Global Trends in Telecom Restructuring

1
National regional experiencse
Dr. Musab Barakat Ahmed Ali PhD.FCCAFCMI Charte
red Certified Accountant Practicing firm
Barakatco Senior partner CEO Consultant Nation
al Telecommunication Corporation (Sudan
The views expressed in this paper are those of
the author and do not necessarily reflect the
opinions of the ITU or its membership. Dr Kelly
can be contacted at Tim.Kelly_at_itu.int.
2
Agenda

• Background
• Mechanism /road map
• The purpose of the Accounting Separation
  Guidelines
• The purpose
• application

This will be the subject of separate
presentations.
3
Agenda

• Saudi experience
• Oman
• Qatar
• Italy
• USA ATT
• UK flash

4
Preamble1

• Structural and functional separation of
  telecommunications operators is being considered
  in many parts of the world following the U.K.
  adoption of Openreach

5
Preamble2

• The operational separation of Telecom is a key
  part of the governments strategy to deliver a
  more effective telecommunications sector. It will
  underpin increased competition and efficient
  investment for the long-term benefit of all New
  Zealanders, Communications Minister David
  Cunliffe

6
Mechanism/Roadmap

• Structural separation should include
• a time-line detailing the milestones, key dates
  and stages
• Consultation paper
• Responses
• Workshop
• Position statement
• Guidelines/ determination
• Application

7
The purpose of the Accounting Separation
Guidelines

• complementary activity
• - encouraging good practice to the respect to
  accounting separation
• to provide specific guidance on how
• to prepare and present separated accounts
• the instruction to Designated Service Provider
  on how to submit information and reports to the
  regulatory body
• - to provide instruction on preparation of
  regulatory accounting systems Accounting
  Separation systems

8
Application

• These Guidelines will apply to all Designated
  Service Providers.

9
Saudi Experience1

• Article 12 of the Bylaw includes the level of
  segregation of telecommunications services for
  accounting and regulatory purposes as may be
  determined by the Commission.

10
Saudi Experience2

• the creation of a favorable atmosphere to promote
  and encourage fair competition in all fields of
  telecommunications
• the level of segregation of telecommunications
  services for accounting and regulatory purposes
  as may be determined by the Commissio

11
Saudi Experience3

• The Accounting Separation Policy of 2004 required
  STC to separate its accounts on the basis of four
  pre-defined business segments fixed, mobile,
  data and other

12
Saudi Experiencepurpose 4

• verify a Designated Service Providers adherence
  to its obligations of non-discrimination,
  objectivity, costbased
• pricing and transparency set down in the Bylaw
• ensure the Designated Service Providers
  compliance with specific obligations imposed on
  it by the CITC

13
Saudi Experiencepurpose 5

• understand a Designated Service Providers costs
  and revenues at the required level of detail
  identify and prevent abuses of dominance or other
  anticompetitive practices by a Designated Service
  Provider and/or
• ensure implementation of any associated
  objectives of the Act.

14
Time schedule1
Issue of policies First quarter 2004
Saudi telecom provide plan draft of how they will execute the accounts separation Third quarter 2004
Issue of unaudited accounting statements for the year2003 Third quarter 2004
Saudi telecom to provide the final method of A S results First quarter 2005
The regulatory body endorse the procedures Second quarter 2005
15
Time Schedule2
Second quarter 2005
S T issue unaudited F S for the year 2004 Second quarter 2005
Issue of audited accounts for the year 2005 Second quarter 2006
Issue of A S statements for the year 2005 Second quarter 2006
Issue of audited accounts for the year 2006 Second quarter 2007
Issue of A S statements for the year 2006 Second quarter 2007
16
Oman Experience1

• Oman TRA issued Consultation Paper SMP
• Remedies
• All current Class I license holders are
  classified as Notified Operators

17
Oman Experience2

• The activities and services had been classified
  as follow
• Retail fixed voice
• Access
• Local national voice
• International voice
• Telephone service

