. . I q~~~158-7 ViewpoinF rNe No. 184 Apr i 1 Competition in Mobile Telecoms Carlo Jbaria Many governments, particularly in developing and emerging market economies, still doubt the Rossotto. Micbel . Ross ottoMhe benefits of competition in wireless services. But international experience shows that competition Kerf. and Jeffrey Roblfs in any of the digital technologies brings substantial benefits to users and creates powerful incentives for incumbent fixed-line operators to lower prices, introduce new services, and increase productivity. This Note explores the impact of competition on mobile service using data on Global System for Mobile Communications (GSM) technology. Launched in Europe in 1992, GSM networks have grown by up to 80 percent a year and now reach an estimated 135 million subscribers in nearly 130 countries (table 1). Competition in the GSM market is now a global the Baltics), where GSM contributes most of the trend. About sixty countries have at least two GSM growth in installed lines. Second operators are providers, including Australia and the countries of also present in East and South Asia. Competition Western Europe and North America (figure 1).1 has been introduced in many countries in the Most Eastern European countries, preparing for Middle East and North Africa (Egypt. Lebanon) accession to the European Union, have licensed and will soon be introduced in others (Morocco). two GSM providers, and second operators are Several Sub-Saharan African countries (C6te emerging in many countries of the Common- d'Ivoire, Madagascar, Tanzania) have also intro- wealth of Independent States (Russia, Ukraine, duced a second GSM operator. Where it exists, FIGURE 1 COMPETITION IN GSM SERVICES TABLE 1 GLOBAL SUBSCRIBERS BY TECHNOLOGY U >* _ Subscribers (millions) AP6 b- tj. 8 GSM 129 135 AMPS 95 76 PDC 1 39 CDMA 17 20 * Competition IN Single GSM provider TDMA 36 18 * Competition in some areas L No GSM TACS 24 14 Note: Competition means that a country has two or more licensed GSM operators, NMT 35 3 and competition in some areas that the competing operators' service areas largely do not overlap. Source: Based on GSM Association data. Source: Ericsson; Global Mobile. The World Bank Group_ *yinance, Private Sector, and Infrastructure Network Competition in Mobile Telecoms TABLE 2 GROWTH IN THE CELLULAR MARKET BEFORE AND AFTER GSM COMPETITION Percentage growth in number of subscribers ioped markets, such as Azerbaijan, Georgia, the Plhilippines, and Romania, GSM competition has Belgium 85 116 125 rmarked the transition from a niche to a mass Estonia 121 127 market. In Romania, where GSM competition wV7as introduced in earlv 1997, the number of sub- Italy 26 57 81' " scribers increased thirteenfold-from 16,000 to Philippines 161 153 111 225,000-by the end of that vear. In more mature Romania 37 1,300 44 markets, where a single provider of GSM services Singapore 42 90 571 had achieved average growth rates of 30 to 50 Taiwan (China) 19 58 37 percent, such as Singapore, Taiwan (China), and rmost of Western Europe, GSM competition has Not available. increased those rates to 60 to 90 percent (table a. Year in which competition starts. 2). The market growth effect holds regardless of b. Estimate. CDP per capita and cellular penetr-atioin befoie Source: Financial Times Mobile Communications; Strategic Policy Research. competition. GSM competition also reduces the price of cel- competition has given rise to strong growth in the lular services. In several competitive markets the mobile telecommunications market. (InJapan and average price of a call from a GSM handset is 40 Latin America and the Caribbean. where GSM is to 50 percent lower than in markets with a sin- not widely adopted, competition among other gle provider. In the Middle East and Not-th Africa technologies is widespread.) it is Lebanon, where competition is most intense. that has the lowest prices (7 cents a minute, Even countries wzith very low per capita incomes against a regional average of 40 to 50 cents a are able to sustain at least txo cellular operators. minute). Prices have fallen sharpil in several Second operators are emerging in coountries with markets in WVestern Europe. Four years after the a GDP per capita of less than lS$1,000. such