Optimization and Equilibrium in the Telecommunications Market

Optimization and Equilibrium in the Telecommunications Market

CMM Researchers

Alejandro Jofré (Director).

CMM Engineers

Fabián Medel, Juan Pérez.

Main Collaborators

José Miguel Benavente (Economics Dept., U. de Chile), Ronald Fischer (Industrial Engineering Dept. U. Chile), Jorge Rivera (Economics Dept., U. de Chile), Vladimir Marianov and Miguel Rios (Electrical Eng. Dept., PUC), Edison Acuña and Lilian Saud (Consultec).

The telecommunications sector has a great deal of importance in Chile. This is due in part to the significant growth that the mobile phone market has experienced over the past few years. These apparatuses have become key tools for promoting our country´s development. In view of the fact that this sector forms part of an industry that develops its products on networks and operates in a monopolistic fashion in some areas, every five years the Ministry of Telecommunications regulates and sets rates for some of the services that these companies provide. These include the access charge tariff, or the payments that must be made to mobile phone concessionaires for the use of their networks.


In some areas of Chile the telecommunication market is dominated by one company that enjoys a high level of penetration. As a result, the adequate setting of rates for the services provided by the companies that participate in this market should reflect the cost of offering these services. This ensures that this activity is a lucrative one and that there are no distortions in the rates. The Ministry of Telecommunications held a bidding process and awarded the Center for Mathematical Modeling a contract for creating efficient business models that allow for the setting of rates for the services provided by landline and mobile phone companies. We have grouped a multidisciplinary group formed by specialists in the fields of Economics, Mathematics and Telecommunications that has developed two efficient business models (one for mobile phone services and one for landline services). These models allow for the support of the pricing processes developed by Ministry of Telecommunication and the companies that work in public telephone services. These optimization and equilibrium-type models allow us to obtain all rates for the services that are subject to regulation.


We improved the processes that the government uses in order to make decisions in this area, particularly in regard to economic regulation. The introduction of more realistic and complex models led to better definitions of the variables involved and the introduction of transparency in the setting of economic policy. Various complexities have been resolved for these models, including the optimization aspect of this process, which is related to the optimal lowest cost- design of the networks (for both mobile phones and land-lines). The optimal design of networks involves aspects such as the location, capacity and quantity of transmission antennae, commutation and transmission equipment and fiber-optic interconnection networks. The equilibrium part of this process involves the calculation of regulated rates that allow the companies to ensure adequate profit margins. In both cases we have generated new models, calculation algorithms and processes for their implementation and validation. These models are currently being used in the Ministry of Telecommunication (SUBTEL) and have led us to engage in the mathematical analysis of new questions in the area of Optimization and Equilibrium. The Ministries of Telecommunications in Peru, Colombia, Venezuela and the United States have shown an interest in this development. In the case of the first two countries, the group has carried out training activities in the formulation and solution of these types of optimization-equilibrium models. Our experience with localization problems had already been described in an article published in the field of Forestry Models in the Annals of Operation Research (Jofré and Cea)

Relationship with other institutions

We have formed a multidisciplinary group composed of specialists from the Universidad de Chile´s Economic and Industrial Engineering Department, the Universidad Católica´s Electrical Engineering Department and the consulting firm Consultec. A regulatory agency for the area of telecommunications from each of the countries mentioned above has shown an interest in the development made by the CMM in this area.