What telecom regulators in Latin America can learn from global experience

Long-standing mobile telecom industry complaints, such as the cost of spectrum and the debate over so-called fair share, have reemerged as operators struggle with low ARPU and the need to make big investments in 5G network deployment. 

Latin American regulators should keep up with the demands of a dynamic digital infrastructure ecosystem that has changed dramatically in recent years, according to GSMA's chief regulatory officer, John Giusti. 

"Finally, people are saying, look, the market of 20 years ago is not the market of today," Giusti tells BNamericas. 

Giusti is responsible for leading the organization’s public policy and industry advocacy agenda with governments, regulators and international institutions. 

In this interview, he talks about what regulators in Latin America can learn from the global experience in mobile market regulation.

BNamericas: Operators in Latin America are struggling with low ARPU and high investments. What can regulators do to improve market conditions?

Giusti: I think the big challenge is, globally, that so much of the regulation and regulatory cost that falls on the industry is based on a market environment of two decades ago. 

So, I think the big thing that I can encourage regulators to focus on is what today’s digital marketplace competition landscape looks like and which regulations are no longer relevant. 

There are a huge number of costs that come into play, like license fees, spectrum fees and taxation. The goal is to get more people connected; we need to keep the costs as low as possible. 

BNamericas: Can you mention some successful cases globally from which regulators in Latin America can learn?

Giusti: It varies a bit by market dynamics. I think one of the big challenges is scale. I think it’s really important that policymakers understand the importance of scale in terms of digital infrastructure because it’s through scale that you can deliver services, reduce costs and reach as many people as possible. 

But you ask me about success stories. I think that examples of auctions that are structured in a way that don’t focus on maximizing revenue is one of the most positive steps that governments can take to make sure that this public resource, the spectrum, is available. We saw the Brazilian auction was favorable but nothing is perfect. One of the biggest things is making sure that spectrum costs and conditions are reasonable.

BNamericas: Some of the last auctions in Latin America have taken into account the spectrum cost problem. Do you feel that there’s more understanding by regulators about the importance of keeping the spectrum at a low cost?

Giusti: The big problem is that I don’t think there’s a great understanding of the capital expenditure it takes to deploy digital infrastructure. I think if there was a better understanding of how capex-intensive the digital infrastructure is, there would be a greater understanding of what you need to do to reduce the input cost. 

Also, often people who most understand the digital ecosystem are not the ones making the decisions about spectrum pricing. It’s often other parts of government that make those decisions. So, we need to do a better job as an industry of making sure governments understand the cost-benefit of decisions taken with regards to the cost of spectrum or other inputs. 

BNamericas: What’s your view about giving spectrum to industries for private networks?

Giusti: Government and industry working together to develop spectrum roadmaps is the most important way forward to meet the ongoing growth in data traffic over mobile networks. So, I think it’s really important that governments work to identify what spectrum is and work very closely with the mobile network operators to make sure that there’s a roadmap so they can plan accordingly. 

I think one of the riskiest things that a country can do is to take harmonizing spectrum out of the hands of people who know how to use it. For example, in the case of Argentina, that happened with the identification of 100MHz in the 5G band for Arsat. 

Specifically about your question on private networks, I fundamentally believe that mobile network operators are in the business of deploying network infrastructure and I think they’re probably best positioned to be able to provide solutions that meet the needs of industry but also of citizens. 

I think that by taking some of that spectrum out, we’re increasing spectrum scarcity, therefore driving up the cost of spectrum. Our research has shown that when you have spectrum reservations for verticals, you are essentially reducing by at least 25% the speed and capability of the mobile networks that people rely on.

I think one of the most interesting cases of how they address this was in Finland. What they decided to do was to make it [the spectrum] available to the mobile network operators and if anyone can't offer the service to industries, they [industries] have the ability to use that spectrum privately. 

It means that the network operator can't prevent its use if somebody needs and wants to use it in a private network, but it gives the first chance to fully deploy it by the operator that can reach the whole country.

BNamericas: We’re seeing a new era of consolidation and agreements between operators to share networks. What do you say is the best approach in terms of regulatory framework?

