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					   Deregulation in mobile
 communications networks –
     status and outlook

     Dr. Annegret Groebel, RegTP
Head of Section: European Co-ordination
               Workshop
      Dresden – 19 February 2004
         http://www.regtp.de/
                 Where do we go?
• With the rapidly changing market structure and the emergence
  of new markets a need was felt to review the existing European
  framework and adapt it to the new technological and
  commercial conditions where necessary: services can be
  offered via different platforms, interactive services change
  mass services to end-to-end services thus changing market
  borders (cross-over between classical telecoms markets and
  broadcasting markets, substitutability of services changes)
        technological convergence of telecoms and broadcasting
        changing market dynamics, requiring new governance rul.
• The discussion was started by the Commission in 1999
  (Review ’99) and ended with the adoption of the new
  legislation by the European Parliament on Dec. 12th ‘02
• Regulators should have more flexibility and the new legislation
  should reflect the evolution of the telecoms markets since
  liberalization in 1998, the state of competition should be
  analysed and evaluated to assess where a greater reliance
  on general competition law is possible and appropriate
                  Principles of the NRF

                      Technological
                       neutrality

                      Convergence
                     Market structures,
Flexibility for                            Reliance on
                        cross-over,
  regulators                              competition law
                     rapidly changing
                     market dynamics


                      Harmonization
    Until now: separate networks
          and separate rules

Service       Voice     Data    Broadcasting
           telephony

                                   Cable
Network     Fixed       Fixed     Satellite
            Mobile               Terrestrial


           Telephone/
Terminal    Handset      PC      Television
           Convergence is a reality

Service        Voice          Data      Broadcasting
            telephony

                                           Cable
Network      Fixed
             Wireless         Fixed       Satellite
                         Satellite Cable Telecoms
             Mobile                      Terrestrial


            Telephone/
Terminal     Handset          PC          Television
                Evolution (I): Fixed – Mobile – Convergence
          60
                                                                                              56,2
                                                fixed line                          50,1
          50                                    channels                     48,1             52,2
                                                                      46,4
                                                     43,9 45,0                         48,2
                                              42,2
                                       39,9
          40                    37,7
                         35,7                 40,2   40,9                    40,2
                  33,7                                                                     39,7
                         35,2
Million




          30   31,8                fixed line connections

                                                                                23,4
          20
                                                 Mobile chan-
                                                 nels/connections        13,9
          10
                                                     5,6        8,3
                                       2,5    3,8
                          1     1,8
           0
           1990   1991   1992   1993   1994   1995   1996    1997     1998   1999   2000   2001   2002

                  Competition between fixed and mobile networks will increase,
                  with 3G especially also for data traffic (broadband access)
              Evolution (II): The Voice/Data-Relation In
             Telecoms Traffic Is Changing Dramatically!
120%

                                             Percent Voice                                                            250

                                             Percent Data
100%
                                                                                                                      200




                                                                                                   Growth of IP Traffic (in Percent)
80%                                                                                                                                                             Subscription
                                                                                                                                                                Services


                                                                                                                                                               Video /
                                                                                                                                                               Images
60%
                                                                                                                                           Voice
                                                                                                                                                               Multimedia


40%                                                                                                                                                         Commerce


                                                                                                                                                           Collaboration


20%                                                                                                                                                  Information Access
                                                                                                                                             Data
                                                                                                                                                    Ema
                                                                                                                                                     il
                                                                                                                                       0
 0%
       1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
                                                                                                                                                    Time

                                                             Source: Lucent 2000
                                Mobile subscribers and penetration

                                                                                                                              total subs 68.4 mio
                                                                                                                                          78,3
                       70.000                                                                                                                       80,0

                                          Number of subcribers                                                                 71,6




                                                                                                                                           64.800
                                                                                                                  68,1
                                                                                                                                                    70,0
                       60.000
                                          Penetration




                                                                                                                                 59.128
Subscribers in 1,000




                                                                                                                     56.126
                                                                                                  58,6
                                                                                                                                                    60,0