as introduction of competition tariffs had dropped Azerbaijan, Bangladesh, Cote d'lvoire, Georgia, by as much as 60 percent in Nor\wvay, ancd as and Uganda. The Philippines, Romania, and many much as 70 percent in Germany. other cotntries with a GDP per capita between US51,000 and US$2,000 are experiencing strong Another positive development of competitive dig- growNth in the mobile market as a result of the intro- ital cellular markets is the emergence of a wiider duction of GSM competition. In Estonia the pres- range of services. In response to the entry of new ence of three GSM operators has increased cellular competitors, incumbent operators introdtice new penetration-the number of cellular phone sub- features. such as caller II), call forwarcling, and scribers per 100 people-to 13 percent. call waiting. In several inclustrial and emerging economies GSM competition has also stimulated Even in countries with very low population den- the introduction of prepaid cards, accelerating sity there is room for at least two GSM operators, market grow-th. Thus to retain or increase market as in Botsw-ana, Cote cl'Ivoire, Egypt, Madagascar, shares, competitors in the digital cellular market and Tanzania. In these countries, however, net both reduce prices and develop new prodcicts -work development remains concentrated around and bundle services. GSM competition generally major cities and more densely populatecd areas. has not prevented continued expansion of wxire- line sen-ices, whether in mature markets or Effects on the telecoms market emerging economies (figure 2). In some countries (Estonia, Romania) the rate of growthl in fOxecl Cellular competition often brings with it growth lines increased after the introduction of a second in the cellular market. In relatively underdevel- GSM operator. FIGURE 2 GROWTH IN FIXED LINES BEFORE AND AFTER GSM COMPETITION Percent 30 Finally, the introduction of new cellular players 25 l YC-1 in the market, capable of offering new services El YC and attracting new subscribers, tends to increase 20 * Yc+ overall investment as well as revenues in tele- 15 communications (table 3). Revenues grow both * because the overall number of subscribers, for fixed and mobile networks, increases, and 5 because the new cellular services generate par- 0 * ow | is ticularly high revenues, given mobile customers' Belgium Estonia Italy Malaysia Philip- Romania Singa- willingness to pav higher prices. pines pore Note: YC is the year in which competition starts. Effects on the incumbent source: International Telecommunication Union; Strategic Policy Research. Evidence from both industrial and emerging economies shows that introducing GSM compe- Festi Mobiltelefon holds about 60 percent of the tition does not hurt the operational and financial GSM market (table 4). performance of the incumbent operator. The threat of competition alone is usually enough to Nor does the advent of competition in the GSM cause the incumbent operator to adopt a series market seem to harm the incumbent's prof- of changes to sustain its competitive edge. In itability. The large investments in GSM infra- Morocco, for example, where GSM competition structure that incumbents typically make as is expected to be introduced in 1999, the incum- competitive pressures increase reflects strong bent is rapidly expanding its GSM network- and confidence in the continued profitability of their reducing its tariffs to consolidate its market GSM operations. And when the incumbent is a position. provider of both fixed and mobile services, its overall profitability does not seem to suffer As new GSM operators start to enter the market, either. In some countries for which data are the incumbent maintains its efforts to increase available, the incumbent's overall profitabilitv its competitiveness, enabling it to enlarge its has tended to increase. A typical example is subscriber base and retain a large share of the Spain, where the incumbent operator increased growing GSAM market. This scenario is typical in its revenues by 72 percent in the year in which both industrial and emerging economies. In competition was introduced, and by 31 percent Belgium the incumbent operator, Belgacom in the year before. In the same period the Mobile, has expanded