commercial aspects of regulation
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Commercial aspects of regulation. Peter Lundy MSc DIC BSc(Eng) Information and Communications Technology consultant November 2008. Agenda. Telecoms technologies Overview of competitive telecoms markets The main market players Customer service and convergence. - PowerPoint PPT PresentationTRANSCRIPT
This project is funded by the European Union
Commercial aspects of regulation
Peter Lundy MSc DIC BSc(Eng) Information and Communications Technology consultant
November 2008
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This project is funded by the European Union
Agenda
1. Telecoms technologies2. Overview of competitive telecoms markets3. The main market players4. Customer service and convergence
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This project is funded by the European Union
Networks, services and technologies
• Telecoms networks have been around since the late 19th century
• They have used many methods and different technologies but the basic principles remain the same
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This project is funded by the European Union
The main elements
The person being called(a friend,
a business, a computer, a recorded
message, or no answer)
Q: How do we know their number?
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The line (network)(a metallic cable,an optical fibre,
a radio signalor a combination of
these)
Q: Who provides these and isn’t it expensive?
The person making the call
(from a home, from an office,
or a mobile, from a car, a ship,
a ‘plane, or on a computer)
Q: How do they
pay for the calls?
This project is funded by the European Union
Basic features of a successful “public” telecoms service
• It needs customers• It has to be able to carry voice and
data• It has to be “economic”
– right technologies in the right places– right services in the right places– right tariffs
• The operator of the network and its services must be able to calculate bills, send them out and collect the money
Q: What is a “Virtual Operator?”
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Networks
Services
Customer Interfaces
This project is funded by the European Union 6
Local Exchange 2
Local Exchange 1
The Local Loop,(or access network
or “last mile”)
To Tandem Exchanges B, C, etc
To Local Exchanges 3,4,5 etc
International Gateway Exchange
To other countries
Tandem Exchange A
The “Core Network”
The “Access Network”
Transmission links
International links and “world-wide-web”
The “Fixed Network”
This project is funded by the European Union
The essentials of switching and transmission
Switching• Local digital switches
connected to customers– Route each call to its
destination– Record each call’s time,
duration and charge– Provides a testing point for
maintenance– Main point for competitors to
interconnect– Need special power and
environment• Tandem and international
digital switches ensure economic network design
• Conventional switches being replaced by internet “servers” and “routers” technology (“Next Generation Networks” – NGNs)
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Transission• Local loops between the
customer and the local switch– Can now be converted to
“broadband” by installing digital boxes at each end (ADSL)
– Wireless Local Loop (WLL) becoming more attractive than metallic cables
– Local Loop Unbundling gives new operators the chance to compete (this is especially important for the growth of broadband)
• Core and international networks use optical fibres for reliability and economy
• Satellites now mainly used commercially for TV broadcasting
This project is funded by the European Union
Part of a telecoms switch room
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This project is funded by the European Union
Another part of the same switch room
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This project is funded by the European Union 10
Local Exchange 1
Tandem Exchange A
The Local Loop,(or access network
or “last mile”)
To Tandem Exchanges B, C, etc
To Local Exchanges 3,4,5 etc
International Gateway Exchange
To other countries
Alternative Fixed Network Technologies
All the links can be metal, fibre or radio
fibre
“point-to-point” radio relay
copper wires
All the switches are digital (or becoming
digital), now using Internet techniques
Cable, radio and satellite
links, submarine
cables
“wireless local loop”
This project is funded by the European Union 11
Cables in ducts
Hrvatska agencija za telekomunikacije
This project is funded by the European Union 12
What happens underground
Hrvatska agencija za telekomunikacije
This project is funded by the European Union
Things about telecoms technologies
What they say
• Digital• Analogue• Optical fibre• Voice over IP• Broadband• GSM and 3G• WiMax• Interconnect
(ion)• Local Loop
Unbundling• Leased line
• Any more? 13
What you need to know═ More economic, reliable and flexible for all networks
═ Crap, the sooner it goes the better
═ Higher capacity transmission, better for nearly everything
═ A way of using your computer to get cheap phone calls
═ A brilliant way to get all the services you want
═ Today’s and tomorrow’s mobile phone networks
═ A way to serve customers without having to lay cables
═ How to ensure your customers can phone customers on your competitors’ networks
═ Re-connecting an existing customer’s line to a competitor’s network
═ A dedicated link paid for and used by a business customer
This project is funded by the European Union 14
The “Mobile Network”
To other countriesLocal Exchange
