Perspective of the Hungarian regulator on the Framework Review

Transcription

1 National Telecommunications Authority Hungary Emília Nyevrikel member of Board of the Hungarian regulator Bonn April 24-25th 2008 Perspective of the Hungarian regulator on the Framework Review

2 How Review influences 3rd market analyses in Hungary 2 Highlighted areas: Fixed market Broadband market Mobile market Functional cto separation sepaato

3 Where are we now in market analyses? 3 Markets 1st market analyses (MA) 2nd MA 3rd MA Finished on 2nd place 1st who finished within EU within EU 17 Not notified Impact analyses 18 Finished 1st round

4 Fixed market : nationwide monopoly 1995: 14 regional monopolies (LTOs) 2001: 5 LTOs 2007: 3 LTOs Consolidation of network operators

5 Tendencies in fixed telephony, Incumbents Alternatives Due to consolidation: Incumbents are alternative market power of incumbents operators (ALTs) as are closer to each other well: they provide service in Due to competition: each other s territory weakened market share of Incumbents as ALTs had: incumbents (75-85%) 42% market share in CS (2007) 28 ALTs (not incumbents): weak market power Merges of ALTs in

6 Competition in fixed telephony Carrier selection fast increase ( ) Tele2 reached its quickest success in Hu on top: 33 of subscribers, 14% of traffic Tele2 left the market (bought up by Invitel, network owner) slower increase (+1% subscr. traffic: -14% WLR: not introduced Quick and short success Voice in itself is not a target of investors any more

7 Decreasing telecom prices % Nominal retail price reduction Substantial WS price reduction , , ,7 103,6 103,9 CPI ,2 TPI ,3 99, ,6 96, %

8 Shrinking fixed market 8 Number of fixed lines per 100 inhabitans In HU fixed penetration reached 60,0% 50,0% 56,8 Eu15 its top earlier and at a lower value than in Eu 40,0% 36,3 30,0% HU Good conditions for substitution 20,0% 10,0% 0,0% Source: ITU, NHH

9 Fix/Mobile substitution 9 Source: 13th Impl.R. Penetration Call ratio: mobile/fix Mobile Fix Ratio % % mobile /fix (Based on minutes) DE ,7 0,34 AT ,8 2 HU ,3 2 In HU (and AT) both penetration and usage of mobile phones exceeds that of fixed substantially. Fix and mobile prices got closer and it helped substitution. Different case in Germany. Revenue/minute mobile, fix / perc 0,28 0,26 0,24 0, ,20 0,18 0,16 0,14 0,12 0,10 Implicit price = revenue/traffic Source: RTR, NHH

10 Infrastructure based competition: voice over BB 10 Competition from 2 directions Voip channels (isp, ktv) : 3,6% in Hungary (2007). 2-3 play packages, cheaper voice, ~free on-net calls Use of internet for voice (skype, MSN, etc). Overall tendency in Eu: 17% of those who have internet, use it for voice. This is twice as much in Eu10 countries. New choices for customers, new competitors for incumbents. Reduction in CS traffic is offset by voip traffic.

11 Fixed call markets (3-6) 11 Weakened market power of incumbents Strong mobile substitution Emerging infrastructure competition Strong WS regulation (M8-9) Deregulation is justified. Market evolves in direction of competitive market.

12 Broadband market 12 Eu goal: BB for everybody! Regulation should support BB competition where it is not effective (abolish bottlenecks). Penetration ti Jan % 20% 15% 10% 5% 0% 20,0% 12,8% 14,2% Eu10 Hu Eu27 +10,9% -29% Change in penetration in Hu 2007/04: 350% increase 2007: 43% incr. (Eu: +24%). 2nd highest rate in Eu Naked dsl: 2006: ALTs 2007: incumbents

13 Market players in fixed BB market 13 pstn networks CATV networks 5-3 incumbents isp-s dsl ~120 co ~450 CATV companies 56% penetration, 86% homes passed BB with cable modem Unlike fixed voice BB had many market players Unlike fixed voice, BB had many market players from the beginning. Strong presence of CATV-s.

14 Structure of fixed broadband lines by technology (2008, Jan) 14 Eu27 Hungary dsl; 80% other; 20% wireless; 6% dsl; 53% cable; 41% Source: 13th Imp.R. Share of other technologies in BB (especially CATV) is much higher in Hungary than in Eu27

15 Reasons for high CATV share in Hungary 15 High CATV penetration (started in early 1990s). In countries where dsl was launched early, it gained higher market share, because (1) that time there were no BB devices for cable networks, (2) it is easier to gain customers on a growing market (1st moover advantage, less switching cost). In Hungary dsl was launched later, it was easier for CATV companies to gain market share in BB. CATV companies were challenged in tv business with low price packages by a satellite company (Digitv). Digitalization of terrestrial broadcasting also decreases the posibilities of CATVs in tv business Look for new business

16 Tendency of share of dsl 16 Source: 13th Impl.R. Change in dsl/total BB ratio 85% 80% 81,6% Share of dsl/cable modem in new sales in Hungary Source: NHH 75% 70% 70% 65% 30% 61% 60% 20% 55% 50% Jan Jul Jan Jul Jan Jul Jan Share of dsl decreased everywhere in Eu. This reduction is bigger in Hungary. 60% dsl 50% 40% 2007 Q Q Q Q Jan+Feb cable New tendency from mid2007: high growth rate of cable modem (+ high share of mobile BB in new sales)

17 Regulation of BB in 3rd Market Analyses 17 Share of dsl within fixed BB is very likely to fall under 50% in Hungary (with the very resent growth rate cable modems will exceed dsl-s within one year). (There are 6 countries where share of dsl is <50% even today.) If we take mobile BB into consideration as well: dsl; 48% WIFI; 6% mobile BB; 10% even today dsl is under 50% with high growth rate of mobile BB, market share of dsl can easily get close to 1/3 cable modem; 36% Market power ( SMP positions) may change significantly in some countries in close future.