18
Oman Experience3

• Retail data
• Retail leased lines
• Dial up internet
• Broad band internet
• Whole sale fixed voice
• Call origination
• Call termination

19
Oman Experience 4

• Wholesale infrastructure
• Wholesale unbundled access
• Wholesale unbundled line rental
• Wholesale broad band access
• Wholesale terminate segment of leased lines
• Wholesale trunk segment of leased lines

20
Oman Experience5

• Mobile market
• Access of call origination
• Voice call termination on individual mobile
  network
• wholesale International roaming

21
Oman The response to the A/S 6

• Oman took the initiative very early in the region
• Omantel group is providing fully segmented
  costing analysis for
• Fixed line
• Cellular based on
• Top-down FDC
• LRIC model

22
Oman The response to the A/S 7

• Oman took the initiative very early in the region
• Omantel group is providing fully segmented
  costing analysis for
• Fixed line
• Cellular based on
• Top-down FDC
• LRIC model

23
Oman The response to the A/S 8

• Separate regulatory accounts ( Annually)
• Investigative costing studies (rare)
• FDC/LRIC modeling interconnect tariff approval
  (annual)
• Tariff rebalancing ( annual)
• Product price approval ( each product)
• Corrective (occasional)

24
Qatar1

• Information and Communication Technology
  (ictQATAR) issued Regulatory Accounting System
  Instructions in August 2010 (ICTRA 08/10),

25
Qatar 2

• Since then, QTel has developed a Regulatory
  Accounting System (RAS) based on the financial
  year (FY) 2009. ictQATAR has reviewed the
  regulated accounting separation system and the
  information supplied. ictQATAR has developed
  their needs for cost and revenue data.

26
Qatar objectives 3

• The RAS is a supporting tool to assist ictQATAR
  to meet it general objectives to develop
  competitive telecommunications markets in QATAR
  and promote competitive services
• The RAS provides a platform for additional
  analysis to assist with decisions on such issues
  as costing and pricing

27
Qatar objectives 4

• The RAS is a supporting tool to assist ictQATAR
  to meet it general objectives to develop
  competitive telecommunications markets in QATAR
  and promote competitive services
• The RAS provides a platform for additional
  analysis to assist with decisions on such issues
  as costing and pricing

28
Qatar objectives 5

• to provide an initial basis for price controls
  retail and wholesale.
• To provide some information for evaluation for
  anti-competitive behavior investigations and
  evaluations of price squeezes

29
Qatar objectives 6

• evaluation of new wholesale products costs,
  cross subsidizations and cost/profit trends
• To enhance transparency to ictQATAR and the
  industry of the status of services, costs and
  margins being made, and so assist with
  competitive market developments

30
Qatar roadmap 1

• In preparation for these RAS Orders, ictQATAR
  held two rounds of consultation
• The first consultation (from 23 October 2012
  until 29 November 2012) provided details of the
  RAS system, the methodology to be applied and the
  expected RAS outputs

31
Qatar roadmap 2

• The second consultation (from 23 January to 7
  February 2013) allowed additional constructive
  comments to be made by all parties to assist
  ictQATAR with the finalization of the RAS Orders

32
Qatar instructions 9

• These RAS Orders are formal Instructions to QTel
  to comply with the following
• Prepare and participate in the further
  development of the RAS as approved by ictQATAR
• 2.Meet the timelines for the RAS implementation
  process according to the timelines setout.

33
Qatar instructions 10

• Prepare and submit written reports, plans and
  responses to information requested from ictQATAR
  as part of the RAS
• 4.Apply the RAS information in its own business
  systems and practices that relate to price
  setting and to demonstrate the application and
  implementation of the RAS system and information
  

34
Qatar instructions 11

• 5.Guarantee the performance of its RAS
  obligations . providing a Performance Bond

35
Telecom Italias Operational Separation model
main features Italy 1

• Creation of a separated business unit Open
  Access providing SMP access services both
  internally and externally.
• Physical separation of Open Access and Telecom
  Italy Wholesale staff and management

36
Telecom Italias Operational Separation model
main features Italy 2

• Separated incentive schemes and separated code of
  conduct for Open Access and Telecom Italy
  Wholesale staff and management.
• Logical/physical separation of information
  systems.
• Technical equivalence for both existing and
  forthcoming SMP access services based on the
  equivalence of output concept.

