new approach to regulation of fixed and mobile networks

0

New approach to regulation of fixed

and mobile networks

Relevant Markets International Forum of CRC:

„Challenges of the Relevant Market Regulation

for Telecommunications Networks and Services“,

Bogota, 15 June 2012

Dr. Ulrich Stumpf

1

Overview

1. Why review ex ante regulation of fixed and

mobile networks?

2. How adapt ex ante regulation of dominant

operators?

3. Give symmetrical ex ante regulation greater

emphasis?

A European perspective

2

1. Why review ex ante regulation of

fixed and mobile networks?

3

Ex ante regulation must be adapted to multiple

technological & commercial developments

LTE

networks

Ultrafast Internet

access connections

New applications and

services (e.g. IPTV, OTT)

Partial convergence of

fixed & mobile services

Differentiation of

residential & business-

graded services

Widespread bundling

of services

DOCSIS 3 upgraded

cable networks

Unbundled access to

VDSL & fibre networks

Wholesale broadband

access to VDSL & fibre

networks

RETAIL SERVICES NETWORKS WHOLESALE SERVICES

IP

interconnection

Investment incentives Competition Access remedies

VDSL & fibre

access networks

NGN

core netwoks

Ethernet based

dedicated capacity

Migration to NGN/NGA

wholesale services

Migration to NGN/NGA

networks

4

2. How adapt ex ante regulation

of dominant operators?

Regulated markets/operators

5

1. Targeted at competition problems related to dominance

2. Limited to electronic communications markets

characterised by

Persistent barriers to entry

No tendency towards effective competition

Ex post application of competition law alone not sufficient

3. No regulation at retail level if wholesale regulation is

enough

Focus on, and principles of, ex ante regulation

of dominant operators remain untouched

6

Current ex ante regulation of dominant operators

concentrates on voice & broadband access

Retail

fixed

access

Transit

Fixed call

termination

on individual

networks

Retail

fixed

calls

Mobile

access &

call

origination

Retail

mobile

access &

calls RE

TA

IL

WH

OL

ES

AL

E

Retail fixed

broadband

Internet

access

Retail

dedicated

capacity

Retail mobile

broadband

Internet

access

Trunk

segments of

wholesale

dedicated

capacity

BROADBAND ACCESS VOICE

RE

TA

IL

WH

OL

ES

AL

E

Fixed

call

origination

Wholesale

broadband

access

Unbundled

local loop;

duct access

Wholesale

Internet

connectivity

Terminating

segments of

wholesale

dedicated

capacity

Mobile call

termination

on individual

networks

Regulated market = Market susceptible to ex ante regulation and characterised by SMP

Unregulated market

No related

wholesale

markets

defined

No related

wholesale

markets

defined

7

Ex ante regulation for voice can be reduced

1. New retail market boundaries for voice

Fixed access & calls a bundle (voice)

VoIP a substitute for voice over PSTN

Mobile voice a partial substitute for fixed voice (residential

customers)

Differentiation of business from residential services

2. Retail voice markets competitive subject to regulation of

call termination on fixed & mobile networks

8

Ex ante regulation for broadband

access must be maintained

1. New retail market boundaries for broadband Internet

access

Ultrafast broadband (fibre/VDSL/DOCSIS3) a chain substitute for

standard broadband (ADSL)

LTE a substitute for fixed broadband access, where enough

capacity (residential customers)

Differentiation of business-graded services (faster/more reliable,

multi-site) from residential services

Convergence of business-graded broadband access and

dedicated capacity

9

Ex ante regulation for broadband

access must be maintained

2. Platform competition alone is not effective, except in few

countries (Romania with lots of overground wiring)

10

Ex ante regulation for broadband

access must be maintained

3. Usually, retail broadband access markets will only tend

towards competition subject to continued wholesale

regulation

Unbundling of fibre and VDSL networks and, where not technically

or economically feasible, virtual local access

Wholesale broadband access (except possibly for residential

customers)

Terminating segments of wholesale dedicated capacity

11

Bundling may require new ex ante regulation

1. Longer term trend towards separate retail markets for

bundles (are we already there?)

Voice

Fixed broadband

Internet access

TV/OTT

Mobile

Voice

Fixed broadband

Internet access

Dedicated capacity

Mobile

RESIDENTIAL BUNDLES BUSINESS BUNDLES

2. Need to regulate wholesale access for all components?

STA

ND

AR

D,

SIN

GL

E-S

ITE

GR

AD

ED

, MU

LT

I-SIT

E

12

2. How adapt ex ante regulation

of dominant operators?

