Competition and Investment in the Internet Value Chain in South Korea and Australia
RIS is delighted to release a new report that directly addresses claims by telco’s that Over the Top Applications (OTTs) are the cause of unsustainable and unviable investments in the telco sector. Based on an in-depth analysis of annual financial reports, quarterly pricing data and other publicly available sources of information, the report shows that telcos are generating above average EBITDA margins from the demand for broadband connectivity. The higher demand for content from consumers translates into demand for better speeds and data allowances and this increases telcos’ revenues.
There are two case studies that show how poorly thought out regulatory interventions can have a significant, and negative, impact on a country’s telco sector: In South Korea, telcos have managed to persuade the state to intervene and impose a new regulatory regime for Internet peering. Instead of commercial imperatives governing agreements between parties, the South Korean regulator has inserted itself and regulates payment for domestic traffic exchange between networks. South Korea is the only country in the world that has adopted such as regime and the result has been lower quality and more expensive services.
Australian telco’s have argued that revenues are declining and that their businesses have negative returns. They claim that their return on investment is lower than their cost of capital and that infrastructure investment is not economically viable unless conditions in the sector improve. However, the cause of these problems is actually a complex and outdated wholesale pricing regime that squeezes telcos’ margins and provides poor quality of service that has been imposed by the Australian government.