37
Telecom Italias Operational Separation model
main features Italy 3

• Economic equivalence based on internal contracts
  and internal transfer charges consistent with
  regulated wholesale prices.
• Governance of the equivalence model ensured by
  the Supervisory Board.

38
US the master case 1

• The experience of separation approaches in the
  United States over the last 35 years can be good
  start to think about functional operational
  separation in telecom

39
US the master caseBreakup of ATT 2

• 1984 wittnesed the broke up ATT, which was at
  that time the largest telecommunications company
  in the world
• The main issue that led to the breakup was that
  ATT had used its control of bottleneck local
  telephone networks to foreclose12 competitors and
  to cross subsidize its potentially competitive
  markets, primarily long distance and
  manufacturing

40
US the master caseBreakup of ATT 3

• 1984 wittnesed the broke up ATT, which was at
  that time the largest telecommunications company
  in the world
• The main issue that led to the breakup was that
  ATT had used its control of bottleneck local
  telephone networks to foreclose12 competitors and
  to cross subsidize its potentially competitive
  markets, primarily long distance and
  manufacturing

41
US the master case Breakup of ATT 4

• The underlying theory for the breakup of ATT was
  based on two basic assumptions .
• Firstly, that the division between local
  exchange and long distance was a natural business
  boundary such that markets and companies could be
  unambiguously divided accordingly

42
US the master case Breakup of ATT 5

• Secondly, the provision of local telephone lines
  was a natural monopoly
• The observations from the breakup of ATT
  included
• (1) In markets as dynamic and unpredictable as
  telecommunications, there is a strong risk that
  business line divisions will be overtaken by
  market and technology changes

43
US the master case Breakup of ATT

• 2)Artificial industry boundaries can lead rivals
  to invest heavily in the regulatory and political
  processes in order to gain regulatory advantage
• (3) Regulatory imposed barriers to competition
  delay important changes that would benefit
  customers

44
US the master case Breakup of ATT

• (4) Regulatory battles over separation boundaries
  can diminish new entrants? resources favor
  entrants that are effective in the regulatory
  arena rather than those that are effective in the
  marketplace

45
US the master case Breakup of ATT

• Behavioral rules are more effective than
  separation measures. While structural or
  functional separation were often justified ex
  ante as necessary for bringing about the benefits
  of competition, actual experience showed
  otherwise.

46
U K Flash 1

• In the UK, British Telecom created Openreach BT
  in 2005 to operate all its access networks. This
  spurred a new wave of investment and
  infrastructure-based market entry as evidenced by
  the explosion of local loop unbundled lines in UK
  which jumped from less than 100,000 in June 2005
  to 6.2 million by November2009.

47
U K Flash 2

• The UK experience shows a major benefit of
  functional versus structural separation is the
  ability to adjust the boundaries of separation
  over time for example to allow Openreach to offer
  active-based fiber products

48
references

• Blowers, A. (2007). Functional separation The
  UK Openreach? Model. Presentation at ANACOM?s
  10th Seminar, Lisbon, Portugal. (Available at
  http//www.anacom.pt/content.jsp?contentId562609.
  
• Prieger, J. E. (2002). Regulation, innovation,
  and the introduction of new telecommunications
  services. The Review of Economics and Statistics,
  84(4), 704-715.

49
References

• Workshop on Policy for Next Generation Networks
  European and US Perspectives
• MIT, Cambridge, 27th March 2009
• Safdar Imam presentation Dubai
• Senior costing analyst Oman telecom