The “Access Network”
International links and “world-wide-web”
The same core network
“Fixed Network”
Tandem Switch
GSM Exchange 1GSM Exchange 2
Interconnection links
“Base Transmitter Stations”
This project is funded by the European Union
Some GSM “base transmitter stations”
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This project is funded by the European Union
Another type of GSM transmitter
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This project is funded by the European Union
Basic telecom network economics
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High Fixed Cost
Low Marginal (or Incremental) Cost
Size of network (capacity, or demand)
Cost of network
This project is funded by the European Union
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Forward-looking incremental costs
traffic
costs existing network line
operator’s fixed cost
operator’s variable cost
operator’s incremental cost= CI
TO TO+I
modern network line
This project is funded by the European Union
Access to the Internet
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Local Exchange
Cable, wireless or 3G mobile
network
International links to “world-wide-web”
The same core network
“Fixed Network”
SBroadband or
“dial-up”
Internet Services Provider 1
This project is funded by the European Union
Old and new market players
• Today’s telecom networks can be provided by anyone• Different operators can (and do) provide local,
regional, national and international networks and services
• The players can provide all or only part of the networks and services
• Interconnection has to be easy and economic, so that we don’t need lots of separate national networks
• The ex-monopoly operator – “the incumbent” has;– advantages (size, money, customers, know-how) and– disadvantages (legacy networks and attitudes, inefficiency and
often relatively poor quality and customer service)
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This project is funded by the European Union 21
To other countries
Who are the market players?
Mobile Operator and
Service Provider A
Mobile Operator or Service
Providers C, D, E etc
Operator or “Service Provider” X,Y,Z etc
Fixed Operator or Service
Providers A, B, F, G, H etc
Virtual Operators
(Mobile and Fixed)
Internet Service
Providers
TV and Radio
Channel Providers
This project is funded by the European Union
Regulation
• Technical standards are now global, this is the equipment manufacturers’ problem
• A regulator has to help all market players to provide good quality networks and services, irrespective of the technologies being used
• Fair competition means a fair amount of co-operation too, technically and commercially
• The suppliers, the technology, the networks, the services, the operators and the regulators are really only there for one reason - consumers
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This project is funded by the European Union 23
Competitive markets -agenda
• How is competition provided?• How the incumbents behave• The role of regulation
This project is funded by the European Union 24
Monopoly
Incumbentnetwork and service provider
This project is funded by the European Union 25
How competition is provided (1: alternative network)
Mobile (GSM)
Interconnection
Cable (or wireless) local loop
Incumbentnetwork and service provider
Alternative network and service provider
This project is funded by the European Union 26
How competition is provided (2: carrier selection)
Interconnections
Carrier selection
Incumbentnetwork and service provider
Alternative network and service provider
This project is funded by the European Union 27
How competition is provided (3: local loop unbundling)
Incumbentnetwork and service provider
Alternative network and service provider
Interconnections
Unbundled Local Loop
This project is funded by the European Union 28
Types of local loop unbundling
• Local loop unbundling is where the local line to the customer is disconnected from the incumbent’s network and reconnected to an alternative operator
• The technology allows all or part of the capacity of each local loop to remain connected to the incumbent also all or part to the new operator (“partial” and “full” unbundling)
• “Partial unbundling” means that part of the service (e.g. voice calls) can remain with the incumbent, while new services (e.g. broadband) can be provided competitively by a new operator
• “Full unbundling” means that all the services are now provided by the new operator
• The re-connection can take at any place in the local network
This project is funded by the European Union 29
Local loop Unbundling
B
1
3
2
Incumbent Operator
New operator in town
Case 1: “Partial Unbundling” = where customer continues to get voice calls with incumbent but chooses new operator for broadband (also called a “shared access line”)
Case 2: “Full Unbundling” = where customer gets all services from new operator
Case 3: Customer continues with incumbent operator
2
3
Individual local loops
Incumbent’s cable
Customers now have a choice
[Note: alternative unbundling point]
[Note: The new operator should be allowed to put their
interconnection equipment in the incumbent’s exchange = “physical
co-location”]
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This project is funded by the European Union 30
How competition is provided (4: “no network” providers)
Customer relationship, including billing
Alternative retail service provider
(e.g. Mobile and Fixed Virtual Network Providers)
Incumbentnetwork and service provider
Information flows
Relationships with other providers (e.g.
