How Asia-Pacific States can secure Competitive Advantage through Regulating for New and Emerging Communications Developments

Transcription

1 ASIA-PACIFIC TELECOMMUNITY Document: 12 th APT Policy and Regulatory Forum PRF-12/INP-18(R1) May, 2012 Bangkok, Thailand 21 May 2012 How Asia-Pacific States can secure Competitive Advantage through Regulating for New and Emerging Communications Developments Prepared by Mr. Robert David Borthwick Contact: Mr. Robert David Borthwick Axiata Group Berhad Tel: Fax:

2 How Asia-Pacific States can secure Competitive Advantage through Regulating for New and Emerging Communications Developments Axiata 21 May 2012 Rob Borthwick Vice President, Group Regulatory Affairs, Axiata Group Berhad company confidential

3 Agenda 1. About Axiata 2. Current background Macro Economic and Sector Prospects 3. Long Term View Opportunities for Sustainable Growth and Increasing Prosperity 4. Enabling Regulatory Environment for New and Emerging Communications Developments company confidential 2

4 About Axiata: Owned and based in Asia. Investing in communications networks and services regionally. Robi, Bangladesh Re-branded and expanded TMI Ownership: 70.0% Market position: #3 Hello, Cambodia Regional Reach in South and South East Asia Idea, India Ownership: 19.1% Market position: #3 Ownership: 100.0% Market position: #5 Portfolio of Developed and Emerging Market Assets More than 180 million Mobile Subscribers With the broader purpose of Advancing Asia Dialog, Sri Lanka Ownership: 85.0% Market position: #1 M1, Singapore Ownership: 29.4% Market position: #3 XL, Indonesia Celcom, Malaysia Ownership: 100.0% Market position: #2 Ownership: 66.7% Market position: #3 Axiata Group Regulatory / APT PRF May

5 Agenda 1. About Axiata 2. Current background Macroeconomic and Sector Prospects 3. Long Term View Opportunities for Sustainable Growth and Increasing Prosperity 4. Enabling Regulatory Environment for New and Emerging Communications Developments company confidential 4

6 Next 10 years will see lower growth than recent decades Two decades to 2008 were a period of considerable prosperity, a long boom, but a significant proportion of global growth was funded by Western economies running budget deficits. Stimulated consumption and created economic growth in exporter countries, including in Asia. The recession and the continuing Eurozone crisis suggest that the next 10 years will see lower levels of global growth. Growth estimates in World, Advanced and Emerging and Developing Economies Source: IMF Axiata Group Regulatory / APT PRF May

7 Core macroeconomic forecasts presume current Eurozone crisis is progressively resolved. Most likely scenario for SE and South Asia is modestly slower economic growth during Asian countries will continue to grow, but at some 2-3% p.a. lower levels than during the period before If other World regions stabilize, then higher growth may resume. But whether this happens is far from certain and it is more useful to consider different scenarios: 1. Stronger economic growth returns during From growth returns to long boom levels. How lucky do we feel? Not very < 10% 2. Lower economic growth during Asian countries continue to grow, but at 2-3% p.a. lower than prior to Most likely 50 to 60% 3. Major EU-led global economic downturn costs 2-3%p.a. more growth during Becoming more likely 30 to 40% Even in previously high-performing nations of SE and South Asia there is a significant risk of low growth or even recession as a consequence of international economic failure. In particular, if there are significant national departures from the Eurozone, beyond the likely imminent departure of Greece, and if these are disorderly, expect a global downturn. Axiata Group Regulatory / APT PRF May

8 Asian communications sectors are becoming mature with consequent lower levels of organic growth. Penetration levels are increasing but markets are becoming ex-growth. National Market Penetration : National Market Revenue Growth : % 60% 160% 140% 120% 100% 80% 60% 40% 20% 0% 75% 73% 86% 44% 41% 30% 27% 22% 23% 17% 15% 17% 7% 8% 11% 98% 69% 52% 29% 26% 108% 81% 65% 42% 35% 120% 97% 80% 60% 44% 131% 109% 90% 72% 52% 153% 157% 147% 144% 140% 137% 120% 98% 82% 59% 129% 104% 109%113% 105% 98% 91% 65% 70% 75% Markets approach 100% penetration % 40% 30% 20% 10% 0% 48% 49% 46% 47% 45% 42% 44% 43% 24% 31% 22% 40% 37% 40% 28% 20% 32% 25% 18% 15% 35% 18% 17% 16% 14% 13% 6% 30% 25% 8% 7% 27% 22% 14% 21% 14% 11% 15% 11% 8% 8% 7% 7% 6% 5% 4% 4% 3% Modest growth continues (at a reducing level) 10% 9% 8% 7% 6% 6% 4% 3% 2% 1% Axiata Group Regulatory / APT PRF May 2012 Source: Frost & Sullivan, Analyst Report, Internal Analysis 7

