1. MEXICO/UIT Telecommunications Misconceptions 1. The Regulator’s role is to push for lower prices 2. TLRIC is the solution for all interconnection conflicts 3. Fixed to Mobile calls are more expensive than Mobile to Fixed calls.

2. MEXICO/UIT Lines in service (000)

3. MEXICO/UIT Mexican Demographics Urban population 75% Income per urban household is 2.7 higher than rurals Urban Fixed Penetration 34% Rural Fixed Penetration 2% Nominal GDP per Capita (1999) = US$ 4,910 Income distribution = Uneven, 1994 Crisis.

4. MEXICO/UIT Main differences between cellular wireless and wireline Usage (minutes per month) Cost Fixed wireline cost per line Fixed wireless cost per customer Wireline Pre-paid Post-paid

5. MEXICO/UIT Misconception 1: The Regulator’s role is to push for lower prices Wrong price regulation Lower ROI Less investments Less competition Over-regulation & subsidies Market prices Higher ROI More investments More competition Lower prices Vicious Circle Competition Destroy Model Virtuous Circle Pro-Competition Model

6. MEXICO/UIT Misconception 1: The Regulator’s role is to push for lower prices “Price” is a dangerous variable to manipulate. In most cases competition works (excluding some dominant´s services). Regulators can stimulate competition using other methods: Auctioning more frequencies, More Licenses, No Discrimination, Transparency. False

7. MEXICO/UIT 0 0.5 1 1.5 2 2.5 3 3.5 4 0.010.030.050.070.090.110.150.20 Traffic (Erl) C A P E X Wireline AMPS TDMA3 CDMA CAPEX vs Traffic Misconception 2: TLRIC is the solution for all interconnection conflicts

8. MEXICO/UIT 0 1 2 3 4 5 6 61030507090120160200300 Density (Users/Km ) 2 C A P E X Wireline AMPS TDMA3 CDMA CAPEX vs Customer’s Density Misconception 2: TLRIC is the solution for all interconnection conflicts

9. MEXICO/UIT 0 1 2 3 4 5 6 8 1012141618202224262830 Bandwidth (MHz) C A P E X Wireline AMPS TDMA3 CDMA CAPEX vs Available Spectrum Misconception 2: TLRIC is the solution for all interconnection conflicts

10. MEXICO/UIT TLRIC depends on technology, customer´s density and traffic. One company has something that another company wants. To calculate TLRIC, Regulators need not available information. Only dominant or essential services should be calculated in this way. In most cases competition can better solve the problems using “obligation to sell and no discrimination” criteria. False Misconception 2: TLRIC is the solution for all interconnection conflicts

11. MEXICO/UIT Fixed to Mobile calls are more expensive than Mobile to Fixed calls. Wireline Price Wireless Interconnection (LRIC) Wireline call + Billing & Collection Wireline Interconnection + B & C Wireline Sales Margin (Resale) Wireless Price (Wholesale) Wireline Sales Margin (Resale) Wireless Price (Retail) Wireline call + Billing & Collection Wireline Interconnection + B & C VEN EUR ARG MEX Minimum

12. MEXICO/UIT Mexican Prices US 28 cUS 25 cUS 3 c US 38 cUS 19 c Caller’s priceOriginating NetworkDestination Network

13. MEXICO/UIT Fixed to Mobile calls are more expensive than Mobile to Fixed calls. There are several reasons that can produce this result. In the Mexican case, billing and collection is a function or service not well defined in the incumbent´s concession, provoking endless conflicts. There are some services that are difficult to offer without billing and collection: Call by call carrier selection, collect calls and Calling Party Pays.

14. MEXICO/UIT As a result of competition there is a tendency to deaverage and bundle services in different ways. It is very important for customers everywhere, but specially in developing countries, to know in advance the price of each call. This is an important Regulator´s function. Final Comments