December 31, 2007 - Chile

Debate in The Antitrus Court Regarding Participation of Incumbent Mobile Telephony Operators in Public Bid for 3G Licenses

The soon-to-come public bid for the distribution of third generation ("3G") mobile telephony licenses has generated an interesting discussion in the Chilean telecommunications market.

On 30 May 2007, the Undersecretary of Telecommunications ("Subtel") asked the Antitrust Court whether the participation of the existing mobile telephony operators in the referred bid should be prohibited or restricted by Subtel to protect and improve free competition.

The 3G Technical Rule (Resolution 1,444/2000, as amended by Resolution 596/2007), states that the 3G services may operate in the 1.710'1.770 MHz and 2.110'2.170 MHz bands (that is 90MHz in total). Such technical rule, however, states that 3G services may also be supplied by the existing mobile telephony operators, using the spectrum already assigned to them in the 800 MHz and 1.900 MHz bands.

Therefore, considering that it is clear that the existing operators are already authorized to supply 3G services, the main discussion has focused on whether it is convenient, from a free competition standpoint, to allow the existing operators to accumulate more spectrum than the one they already have.

The Antitrust Court has received reports and opinions in this regard from Subtel, the Antitrust General Attorney, several interested parties (including various telecommunications companies willing to enter into the mobile telephony business) and, of course, the three existing mobile operators and its related entities.

Subtel believes that the 3G public bid should ensure the entrance of at least one new mobile operator. For this purpose, Subtel has proposed two different alternatives. If the participation of current operators is allowed, the bid should contemplate a 60 MHz block reserved for a new operator and three 10MHz blocks awardable to any participant in the bid (including the existing operators). If the participation of existing operators is prohibited, the bid should consider only two frequency blocks, one of 40 MHz and another of 50 MHz (both of them awardable only to new operators only).

The Antitrust General Attorney considers that it is necessary to establish a 60 MHz limit to the distribution of spectrum to a one single operator. This, in practice, would prevent the existing operators to participate in the 3G bid because each of them holds between 55MHz and 60 MHz. Additionally, the Antitrust General Attorney has suggested a series of measures in order to prevent asymmetries that may affect the entrance of new operators into the market. Among such measures, the Antitrust General Attorney mentions the creation of a mandatory reciprocal national roaming system, the establishment of infrastructure sharing obligations for all the mobile telephony operators and the implementation of a number portability mechanism.

Most of the interested parties have stated that, considering the comparative advantages of the existing mobile operators (they have national networks already deployed and loaded with clients, they have already suffered the sunken costs necessary to enter into the business, etc.), it is practically impossible that any new operator may win a license if no limits to the participation of the existing operators in the bid are imposed. For that reason, these interested parties suggest either to prohibit the participation of the existing operators or to subject it to significant restrictions.

Finally, the existing operators have stated that the mobile telephony market in Chile is extremely competitive and that, for such reason, there is no need to impose any restriction on their participation in the 3G public bid. Additionally, they have suggested that they are the only entities with the capability to deploy a 3G network within a reasonable timeframe and in an efficient manner.

Now that the Antitrust Court has received all of the abovementioned reports and opinions, it has to schedule a hearing in which all of the parties involved in the process will have the opportunity to present oral arguments. After such hearing is held, the Antitrust Court will be in a position to issue its decision on that subject matter.
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