other network operators, content providers)
This project is funded by the European Union 31
How incumbents behave
It is possible to observe 3 stages of transition for an incumbent:
3. Competing enterprise
2. Reluctantcompetitor
1. Traditional monopolist
The transition is normally accompanied by a dramatic improvement in efficiency and customer service
This project is funded by the European Union 32
Phase 1: the incumbent as a traditional monopolist
• Government-owned, no competition• Tariffs out of balance• Under-investment• Inefficient, unreliable and inconsistent• Poor customer service• Long waiting times for customers
(The bad old days)
This project is funded by the European Union 33
Phase 2: the incumbent as a reluctant competitor
• Reorganising• Competing against new entrants• Rebalancing tariffs• Launching new services• Investing in modernisation, training and customer service• “Monopolist tendencies” remain:
– barriers to interconnection, both economic and technical– poor service culture– culture of superiority over new entrants and regulators– resentment at regulator’s encouragement of new entrants– defensive about being compared unfavourably to new entrants
This project is funded by the European Union 34
Phase 3: the incumbent as a true competitor
• Running retail and wholesale services as efficient, commercial businesses
• Forward-looking investments, innovation• Profitable “carriers’ carrier”• Proper systems and processes for:
– products and services management– customer services (e.g. CRM, billing)– managing relationships (media, shareholders, regulator,
partners, competitors)
• Improving service performance and profitability • Using “universal service” as a brand virtue
This project is funded by the European Union 35
British Telecommunications was separated from the British Post Office in 1981.
It has been competing in telecommunications in the UK since 1983 and by 1993, it became a 100% privatised company.
In 2001, its mobile operations (now O2) were de-merged from BT.
As BT Group plc, it now serves customers in 170 countries.
In the UK it offers voice, broadband, internet, mobile and TV services
This project is funded by the European Union 36
Staff numbers – decline and fall?
BT Staff - last 20 years
0
50000
100000
150000
200000
250000
300000
Em
ploy
ees
Staff
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
This project is funded by the European Union 37
BT since 1984
BT Performance since 1984
-5000
0
5000
10000
15000
20000
25000
£ M
illio
ns Revenues
Profits
1984
109
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
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This project is funded by the European Union 38
BT now• Operates in 170 countries• 28 million UK customer lines (40% more than in
1984)• BT Retail “new wave” revenues increased by 20%
in 2007, while traditional revenues reduced by 3%
• 12.7m broadband lines in the UK, 4.4m connected to BT, the remainder via wholesale
“BT is transforming from a traditional telecoms company to a leading provider of converged networked services and its aim
is to help customers get the most out of communications technology by providing tailored solutions that are easy to use”
This project is funded by the European Union 39
BT: successful as a retailer and as a “carriers’ carrier”
2006 2007
Revenue Profit Revenue Profit
BT Retail £8,507m £569m £8,414m £674m
BT Wholesale £7,343m £759m £7,584m £724m
Source: BT published accounts
This project is funded by the European Union 40
The market is expanding in new ways
Retailer
BT
C
u
s t
o
m
e
r
s
Wholesaler Wholesaler
BT
Retailer
Retailer
Retailer
Retailer
Wholesaler
BT
Retailer
Retailer
Retailer
This project is funded by the European Union 41
What does this mean for regulation?
• The regulator’s role is to further the interests of consumers in relevant markets, where appropriate by promoting competition
• “Light regulatory touch”, for example adopting a forward-looking stance on enabling technologies like convergence and VoIP
• Market analysis in separate and “converged” markets
• Action to ensure competition in all telecoms markets
This project is funded by the European Union 42
Overall regulatory environment
• Regulator independence– regulators should be able to exercise their powers
impartially and transparently • Converged regulators
– most Member States have established converged regulators with powers covering the whole e-communications sector
• Regulatory focus– local loop unbundling– effective interconnection– Regulatory accounting: separation of costs, cost
modelling• Regulator involvement
– well-ordered public consultation in relation to regulatory decisions