Embedding Regulation in an Industrial Policy Framework for Emerging Countries

Transcription

1 Embedding Regulation in an Industrial Policy Framework for Emerging Countries Advancing in Telecommunications Regulation -1st Black Sea and Caspian Regulatory Conference- İstanbul, May 2006 Hasan Alkas Deutsche AG

2 Agenda Brief Notes on Deutsche Industry and Technology Dynamics The overall Industrial Policy Framework Telecommunications production chain The investment ladder concept Incentives for Infrastructure Investment Page 1

3 An integrated company Top positions in important markets Broadband/Fixed Network, Business Customers and Mobile Communications: these are the three essential growth areas of the international telecommunications markets. As an integrated TC company, Deutsche focuses on these three strategic business areas, thus enhancing its previous four-pillar strategy. These three business areas will be maintained by five business units in the future: T-Com, T-Online, T-Systems Business Services, T-Systems Enterprise Services and T- Mobile Page 2

4 Realignment to three business areas The future course is set Deutsche ==========!" Broadband/ Fixed Network Business Customers Mobile Communications T-Com T-Online T-Systems Business Services T-Systems Enterprise Services T-Mobile Page 3

5 Industry and technology dynamics Beside regulatory and industrial policy conditions market and technological drivers influences the industry structure Driver Network transformation Outcome Massive growth of data traffic Flat growth of voice traffic Maturity of IP technology Open standards and architectures Central Functions Central Functions Services Services Control Control Transport Narrowband Architectural change from a circuit-switched, network optimized for voice to a packet-switched network for various traffic types (voice, data, video and multimedia) over broadband access Central Functions Application Plane Control Plane Transport Plane Broadband interdependent layers New service opportunities New competitive environment New network architecture New flexibility and operations Access competition Changing regulatory environment Industrial Policy setting New access possibilities Page 4

6 Regulation in an industrial policy framework Industrial Policy Fiscal Measures State Demand Labour Market Conditions State as Shareholder State Support Competition Policy Tax exemption Tax burden E-Government Broadband competition BB-Competiton based on ULL Line-sharing DSL-Resale BSA Cable Network Operators Fixed-Wireless Access Civil cervants Employment law Control exercised Take-over Protect. Debt ratio Incumbents Infrastructure aid R&D-support Subsidies to foster ICT Merger control Role of Cartel Authority Voice competition Local, national and international calls based on low interconnection charges Fixed-Mobile Substitution VoIP Fixed Regulation Mobile Page 5

7 Telecommunications production chain Overview of Production Chain of Wholesale Costumer NetCo. ServCo. SalesCo. Infrastructure based Competitors Long Distance Carrier Access Transport Systems, Platform Operations Basic- Services Value Added Services Application Content Billing & Collection End-user Devices Network Management, Marketing, Sales ISPs Reseller Access Transport Systems, Platform Operations Basic- Services Value Added Services Application Content Billing & Collection End-user Devices Network Management, Marketing, Sales Process = Competitor s production chain = Incumbent s production chain Clear preference for effective competition, which is orientated to market outcomes and not purely on a certain market structure. Page 6

8 The empirical evidence does not prove the investment ladder concept The ladder of investment is used as a policy instrument, even in cases where infrastructure based competition works already. Value Chain Broadband Subscriber loop Broadband link Backhaul Backbone Service Ladder Concept Own Network LLU Line Sharing Bitstream Access Resale Investment Cost of Competitors 1. Ask for remedies and a wholesale price level, which is orientated on the leading competitor 2. As a fallback, ask for stepwise increase wholesale prices a) This provides incentives for own Infrastructure investments b) Reduces reliance on the incumbent and regulation Relevant Regulatory Instruments are: a) Sunset Clauses b) Real Options c) Access Holidays A modified application needs a focus in particular on dynamic pricing of access products. Page 7

9 Incentives for new infrastructure investment There is a need for a favourable regulatory environment for investment and innovation The main incentive to foster investment in new infrastructure is to avoid regulation Emerging markets are characterised by innovation, rapid market growth, volatile market shares Leave it to market dynamics to form the market In theory, three regulatory instruments, which provides incentives for own Infrastructure investments, are possible Access Holidays Provides the right signal to make risky investments, especially if it is combined with the anticipation, that after the holiday there will be effective competition and no need for ex ante regulation any more Sunset Clauses Provides the competitor the right signal not to rely on regulation for ever... Real Options Integrate real options into cost calculation (as risk adjustment factor) for access prices, to provide the right signal for make-or-buy decisions Page 8

10 Back-up Page 9

11 Use the least interventionist remedy by focusing on the consumer benefits, rather than a market structure Main remedies currently applied or under discussion for Incumbents Retail markets Wholesale markets Retail price control [ex ante, ex post with or without notification], to avoid Transparency Availability of information Market definition SMP designation Remedies Excessive Pricing [Price Cap, cost orientation, benchmarks] Price discrimination [cost orientation or benchmarks] Predatory pricing [cost orientation or benchmarks] Unfair Bundling Avoid lock-in via rebates Avoid leveraging Non-discrimination Accounting separation Transparency of wholesale and transfer prices Mandated access Access to unbundled local loop Reference versus individual offers Non-reciprocal Interconnection Bitstream Access (also Stand-Alone BSA) Naked DSL (under discussion) Unbundled (access and calls) Resale Call-by-Call and Pre-selection Ex ante price control and cost accounting Price cap Cost orientation/burden of proof/cost models/benchmarks Page 10

12 Legacy versus New Infrastructure The history of infrastructure should matter for assessing regulation The evolution of network development must play an essential role, when it comes to regulatory assessments. Legacy networks, developed in a monopolistic environment need certain different treatment However, with growing diversity of access forms it is questionable whether the local loop is still a fixed access bottleneck? Technologies enabling multi-access to the end-user increase competition intensity by offering by-pass possibilities and thereby reduces market entry barriers. Networks evolved in a completely competitive environment opens same opportunities to all market players in similar manner and therefore does not need to be regulated. Be cautious by using the technology neutrality concept. It is mainly inequitably used to leverage regulation from traditional telecommunications markets into newly emerging markets such as, to Mobile or VDSL in mass market. Page 11