                                                                                                                                                           Penetration in %
                       50.000




                                                                                                         48.202
                                                                                                                                                    50,0
                       40.000

                                                                                                                                                    40,0

                       30.000
                                                                                      28,5
                                                                                                                                                    30,0




                                                                                         23.446
                       20.000
                                                                          17,0                                                                      20,0
                                                                             13.913




                       10.000
                                                                                                                                                    10,0



                           0                                                                                                                        0,0
                                1992   1993   1994   1995   1996   1997    1998         1999        2000            2001        2002      2003
     Evolution (III): Availability Of Mobile
         Technologies In Germany
    2G         2G+          2G++           3G




   GSM         GPRS         EDGE         UMTS

    !            !            ?            !
since 1991   since 2000       ?          2003/04
   Evolution(IV): The `Mobile´ Value Chain is
  evolving to become more Business-Oriented


       Access -     Transport -    Service -      Sales and
GSM    Network       Network       Providing     Distribution

                  70%                          30%
         „Technical“ Area             „Business“ Area
                  40%                          60%
       Access -     Transport -    Service -      Sales and
UMTS   Network       Network       Providing     Distribution


                    New players will enter the market
                    role of service providers becoming
                    more important
  Strategy matrix of customer and market handling 1)
  Strategy of customer focus
                                                                                      WLL
                               Business customer provider

                                                                                                    Optic fibre
                                                                   HyperLAN/WLAN
                                                                                                               DSL
                                    Universal provider
                                                                                      UMTS



                                                                                                       CaTV
                               Residential customer provider



1) Only technology with chance market success > 51%            6                4,4           2,7                    1
2) Success of access technology                                Niche handling                   Market handling
      1 = Success in all segments
      6 = Success in the niche
                                                                   Strategy of market handling 2)
                                                                                      Source: The Vision Web, Sep 2001
            Background and analysis
• Mixed picture and differentiation of the market require
  differentiated regulatory approach to be appropriate to the
  severeness of the competition problem (choice of remedies)
• Regulated sectors are not the reason for the crisis in the
  corporate telecom world
• The high debt levels are the result of the exaggerated stock
  market boom („internet bubble“) and false predictions of the
  development and growth of the sector
• Changed perception of risks and willingness to invest by the
  capital markets, economies of scale miscalculated
• Surplus capacity in some segm. (fiber optic cable backbones)
• Dramatic price cuts changed business models
• Alternative operators have different business models and
  pursue different strategies (long distance vs. city carriers)
• Bottlenecks on the last mile and remaining dominance of the
  incumbents require regulatory intervention
• New hope for the sector in 2004 - will the crises be overcome?
            What can regulation do?
• Regulation can provide a stable framework for competitive
  and innovative forces to work
• Enable investment in new technologies (emerging markets)
  while preventing the leverage of market power
• Prices must cover costs and allow a sufficient profit margin,
  price regulation should be based on the costs of an efficient
  operator: forward looking long run incremental costs (LRIC)
• Subsidies and cross-subsidies are not acceptable solutions
  for dominant players as they distort competition
• Consistent pricing model must be established through
   – rebalancing disparities between wholesale and retail
      products and enduser prices compared to wholesale prices
   – eliminating potential and possible cost/price gap
• Resale models for service providers and non-network based
  players to allow a diversity of market players based on
  different business models
              The example of mobile
• Should the mobile market be regulated?
  - more or less regulation:
  - on the one side the scope of the new European framework
    includes all electronic communications networks, but
  - on the other side the new framework pursues a deregulatory
    philosophy (greater reliance on competition law)
• Is there too much or too little competition?
   – point of view of the capital markets
   – point of view of the fixed network operators
   – point of view of the consumer
• How are innovation and new technologies in mobile services
  (3G) facilitated and funded?
• Enough spectrum issued for new and sophisticated services?
• How many operators are necessary and viable (market
  shares, ARPU)?
    Future Players need to build up Strategic
    Alliances to survive in the Mobile Market
                    Incumbent Mobile
Handset manufact.                       Software manufact.
                        Operators


