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Telecommunications, Internet and media regulation in Taiwan

Yuntsai Chou

Deputy Director, the 21st Century Foundation

Legal Council Member of NCC (Taiwan)

2011 Eisenhower Fellow

June 23, 2011

outline

• Current regulatory framework;

• Market review;

• Problem assessment and major issues;

• regulatory reforms in Taiwan

Regulatory framework voice

(VoIP/ IPTV)

media Internet

(data)

Telecom Act

-- interconnection bw Type I operators;

-- price caps;

-- essential facilities;

-- unbundled elements;

-- spectrum allotment

Broadcast TV Act

-- C&C spectrum allotment;

-- local content caps;

-- mil/party/gov bar clause;

Cable TV Act

-- flat rate;

-- 1/3 horizontal ownership;

-- 51 service zones;

-- must carry

Satellite TV Act (programming)

-- channel licensing policy

N/A

Content layer

Operation layer

Infrastructure

layer

The white paper on digital convergence (2010)

Task force organized among NICI, NCC, MoT, MoEA for coordination and resource allocation

Content & app service

Industrial development & strategies

Network transmission & service

service & content conversion

novel audio-video service TV digitization

IP convergence (NGN)

regulatory reform

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

CHT 53.7 36.4 30.7 33.3 34.8 34.7 35.4 35.0 35.7 34.5 35.6

TWC 22.4 25.0 29.8 28.6 26.0 24.7 22.8 23.5 23.1 25.3 29.5

FEC 11.1 18.0 21.1 20.8 19.3 19.5 20.3 20.4 21.1 21.2 22.7

D 3.9 4.5 3.4 2.9 2.7 2.5 2.4 2.5 2.4 2.0 0.0

E 3.2 5.8 5.1 4.3 5.3 6.0 5.5 4.9 4.3 3.9 0.0

Weibro 5.7 10.3 9.9 10.1 11.9 12.7 13.7 13.6 13.5 13.1 12.2

Total Revenues ($ mil)

54804 103527 151559 170725 179418 189479 198171 205243 185163 154866 111923

CR4 93 90 92 93 92 92 92 93 93 94 100

HHI 3566 2434 2413 2485 2437 2394 2404 2413 2457 2470 2801

1). Telecommunication Market

Source: the international market concentration project

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(a) mobile communications

507090110130150

2000 2001 2002 2003 2004 2005 2006 2007

Hong Kong

Japan

S. Korea

Singapore

Taiwan

• Taiwan is the first country in the world to reach over 100 percent penetration rate (108.3% in 2002);

• the subscription rate dropped significantly since 2004;

• The traffic volume (32.23 bil min) surpasses that of wireline (28.39 bil min) since 2007;

• The revenues from mobile data service only account for 5.69% (2007)/6.6%(2008) of the total.

149.2

133.54

108.3

Source: ITU statistics

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(b) wireline broadband• 47.3% broadband access rate vs. 21.8% wireline

broadband penetration rate in Taiwan; • the wireline broadband penetration grows slowly

since 2005 (1% annual growth rate); • Japan’s surpassed Taiwan’s since 2006;

Singapore’s exceeded Taiwan’s since 2008

05

101520253035

2000 2001 2002 2003 2004 2005 2006 2007 2008

Japan

S. Korea

Taiwan

Hong Kong

Singapore

Source: ITU statistics

The access problemProblems: • a). local loops unbundling hardly exercised due to no

mandatory pricing on element costs;• b). poor quality of cable Internet;• c). paid peering adopted by dominant ISP Hinet (CHT)

Solutions: NCC drafts TA amendments • a). interconnection requirement between Type I and Type II

carriers (all telecommunications carriers); • b). wholesale pricing regulation;• c). restructuring the Internet data exchange center (TWIX);• d). open access to “ducts” or conduits possessed by CHT

• net neutrality is not yet considered

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(2) TV competition• Cable TV becomes the dominant TV platform since

2000, seven years after the service was legalized in Taiwan.

• Satellite TV is not popular due to the rainy climate that downgrades the receiving quality.

