Implementing
the ladder of investment regulation
The case of broadband in France
Forum on Telecommunication Regulation in Africa
FTRA-2007
"Infrastructure sharing: regulatory challenges”
Jérôme Bezzina - ARCEP
6-7 June 2007, Grand Regency Hotel, Nairobi, Kenya
1
• The Ladder of Investment
• Implementing the ladder of investment
• Conclusions
2
Introduction
• Global scope of the “ladder of investment” concept
– Transitory and efficient entry
– Encouraging investments
– Achieving infrastructure competition
– Services and technologies competition
• Role of the regulator
– Set the right incentives
3
Definition
• “step by step” Investments
• Gradual investments
– Chain of complementary access products
– A significant customer base
– Mandatory wholesale access
• Critical mass
– Finance investments in their own infrastructure
– Competition or dependence vis-à-vis the incumbent
4
Definition
• Competition
– Services → Infrastructure → Sustainability
• Dynamics to climb the rungs
• Regulatory intervention :
– Access pricing regulation
– Economic the space between the rungs)
5
Application to the broadband market
6
• The Ladder of Investment
• Implementing the ladder of investment
• Conclusions
7
« Infrastructure Based Competition »
• The general objectives of ARCEP
– Extension of the broadband coverage
– Extension of infrastructure-based competition
• Concerning broadband markets
– Promoting competition based on alternative networks
– The “capillarity” of networks
• French retail broadband market
– High level of competition.
– No ex ante regulation
8
LLU as a cornerstone of competition
• Regulation focused on LLU
– Infrastructure-based competition
– On Cave’s ladder of investments
– Migrating from one form of access to the next higher step
• Bitstream as a complement to LLU
– Retail market at a national scale
– Sufficient margins to offers based on LLU
• ARCEP’s working program
9
Broadband wholesale relevant markets
• Two main broadband markets
– Wholesale unbundled access
– Wholesale broadband access (bitstream)
• Three offers
– Local loop unbundling
– Wholesale broadband access (bitstream)
– National BB offer for ISPs
10
Network architecture
Access ATM backhaul IP backhaul Services
PSTN
ATM network managed IP
MDF DSLAM backbone network
BAS Internet
xDSL
Copper line splitter
ATM switch
contents
Copper Lines Central Exchanges ATM switches Broadband Access Servers
(430000000) (412500) (4130) (420)
11
The ladder rungs
MDF
managed IP Internet
ATM network
backbone network contents
CEx
@ 12500 central @ 130 ATM @ 20 broadband 1 national
exchanges switches access servers delivery point
Other OLO
LLU OLO’s network
ISP
ATM Bitstream OLO’s network
ISP
IP Bitstream OLO’s network
ISP
National IP broadband offer for ISP ISP
Market 11 : LLU Market 12 : Bitstream Market 12bis 12
Geographical architecture
Increased capillarity for the OLOs
– more investments in facilities, networks…
– more independency (technical / economical) towards France Télécom
National offer Bitstream offer Local Loop Unbundling
– 1 delivery point – regional delivery (20 – need to bring optical fibber
– no need for a to 130 points) till the central exchanges
network – need for a national – need for a national and
network regional capillar networks
13
Defining remedies
access
LLU no discrimination
France Reference Offer
Télécom transparency
has SMP LLU:
Bitstream price control
cost oriented tariffs
accounting separation
Bitstream:
cost oriented tariffs
no squeeze with LLU
France no squeeze with LLU formalization of
internal prices
National offer Télécom no discrimination
between FT and its
has SMP accounting separation subsidiary Wanadoo
Retail market : non regulated
14
Remedies in practice
• Costing unbundled access
– A multilateral approach
– Tariffs of the Reference Order
– Parameters
• A squeeze model
– Margins between offers based on LLU and Bitstream
– Economical viability of CEx
15
The squeeze model
cost of access
30
LLU
20 Bitstream
10
Rank of CEx
ordered by increasing number of lines
1000 2000 3000 4000 5000 6000 7000 8000
16
The results
bought to France Telecom
3,94 M
6,03 M wholesale lines
1,82 M shared
LLU 2,12 M total
2,09 M
0,33 M national
bitstream 1,57 M régional
0,19 M naked
17
The results
7 000 000 2002 2003 2004 2005 2006
6 000 000
national
5 000 000
Evolution of wholesale access bitstream régional
regional
4 000 000 nu
naked
3 000 000
partiel
shared
2 000 000
LLU
dégroupage
1 000 000
total
janv-04
janv-05
janv-03
janv-02
janv-07
janv-06
avr-03
avr-04
avr-05
avr-02
avr-06
juil-03
juil-04
juil-02
juil-05
juil-06
oct-03
oct-04
oct-06
oct-02
oct-05
18
The results
Number of unbundled MDF
3 000
2 500
2 000
1 500
1 000
500
-
2001 2002 2003 2004 2005 2006
19
The results
Percentage of population
eligible to LLU
75%
50%
25%
0
2001 2002 2003 2004 2005 2006
20
Dynamic regulation
Other OLO
LLU OLO’s network
ISP
ATM Bitstream OLO’s network
ISP
IP Bitstream OLO’s network
ISP
National IP broadband offer for ISP ISP
Market 11 : LLU Market 12 : Bitstream Market 12bis
21
• The Ladder of Investment
• Implementing the ladder of investment
• Conclusions
22
Conclusion
• Broadband market competition and the ladder
– Broadband competition and ladder of investment
– Competition as a driver
– A prerequisite
– Roll-out networks and big jump
– Removing rungs
23
Conclusion
• Role of regulatory intervention
– National circumstances
– Migration process
– Costing methodologies
– Supporting the upward move
– The ladder concept as a regulatory model
– The right access price incentives
24
Thanks !
25