Giusti: I would rather take them separately, but I think in terms of network sharing that governments should be open to allowing commercial agreements to maximize the opportunity to share infrastructure, especially when you reach out to less sustainable parts of the country [like rural areas]. 

I think creative infrastructure sharing agreements that make commercial sense between operators should be encouraged and allowed. We need to be careful about mandatory requirements but allowing them should be encouraged. 

In terms of consolidation, I do think it is one of those areas where governments should think to themselves what do we want most? And I'm sure it’s robust companies that can spend money to invest in infrastructure. So, that’s not going to happen with five players in the market. 

In the United States there are essentially three players. Brazil is a three-player market, China also is a three-player market. Why do some small European countries insist on having four? Why in some countries in Central America do you have five?

This is not just about a corner shop competing with another corner shop. This is about companies that need to spend a lot of money to invest in infrastructure over the long term. If you don’t recognize that a mobile network operator is different than a corner store, that’s where you have a policy problem. 

BNamericas: So what I understand is that three is the magic number for competition in the mobile market…

Giusti: I think there's no exact right or wrong number in terms of players. If you have consolidation, there you would see at some point some issues that you can address through regulation but you don’t have to anticipate problems by preventing consolidation. 

We see a number of opportunities for commercial solutions where MVNOs ride over infrastructure networks. 

BNamericas: GSMA has been involved in the renewed fair share discussion globally. In the past, fair share was difficult to implement, what do you expect for this new era of discussions?

Giusti: I think it is such an important discussion to start because finally people are saying, look, the market of 20 years ago is not the market of today.

And you have some of the biggest companies in the world generating and growing traffic every year, riding over national infrastructure to reach consumers and citizens but not paying for the infrastructure or otherwise contributing. 

So, there’s not a single solution but I think the question of what responsibility and role big tech does have is a good question for policymakers to start to tackle. 

The European Commission brought forward this idea, and there are ongoing discussions and leadership in Brazil and Colombia. I think we have to keep this discussion going, because there’s like 38% or 40% growth year-on-year in traffic and operators are paying for all the infrastructure. 

If you look at the traffic being generated, in many cases it's only three or four companies generating more than half of all traffic over the network. So shouldn't they have to come to the table and contribute somehow? 

BNamericas: Are big techs open to the discussion?

Giusti: I think any company that has relied on a model of not paying to access the consumer for so long is going to want to maintain that for as long as possible, but I think there is an increasing recognition that the model is not sustainable. And it’s not sustainable for them, because the networks will not be able to support the continued growth in traffic that they’re sending over them. 

BNamericas: Some countries are discussing making them contribute to universal funds, what is GSMA’s view about this option?

Giusti: Historically, universal service funds have not had the greatest success rate in achieving their stated goals. So, I think a commercial agreement is the best approach and you need to create the incentive or the mechanism by which they [the big techs] have to come to the table to do that negotiation. I mean, we've seen that there are existing agreements, we saw it in Germany and in Korea.

BNamericas: What type of regulations are needed to make these commercial agreements happen?

Giusti: There is absolutely no requirement and no mechanism for these guys to come to the table to negotiate. So, when you have such a differential in market power, you need to have some mechanism that says, if you have more than 5% traffic over a network, then you need to negotiate. You need a backstop of some sort of arbitration to come to an agreement. 

BNamericas: In Latin America there’s also a lot of people unconnected. What are the main tools that regulators have to tackle this issue?

Giusti: I think when we're looking at this question of getting more people connected, I think one of the most important things to focus on is the fact that most people who are not connected today are covered by mobile broadband networks. They are not able to use them either because they don't have the skills to use them, they don’t see their value or can’t afford to use them. 

I think too often the focus is on the 5% not covered, not the 40% covered but not using [the networks]. Let’s turn our attention to those people that we can more easily bring into the digital inclusion environment by looking at what are the barriers.

I think one of the biggest things that governments could do is to cut the taxes and import duties on the devices. In Latin America, we have a disproportionately high level of taxation and import duties on devices.