Service Provider                           `New´ Players
                                             e.g. MVNO


                        Mobile
                        Market

 New Mobile                                Content Provider
 Operators


                    Internet Provider
                    Mobile markets (3G)
• Which business models will secure competition and diversity?
  – Network operators
    - roll-out obligation to be fulfilled until end of 2003
    - infrastructure sharing allowed / national roaming
    - interoperability obligation to ensure end-to-end-connectivi.
    - strategic parterships with handset and software manufact.
  – MVNOs
    - commercial agreements
  – Service Providers
    - obligation to admit service providers (sect. 4 Cust. Prot. Ord.)
  – Enhanced service providers
  – Content providers
    - partnerships
        Win-win situation as a result of cooperation,
        open interfaces + protocols and interoperability
                Mobile data players

            Software                            Network
                                               operators
                            Customer needs
                          and demand for new
                               services
             Handset                           Content
          manufacturers                        providers



Win-win situation as a result of cooperation, open interfaces
and interoperability,
or
Walled gardens and battles about dominance and direct
access to the customer
             Mobile data market
What do we need to make the mobile data market the
dynamic driver for growth and profitability?
– interoperability of technical platforms (2.5G, 3G,
  W-LAN, DAB, DVB-T, satellite, bluetooth, DECT etc)
– open interfaces, seamless handover and roaming
– open new standards and protocols (MPLS, IP.v6)
– enabling of the “intelligent network“ of the future
– service and customer orientation (customer wants
  speed and availability of service and does not care
  about the access-medium)
             Update on UMTS (1)
• 2000:   6 UMTS licenses auctioned for ar. € 50 billion:
          4 GSM operators, 2 newcomers, licenses are
          non-tradable and have a 20 years duration
• 2001:   Infrastructure sharing allowed
• 2003:   Mobilkom gives back its license as
          well as the frequencies after selling the
          base stations to e-plus
• 2003:   25% coverage of population must be
          fulfilled by mobile operators
• 2004:   RegTP to check on roll-out obligation,
          Quam/Group 3G seems to have difficulties
• 2004:   Vodafone announces to launch first UMTS
          services for business customers at the CEBiT
                 Update on UMTS (2)
• 3G network operators and service providers need a stable
   regulatory framework: No possibility to change the licensing
   conditions as RegTP´s 3G Ruling has administrative finality:
      - Competitive independence of licence holders
      - Licence holders must operate the mobile network
        themselves ("functions control" = de jure and de facto
        control over the mobile radio frequencies;
         see Section subparagraphs 1 and 2 of the TKG)
      - Frequencies may not be transferred or traded:
        no spectrum trading (see Section 47(6) of the TKG)!
      - In case of a merger, one licensee must return the
        frequencies
       UMTS – Market developments (1)
• Problems are there after the unpredictable change in
  the financial markets climate, but can be solved
• 3G market has to be seen in the long run perspective
  of 15 to 20 years, during the roll out period there are
  always difficulties to be overcome
• Regulators react flexible to the extent that national
  licensing conditions allow so and as far as possible,
  e.g. by allowing infrastructure sharing
• In the transition period from 2G to 3G new business
  models and new players such as MVNOs emerge
  that link GSM networks to UMTS services changing
  the value chain and the relationship between players
• Initiatives such as the IPv6 are important on the
  European level
    UMTS – Market developments (2)
• Problems of 3G roll-out are due to:
• Considerable raise of telcos‘ debt burdens:
  financing difficulties
• Delays also on the industry‘s side:
  technical difficulties, handsets not available
• Doubts regarding the demand side:
  marketing difficulties
• Alternative offers via Hyper/Wireless LAN
                         WLAN
• In Nov. 2002, RegTP published a general assignment of
  frequencies in the 5GHz band (5150 – 5350 MHz, 5470 –
  5725 MHz) for new WLAN applications in addition to
  those in the 2.4 GHz band for general use without charge
• No interference expected due to the amount of spectrum
  assigned
• Following the principle of technical neutrality,
  no specific technical standard was prescribed thus
  allowing providers to use new innovative solutions
• WLAN seen as complementary to UMTS as both have
  different areas of applications
• So far ar. 1,200 hotspots are operated by 30 commercial
  and non-commercial providers in Germany
                EU Regulatory Package I
• With the much broader concept of electronic communications
  networks the new package comprises the whole industry to
  take account of convergence a. the resulting market dynamics
• Changes only where these encourage greater competition and
  are necessary to ensure neutrality of regulation for convergent
  technologies (technological neutrality Art. 8 FD)
• NRAs have an increased role as flexibility is needed to adapt
  regulation to the rapidly changing market conditions
• With the closer link to the dominance concept of EU
  competition law sector-specific regulatory legislation is
  embedded in general competition law, which is a logical
  consequence of the market development since liberalization
  started in 1998 and emerging competitive market structures
  allowing a greater reliance on competition law now
• With the New Group (ERG) + the veto power of the Cion (Art.
  7 FD) the last aim of the reform package to reach a more
  harmonized approach of regulatory practices across Europe
  is taken care of ensuring a consistent application of the NRF
             EU Regulatory Package II


