Sunday 5 February 2012

Contents of module

Section 2: Terminology

This section explains how terms are used in this module, indicating also the relevance that each term has in this study programme.

Please note that the ‘usage’ is not intended to be a formal definition of the term in question.

Telecommunications

  • Usage
    The term ‘telecommunications’ is taken to mean the business of transporting information from one place to another electronically. The information can be in one or more forms, including voice, data, sound and video.
    In this module, the term is abbreviated to ‘telecoms’.
  • Relevance to Module
    Telecoms is the centrepiece of this module, and therefore a common understanding of what is meant by the term is essential.

Market

  • Usage
    Companies use the term ‘market’ to refer to the segment of the industry where they sell their products. This can mean either the geographic area they cover or the segment of the industry that is relevant to their products and/or services. The context generally makes clear which meaning is intended.
    In this module we use the term according to the second meaning. Specifically, a ‘market’ is the segment of the industry for which a product or service is intended.
  • Relevance to Module
    This module is concerned with the telecoms industry and in the various segments or markets covered by this industry.

Competition

  • Usage
    The term ‘competition’ is taken to mean those activities conducted by two or more businesses that are vying with each other to gain market superiority.
  • Relevance to Module
    It is a commonly held belief among economists and others that competition is necessary in order to maximise benefits to the consumer.

    As a result, many countries have established bodies whose purpose is to promote competition. It is the activities of such pro-competition bodies that provide one of the main focuses of this module.

It will be useful to remember that companies can compete on many levels. The tactics companies may use to gain superiority include offering:

  • lower prices;
  • greater quantities;
  • better quality;
  • improved service;
  • greater efficiency;
  • greater innovation; and/or
  • other features that are attractive to the customer.

Competition usually takes place in many, if not all, of these.

Competition Safeguards

  • Usage
    The term ‘competition safeguards’ covers the various actions that pro-competition bodies can take to eliminate circumstances that have the effect of discouraging or stifling competition.
  • Relevance to Module
    It is now generally accepted that competition will not develop just because the government, and the community as a whole, wants it. Positive action must be taken if the desired result is to be achieved.

    Consequently, an increasing number of countries have introduced legislation that is intended to encourage and safeguard fair competition, while many others are considering doing so.

    This legislation is particularly relevant to this module because the telecom industry is being transformed from one where a monopoly was common to one where a great deal of competition now exists or is planned.

Monopoly

  • Usage
    The term ‘monopoly’ is taken to be a situation in which a commodity or service in a particular market is provided by one supplier, or by a limited number of suppliers acting together.
  • Relevance to Module
    From its definition, a monopoly situation is one where competition does not exist. Thus pro-competition bodies must be on the lookout for monopoly situations and take action (within the powers available to them) to break the monopoly.

Natural Monopoly

  • Usage
    There is a ‘natural monopoly’ in a particular market if and only if a single firm produces the relevant product or service at lower cost than any combination of two or more firms.
  • Relevance to Module
    While pro-competition bodies may wish to eliminate monopolies, there are certain circumstances in which this is not possible or even advisable. The most obvious example is a situation in which a product or service is being provided by one supplier and it would be uneconomic for a second supplier to provide something similar.

    This was the situation in the telecom industry for decades. In most countries there was only one telephone company because it was perceived that it was impossible for a second company to make the heavy investments needed to build another network, then make a profit in providing a similar service.

    The concept that the telecom industry is a natural monopoly was first seriously questioned in the early 1980s, most significantly in the U.S. In that country, AT&T had enjoyed a monopoly situation for over 100 years, supported by legislation that actually made it illegal for other companies to compete.

    The perception that the telecoms industry is a natural monopoly is now largely discounted, though there may be arguments to the contrary in certain countries even today. However, parts of the industry, such as providing local services, are still dominated by one operator in many countries because it is uneconomic to have more than one local network

Dominance

  • Usage
    A company is ‘dominant’ in a market (or a sub-set of a market) if, while not being a monopoly, it still has sufficient strength to exercise undue control over that market.
  • Relevance to Module
    Since the purpose of pro-competition bodies is to encourage competition, any actions taken by dominant companies to stifle such competition are of concern.

    The incidence of companies with dominance is higher in the telecom market than in many other industries. The reason for this is that telephone companies used to enjoy a monopoly position in most countries and, while they are now losing those monopolies, the situation cannot be changed overnight. As a consequence, most countries still have a dominant operator, even where competition has been introduced.

    Identifying whether a company is dominant in a market is sometimes difficult to do. The issues are not always clear-cut. Typical indicators include:

    • the market share of the licensee;
    • the barriers to entry for other companies into the relevant market;
    • the licensee’s power to make pricing and other decisions with little or no regard to what its competitors are doing; and
    • the degree of product differentiation and sale promotion.

Anti-Competitive Behaviour

  • Usage
    ‘Anti-competitive behaviour’ is taken to mean conduct which has the purpose or effect of preventing or substantially restricting competition.
  • Relevance to Module
    Companies that are dominant in a market are apt to abuse their dominant position by actions that are detrimental not just to their competitors but also to their customers. Such actions may include:
    • undercutting a competitor’s price to eliminate that competitor, using financial resources not available to that competitor (known as predatory pricing);
    • preventing or restricting the supply of goods or services to competitors;
    • discriminating in the prices they charge to different customers for the same service without objective cost justification;
    • forcing companies or individuals to accept contracts containing terms and conditions which are harsh or unrelated to the subject of the contract; and
    • providing a product or service only on the condition that the customer acquires (or does not acquire) some other product or service.

The above actions may or may not be illegal in the country in question. They are given as indicators of the type of action that companies that occupy a dominant position often take.