Price cap regulation in the telecommunications industry | |
| Author | Nadnapa Rohitaganee |
| Call Number | AIT RSPR no. SM-02-31 |
| Subject(s) | Price regulation Telecommunication--Prices--Law and legislation |
| Note | A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration, School of Management |
| Publisher | Asian Institute of Technology |
| Series Statement | Research studies project report ; no. SM-02-31 |
| Abstract | In regulated market, price regulations are one of the tools used by the regulator to exercise economic supervision over the activity of service providers for ensuring fair competition and the fulfillment of the obligations of universal service as well as for bringing prices into line with costs. Generally, Public Telecommunication Operators (PTO) adopt rate of return regulation and require government approval for price increases or changes. However, the experience from other countries, it is found that price cap regulation is increasingly adopted because it provides the market with significant stability over the medium term with regard to political and regulatory constraints. Such stability is of benefit to firms attempting to raise capital or present themselves as attractive to potential strategic partners. This approach is consistent with the overarching regulatory goals of market liberalization and the development of competition, through its relative pricing flexibility and the potential rewards for increased cost efficiency and innovation-it this respect, a price cap system emulates many of the pressures inherent in a competitive free market. In this study, Canada was selected to be the model of price cap regulation because it was the country with well-developed telecom market and good preparation to implement price cap regime. It was found that, although price cap regulation was superior to rate-of-return regulation in providing incentives to increase efficiency, it can not suppo11 new entry to reach competitive market and quality of service was not guaranteed because some companies tried to cut costs. From this study, both conceptual framework and the experience of Canada can be used as a guideline for preparation resources and capability for Thai telecommunication both regulator and service providers. Recommendations that would be required for them had many aspects: i) TOT should seek to gradually rebalance its prices over many in order to avoid a very severe loss of market share by TOT as its tariffs are unbalanced with long distance tariffs crosssubsidizing line subscription charges. ii) Regulatory Benchmarking Method should be used as the implementation of price cap because of the lack of highly specific detail of historical data over an adequate period of time to calculate TFP. However, initially for Thai telecommunication, X-factor in price cap formula should be 3% and GDP deflator should be used as inflation index because of greater accuracy that reflects the changes in the telephone companies' s costs than CPI. iii) The duration period of price cap plan should be four years which will provide reasonable time to allow for efficiency incentives to be acted on. h~ While regulator implements Regulatory Benclunarking Method, both regulator and service providers should prepare to study productivity in Thai telecommunication. Government/regulator should assign independent organization such as TDRI to be responsible for finding TFP. v) For extraordinary cost increase I decreases as government policy, this factor should be included in price cap formula. However, the result of fluctuations in a foreign exchange market that represents business risk should not be included in the price cap formula as service providers can reduce the risk tlu·ough hedging. vi) Regulator should set service quality standard I target that every operator has to meet (for example, the rate of completed calls, average fault rate, the restoration of service within one day) otherwise they may cut costs by offering poor quality of service. |
| Year | 2002 |
| Corresponding Series Added Entry | Asian Institute of Technology. Research studies project report ; no. SM-02-31 |
| Type | Research Study Project Report (RSPR) |
| School | School of Management |
| Department | Other Field of Studies (No Department) |
| Academic Program/FoS | Master of Business Administration (MBA) (Publication code=SM) |
| Chairperson(s) | Tang, J. C.S.; |
| Examination Committee(s) | Ramachadran, N.;Khang, D.B; |
| Scholarship Donor(s) | The Telephone Organization of Thailand; |
| Degree | Special Studies Project Report (M.B.A.) - Asian Institute of Technology, 2002 |