4. USO in Serbia

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4. USO in Serbia

• Some personal recommendations
• Jerker Torngren
• torngren_at_aon.at

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Disclaimer

• A lot of knowledge of the country specific
  circumstances are necessary before any detailed
  recommendations can be given. The following
  recommendations are thus general and do not
  necessarily fully take into account the actual
  situation in Serbia.

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Present market

• Fixed line
• Mobile
• Any alternative providers

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Key USO issues to be addressed

• The difficult issues
• To what extent are services available, (access)?
• Are the services affordable?
• Can financial support be provided?
• Quality of service, contract issues and leased
  lines are easier to handle and not discussed here.

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Possibilities for financial support

• The only two possibilities
• Financing over the State budget
• Fund to which operators should contribute

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Unfair burden

• Only net cost that is considered to be an unfair
  burden by the regulator may be subsidised.

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Calculation of Net Cost

• Very complex calculation, all intangible benefits
  must also be taken into account, always seriously
  underestimated by the operator.
• The result of the calculation must be publicly
  available , (art 12.2)

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Calculation of Net Cost, cont

• Negative auctioning used with good result in
  Romania.
• Seems to be acceptable but not in conformity with
  the Directive
• Will only function if there are several operators
  that would participate

9
Access deficit

• Access deficit when average access charges,
  line rental and connection, are not set high
  enough to cover the long-run average incremental
  cost of providing the access service

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Access deficit, cont

• The largest part relates to the local loop
• It must be remembered that the operator normally
  is cross-subsidising the local loop by revenues
  from the services provided.

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Rebalancing

• The most constructive way forward is rebalancing
  of tariffs.
• But take into account that some costs are sunk
  costs. Focus on variable costs
• Creates the necessary incentives for investments
• Unbalanced tariffs prevents any competitors from
  entering the market

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Creation of a Fund ?

• A fund always creates administrative costs that
  do not in themselves provide any improvements for
  subscribers.
• An annual report must be published which should
  also describe market benefits (art 14.2)
• No need for a Fund unless a net cost which
  constitutes an unfair burden has been identified.

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Fund, cont

• Expansion based on commercial considerations
  rather than regulatory interventions is often the
  most constructive.
• Financing through a Fund could however assist new
  operators to be established or new solutions
  found (such as the Romanian centres)

14
Access

• The lack of access is often the result of rigid
  pricing regulation which has prevented
  investments.

15
Access cont

• Be open to innovative technical and
  organisational arrangements
• A fixed location should not necessarily be
  reached by fixed wire.

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Recommendation on access

• When high demand for access in areas without
  infrastructure, consider a community approach
  rather than the individuals
• Avoid other regulatory interventions but
  encourage investments by the operators

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Affordability

• Rebalancing of tariffs must be allowed
• An incentive based price cap regime could be more
  constructive than USO subsidies

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To designate or not

• A designation of existing operators improves the
  possibilities to monitor and regulate existing
  services.
• Some additional services could be requested but
  watch the concept unfair burden

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The USO Directive

• The USO Directive provides a very good benchmark
  which however cannot necessarily be met
  everywhere directly.
• Concentrate on taking successive steps in the
  right direction

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Universal Service Policy

• Draft a policy which sets out the targets
• How to get there including market reform and
  possible regulatory interventions
• Within which time period
• Split the actions in short term and long term
• The policy is necessary for the national
  development and good to show the EU Commission

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Personal conclusions

• Focus on creating proper market forces that will
  do the job far better than regulatory
  interventions.
• Wireless solutions often far more efficient to
  increase access
• A dynamic mobile market can be very efficient
• Follow realistic ambitions

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Personal conclusions, cont

• Be restrictive with regulatory interventions
• All regulation cost money.
• In the end that cost is carried by the
  subscribers