Andrea Renda

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The review of the regulatory framework for
e-communications whats missing?

• Andrea Renda
• Senior Research Fellow, Centre for European
  Policy Studies
• Telia Sonera Workshop, 19 February 2007, Riga

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Intro wheres the truth?
Intro wheres the truth?
The proposed review
New competitive dynamics
Holistic policy-making
Conclusions a Roadmap
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Beacons of hope
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• The Commission showed encouraging results
• Broadband lines reached 70 million and are
  predicted at 136 million in 2010
• 2G Mobile now mature, and 3G slowly growing
  (mostly UK and Italy)
• VoIP growing but still does not exert pressure on
  PSTN telephony
• Investments and MA are recovering

According to the European Commission, available
evidence suggests that the NRF has delivered the
expected results
European investment ... in recent years has been
as high as, if not higher than, those made in the
US and Asia
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1997-2003
4
Average annual per capita investments in
telecommunications infrastructure, 1997-2003 EUR
per capita per year
261
237
214
196
151
50
79
101
72
United States
OECD average
CH
Japan
EU 15
EU 15 Investment difference
Germany
Germany Investment difference
UK
Excluding UK Source OECD, McKinsey
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Whos investing?
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Telcos Capex, 2003-2005, billion USD
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Industry consolidation
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• US back to Ma Bell?
• SBC/ATT (16 billion)
• ATT/BellSouth (86 billion)
• Verizon/MCI (8.44 billion)
• Comcast/TW/Cox/Advance/Sprint
• EU cross-border MA
• Telefonica/O2 (24 blllion)
• Orascom/Wind (12.1 billion)
• NTC/TDC (8.2 billion)
• France Telecom/Amena (6.4 billion)
• Vodafone/Cesky Telekom (3.7 billion)
• NTL/TeleWest/Virgin Mobile (6.3 billion)

Nomadic players are involved in large
conglomerate operations (eBay/Skype,
Google/YouTube, etc.)
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Who invests abroad?
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Telcos International exposure, 2006
Source FT (2006)
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Broadband penetration (2006)
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Wheres the truth?
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• The first implementation report of the i2010
  strategy is less reassuring
• US consistently invested twice as much as Europe
  in ICT since 2000
• The contribution of ICT to productivity growth is
  half that of the US
• Uptake of ICT by businesses is sluggish

But already in 2006, it is clear that most of the
ambitious Lisbon goals and i2010 objectives will
not be achieved
Overall no indicator points to a change in the
trend or an acceleration in ICT developments
which would put the EU onto a sustainable path of
growth and competitiveness ... The EU needs to
shift up a gear if we are not to see a slowdown
in the transition to the knowledge economy
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The proposed review
Intro wheres the truth?
The proposed review
New competitive dynamics
Holistic policy-making
Conclusions a Roadmap
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The frameworks stated goal
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The goal is to have sustained effective
competition without on-going regulatory
intervention for example, to have competing
companies delivering services over their own
infrastructures, and not being dependent on
access being provided by a stronger
competitor Viviane Reding CEPS Task Force, 15
September 2005
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State of play
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• Market analyses are quite resource-intensive
• Competition policy tools only partially applied
• The approach to emerging markets is flawed
• Appeals procedures slow down regulation
• The ladder of investment still lacks convincing
  empirical evidence
• The current framework is not suited for
  mobilising needed spectrum resources
• Better regulation tools are missing
• Market analyses and remedies are sometimes
  inconsistent throughout the EU

It is still too early to draw conclusions on the
NRF, but some problems have already clearly
emerged
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Post-Lisbon rules!
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Commission proposed legislative measures
Transposition by Member States
Call for input on directives and recommendation
on relevant markets
(co-decision procedure)
2005
2006
2007
2008
2009
2010
2004
Transitional measures
Commission communication consultation Draft
revised recommendation on relevant markets
Revised recommendation on relevant markets
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The post-Lisbon agenda
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• Main new proposals
• New rules for spectrum policy
• Lighter notification requirements
• Extension of veto power to remedies
• Simplification of the list of relevant markets
• Technology-neutral universal service
• Whats missing?
• The NNRF may be obsolete when it takes effect
• Guidance on market analysis
• Guidelines on net neutrality
• Certainty for DRM and content
• Transition towards ex post competition policy

The currently proposed changes are promising, but
more needs to be done
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Market analyses
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• The process is quite resource intensive both for
  NRAs and regulated firms
• Need to come to grips with new policy tools
• Appeals before national courts have further
  slowed down the process
• Art. 7 procedure not responsible for the delays,
  but likely to become burdensome in the future
• Excess segmentation has become obsolete
• Fixed-mobile convergence/integration
• Inter-platform competition
• Cluster markets

Its too early to judge whether the NRF carries
the right set of tools in light of its
objectives, but also whether the NRF
significantly contributed to growth in most MS
if we calculate that we have already today 25
member states, that makes for 450 different
market analyses. I think you will agree that
makes for considerable regulatory complexity,
which I would very much like to reduce
Viviane Reding, 2006
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Competition policy tools
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• Not fully applied
• e.g. equation SMP need for remedies
• Three-criteria test is applied ex ante by the
  Commission, but not by NRAs
• Regulatory bias?
• Third criterion so far overlooked
• either to be applied seriously, or doomed to
  remain useless
• Some tools are obsolete
• e.g SSNIP test for emerging markets
• Does the review of art. 82 count?

