Briefing for analysts: Telecoms Partner, Competition Stuart - - PDF document

Briefing for analysts: Telecoms

Stuart McIntosh Partner, Competition 21st July 2010

1

Agenda

• Introduction

Stuart McIntosh

• Wholesale local access /

Wholesale broadband access Gareth Davies

• Net neutrality

Alex Blowers

• Mobile call termination

David Stewart

• Q&A

Q&A

2

Wholesale local access / wholesale broadband access wholesale broadband access

Gareth Davies Gareth Davies Competition Policy Director

3

Agenda

• Recap on proposals from Wholesale Local Access and Wholesale Broadband

Access market reviews Access market reviews

• Main issues raised in responses
• Proposals in context
• Next steps

Next steps

4

WLA market review proposals

New regulatory approaches right balance of policies to allow delivery on both VULA – Virtual Unbundled VULA Virtual Unbundled Local Access Duct & pole access (PIA) Maintain existing remedies MPF Shared MPF Sub Loop Unbundling

5

WBA market review proposals

• Markets definitions based on number of

Principal Operators present by exchange area

• 4 separate markets:

– The Hull area: KCOM (100% market share) – Market 1: BT (98.5% market share) – Market 2: BT (69% market share) – Market 3: No SMP

• Remedies:

– General remedies (access no undue discrimination General remedies (access, no undue discrimination, cost orientation etc) in Hull, Market 1 and Market 2 – Charge control on BT in Market 1

6

Main issues raised in responses

Broadband (WBA) Local Access (WLA)

• Market definition:

– BT advocate deregulation of markets with 3+ Principal Operators EC considers account should also be

• Broad consensus on market definition,

SMP findings and need for VULA and PIA

– EC considers account should also be taken of market shares – Recent market developments suggest need for reconsultation on market boundaries

• VULA issues:

– Progress towards Wires Only – Other technical characteristics vs GEA boundaries

• Remedies:

– BT opposition to charge control in M k t 1 d t t i t ti Other technical characteristics vs GEA – Pricing

• PIA issues:

– Geographic scope Market 1 and to cost orientation Geographic scope – Restrictions on usage – Timing

• Some argue for improvements in

7

Some argue for improvements in existing remedies (LLU and SLU)

Proposals in context (1)

Likely strong Nearer-term remedies focus Current & planned

“1st third”

focus longer term planned networks

1st third Urban

Wavelength

• r fibre

VULA

“middle third” Sub-urban

?

• r fibre

unbundling?

Local / regional initiati es

Sub-urban

?

PIA SLU

wireless /other

initiatives

“Final third” Rural

PIA

8

Strong focus Lower focus

Proposals in context (2)

Near term priorities Strategic focus

• Enable effective competition in first and

second “thirds”: – Effective wholesale products (VULA) that

VULA

• Design fit-for-purpose consumer switching

and migration processes from start

• Ensure appropriate VULA development path

maximise scope for innovation – Fit-for-purpose migration

VULA

• Intervene if BT and industry fail to agree

appropriate SLA / SLG regime

• Monitor BT’s pricing proposals to ensure no

undue discrimination

• Support use of PIA, to promote investment

in middle and final “thirds” and potentially

• Work with BT, industry and OTA to ensure

that PIA reference offer is fit-for-purpose

• n a more limited scale in first “third”

PIA

• Encourage and support trials
• Promote investment in “hard to reach”

areas by supporting local and regional initiatives in final “third”

SLU

• Facilitate release of planning data required

for network deployments

• Explore use in FTTC applications as part of

rural market testing initiatives rural market testing initiatives

• Explore need for BT to update SLU pricing

9

Next Steps

• Reconsultation on WBA market boundaries in August 2010
• Switching consultation to be published in August / September 2010

g p g p

• Publish WLA and WBA market review statements in autumn 2010

– Followed by active Ofcom involvement in implementation

• WLA and WBA charge control consultations in autumn 2010
• Support for public policy initiatives to extend NGA coverage

– Universal Service Commitment, rural market testing, infrastructure sharing

O i t h l

• Ongoing technology programme

10

Net neutrality

Alex Blowers International Director

11

The Internet Traffic Management Continuum

Traffic management

• nly applied

Blocking content e.g. spam, illegal Priority given to some service providers’ content or applications over others Traffic Management y pp during periods of high congestion website content (perhaps for a fee - potential revenue stream for ISPs) Questions (a) What forms of discrimination are fair and reasonable? (b) In what Best efforts Priority always Blocking rivals’ Throttling/degrading instances might intervention be justified? – No traffic management – No charging for tiered y y given to most vulnerable types

• f services e.g.

voice, video g content or applications e.g. rival IPTV service

• f some types of

traffic e.g. P2P (c) What form of intervention, if any, would be

12

QoS streaming, games appropriate?