• CHT is the only provider that offers IPTV service but cannot have access to those “must have” channels mostly affiliated with MSOs

TV households and the penetration rate in Taiwan, 2010 (unit: 1,000 households)

Source: NCC statistics

terrestrial TV

digital terrestrial TV

cable TV digital cable TV

IPTV

308 760 4,730 283 666

3.9% 9.7% 63.9%

3.6% 8.5%

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a). terrestrial TV• NCC filed a proposal to the Executive Yuan that subsidies

103 thousand low-income households, totaling NT$261m (≒US$8.7 m)

• Among 7.83 m TV households, 760 thousand already receive terrestrial signals digitally, 3.84 m have at least medium willingness to switch,

3.13 m households (40%) still show no interest of switching if no subsidies at all

turning-off analog signals is not politically feasible by 2012.

No subsidies Partial subsidies

Full subsidies

medium + high willingness 49.56% 70.45 % 87.29 %

(score 4-10) 3.84 m 5.46 m 6.77 m

high willingness 14.59 % 28.89 % 74.34 %

(score 8-10) 1.13 m 2.24 m 5.76 msource: (Tsai et al, 2010)

b). cable TV market % 2001 2002 2003 2004 2005 2006 2007 2008

Eastern Multimedia Group 25.64 24.24 24.23 24.07 23.9 23.99 23.85 23.51

CNS Group 20.59 22.09 22.6 22.99 23.26 23.28 23.35 23.05

TBC 13.91 14.51 13.57 13.6 13.94 14.58 14.7 14.6

FuYan 10.71 10.02 9.8 10.16 9.86 9.79 9.62 10.99

TINP 5.16 5.13 6.86 6.89 6.66 6.69 6.59 6.64

Independents (20-23) 23.98 24.01 22.93 22.28 22.38 21.69 21.9 21.26

CR4 71 71 70 71 71 72 72 72 HHI 1416 1413 1425 1444 1448 1471 1466 1462

Source: the market concentration project

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cable TV’s digitization• the percentage of its digital subscribers reaches only

5.7%; • The cable TV penetration rate of Taiwan is the second

highest among the countries in the chart;• the degree to which cable TV service is delivered

digitally is lowest (2%)。2007 Cable statistics

0% 10% 20% 30% 40% 50% 60% 70% 80%

CanadaFrance

GermanyIrelandJapan

NetherlePolandSpain

TaiwanU.K.U.S.

digital cable

cable penetration

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Underpinnings of the low-degree digitization

• 1). Network effects and switching costs of the analog installed base:

the (flat) rate regulation (US$17/mo for 70~80 channels) entails a high penetration rate (86% unofficial record) of the analog cable TV

• 2). Substitute services such as IPTV and digital satellite TV not available:

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NCC’s agenda• intra-platform vs. inter-platform competition?• shock therapy vs. gradualist approach of

regulatory reform?• uniformed vs. differential regime of

regulation?

• NCC is encouraged to create multiple regulatory layers that tailor operators’ incentives that allows for service innovation and thus market competition.

Rate regulation & tiering policy

Rate regulation & tiering policy

Service zone Service zone

Copyright

Copyright

Cable TV ActCable TV Act

Essential facilitie

s

Essential facilitie

s

NGN regulatory principles

NGN regulatory principles

Access chargeAccess charge

Telecom Act

Telecom Act

market definition,

SMP, essential facilities

market definition,

SMP, essential facilities

Wholesale pricingWholesale pricing

Spectrum management

Spectrum management

Terrestrial/ Satellite TV Acts

Terrestrial/ Satellite TV Acts

Separation bw transmission/ programming

Separation bw transmission/ programming

Indecency clause

Local content caps

mil./party/gov. bar clause

Indecency clause

Local content caps

mil./party/gov. bar clause

Merging two Acts

Merging two Acts

Regulatory harmonization

Separation bw content/ transmission

Regulatory harmonization

Separation bw content/ transmission

Convergent regulatory framework

Convergent regulatory framework

Deregulation as premise; gradualist

approach

Roadmap for regulatory reform

foreign investment cap universal service reform licensing policy

foreign investment cap universal service reform licensing policy

content

transmission

Must carryMust carry

Harmonizing the regulatory inconsistencies

• Telecom Act & Cable TV Act– No clauses such as market definition, significant market

player (SMP), essential facilities in the Cable TV Act

• Cable TV Act & (Terrestrial TV/ Satellite TV Act)– Revising the mil./party/gov. bar clause– Local content ration: 70% required for terrestrial TV; only