18 Wholesale dsl market (bitstream/bs+llu) 18 In Hungary fewer pstn lines are used for WS (dsl) service than in the Eu27 Eu: 21% Hu: 1 % Structure of WS lines: Eu27 Hungary FLLU; 3% PLLU; 2% Resale; 31% Bstream; 17% PLLU; 15% FLLU; 37% Bstream; 95% Source: 13th Impl.R. High share of bitstream, low share of LLU

19 Regulation of WS dsl in Hungary 19 pstn network WS services Bitstreamt LLU Regulation - retail Ө price - transparent service conditions FDC/LRIC based price RUO Impact retail Ө: incentives for investment is at network owner small room for competition: within mark up incumbent controls prices Weak rival average return (WACC) at incumbent more freedom of ALTs to set prices and service conditions more investment incentive at ALTs Incumbent s interest: to support BS rather than LLU Stronger rival

20 Impact of cable competition on dsl 20 (1) (2) (3) (4) Incum- CATV bent retail retail BS LLU price dsl WS price price price Reta ail marke et price (1) In case of strong CATV rivals: if they offer cheap packages (2) incumbents have to lower their retail prices (3) WS price of BS will also be lower (4) retail price can get very close to LLU price ALTs are not able to compete with LLU-based dsl lines Strongest rival of dsl is cable modem. Incumbents react on CATV s steps on market. This may cause unintended, inappropriate relation between BS and LLU regulation.

21 Mobile market 21 Market share Penetration 60,00% 120% +10,7% 50,00% 40,00% 30,00% 20,00% 100% 80% 60% 40% 3 MNOs operating on the same frequencies 2G/3G) market SIM: higher growth in 2007 partially derives from BB mobile BB lines: 10% of total BB 10,00% 0,00% Pannon T-Mobile Vodafone % 0% 2008: Year of mobile broadband Launch of mobile tv too Mobile voice market shares: ~ stable for years It seems MNOs want to Mobile voice market shares: ~ stable for years. It seems, MNOs want to change their market positions on new markets: BB + tv

22 Intention to harmonise MTRs (Comission, ERG) 22 Issues Hungary Faster reduction of MTRs 56% (2009/2003) Symmetric MTRs for MNOs From 2009 Cost based tariffs BU LRIC from 2007 Reduction of differences between countries Eu27: 9,57 Hu: 9,46 c/min (2007 Oct) Steps of Hungary are in line with the Eu intentions

23 Change in mobile termination rates 23 Hungarian mobile SMP termination rates 45-56% UF/minute H Glide path: ~ 45% 6,5 c Year Magyar Telekom Pannon Vodafone

24 Market 15 - MVNO 24 Regulation in the 1st+2nd MA: no SMP identified on M15 No MVNO in Hungary on commercial basis either Changing market circumstances: Rigid market shares in the last 3 years in the retail market Increasing on-net traffic. Subscribers seem to get stuck at MNOs Few churn. High switching costs/advantageous t packages to retain customers No reduction in retail prices in the last 2 years Good conditions for MVNOs Eu: M15 is not relevant to declare M15 to No SMP so far be relevant needs strong justification

25 Functional separation (1) 25 For decision the following criteria have to be evaluated Criteria for evaluation Is there competition on the market? Are there bottlenecks? How is it influenced by technological development? Anti-competitive behaviour of incumbent? Effective regulation? Dsl: Competing infrastructures: Situation in Hungary - Low retail penetration, very low LLU penetration - weak service based competition - ktv: strong - wireless, fibre, mobile: emerging In pstn: yes. In short term only LLU or bitstream is a reality to compete with There are several emerging ALT technologies. The question is: if FS is introduced, will it have enough time to influence the market? Or meantime ALT infrastructures will have strong market power? Yes. Especially non-pricing issues (late service delivery, quality, written service contract, etc) 1st MA: Prices: yes except: PLLU (30-70% price decrase, ~20 one time fee deleted. Non-pricing issues: no 2nd MA: Strong non-discrimination i i conditions (equal delivery deadlines, discounts, bonus of managers+employees, separated WS positions, etc)

26 Functional separation (2) 26 Criteria for evaluation Infrastructure or service based competition? Situation in Hungary First priority of regulation is to support infrastructure-based competition. FS supports service based competition. On one hand: FS may delay infr. competition. On the other hand: FS may have positive impact: recruition of subscribers and have capital to step further on investment e t leather e Cost benefit analyses Against high cost of introduction and maintenance of FS (at incumbent + regulator) less investment incentives at incumbent For useless capacity of infr. based competition

27 Impact of regulation and competing infrastructure on FS 27 Effective structural regulation Ineffective regulation Ineffective regulation in WS dsl (Eg. DE, FR, NL: successfully of WS dsl of WS dsl launched LLU) Not strong competing Strong competing No/weak competing infrastructures infrastructures infrastructures Use of FS is questionable Few reason for FS FS to be considered (benefits > costs?) Hungary

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