Discussion taking place as part of wider debate

• International interest in ‘net neutrality’ and traffic management has increased

significantly – US: FCC has proposed two new principles: non discrimination & transparency – Europe: Norwegian, Swedish and French regulators have all published proposals or guidelines covering ‘net neutrality’ – European Commission has now published its own consultation / questionnaire

• UK Government to consider how to implement relevant provisions of new

EU Regulatory Framework

13

What is Ofcom’s role?

• Ofcom’s existing powers and duties are being revised:

Revised European Telecoms Framework, to be implemented by UK Government, includes changes to legislation designed to – Prevent degradation of services and hindering or slowing of traffic – Introduce more specific requirements for greater transparency – Provide for UK Government to empower Ofcom to impose ‘minimum quality of service on the internet’

• Net neutrality paper opens discussion on use of Ofcom’s powers to address traffic

management concerns: – Anti-competitive discrimination – Consumer transparency

14

Focus of our discussion document

Anti-Competitive Discrimination Consumer Transparency

• Ofcom has received no formal complaints

from industry that require investigation to date…

• Traffic management presents a challenge

for consumers to understand and detect

• But some evidence of friction between

parties

• Anti-competitive behaviour could be a
• Lack of transparency on traffic

management policies may already be an issue for consumers p problem – need to consider how we would address this

• Potential for consumer harm could increase

as traffic management becomes more widely deployed

• Principle of transparency therefore a given

15

Timing and next steps

• Closing date for responses to discussion document : 9th September 2010
• Stakeholder and industry views welcomed on discrimination and consumer

transparency

• Consultation timing allows us to feed back results to other bodies considering

net neutrality and traffic management, e.g. European Commission

• Allows us to prepare for any new responsibilities for Ofcom under Telecoms

Framework as transposed by UK Government (coming in to force next year)

16

Ofcom’s proposals for mobile termination rate regulation 2011-2015 termination rate regulation 2011-2015

David Stewart David Stewart Competition Policy Director

17

Regulation of MTRs has a long history in the UK

MTR b i ti d hi f 1995 t 2009 MTRs, subscription and ownership from 1995 to 2009

2

140

20 25

100 120 140

tion/personal ation) 10 15

60 80 100

MTRs (ppm) per 100 populat e (% of popula 5 10

20 40

M ubscriptions p users of mobil

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Active s u 18

Subscription Ownership Average MTRs

Source: Ofcom, 2009

In April 2010, we proposed continued falls in MTRs for 2011 201 l i l d ll 2011 to 2015, applying to large and small operators

2007 regime 2011 regime (proposed)

• All players with mobile numbers

regulated

• Only large players regulated
• Rates falling to 0.5ppm by 2014
• Fair and reasonable rates for smaller
• Regulated rates currently ~ 5ppm
• Higher rates for smaller players

players – which we expect to be the same across the market g p y

• Pure LRIC
• LRIC+

19

In April 2010, we proposed continued falls in MTRs for 2011 201 l i l d ll 2011 to 2015, applying to large and small operators

2007 regime 2011 regime (proposed)

• All players with mobile numbers

regulated

• Only large players regulated
• Rates falling to 0.5ppm by 2014
• Fair and reasonable rates for smaller
• Regulated rates currently ~ 5ppm
• Higher rates for smaller players

players – which we expect to be the same across the market g p y

• Pure LRIC
• LRIC+

AND NOW:

• Submissions received from industry, consumer groups, MPs

20

Submissions received from industry, consumer groups, MPs

• Consulting with the European Commission and affected parties
• Large public response

Regulating all 07X numbers, not just national networks…

“termination services that are provided by [named mobile communications provider] (MCP) to another communications provider

Covers all voice

(MCP) to another communications provider, for the termination of voice calls to UK mobile numbers that MCP has been allocated by Ofcom in the area served by the

traffic Covers all allocated numbers in 07X range of MCP

allocated by Ofcom in the area served by the MCP and for which MCP is able to set the termination rate”.