Competition policy-makers are already
experiencing difficulties in dealing with
high-tech, converging industry sectors the NRF
does not make exception
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State of play
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Source Cave et al. (2006), p. 9, updated at 22
June 2006
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The list of relevant markets (I)
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CEPS Task Force Proposal
Removing a market from the list does not mean
refraining from regulating it it only
strengthens the burden of proof on the NRA

• Retail markets
• Should be removed if key wholesale access points
  (e.g. LLU) are available
• Wholesale markets
• Markets 8, 9, 11, 12, 13 should be kept in the
  list
• Markets 10, 14, 17, 18 should be removed
• Mobile
• Market 15 should be removed from the list
• Market 16 should be kept in the list, but with
  refined economic analysis

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The list of relevant markets (II)
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Commission From 18 to 9-11 markets for 2007-2009
OLD
NEW

• 1-7 Narrowband markets and leased lines
• Fixed call origination
• Fixed call termination for each network
• Transit service on the fixed network
• Unbundled access to metallic local loops
• Broadband access
• Terminating segments of leased lines
• Trunk segments of leased lines
• Mobile access and call origination
• Mobile call termination for each network
• National market for international mobile roaming
• Broadcast transmission services

• Access to fixed network
• Fixed call origination
• Fixed call termination for each network
• Transit service on the fixed network
• Unbundled access to metallic local loops
• Broadband access
• Terminating segments of leased lines
• Trunk segments of leased lines
• Mobile access and call origination
• Mobile call and SMS termination for each network
• Broadcast transmission services

Consultation
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Relevant markets pending issues
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• Revised guidelines on market analysis
• Review of Article 82 does it apply to NRAs?
• Sequential approach/prioritisation
• Careful application of 3 criteria
• better regulation approach in selecting
  remedies
• Emphasis on bundle replicability
• Emphasis on economies of scope, layers, 2SM and
  inter-platform competition in finding SMP
• Remove markets 10, 14, 15
• Rethink markets 16 and 17
• Drastic reshape in 2009

The Commission proposal is convincing, but should
be complemented by further action on appeals and
(former) markets 10, 14, 15, 16, 17, 18.
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Spectrum policy
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• Digital dividend will be available only in 2012
• Need for spectrum is more urgent
• No business case for new services without a
  pan-European scale
• Three trade-offs
• Flexibility v. Harmonisation
• Flexibility v. Interference
• Allocative efficiency v. Legacy rights
• PROPOSALS
• Coordinate spectrum policy by identifying
  suitable bands for pan-European services, for
  trading and for unlicensed spectrum (commons)
• Extend art. 7 procedure to spectrum policy
• Technology neutrality and Service neutrality

The potential benefits from tradng and
liberalisation have been estimated up to 900 bn
yearly. Many new services require (at least)
pan-EU scale
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Bands gt 1Ghz
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5150 5350 MHz
2.3 GHz
3400 3600 MHz 3600 3800 MHz
5470 5725 MHz
2.45 GHz
5725 5850 MHz
3300 3400 MHz
2.5 GHz

• Possible developments in licensed and unlicensed
  bands
• 802.16e on 2.3 GHz, 2.5 GHz and 3.5 GHz
• WiBro in Korea on 2300 2400 MHz
• WiMAX Forum focuses on the 2500 2690 MHz band
• Unlicensed/licensed backhaul and BWA on 5.8 GHz
  bands
• Majority of BWA licenses are in the 3.5 GHz band

Source Ericsson, Siemens (2006)
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Bands lt 1 Ghz
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(MHz)
174
240
450
862
470
806
BC
M
S
BC
Today
700
After Digital TV switchover
S
M
DVB, ISDB, DTV, WCDMA/MBMS
Generic downlink band for advanced public digital
broadcasting, fixed and mobile systems
Generic downlink band for advanced public digital
broadcasting, fixed and mobile systems
Generic uplink / returnlink band for advanced
public digital broadcasting, fixed and mobile
systems
Source Ericsson, Siemens (2006)
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Introduction
Intro wheres the truth?
The proposed review
New competitive dynamics
Holistic policy-making
Conclusions a Roadmap
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Types of competition
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we have moved to a competitive environment where
a large number of telecom service providers
thrive. This is based to a good part on
service-based competition but whenever possible
we should increasingly seek more
infrastructure-based competition, which is
sustainable in the long term Viviane
Reding ECTA Conference, 16 November 2006
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Investments in NGNs
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• From 2009, operators will migrate to all-IP
  networks
• business models will change
• The list of relevant markets will become obsolete
• NGN are key for the (post-)Lisbon strategy
• Convergence
• eInclusion
• Cost savings (CAPEX and OPEX)
• US experience
• Regulatory holidays for DSL, FTTH and FTTC
  apparently stimulated investment by RBOCs...
• ... But in the US inter-platform (Cable v DSL)
  competition is a reality

