NEREC conference Madrid 11 Sept Discussion

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NEREC conference Madrid 11 SeptDiscussion
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Replicability an economic question

• Duplication not only limited by resources/time,
  but economics sunk cost
• Fixed networks vary from natural duopoly to
  monopoly to unviable
• WIK 2008 The economics next generation access,
  Analysys for OPTA and BIPT, NL Govt for OECD
• Significant write-downs in cable, outcome of
  regulatory forbearance/light touch approaches
• Mobile network duplication finding natural
  barrier
• Consolidation in UK 5 cannot be sustained
  40 market shares should be considered normal
• Financial performance of third and fourth
  operators significantly weaker than early entrants

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Fixed and mobile evolve in tandem

• Equipment market dynamic fixed and mobile
  evolving in parallel but significant speed and
  price gap remains due to physical
  characteristics
• ADSL launched at 512kbit/s in 2000 and extended
  to 25MBit/s in 2009
• Sept 09 vDSL/DSML3 vendors announce triple reach
  50Mbit/s at 850m, Tele2 vDSL from MDF in NL
• Pair bonding extends capabilities further
• FTTH capable of 1Gbit/s
• Market developments highlight complementarity
  fixed incumbents taking combined approach. Mobile
  operators entering fixed market for triple,
  quadruple play and cost efficient homezone
  offers SFR, Bouyges, Orange, Vodafone

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Physical bottlenecks affect the whole value chain

• Monopoly or oligopoly control over infrastructure
  bottlenecks affects not just pricing of retail
  services, but speeds and innovation in equipment
  and network-related services VPNs, multicast
• Ultimately bottleneck control can affect whole
  value chain through to applications and content
• mobile restrictions on VoIP
• freedom of Internet debate

Content Services Internet Business applications
Scale economies/bottlenecks
VPNs, multicast Equipment Networks
Wires Ducts
Innovation
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Bottleneck control limits demand/ market growth
France

• Supply/existence of fibre is not economically or
  socially interesting without the conditions that
  maximise speeds, service innovation and take-up.
  Demand is as important as supply

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Pricing NGA for a fair return

• Anchor pricing for active products contains
  important flaw fossilises price points for
  current speeds enabling dominant firms to charge
  excessive prices for higher speeds to maximise
  profits. Repetition of failed UK broadband policy
  in late 1990s. Would lead to current generation
  broadband standstill and limited premium speeds
  rather than increasing speeds and mass-market
  take-up. Value-based pricing same issue but
  lacking constraint. For both, how will
  non-discrimination/no margin squeeze be
  assessed in a bundled environment?
• Long term contracts can embed or strengthen
  existing monopolistic or concentrated market
  structures. Should be prohibited where not
  compatible with promoting competition otherwise
  fails to address control over value chain.
• Cost-based pricing cleanest option NRAs have
  tended to err on the side of caution. Wholesale
  divisions make highest returns.
• Functional separation can help to address
  discrimination concerns due to additional
  commercial transparency

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Concentration is starting point
Shaded sections show duplicate infrastructure
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Our vision for Europes future

• Smart investment in open infrastructure which
  unlocks complementary investment and drives
  take-up and consumer benefits through enabling
  innovation and choice
• throughout the value chain from equipment through
  to entertainment through to a truly open Internet
• across regions and countries enabling the
  provision of seamless services to Europes
  businesses
• Access products and pricing regimes which enable
  competitors to innovate on price and services and
  do not create or compound market concentration
• A secure role for private investment alongside
  public long-term investment wherever the market
  will not deliver Europes need for high-tech open
  networks
• A predictable, lasting and rational regulatory
  framework in which enduring economic natural
  bottlenecks are acknowledged and regulatory
  expectations are set accordingly.