MCI WorldCom Essay Example for Free

MCI WorldCom Essay As noted above, Latin America is and has been ahead of many countries with emerging economies in the development of its telecommunications sectors and the attraction of private investment. Similarly, it has been substantially advanced in its promulgation of rules and regulations, changing as required to keep up with constant change in technology and services. All of the above drives or suppresses competition and growth depending on how the change is effected and how effective enforcement is executed. In Mexico, we have seen investment moratoria declared by MCI WorldCom and ATT based on alleged failure of the Government to enforce the telecommunications regulations against TELMEX, which most affect the economics of service-provision by the competitors. While resolution has commenced of these issues in Mexico, full resolution is not yet a reality, and the sector has suffered a slow-down in investment at a time when investment should have been the most robust in Mexicos history. On the other hand, one sees in Mexico, a reversal of the cross subsidies which previously characterized the service of TELMEX. For example, before privatization, TELMEXs local exchange service failed to cover one third of its costs and was permanently subsidized by TELMEXs dramatically high international tariffs. That has reversed, forced, in part, by the requirements of its Concession and the introduction of competition in long distance and international service. As new international operators can compete on price, without regard to local exchange service, if the incumbent does not lower international prices and remain competitive, it will lose a large portion of its revenue and its best and most lucrative customers. In fact, some of the most vigorous of the complaints of TELMEXs interconnection and access charge practices demonstrated a policy of avoidance of competition in this lucrative market. Currently, ITU reports show dramatically higher local exchange charges than those, which characterized the pre-privatization company. Indeed, TELMEX monthly recurring charge is on par with other countries of Latin America which have rebalanced their tariffs to eliminate the cross subsidies. Thus, it is significantly higher than monthly recurring residential charges of companies in other countries that have not been obligated to rebalance. The latter means that those countries remain largely without formal or effective competition. This is because competition forces rebalancing of tariffs in order for the incumbent to maintain market share in the price-competitive and lucrative markets like long distance, international and commercial. Similarly, Argentina and Peru have monthly recurring charges, which reflect a rebalancing of tariffs and elimination of much of the cross-subsidies that previously characterized the companys finances. This means necessarily, a higher monthly recurring residential charge than countries such as Paraguay, Surinam and others that have not yet eliminated their cross subsidies (again typically revealing a lack of competition which threatens the market share of lucrative and over-charged markets). As noted earlier, the law and the vigorous competition in Chile contributed to the elimination of cross subsidies and the balancing of tariffs with cost of providing the service. Thus, like Argentina, Peru and Mexico, Chile had monthly recurring residential charges, which reflected its cost of providing the service, and operators competed vigorously in long distance and international pricing for market share. At the end of 1999, however, the Government forced a lowering of monthly recurring charges, which substantially impacted the revenue balance of local exchange carriers. That is, with long distance and international tariffs subject to severe competition and thus as marginally low as possible, the monthly recurring charge is one of the few revenue sources available to generate margin. While it cannot create wide margins as monopoly international services once did due to the economy of the market of residential users, it at least covered its costs and generated profit in a rebalanced tariffing environment. Now Chilean local exchange carriers are saying that the new rules no longer allow that. Thus, they have declared a moratorium on the construction of local exchange infrastructure. Perhaps by the time of the PTC conference, we shall have a resolution of the dispute. What all of the above, and current marketing of services in other countries, like the U. S. , cause us to think about is how networks will be paid for in the future. In a technological environment where long distance is virtually the same as local exchange service (eg. ATT advertises its one service which encompasses the entire of the U. S. , local and long distance; Venezuela has reduced its domestic long distance to two regions, all else within them is local exchange; Sprint sells its ten cent minute anywhere in the country, etc); wire line virtually the same as wireless (Ugandas second national operator uses exclusively a GSM cellular network with software distinctions for price-capped services; Canada and U. S. move toward wireless local loop being interchangeable with cellular and fixed line telephony); data equals voice services (GPRS and UMTS provide telephony services with internet access, interactive email and other mixed services features), etc. Thus, technological convergence; global seamless mergers of services and service operators and new means of delivery, like the INTERNET, point toward different measures of financing infrastructure build-out. For example, whereas operators used long distance and international revenues predominantly in the past as a primary revenue stream, which supported financing of build-out, those streams have shrunk substantially in a competitive environment. The same is true for international settlements. Now, as we are seeing in Chile, the same could be true in the future for the monthly recurring charge on local exchange service. Prepaid services and cellular or other wireless substitutes for local exchange service, already threaten this revenue stream.