                 Authorisation Directive        Liberalisation
                                                  Directive
Framework       Access & Interconnection           (Art. 86)
 Directive             Directive
 (Art. 95)
                 Users’ Rights Directive          Spectrum
                                                  Decision
                 Data Protection Directive
                                                   (Art. 95)

Guidelines on     Recommendation on          Recommendation
   SMP             relevant markets             on Article 7
  Electronic communications
 networks and services - Scope
               Content Services
       - outside scope of new framework
(e.g. broadcast content, e-commerce services)


           Communications services
           (e.g. telephone, fax, e-mail)

          Communications networks
   (fixed, mobile, satellite, cable TV, powerline systems,
   networks used for radio and television broadcasting)
  and associated facilities (e.g. CAS, APIs, EPGs)
       Transposition in Germany
• State of Affairs:
• 1st draft was published by the Ministry of Economics
  and Labour on 30 April 2003 and publicly consulted
  with relevant players
• 2nd draft adopted by the cabinet on Oct. 15, currently
  discussed (e.g. with RegTP‘s Advisory Body)
• 2nd draft brought to Parliament on 19 November
• 1st reading in the Bundestag on 15 Jan. 2004
• Committee Hearing on 9 Febr. 2004
• It is expected to have a new law in place mid-2004,
  but this depends on the process in the two chambers of
  Parliament
                The New Regime (1)
• Up to now, operators needed individual licenses, under the
  new regime, only general authorisations are needed,
  except exclusive rights for scarce resources such as radio
  spectrum
• Even though the new Telecoms Act has not yet entered
  into force, RegTP stopped licensing in October 2003 as
  required by the new European legislation
• Up to now, spectrum trading was not allowed, under the
  new Telecoms Act spectrum trading will be possible under
  certain conditions
•      this move is expected to lead to a more efficient use
       of spectrum, although already now, a „use it or lose
       it“ policy for spectrum prevents hoarding of spectrum
              The New Regime (2)


• Integration of frequency ordinances

• Continued preference for auctions

• Spectrum trading to be permitted (no
  repercussions)

• Instead of licensing, frequencies will be assigned
  subject to obligations
Elements of Frequency regulation (1)

 • The central objective of a pro-active frequency
   policy is to guarentee a
 • non-discriminatory and
 • transparent provision of frequencies for the
 • different usages
 • tailored to the needs of users by
 • keeping in mind aspects of competition and
 • the principle of technological neutrality
Elements of Frequency regulation (2)




            Aspects of      Economic aspects
      technical frequency      aspects of
            regulation        competition