Over entire network footprint (incl nat’l roaming) If you set the MTR, the rules apply

• Technology neutral

Allows future proofing and minimizes need for ex post intervention This market definition implies: – Allows future-proofing and minimizes need for ex-post intervention

• Recognises commercial reality that MTRs are set for specific number ranges in billing systems

– Minimizes compliance issues

21

• Provides regulatory certainty and may help reduce/eliminate disputes between new/old MCPs

… with falling MTRs irrespective of the policy choices…

PPM (2008/09

LRIC+ yearly percentage change in charge : -24% H3G year 1 decrease to align charges: -29% Pure LRIC yearly percentage change in charge: -43% H3G year 1 decrease to align charges: -47%

4 5 PPM (2008/09 prices)

Reduction

2 3

Reduction regardless of methodology Incremental

1 2010/11 2011/12 2012/13 2013/14 2014/15

Incremental reduction if moving to pure LRIC from LRIC+

2010/11 2011/12 2012/13 2013/14 2014/15 LRIC+ 900/1800MHz MNOs LRIC+ H3G Pure LRIC 900/1800MHz MNOs Pure LRIC H3G 22

• Significant decline in MTRs due to 3G networks reaching full scale; significant data usage and greater voice usage

… broadly in line with European trends

0.20 € per minute

• This figure illustrates historic and future

MTR rates in various EU member states

0.14 0.16 0.18

• Our 4 year glide path based on pure LRIC

is shown for comparison

0 08 0.10 0.12

• In the UK this will lead to MTRs falling

from 4.8ppm today to 0.5 ppm by 2015 (in 2008/09 prices)

0 02 0.04 0.06 0.08 0.00 0.02

23

Belgium Bulgaria Cyprus France Germany Italy Portugal Spain UK

Annex

MCT Review timeline

Q1, 2011 Q2, 2009 Q3, 2009 Q1, 2010 Q3, 2010 Q2, 2010 Q4, 2010 Q4, 2009 today 20 May: MCT preliminary d bli h d 23 June: Stakeholder Q1, 2011: (TBC) Final statement 26 Oct: Cost modelling condoc published responses published 7 July: NRA workshop workshop April 2011: 1 April: Second consultation published July/ August: 20 July: Novel MCP workshop Sept: Bilateral meetings with MCPs April 2011: New regime implemented published July/ August: Bilateral meetings with MCPs Jan: Other issues workshop with MCPs April: Small MCPs workshop 24

Q&A Q&A

25

ANNEX

26

Economic assessment: pure LRIC vs LRIC+

• On balance, evidence is marginally in favour of pure LRIC approach

Economic criteria

Type

Whether evidence supports pure LRIC

Efficiency Static efficiency Efficiency Static efficiency Efficiency Dynamic efficiency Neutral / Negative Promoting competition Competition between mobiles Neutral / Negative Promoting competition Competition fixed & mobiles Regulatory risk Burden & Neutral Regulatory risk Burden & likelihood/consequence of risk Neutral Call and network externalities Network/call externalities Neutral

27

Implications of proposed market definition

All ll d t UK bil b i l d d All calls made to a UK mobile number now included

Type of call 2007 market review Proposed 2011 market review Voice calls Terminated on mobile network only Terminated to a mobile number Off-net (1)

 

Ported-in Ported-out C ll t i il

 x x  x 

Calls to voicemail Voice calls to mobile terminating on IP National roaming (2)

x x    

National roaming (2) Call forward (including international)

  x 

28

(1) DECT guard band MCPs (C&W, Colt and MCOM), femtocells and picocells may have been captured by the market defined in 2007 had they been operational technologies at the time. (2) e.g. H3G or C&W using 2G MNO’s network for full UK coverage

Timeline of UK MTR regulation 1985 to 2009

Focus has been large national operators

Vodafone (Racal) and O2 (Cellnet) enter the 1986 1993 One2One (TMO) enters 1994 1998 Oftel refers dispute to MMC, who propose a reduction in charges for VF and O2 TMO and 2003 H3G enters with first 3G network CC recommends immediate cut of MCT charges f 2007 Conclusion of fourth MCT review All MNOs judged to have SMP and charge controls applied to all 2009 O2 (Cellnet) enter the market 1994 Orange enters VF and O2. TMO and Orange unregulated but reduce prices incoming regulatory framework required a full market review 2009 Ofcom issues final Statement following CAT’s 1991 1985 1990 1995 2000 1996 2005 2001 Oftel conducts second 2004 2007 2009 2007 decision Oftel determines MCT charge in response to request from Mercury Review of BT’s retail prices, concern on price

• f calls to mobile

1997 Oftel conducts second review of MCT Full market review of MCT All MNOs judged to have SMP, but charge control

• nly imposed on four 2G

incumbents 2007 Ofcom conclusions in 2007 MCT Statement appealed 29 Consultation on MCT Oftel recommends uniform charge on all 4 MNOs

Every small UK operator chooses an MTR that is higher h h l d than the regulated rate

30