Regulatory measures

13

WH

OL

ES

AL

E

Wholesale

broadband

access

Unbundled

local loop;

duct access

Terminating

segments of

wholesale

leased

lines

LRIC+ or

FDC

LRIC+ or

FDC

Retail

fixed

access

Retail

fixed

calls

Retail

mobile

access &

calls

Retail fixed

broadband

Internet

access

Retail

dedicated

capacity

Retail mobile

broadband

Internet

access

Fixed

call

origination

Retail

fixed

access

Fixed call

termination

on individual

networks

RE

TA

IL

WH

OL

ES

AL

E

RE

TA

IL

Fixed

call

origination

Mobile call

termination

on individual

networks

LRIC+

LRIC+ and

asymmetric

LRIC+ and

asymmetric

FDC or

price cap

BROADBAND ACCESS VOICE

În the past, most ex ante regulation included

cost oriented prices based on LRIC+ or FDC

LRIC+ or

FDC or

retail-minus

14

To avoid overcompensation,

wholesale charges need to be reviewed

Cost orientation to be based on efficient networks (the

Modern Equivalent Asset)

Fixed and mobile call termination: NGN

Unbundling: Fibre access

Wholesale broadband access: Fibre access/NGN

15

To avoid overcompensation,

wholesale charges need to be reviewed

Cost orientation to be based on LRIC

Fixed and mobile call termination: Pure LRIC in EU, but non-EU

countries may go for LRIC+

Fibre unbundling: LRIC+

Copper unbundling: LRIC+ of fibre less performance delta between

fibre and copper

Wholesale broadband access: LRIC+ or retail-minus

Glidepath to target levels

16

To avoid foreclosure, bundles need

to be tested for margin squeezes

1. Margin squeeze tests for individual products alone do not

allow to capture margin squeezes on bundles

2. Need to test bundles for margin squeezes ex ante

3. A competitor should be able to cover the costs of

wholesale inputs plus its own downstream costs

4. Downstream costs of a reasonably efficient competitor

versus equally efficient competitor?

17

Current ex ante regulation of dominant operators

includes non-discriminatory terms of access

Fixed

call

origination

Retail

fixed

access

Fixed call

termination

on individual

networks

RE

TA

IL

WH

OL

ES

AL

E

RE

TA

IL

WH

OL

ES

AL

E

Wholesale

broadband

access

Unbundled

local loop;

duct access

Terminating

segments of

wholesale

leased

lines

Mobile call

termination

on individual

networks

BROADBAND ACCESS VOICE

Non-discri-

mination Non-discri-

mination

Non-discri-

mination Non-discri-

mination

Non-discri-

mination

Non-discri-

mination

Retail

fixed

calls

Retail

mobile

access &

calls

Retail fixed

broadband

Internet

access

Retail

dedicated

capacity

Retail mobile

broadband

Internet

access

Non-discri-

mination

18

To avoid foreclosure, non-discrimination needs

to be implemented much more effectivley

1. Unbundling, wholesale broadband access, terminating segments

Need to ensure equivalence of access, including in delivery & fault repair

Functional separation as a measure of last resort

2. Transmission of third-party VoIP and other retail applications

Need for minimum quality standards against blocking/throttling

3. Call termination and IP interconnection

Discrimination less of a concern where there is reciprocal traffic exchange

19

2. Give symmetrical ex ante

regulation greater emphasis?

20

Past symmetrical ex ante regulation focused on

transparency & end-to-end connectivity

Retail

dedicated

capacity

Retail

fixed

access

Fixed call

termination

on individual

networks

RE

TA

IL

WH

OL

ES

AL

E

RE

TA

IL

WH

OL

ES

AL

E

Mobile call

termination

on individual

networks

BROADBAND ACCESS VOICE

End-to-end

connectivity

End-to-end

connectivity

Retail

fixed

calls

Retail

mobile

access &

calls

Transparency,

number

portability

Transparency,

number

portability

Transparency

Retail mobile

broadband

Internet

access

Transparency

Retail fixed

broadband

Internet

access

Transparency

Symmetrical regulation

No symmetrical regulation

21

Symmetrical ex ante regulation provides a

complementary instrument to promote a

variety of objectives

1. Ensure interoperability of services and end-to-end

connectivity

2. Address market power independent of dominance

3. Avoid economically inefficient or physically impracticable

duplication of access infrastructure to end-users

4. Promote net neutrality

5. Raise transparency and reduce switching costs

6. Protect the environment, public health, public security or to

meet town and country planning objectives

22

All of these targets gain increasing importance

Minimum quality levels for

network transmission services

Promote net neutrality

Transparency obligations

for transmission of applications

Reduce switching costs,

promote net neutrality

Infrastructure sharing &

co-investment Protect the environment, public health, public

security; meet town/country planning objectives

Sharing of in-building wiring,

(France, Spain, Portugal)

Avoid economically inefficient or physically

impracticable duplication of access

infrastructure to end-users

Price caps for retail &

wholesale intern’l roaming

Address market power independent of

dominance

MVNO access for wholesale

internat’l roaming Address market power independent of

dominance

23

New approach to regulation of fixed and mobile

networks – At the cross-road

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Muchas Gracias por su atención!

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D. Ulrich Stumpf wik-Consult GmbH

Postfach 2000 53588 Bad Honnef

eMail u.stumpf@wik-consult.com www. wik-consult.com