Regional Seminar on the economic and financial aspects of telecommunications Study Group 3 Regional Group for Latin America and Caribbean (SG3RG-LAC)

Transcription

1 Session 8 Regional Seminar on the economic and financial aspects of telecommunications Study Group 3 Regional Group for Latin America and Caribbean (SG3RG-LAC) The regulation applied to broadband in a convergence world Antonio Garcia Zaballos July 2010 Santo Domingo, Dominican Republic

2 Contents 1. Introduction: Description of the market 2. When regulate? 3. The ladder of investment 4. The regulation of broadband in Next Generation Network (NGN) 5. Alternative access technologies: Cost comparison 6. Benchmark: UK, Spain and Austria 7. Recommendations 2

3 1. Introduction: Description of the market 3

4 Introduction: Description of the market Demand Increasing Focusing on areas with greater population density and better economic conditions Focused on bundling offers Customer segmentation (heavy internet users vs soft internet users) and fixed to mobile substitution effect Supply Based on cable operators and ULL Focused on specific geographic areas Competition in terms of prices is harder in those areas where exists a infrastructure based competition Service based competition: So far only in the areas where the cable is operating In near future, the service based competition will depend on the NGN deployment and the preasure executed by the cable and the mobile operators Increasing importance of mobile broadband 4

5 Introduction: Description of the market The broadband market presents very heterogeneous competitive conditions, because alternative operators focus their investment effort and the deployment of their infrastructure, especially in those areas where it is attractive to invest, according to demand and socioeconomic conditions. 5

6 Introduction: Description of the market In general, alternative operators have decided to go for the ULL to offer differentiated services. The increased presence of alternative operators in the switches of the SMP Operators is provoking more aggressive offers and greater range and variety of services. The possibilities of differentiation offered by the ULL has stimulated the subscription to bundles of services. The ULL, like cable, is focused on certain geographic locations where economic and demographic conditions are attractive. It is precisely at these locations where major operators (SMP) are losing market share Service based competition vs Infrastructure based competition 6

7 Introduction: Description of the market Heterogeneous conditions exists from the demand side due to the different sociodemographic conditions and the population density throughout the country Distribution of telecom switches taking in account the economic and sociodemogr aphic conditions These variables are responsible for a different return on investment and hence the level of development of new infrastructure, so it's logical for operators to deploy infrastructure according to return maximization criteria so that, the deployment is not uniform across the country. 7

8 mars.08 mai.08 juil..08 sept..08 nov..08 janv..09 mars.09 mai.09 juil..09 sept..09 nov..09 janv..10 mars.10 Introduction: Description of the market 70% 60% 50% 40% 30% 20% 10% 0% 10'500'000 10'000'000 9'500'000 9'000'000 8'500'000 8'000'000 7'500'000 Líneas cablemódem Grupo Telefónica Acceso Indirecto Bucles Desagregados (total. + comp.) Total Banda Ancha The evolution of the broadband market in Spain could be motivated primarily by the evolution of urban areas characterized by broadband penetration significantly higher and where, therefore, market saturation is more evident. 8

9 9 2. When regulate?

10 When regulate? The existing level playing field competition in the broadband market shows that there is no homogeneous conditions across the country, so that, there are specific areas with different competition level due to the existence of alternative infrastructure which provokes the appearance of new product and services with specific offers. Therefore, it makes sense to analyse the market competition in markets where the geographic scope is not national. By doing so: o The regulatory policy could be better adjusted to the competition level across the different areas of the country. o The appearance of new commercial offers better adjusted to the customers requirements would be possible. o o No ex ante obligations would be imposed in those areas where a infrastructure based competition exists so that, is the market itself the one who regulates. It would be encouraged the efficiency in the production processes so that more investment and a variety of product and services as well as an increasing price competition would be expected. 10

11 When regulate? Market included in the old Recommendation (February 2003) 1. Access to the public telephone network at a fixed location for residential customers 2. Access to the public telephone network at a fixed location for non residential customers 3. Publicly available local and/or national telephone services at a fixed location for residential 4. Publicly international telephone services available at a fixed location for residential users 5. Publicly available local and/or national telephone services at a fixed location for non-resid. 6. International telephone services publicly available at a fixed location for nonresidential 7. Minimum set of leased lines Markets considered in the new Recommendation (December 2007) 1. Access to the public telephone network at a fixed location for residential and non residential customers Three criteria test: 1.Presence of high and non transitory barriers to entry. 2.market structure which does not tend towards effective competition within the relevant time horizon. 3.insufficiency of competition law alone to adequately address the market failure(s) concerned. 8. Call origination in the public telephone network at a fixed location 9. Call termination in individual public telephone networks at a fixed location 10. Transit services in the public fixed telephone network 11. Wholesale provision of unbundled access to provide broadband and voice services 12. Wholesale provision of broadband access 13. Wholesale market for leased line terminal segments 14. Wholesale market for leased line transit segments 15. Call access and origination in public mobile telephone networks 16. Voice call termination in individual mobile networks 17. Roaming 18. Broadcasting services for the delivery of content transmitted to final users Call origination in the public telephone network at a fixed location 3. Call termination in individual public telephone networks at a fixed location Three criteria test 4. Wholesale network infrastructure access at a fixed location 5. Wholesale broadband access 6. Wholesale market for leased line terminal segments Three criteria test 7. Voice call termination in individual mobile networks EC Regulation Three criteria test NGaN

