Regulating Anti-Competitive Behavior in the Internet Market:An Applied Imputation Model for Developing Countries,the Case of Peru

Arturo Briceno, OSIPTEL

1/01/2005
(Original Publish Date: 10/3/1998)

In some developing countries like Peru the development of the telecommunication sector is based on promoting vertical integration of the incumbent operator, which is allowed to provide basic telephony services as well as value added services. After privatization took place in 1992, a legal monopoly for basic telephone services was ruled until 1998, while the incumbent could also enter into competitive services such as Internet. The purpose of this paper is to present one of the analytical tools that the Peruvian regulator used in a legal dispute in which the largest independent ISP accused the dominant vertical integrated firm of anti competitive behavior in the form of price discrimination for providing access to essential facilities that any Internet Service Provider has to employ for the provision of Internet services. The tool was to use an imputation test to determine whether the vertical integrated firm was charging to independent ISP the same prices as it was charging to itself and its affiliates firms for essential inputs such as telephone lines and dedicated circuits or leased lines. For that purpose it was developed a bottom up model of an efficient ISP, assuming the best technology available in the country to provide dial-up and dedicated access to Internet services. Based on the model it was estimated an average incremental cost for providing Internet services, which gave the regulator a good proxy of a price floor that Internet services should have in the market. Any price below the floor may be an indication of price discrimination or the potential presence of cross subsidies going on from the non competitive services to Internet services.