                 Legal procedures


               International Rules
       Example:
Short Range Radar (SRR)
                       Role of the Regulator
                              Objectives
                            competition +
                           efficient investm.
                             (Art. 8 FD)

  Flexibility =                                 Control = Veto
discretion to choose       Role of the NRA      power of the Cion:
 among remedies              (Art. 3 FD)        Consolidation proc.
  (Art. 8 AID)                                    (Art. 7 FD)

                          Consistent Applic.
                            ERG + NRA
                          consultation proc.
                          (Deci. + Art.7 FD)
       Cooperation between National Regulators
•   Independent Regulators Group (IRG)
•   Informal Group of Telecoms NRAs founded 1997 in Paris
•   to share experience and information
•   to develop common approaches
•   to discuss national implementation measures
•   with the aim of harmonising regulatory practice across Europe
    and to ensure a consistent application of the European
    legislation by issuing so called Principles of Implementation
    and Best Practice (PIBs)
•   as horizontal coordination on a voluntary basis
•   deciding by consensus
•   Since Jan 2003 IRG has 29 members who meet regularly,
    BIPT chairs IRG since Jan 2004 for one year
•   With the ERG where the EU-Commission will participate,
    IRG will have an official role to play, IRG continues to exist
                             ERG (1)
• IRG favoured the establishment of the ERG – European
  Regulators Group – proposed by the Commission at the
  NARA meeting in Brussels on Nov. 8th ’01
• The decision to establish ERG was adopted by the Commission
  on July 29th ’02 (2002/627/EC, publ. in the OJ on July 30th ‘02)
• The ERG
   – comprises the heads of the relevant NRAs as notified acc. to
     Art. 3 FD and Commission delegates to discuss problems of
     a harmonised implementation of the European legislation
     and to adopt common positions for a uniform application of
     the directives.
   – discusses implementation measures only
   – has advisory functions: assist and advice the Cion
   – is not a comitology committee (COCOM)
   – does not take decisions that are legally binding
                             ERG (2)
• The ERG organizes the consultation process foreseen in Art. 7
  FD among NRAs and the consolidation procedure with the
  Commission and looks particularly at the choice of remedies
• It builds on the existing regulators group (IRG), although the
  group continues to exist in parallel
• Voting foreseen in case no consensus is found
• Cion present at the meetings, but no voting rights
• Transparent working structure with consultation procedures for
  market parties + annual report to Cion/EP
• The chairperson is always a NRA president
• The chairperson is responsible for the agenda
• The ERG sets up its rules of procedure (publ. on www.erg.eu.int)
• Secretariat of the group to be provided by the Commission
• As 1st ERG-General Secretary Prof. Otruba (former President
  of RTR) was appointed and started to work on August 1st 2003
                           ERG (3)
• The inaugural meeting of ERG was held in Brussels on Oct.
  25th 2002 to which the 19 IRG members were invited; for the
  Commission DG INFOSOC and DG COMP took part
• The meeting was opened by Com. Liikanen pointing out the
  importance of co-operation both vertically between the
  Commission and the NRAs as well as horizontally among
  NRAs for a harmonised approach to regulation
• The Chairman of the Dutch NRA OPTA, Prof. Jens Arnbak
  was elected chairman for the year 2003
• IRG provided a draft of the rules of procedure to be checked
  by the Commission‘s legal services, meanwhile publ. (provi.)
• The Commission provided a draft paper on how to organize
  the Art. 7 procedure efficiently which was checked by IRG
• Regular ERG meetings every 2 months
• A call for proposals for the ERG 2003 workprogramme was
  published with the press release
• 2nd meetg. (23/01/03 /Amsterdam) + 3rd meetg. (20/05/03 /Athens)
             Framework Directive I
• Art. 3: National Regulatory Authority:
          independence from market parties
• Art. 6: National consultation on draft measures
          (market definition + SMP determination, remedies)
• Art. 7: Consultation with other NRAs and
          Notification of draft measures to the
          Commission: so-called consolidation procedure
          Veto power on market definition + SMP
          if internal trade is affected + draft measure
          considered not to be in line with Art. 8 objectives,
          to achieve a greater harmonisation and the internal
           market, but no veto power on remedies, only
          comments, which have to be taken into utmost
          account by NRAs
                          Remedies (1)
•   3 Stages:
    - market definition: relevant market
    - market analysis:     designation of SMP operator(s)
    - choice of remedy: imposition of obligation(s)
•   If an operator is found to be dominant (either individually or jointly),
    at least one special obligation must be imposed, which must be
    proportionate to remedy the problem, justified in the light of the
    Art. 8 FD objectives and based on the nature of the problem
•   Remedies are to be chosen from the list in the AID/USD
•   Remedies must be effective: solve the lack of competition
•   Remedies on the retail level to be applied only in case wholesale
    obligations do not work
•   Notification procedure acc. to Art. 7 FD:
    Veto power on the stages 1 + 2 (market definition + SMP), but no
    veto power on the application of remedies, only comments which
    have to be taken into utmost account by the NRAs when adopting
    the final measures
                    Remedies (2)
            Recommendation on             Guidelines on market analysis
EC level     Relevant markets                  and assessment of
                                            significant market power