9 Against this background communications providers face the need to address new competitive dimensions. Voice is key Voice is commodity. Data is key Data is commodity. Content and applications are key. Voice coverage (quality) Voice and SMS (price) VAS content (product range) Broadband (video speed)? Enterprise Applications Advertising Information brokering Transactions/ Payments M2M OTT plays Data will become ubiquitous, competition will be more heterogeneous including and beyond regulated communications services sector. Axiata Group Regulatory / APT PRF May

10 And economies must address increasing broadband penetration diversity Detecon APEC study 2011 Economic Freedom Index Fixed Broadband Penetration Richer APEC GDP/Capita > 25K p.a. Poorer APEC GDP/Capita < 25k p.a. AXIATA investment locations CHL SIN HKC CDA NZ USA AUS 70 THA PE MEX MAS APEC average ROK CT JPN PNG BLD CAM IND VN INA RP SLK PRC RUS Focused on NGN deployments 40 0,4 0,5 0,6 0,7 0,9 Human Development Index Source: Detecon for APEC, The Heritage Foundation 2011, United Nations, 2011 Axiata Group Regulatory / APT PRF May

11 Agenda 1. About Axiata 2. Current background Macroeconomic and Sector Prospects 3. Long Term View Opportunities for Sustainable Growth and Increasing Prosperity 4. Enabling Regulatory Environment for New and Emerging Communications Developments company confidential 10

12 Sustainable growth and increasing prosperity in Asia-Pacific Expanding communications market: Critical success factors: A. Liberalization / introduction of competition B. Provision of resources to allow competition to be effective (spectrum, ability to build networks) C. Complemented by global mobile technology development. More-constrained communications market: Critical success factors: Which provided: New entry and appropriate market incentives Raw material for the growing industry Dynamic efficiency which has substantially reduced costs, increased customer numbers and service range. Which will provide: A. Sustaining effective competition B. Access to substantially increased spectrum resources with different characteristics C. Consistent, open technologically-neutral regulatory approach to networks and services D. Overall financial relationship between sector and national economy. Appropriate market incentives Data ubiquity with high capacity at low cost Right level of regulation of different activities which is investment-grade and enables new technology Public position is the basis for investment decisions by private actors. Axiata Group Regulatory / APT PRF May

13 A. Sustaining effective competition Expanding communications market : Mobile competition Extensive market entry Vertically integrated mobile competitors VAS providers Fixed competition reflects number of extensive fixed access infrastructures (N) Where N = 2 (US) fixed access duopoly In countries where N = 1 EU-led model of service competition, ladder of investment and unbundling Where N = 0 dynamic mobile creates low cost substitute. More-constrained communications market : Mobile competition will becomes more variable Market consolidation to reduce costs Market extension / diversification to grow revenues Vertically integrated model still most common but new niches will emerge and be occupied Over The Top Players take strong position Fixed competition continues to be set by historic initial conditions N = 2 continuing duopoly N = 1 incumbent fibre deployment removes ladder of investment, leaving residual service competition (based on regulated access). Urban fibre-provider competition possible in business-dense areas. N = 0 urban business-dense fibre-providers only. Axiata Group Regulatory / APT PRF May

14 B. Access to substantially increased spectrum resources with different characteristics APEC economies Spectrum liberalization tech. neutral Spectrum refarming framework Status 4G license Status Digital dividend Ratio mobile to fixed line subscriptions mobile BB penetration / 100 inhabitants Canada : Chinese Taipei planned planned completed planned 1.8 : Republic of Korea - - completed planned 1.9 : United States yes yes completed completed 2.0 : China : New Zealand yes yes completed planned 2.5 : Australia - yes planned planned 2.7 : Japan - - completed planned 2.7 : Hong Kong, China yes yes completed not started 2.9 : Singapore yes - planned : Mexico : Chile : Indonesia : Brunei Darussalam : Russia : Viet Nam yes yes not started planned 5.6 : Malaysia yes yes planned planned 7.0 : Peru yes planned planned planned 8.3 : Thailand yes planned - planned 9.2 : Philippines : Papua New Guinea : The four major levers of effective spectrum management are spectrum availability, spectrum assignment, license conditions and spectrum liberalization and refarming. Right set of license conditions are imperative to increase geographic coverage e.g. first coverage of all white spots, then move to urban deployment The digital dividend will have a massive effect on rapidly increasing broadband penetration and coverage in emerging economies. So far, only the US has released the digital dividend spectrum Poorer APEC economies can benefit most from spectrum liberalization and refarming to promote mobile broadband deployment. Spectrum liberalization important to accommodate for converging markets Source: APEC broadband survey, Detecon analysis, data not available for fields with - Axiata Group Regulatory / APT PRF May