20% for Cable TV

• (Terrestrial TV/Satellite TV Act) & Telecom Act– Spectrum management: no auction method adopted in

allocating broadcasting radio frequencies

Amending the Cable TV Act

• 1). Market competition: to eliminate service zones that a cable TV operator can provide service in any area in the Island;

• 2). Rate Deregulation: a. to lessen flat rate; b. to allows for service tiering; c. only to regulate basic service;

• 3). Enforced Digitization: a. an entrant must deliver the service digitally;b. an operator must switch to digital transmission to

renew the license

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Strategies to switch to digital cable TV

• 1). making IPTV more competitive deregulating IPTV’s tariffs and programming packages; mandating equal access to programming;

• 2). subsidizing consumers’ switching costs such as discounted tariffs and free set-top-boxes relieving cable TV from the rate regulation so that it can subsidize consumers with their designated tariff structures.

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The regulatory layers in digital convergence

• differential treatments on players in accordance with their market (platform) powers.

• this approach indeed entails policy bonus for the disadvantaged (platform) players.

• departure from rigid administrative ordinances to contractual relationships

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The regulatory layers of TV platforms

Terrestrial TV

Mobile TV Cable TV IPTV Web TV

Tariff regulation

High Medium Low Low n/a

Public channels

must carry transmission consent

transmission consent

transmission consent

Copyright Law

Children protection

content regulation

content regulation

content regulation

content regulation

Children Indecency Act

Pay-TV channels

Ex ante review

filing filing filing n/a

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Licensing and spectrum preferences

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Tender licenses granted when the original ones expired renewal No license renewal

Secondary trading permitted, in addition to technical and service neutrality

Spectrum management

Only technical neutrality

No reserved licenses for incumbents nor entrants

Incumbent clause

reserved licenses for incumbents

No voluntary recall recall spectrum recalled when failing to meet the efficiency criteria

WBA (Wimax) operators

2G 、 3G operators

Conjoint analysis on spectrum policy

attributes Stimuli Average utility value

WBA operators 3G operators 2G operators

a. renewal a.1 No license renewal -8.896 94.793 4.252

a.2 Tender licenses granted when the original ones expired

8.896 -94.793 -4.252

b. liberalization (spectrum management)

b.1 Technical neutrality -69.886 37.995 48.497

b.2 Technical and service neutrality -29.671 -25.352 -32.466

b.3 Granting secondary trading, in addition to technical and service neutrality

99.557 -12.643 -16.030

c. incumbent clause

c.1 auto license renewal for incumbents 9.541 32.344 98.923

c.2 new licenses reserved for the entrants -19.603 -52.962 -12.479

c.3 licenses reserved for neither incumbents nor entrants

10.062 20.619 -86.444

d. recall d.1 voluntary recall -38.486 -0.331 4.939

d.2 No voluntary recall (enforced recall) 22.842 -0.291 -42.108

d.3 Spectrum recalled when failing to meet the efficiency criteria

15.644 0.622 37.168

Source: (Chou, 2010)

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regulatory layers of managing spectrum

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既有業者執照優先權的保留Providing differentiated incentives for different players

Long-term effectiveness of spectrum management and market competition Long-term effectiveness of spectrum management and market competition

Limited

profitability

Limited

profitability

Not permitted in technical upgradeNot permitted in technical upgrade

- Low incentive to switch to higher efficient uses- subscribers’ migration costs

- Low incentive to switch to higher efficient uses- subscribers’ migration costs

- Allowing for technical neutrality- Allowing for technical neutrality

- Allowing for secondary trading that utilize the spare spectrum

- Allowing for secondary trading that utilize the spare spectrum

WBA operators

Maintaining status quo while raising the frequency fees

Maintaining status quo while raising the frequency fees

3G operators 2G operators

problem

policy adjustme

nt

goal

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References• Yuntsai Chou (2010) WiMax development & spectrum

efficiency, Wireless Association research report• Tasi zi-hong, Yuntsai Chou & Chuan-chu Li (2010).

The market and the demand of digital TV in Taiwan. NCCL98046-981106.

• Cave, Martin (2010). Snakes and ladders: Unbundling in a next generation world. Telecommunications Policy, 34, 80~85.

• FCC (2010). Connecting America: The National Broadband Plan.

• The international media concentration project, initiated by Eli Noam in 2009, http://internationalmedia.pbworks.com