from about 200,000 sub- growth rate of profits increased from 8 percent scribers at the beginning of 1996, the year in to 16 percent. which competition was introduced, to more than 900,000 today. Italy's incumbent operator, Current policy trends Telecom Italia Mobile. has increased its sub- scriber base from about 2 million at the end of As the benefits of cellular competition become 1995, when competition from Omnitel was more apparent, a growing number of gov- introcluced, to about 12 million today, retaining ernmnents are taking steps to ensure that new about 72 percent of the mobile telecommunica- cellular operators can compete effectively with tions market and 65 percent of the GSM seg- the incumbent operator. One of the most ment. Estonia's incumbent operator, Eesti important-and arduous-tasks is to promote Mobiltelefon, more than doubled its number of and enforce appropriate interconnection agree- subscribers after the entry of two operators in ments between the incumbent operator and its the GSM market. Having achieved annual competitors. Adequate regulatory mechanisms growth rates as high as 98 percent in 1997-98, are also important to implement national and Competition in Mobile Telecoms TABLE 3 TELECOMMUNICATIONS REVENUES BEFORE AND AFTER GSM COMPETITION Percent Belgium 1.6 5 1.7 11 1.8c 21 Estonia 2.7 7 2.9 9 Italy 1.8 14 11.9 21 1.9c 34 Philiippines 1.4 10 1.3 18 1.3 32 Romania 1.2 1 1.6 9 Singapore 3.0 22 3.3 25 3.60 38 .. Not available. a. Year in which competition starts. b. Conservative estimates. c. Estimate. Source: International Telecomunication Union; Strategic Policy Research. international roaming agreements between mobile operators. TABLE 4 SUBSCRIBERS TO THE Viewpoint is an open INCUMBENT'S MOBILE forum intended to Even with the best regulatory rules, however, it is NETWORK BEFORE AND encourage difficult tc ensure that cellular competitors are debate on ideasn always granted access to the incumbent's network AFTER GSM COMPETITION innovations, and best under fair conditions. As a result European Union Thousands practicesfor expanding members and other countries have granted new the private sectoa. rhe GSM operators the right to build their own long- thiose of the authiors aeid distance and international gateway facilities. This should not be attributed right allows the new competitors to offer the full Belgium 185 378 675 to the World Bank or any of its affiliated organiza- range of local, long-distance. and international Chile 57 115 182 tions. Nor do any of the services without having to rely on the network of Estonia 13 26 53 conclusions represent the incumbent operator And it brings competitive official policy of theFrne4 37 70 Vvorld Bank or of its pressures to bear on the price of intercity leased France 44 370 700 Executive Directors or line circuits and on the price of long-distance and Italy 467 1,910 5,600 the countries they internationil communications. Latvia 10 27 65 re p reseont. Mexico 1,048 1,900 To order additional Other stepls can also be taken to ensure that cel- Netherlands 68 241 484 copies please call lular operators are able to provide the full range Romania .. 20 200 2u2458 tiht ordcontact of services possible with modern digital tech- Room Fl IK-208, nology. GSM91 operators are increasingly allowed Not available. The World Bank, to provide fixed as well as mobile wireless ser- a. Year in which competition starts. 1818 H Street, NW, Washington, D.C. 20433, vices, to transmit data as well as voice, and to Soiorce: lntemational Telecommunicatior Union; or Internet address develop private as well as public networks. Strategic Policy Research. ssmith7@worldbank.org. The series is also In this Note (GShI refers to a range of interoperafle technologies. available on-line incLIcling GSM 800, GS0A 900. DCS 1800, and PCS 1900. (www.worldbank.org/ Carlo M1aria Rossotto (crossotto@Xworldbank. org), html/fpd/notes/). Carlos Braga. Emmanoidl Forestier. Peter Smith. Svetoslav imntchev, Telecommunnications Division, Il/lchel Kerf, T Printed on recycled .loy Vdla, and Sjhtn SWeltenlo eontriOuted to to otis Note. Iidld/e East and Abort Africa Regio n, andJeffrey paper. In Nnrth Anmerica, mainlv thrto>gh the PCS 1900 technotlgy. Roh/fs, Strategic Policy Research, Mfagyland