12 When regulate? I. MARKET DEFINITION Are there elements to consider the existence of dominance? II. MARKET STRUCTURE Yes Is there a dominant position? Yes Analysis of individual dominant position Is there an individual dominant position? Yes No No III. DOMINANT POSITION End No Analysis of joint dominant position Is there a joint dominant No position? Yes IV. ANALYSIS OF THE RESULTS Is there effective competition? No It is enough with the Competence Law No Necessity of Regulation Yes Yes End The existence of competence is due to the current regulation? No Yes Typology of ex ante remedies: Price control: Cost based vs reasonable prices Accounting separation Carrier selection and preselection Guarantee the access to the network Non discrimination and transparency Functional separation 12

13 When Regulate? Indirect effect which depends on the importance of effects 1 and 2 Introduction of the regulatory policy Effect 1 Impact on the wholesale market Effect 2 (+) Consumption decission at wholesale and retail Investment % of incomes used for investment Impact on the retail market (=) Impact on the revenues Economic environment Impact on the GDP Impact on the employment rate 13

14 3. The ladder of investment 14

15 The ladder of investment Bitstream access ULL Network Un incremento de precios del servicio mayorista de acceso indirecto reduce la demanda de este servicio, aumentando las de cable y ULL Servicio Mayorista 1 Op. Tradicional Servicio Mayorista 2 Direct Constraints Mayorista ULL Mayorista Cable Efecto 1 Mercado Mayorista Una subida del precio mayorista debilita la capacidad de competir en el mercado minorista e indirectamente hará disminuir la demanda del servicio mayorista Minorista s/ ULL Minorista s/ Cable Minorista 1 Minorista 2 Minorista 3 Efecto 2 Indirect Contrains (*) Fuente: Market Analysis in the presence of indirect constraints and captive sales, Journal of Competition Law and Economics,

16 The ladder of investment Wholesale Market The availability of wholesale access alternatives for the commercialization of retail broadband services makes the incumbent facing a direct restriction on their prices of bitstream and have little incentive to increase them, for two reasons: - Due to the impact on revenues from the migration to other wholesale alternatives as for instance ULL. - Due to the loss of market share in the wholesale market in favor of the vertically integrated operator The existence of vertically integrated operators (cable/ull) introduces an indirect constraint at wholesale price level: Retail Market The demand of those ISP s who use the bitstream could decrease in favor of the wholesale services provided by the operators who own infrastructure. The SMP Operator so that, would not be able to retain the market share of these ISP s due to the access alternatives available at the marketplace. 16

17 The ladder of investment La Coruña Lugo 32% 34% Pontevedra 33% Orense 32% Asturias 26% Leon 29% Zamora 29% Palencia 32% Valladolid 31% Salamanca 32% Avila 40% Cáceres Badajoz Cantabria 27% Segovia 46% Toledo 40% Burgos 34% Vizcaya 26% Guipúzcoa 37% Alava 34% Navarra 45% La Rioja 34% Soria 42% Guadalajara 50% Madrid 49% Ciudad Real 40% Cuenca 38% Albacete 14% Zaragoza 44% Teruel Huesca 43% Valencia 24% Alicante 34% Castellón 28% Gerona Lérida 51% 50% Barcelona 49% Tarragona 57% Huelva Córdoba 43% Jaen 42% Murcia 35% 24% Sevilla 43% Granada Almería 47% 43% Tenerife Málaga Cádiz 51% 69% Las Palmas 32% 71% Baleares 48% Ceuta Melilla Rangos de cuotas 0% 35% 45% 100% 17

18 4. The regulation of broadband in Next Generation Networks 18

19 The regulation of broadband in Next Generation Networks RETAIL Access to BA Effective competition Without ex ante obligations? NO WHOLESALE 4. ULL 5. Bitstream mayor Yes No regulation Principle of minimum intervention/regulation Regulate at wholesale level rather than at retail Encourage investment and innovation Regulation applied to emerging markets? Analyse the competition level at retail market Regulation should have a minimum impact on the market conditions Principle of harmonization across EU Countries The ex ante remedies shouls be moderated and be adjusted to the competition problem Effective competition taking in account the ULL obligations? Yes Regulation of ULL No regulation of bitstream NO Regulation of ULL Regulation of bitstream 19

