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MARKET

LIBERALIZATION AND
REGULATORY
CHALLENGES

Beyond 2010: Leadership for the Next Generation


A UP Academic’s Congress To Challenge our Next
Leaders
4 February 2010
KEY MESSAGES

• Markets do not naturally produce competitive


results.

• Liberalization and deregulation are not


synonymous.

• Regulations do not have to restrict trade.


Case 1: TELECOMS
 Mandatory interconnection in 1993; market entry in
1995

 Among the first 11 countries to permit competition in


fixed network

 Among the first 14 countries to demonopolize


international telecom services

 Early reformers were mostly developed countries,


except Chile and Philippines
State of Philippine Telecoms

 Large number of service providers


 73 local exchange carriers
 14 inter-exchange carriers
 11 IGF operators
 5 cellular mobile operators
 329 VAS (43 ISPs)

 Declining prices of services


State of Philippine Telecoms

Increasing market concentration


and deteriorating financial
position of non-dominant
service providers
2-firm Concentration Ratio

85% 96%
70% 75%

Fixed lines Mobile

1999 2006
2007 Net Income

P 39.2 B profit

P 2.3 B loss

Largest 2 Next largest 2


State of Philippine Telecoms

Market trends suggest the


absence of effective and
sustainable competition.
LESSON 1

Market liberalization must be


complemented by pro-competitive
regulation.
Case 2: POWER
 Deregulation of generation sector and
establishment of wholesale spot market

 Government divestment in power sector

 Creation of new regulatory institution

 Consumer’s choice of supplier


Cheap Power?

 Average prices of electricity for


residential customers (P/kWh)

1998 4.1636
2008 8.1343
(5.1868)
LESSON 2

With market deregulation,


there is need for aggressive
market power monitoring
and mitigation.
Challenge 1

In the transition to competitive markets,


incumbents hold the cards.
• Market power
• Infrastructure
• Customer base
• Political power

• Resources : market experience + litigation


skills
Challenge 2

Mitigation of market power can take


several forms.

 Structural
 Regulatory
 Market rules
Challenge 3

Past regulatory lapses and policy


flaws erode confidence on
regulator.
Challenge 4

Regulators lack resources to


govern effectively.

 Independence
 Funds

 Skills and experience

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