15 But this potentially indicates an area of competitive concern While Asia Pacific is not homogeneous, competitor regions may be able to complement more widely deployed fixed infrastructure with production of larger amounts of harmonized spectrum increasing their aggregate data capacity advantage at low cost. Region Rhetoric Structure Recent examples US digital infrastructure will be a key source of competitive advantage in the knowledge economy. There is no policy more important for digital infrastructure than assuring that scarce spectrum is efficiently allocated. - Larry Summers, June 28, 2010 FCC Rules allowing single channel sharing by broadcasters. Proposed FCC auction MHz band for commercial wireless services. EU intelligent and coherent use of radio spectrum will be the backbone of an Internet explosion [ ] Get it wrong and it will be a bottleneck, which will hold back development of the sector, undermine potential job creation, and mean we risk losing our competitive edge - Neelie Kroes, 14th June 2011 EC Radio- Spectrum Policy Committee RSPG argues the case for new broadband in 700 MHz is "irresistible". Will table second digital dividend proposal at European RSPG June meeting. Expect competitive advantage to accrue to regions which maximize creation of harmonized broadband spectrum and countries which use created spectrum efficiently Axiata Group Regulatory / APT PRF May

16 Agenda 1. About Axiata 2. Current background Macroeconomic and Sector Prospects 3. Long Term View Opportunities for Sustainable Growth and Increasing Prosperity 4. Enabling Regulatory Environment for New and Emerging Communications Developments company confidential 15

17 C. Consistent, open regulatory approach to communications Communications license Single, simple set of rules for commercial operation of communications networks and services Without service or technology distinctions Communications providers determine level and boundary of their operations on a commercial basis. Spectrum permission Simple description of spectrum which is being made available to a provider Or which is unlicensed With terms which deal only with spectrumrelated issues, e.g. period of allocation, payment terms, management of interference. Again without service or technology distinctions VAS provider code A code which is managed by the NRA / Value Added Services- (VAS) regulator With terms which deals only with VAS provision: consumer protection, transparency, pricing etc. VAS providers must register and be in good standing to offer services and to contract with communications licensees. National legislation dealing consistently with horizontal concerns: customer identification, privacy, unsolicited communications etc. Axiata Group Regulatory / APT PRF May

18 D. Financial flows between sector and economy a key, if largely unacknowledged, producer of future digital divides Spectrum is allocated administratively. General tax load on communications is low / reflective of other sectors General tax load on communications is medium / somewhat above other sectors Some APT countries here General tax load on communications is high / substantially above other sectors Spectrum is allocated through objective marketbased process. Spectrum is allocated through market-based process but with high reserve prices. EU US Australia / NZ Some APT member countries here Some APT member countries here Axiata Group Regulatory / APT PRF May

19 Bridging the Digital Divide APEC Member Governments think that Universal Service provision and national PPPs are among the top measures for promoting rural broadband. Question: Please rank the following measures according to their importance for promoting rural broadband access Universal Access and Service Fund 6.0 Universal Service Obligation 5.8 National PPPs 5.1 Fixed regulatory intervention (e.g. ULL, BSA) Mobile regulatory intervention (e.g. licensing) Regional PPPs 3.3 financial intervention (e.g. tax incentives) 2.7 Detecon for APEC from: CT, HKC, MAS, NZ, PE, TH, VN average ranking (1=min; 6=max) Axiata Group Regulatory / APT PRF May

20 Historic performance depends on Critical Success Factors Universal Access Service Fund performance has been marginal Country A Country B Country C Country A - mobile Country A - fixed Country B - mobile Country B - fixed What constrains UAS performance? i/ Tax-led vs. Objective-led; ii/ institutional factors favour state-owned operators; iii/ communal solutions vulnerable to market provision. Axiata Group Regulatory / APT PRF May

21 Thank You Rob Borthwick VP, Group Regulatory Affairs, Axiata Group Berhad Mobile: Axiata Group Berhad 20

22 Reduced revenue growth reflects a number of trends: maturity, competition and substitution, bringing prices into line with costs. Unit Profitability SMS Voice 3 rd party IM IP-based substitution 3 rd party VoIP IP-based substitution Data Bypass 3 rd party data Service Axiata Group Regulatory / APT PRF May

23 Investment return Risk level Private sector risk Addressing the Digital Divide through action in fixed Two concepts: the ladder of investment through infrastructure based competition while the PPP approach promotes service based competition. high Ladder of investment approach in fixed high Public Private Partnership approach Fiber ULL Sup Loop Full ULL Line sharing Self build Infrastructure Duct Access Infrastructure competition Full privatization Build/Own/Operate Build/Operate/Transfer Design/Build/Operate UASF, USO, grants, tax exemptions Bitstream Resale Network competition Design/Build/Maintain Design/Build low Service competition low Investment cost Product differentiation high Ladder of investment approach aims to stimulate (fixed) infrastructure competition. Applied, for example, in Hong Kong. Continuing regulatory intervention is necessary to overcome inherent tensions between fixed incumbent and entrants in this approach. low low Government Private sector participation PPP approach supports service competition. Applied, for example, in Singapore. high Regulatory focus on bitstream or resale of fixed incumbent services facilitates service competition. Axiata Group Regulatory / APT PRF May