higher. ISPs need affordable access to off island fiber connectivity at prices, which equates to what TSTT pays. 3. Why should the independent ISPs not be regulated? The current market has been offering Internet services for the last decade without regulation, yet ISPs presently operate under market forces. From an economic perspective, the conventional wisdom is that the most efficient regulator is the competitive marketplace itself – government regulation is only required where a competitive marketplace can not effectively secure, guard or administer the public interest ISPs are subjected to the same procedures of registration (bylaws, continuance etc) and taxation (VAT, corporate taxes etc) like any other business operation, as well as NIB contribution. Additionally, ISPs are subject to consumer rights laws, environmental laws like any other business. A prime example of market forces regulating an industry is the move to Trade Liberalization in the early ‘80s (the dismantling of Governmental red tape for licensing imports and high Tariffs) as recommended by the IMF and World Bank. Pessimistic economic and industry forecasters predicted many negative fallouts, including massive retrenchment, and the ultimately demise of the manufacturing sector. History shows that the same individuals now speak on public platforms espousing the virtues of trade liberalization and how it has forced T&T Manufacturers to produce higher quality goods at lower prices. T&T is now dominating Caricom Markets and even making inroads into extra regional Markets. We are at a similar stage in Telecommunications. The inefficiencies of a monopoly are hurting the entire economy. Independent ISPs cannot compete globally if we continue to expect that Government knows best in the Internet Industry. It is well documented that the Internet growth and adoption has moved at a pace unlike any other industry in the history of mankind. All developed nations have recognized this and have resisted the temptation of regulating ISPs: liberalization and deregulation go hand in hand. Independent ISPs are not asking for special treatment: lets go forward in the liberalization process. Regulation of Internet based businesses by having them apply to Government to start a business is a most retrograde step. 4. Why should the incumbent provider (TSTT) be the one to be regulated and not include ISPs? Trinidad and Tobago’s telecommunications market is not perfect. TSTT as the dominant supplier has used its position to determine the shape of the market and the form of the sector in general. This has been demonstrated in TSTT’s consistent abuse of market power. Market power is the “ability of a firm to raise prices above market levels for a non-transitory period without losing sales to such a degree as to make this behaviour unprofitable” (Intven et al, 2000: 5-11). Traditionally, global regulators focus on established telecom companies that have market power, based on market share, pricing, profitability and vertical integration (which can and does result in cross subsidization) and formulate policy to mitigate abuse of market power and allow for healthy competition and growth of the telecom industry. Competition is healthy. TSTT’s reactionary marketing strategies have resulted in destruction of the dial up market – TSTT entered this arena long after independent industry pioneers had been in the market for some time. But now dominates with a 90% market share. Similarly, TSTT launched its high speed DSL service after independent ISPs launched broadband services. In each instance, TSTT has offered prices that are uneconomical and can only be offered by a provider that has the ability to cross subsidise. For Internet penetration to grow nationally, prices and good service have to be afforded to all. This can only be achieved in a competitive environment that is equitable to all ISPs. To achieve this, TSTT must spin off its Internet division as a separate business entity. Once a separate financially run entity, TSTT’s ISP will not be subject to regulation like other ISPs as proposed by AIISP. The proposed Telecom Act makes provision for dealing with a dominant provider. However, while aggrieved providers await determination by the authority and eventually the courts much time would have passed. The Internet and all its possibilities is an extremely dynamic environment waits for no one. While we await determination on any matter, TSTT will go ahead and dominate any new opportunity. There have been several court matters that took many years and which have been settled out of court by TSTT. Not withstanding the time factor, there is also the issue of exhorbitant legal fees.
i. TSTT's Internet division would have to deliver timely and cost effective services to the Public. Competition forces efficiency and abhors bad service. Presently, as a Monopoly, the people of Trinidad & Tobago are not getting the best returns on this investment. ii. There would be no loss of "value" if TSTT’s Internet division were put on the Stock exchange. In fact this would allow private sector management with public finance to continue to grow the business in a way that would enhance public shareholder value. The proceeds of this sale (51% of which is owned by Government) could be utilized by Government on more urgent pressing infrastructure and social programs e.g. NICT, Education, or Health. iii. When spun off and forced to compete, TSTT's ISP will have to innovate and provide better prices and better customer service than its customers currently enjoy. iv. Under the current arrangement, competition has been stifled and there have been no significant new investors in the ISP Industry. New entrants would be attracted into this newly liberalized environment, which would accelerate growth of Internet adoption and bring exciting new Internet based services to the people of Trinidad & Tobago. e.g. Distance Education, Telemedicine, E-commerce. v. Trinidad and Tobago is now one of the last countries in Caricom to liberalize its Telecommunications sector. We suffer from low Internet adoption by the general public. This initiative would have the effect of "kick starting” the process and will quickly create an environment where VIABLE competition can thrive. vi. It has been shown that in all countries where FAIR competition has been facilitated, the country benefits and, in many cases, the incumbent actually experiences accelerated growth as well due to the increase in market activity. Everyone wins
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