In Europe, the debate on the encouragement of
investments in all-iP networks has become hectic
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All-IP architecture
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DRM
OS, middleware
Market power and enduring bottlenecks can emerge
at all layers. Legacy market power in the
physical network can be challenged by killer
apps, logical layer champions and premium content
providers
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IP-based digital platforms
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Consumers
Skrinkwrap
IP License
OEM
Platform Service provider
Advertising
NCA-NRA
Network
Syndicator
Embedded DRM
Rights owners
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The platform operators Decalogue
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4C Content, Customers, Capacity, Coverage Gather
data on customer preferences Create the
multi-play offer accordingly Choose system
architecture Create a co-opetition model Manage
customers expectations Create the customer
experience Formulate a pricing/bundling
strategy Versioning strategy Choose the
revenue-mix
Competitive capacity
Business model
Chicken or egg?
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Consumer-centric models and DRM
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Advertising
Regulators
Rights Owners
attention money
content
Consumer Pro-sumer
content
content
Peer consumers
Content aggregators
content
attention money
attention money
content
Network operators
Advertising
Regulators
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Consumer-centric models and DRM
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Advertising
Regulators
Rights Owners
Anti-circumvention
DRM
attention money
content
Consumer Pro-sumer
content
content
Peer consumers
Content aggregators
DRM
content
attention money
DRM
attention money
content
Network operators
Advertising
Regulators
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Post-Lisbon policy challenges
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• Regulatory framework
• Impossible to look only at one relevant market
• End of price regulation?
• SMP remedies equation impossible in some mkts
• No gating mechanism for ex ante regulation
• Precautionary principle
• Competition policy tools
• Wheres the relevant market?
• How to calculate market shares?
• Guidance on tying/bundling
• System design defense?
• Replicability v. essential facility

In the new competitive environment, both
regulatory and competition policy tools need to
be updated
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Introduction
Intro wheres the truth?
The proposed review
New competitive dynamics
Holistic policy-making
Conclusions a Roadmap
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A layered approach
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Content Layer
Net neutrality
Net diversity
Application Layer
Logical Layer
Physical Layer
Regulatory forbearance
Access regulation
A new challenge for regulators is ensuring that
invcentives to invest in NGNs are preserved.
This can be achieved by providing sufficient
revenue prospects at least in some of the layers
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The Commissions view
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The Commission has recently supported Net
neutrality, with some caveats. Leaving discretion
to NRAs on this issue might create uncertainty

• A key concern for the near future will be to
  ensure that the internet remains open open
  from the point of view of service providers
  wanting to deliver new, innovative services and
  open from the point of view of consumers wanting
  to access, create and distribute the services of
  their choice...
• The existing provisions ... could be used to
  prevent any blocking of information society
  services, or degradation in the quality of
  transmission of electronic communication services
  for third parties, and to impose appropriate
  interoperability requirements.
• Staff Working Paper, 28 June 2006

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Net neutrality Ofcoms view
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Ofcom has realised the interrelations existing
between the layers of the NGN architecture in
crafting its approach to policy, as well as the
multi-sided nature of the NGN environment

• One way that operators may plan to monetise
  investments in next generation access is through
  offering content providers different levels of
  quality of service to deliver their applications
  to consumers...
• ...This could make a substantial difference to
  the business case for such infrastructure
  investments. In this regard, next generation
  access is an example of a two-sided market...
• ... Were regulation introduced in Europe which
  restricted service providers from acting in this
  way, it could affect their incentives for
  investing in next generation access networks
• Ofcom, 23 November 2006, p. 31

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Conclusions a roadmap
Intro wheres the truth?
The proposed review
New competitive dynamics
Holistic policy-making
Conclusions a Roadmap
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Task Force proposals
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What Europe needs

• A clear roadmap towards competition policy
• New guidelines on market analysis
• Certainty on net neutrality/diversity
• Certainty on DRM
• An antitrust rule on tying in ICT markets
• An antitrust rule on system design
• No more command and control regulation
• No regulation without justification

The review of the regulatory framework will have
to be way more ambitious than it is today
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A roadmap?
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Transposition by Member States
Commission proposed legislative measures
Ex post competition policy?
Co-decision
Review of Article 82
2006
2010
2015
2008
Revised recommendation on relevant markets
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www.ceps.be