20 The regulation of broadband in Next Generation Networks Should the services provided under a NGN infrastructure be regulated? Can they be considered as innovative services? Which regulation? - Cost Based - Reasonable prices? 20

21 The regulation of broadband in Next Generation Networks The imputation test requires the fulfillment of the following expression: Other aspects to consider: p w + C net + C retail Difference between offer and promotion Specification of a methodology of analysis and information requirements to periodically check the possibility for other operators to retort the SMP offers/promotions 21

22 5. Alternative access technologies: Costs comparison 22

23 Alternative access technologies: Cost comparison % Hogares 100% Zonas presencia redes fijas 90% alternativas 80% 70% Tecnologías inalámbricas Sin banda ancha 60% 50% >5.000 hog./ mun. Brecha Digital >2.500 hog./ mun. >150 hog./ mun. 40% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Zona de muy baja penetración en BA % Municipios The decision on applying a infrastructure based competition vs a service based competition will depend on the possibility of having alternative networks. In this regard, the economic as well as the socio-demographic conditions will be key for guaranteeing a co existence of fixed and mobile infraestructures which eventually will contribute to increase the playing field competition according to the customers consumption decisions 23

24 Coste Mensual por usuario conectado Coste Mensual por usuario conectado Alternative access technologies: Cost comparison Comparativa de tecnología para espacio urbano 50,00 45,00 40,00 35,00 30,00 25,00 20,00 15,00 FTTH FTTX HFC WIMAX 15 Mbps It can be observed that when deploying NGNs in urban areas with high penetration rates, the FTTH solution is the most suitable. Nevertheless, when the speed is < 20 Mbps, the results show that WiMAX is much profutable that FTTx solution 10,00 1% 11% 21% 31% 41% 51% 61% 71% 81% 91% Penetración del servicio Comparativa de tecnología para espacio rural 100,00 FTTH VDSL HFC WIMAX 2 Mbps 90,00 80,00 70,00 60,00 50,00 40,00 30,00 20,00 10,00 1% 11% 21% 31% 41% 51% 61% 71% 81% 91% Penetración del servicio In the case of rural areas, it can be observed that the provision of BA services with WiMAX is more inexpensive access technology. In this regard it is important to point out that nowadays there is an increasing debate in Europe concerning the public vs the private investment. 24

25 6. Benchmark: UK, Spain and Austria 25

26 Benckmark 26

27 27 7. Recommendations

28 Recommendations 1. The reality proves that no homogeneous conditions exists in the broadband market across the country. In fact, NRAs could identify particular areas where a infrastructure based competition exists due to the existence of cable and mobile operators. 2. The existence of indirect constraints at the wholesale level, constitutes by itself a mechanism to guarantee that the incumbent operator is not willing to increase the prices of the wholesale service (specially bitstream) because of the effects that it might have on the market share at both, the retail and the wholesale level. 3. An SSNIP due to the effect that it might have on the demand of ISPs could have an impact on the revenues. 4. The existence of access alternatives as ULL and mobile executes a direct constraint which disciplines the behavior of the SMP Operator. 5. The investment associated to the NGN deployment is leading the European Commission to open the debate on how the risk premium should be captured in the regulated wholesale prices (real option theory). 6. Since there is not homogeneous conditions across the country, the NRAs in the market analysis might consider a geographic scope smaller to national. 28

29 Antonio García Zaballos Fernando Huerta Antonio García Zaballos is PhD in Economics at Universidad Carlos III de Madrid. Currently he is senior advisor to the Global ICT Department of the World Bank and expert to the International Telecommunications Union (ITU). Móvil: Areas of expertise: Telecommunications Regulation Strategy Academin Background: PhD in Economics, Universidad Carlos III de Madrid PDD IESE business School Higher Education en Administración de Empresas en Heriot-Watt University (Edinburgh) Bachelor degree in Business Organization at Universidad de Salamanca Dr. García Zaballos was Head of the Cabinet for Economic Studies and Regulation (GEER) at Telefónica España, and was also Deputy Director at CMT, the Spanish telecoms regulator, where among others he was responsible for market analysis and economic issues applied to the estimation of the cost of Universal Service Obligations (USO), Fixed-Mobile convergence, regulatory policy applied to bundling, regulatory policy applied to retail and wholesale services and auditory of cost accounting models. He has a broad experience in economic consulting applied to the telecom sector in countries as: Saudi Arabia, Dominican Republic, Guatemala, Costa Rica, Argentina, Latvia, Bulgaria, Poland and Albania. Additionally, Dr. García Zaballos is a professor at Instituto de Empresa Business School and University Carlos III in Madrid, where he teaches telecoms economics and applied finance at the Global MBA and the Master in Industrial Economics. 29