One important issue that is normally considered in designing a market entry policy relates to the definition of geographic service areas to be covered by new authorizations.
A variety of approaches have been taken to defining the service area for a new authorization. In some cases, national authorizations are issued. In others, separate authorizations are issued in different regions or for rural and urban markets. In some cases, national authorizations have been issued in parallel with competing regional authorizations for the same service. This is the case, for example, in Tanzania’s Converged Licensing Framework, where authorizations are issued for the International, National, Regional, and District market segments.
There is no one right approach to designating service areas. However, some approaches are likely to be less successful than others. One approach that has experienced limited success in a number of countries is to preserve the profitable urban markets for a state-owned PTT, and to invite private sector service providers to serve only rural areas that are financially less viable. In some cases, the failure of the private sector service providers to perform well in such areas has been used as evidence to argue against further sector liberalization.
The following points are relevant in defining the geographic service area of a new authorization:
- Financial viability must be a key factor. If financially non-viable rural or high cost areas are authorized, a universality fund, or similar mechanism should be established. A preferred approach in such cases is to select a licensee from among competing applicants, based on the lowest requested subsidy. Universality funding mechanisms and approaches for measuring financial viability are discussed in Module 4, Universal Access in this Toolkit.
- Experience shows that regional licensees often merge with, or are acquired by, other regional licensees to serve larger regions or form national service providers. Examples range from the Colombian cellular service providers to the U.S. Regional Bell Operating Companies. These moves are often driven by economies of scale. Regulators may want to keep this trend in mind, and authorize several competing national service providers at the outset, rather than numerous financially weaker regional service providers. The result will be lower transaction costs for the sector, and less disruption due to integration of different operating systems.
- Licensing service providers to serve larger areas will permit them to cross subsidize from more profitable areas to less profitable ones. This approach can be used to extend service to less profitable areas. However, it can lead to anti-competitive conduct where an incumbent service provider retains exclusive rights to serve profitable urban markets as well as less profitable rural ones, while new entrants can serve only the rural markets. Problems of anti-competitive cross-subsidy are discussed in detail in Module 2, Competition and Price Regulation in this Toolkit.
- National authorizations and large service areas are consistent with the consumer interests in obtaining seamless “one stop shopping” service from a single service provider. This is particularly true where technical or other barriers to efficient interconnection or roaming are present.
- Finally, it is good practice to hold public consultations during the design and implementation of an authorization process. Such consultations may be initiated in a number of ways, from issuance of a detailed public consultation paper (sometimes called a green or white paper) to publication of a simple invitation for public comments on a proposed authorization action. Any input from members of the public, including existing industry stakeholders, can provide valuable input in designing an approach for new market opening and other authorization initiatives.