                            Market analysis
National               relevant market definition                Results
level                                                            can be
                   Assessment of effective competition           vetoed
                       or significant market power



                      Cancellation, confirmation or
                                                        Remedies
                       imposition of obligations        cannot be
                                                        vetoed
       Remedy should be effective solve the lack of competition
       Important role of NRAs to choose the appropriate remedy
                      Remedies (3)
•   Art. 9 AD – Transparency obligation
•   Art. 10 AD – Non-discrimination obligation
•   Art. 11 AD – Accounting separation
•   Art. 12 AD – Access obligation
•   Art. 13 AD – Price control + cost accounting obligations
                 cost orientation: cost of efficient service prov.
•   In case wholesale remedies do not work:
•   Art. 17 USD – Regulatory controls of retail services
•   Art. 18 USD – Regulatory controls of minimum set of LL
•   Art. 19 USD – Carrier selection and carrier pre-selection
•            instead of the former automatism, NRAs
             are now given the flexibility to choose the
             proportionate remedy: increased role for NRAs
              ERG – Next Steps
• Since Jan. 1st Mr. Van Heesvelde from the Belgian NRA
  BIPT took over the Chairmanship
• Adopt the 2004 Work programme at the next IRG/ERG
  meeting on 29/30 Jan. 04 in Brussels
• Important subjects: Remedies document, analysis of the
  Art.7-Noticiations, benchmark on MTR, international
  roaming, BSA follow-up and broadband situation, joint
  work with the Cion on the Review of the 98-Recom. on
  CA&AS, report on DQ, QoS, net costs of USO
• Evaluate comments on the Remedies document,
  incorporate them where appropriate
• Final adoption and publication of the ERG Remedies
  document at the Plenary in April 2004
                      Conclusion I
• Since liberalization started in 1998 markets have developed
  dynamically and show signs of emerging competitive structures
• To achieve this a strong framework of sector-specific
  regulatory rules was necessary as competition would
  not evolve automatically
• Especially important were the obligation of SMP operators to
  grant new entrants access at cost-oriented prices
• With the initial phase accomplished and new technologies
  leading to convergent markets with new players and strategies,
  the regulatory framework too had to be adjusted in order to
  tackle the problems of the new situation adequately, but without
  risking a backlash by relaxing regulation too early as lightening
  the regulation too soon would result in strengthening the
  incumbent again with the danger of remonopolization
• This was done with the new European regulatory framework,
  currently transposed into national law by Member States
                      Conclusion II
• On 25 July 2003 the new regulatory framework replaced the
  ONP regime, the new framework was transposed into national
  legislation in 8 Member States: A, Dk, ES, SF, Ire, Ita, Swe, UK;
  infringement procedures opened against the remaining 7 MS
• A number of regulatory issues are now imposing themselves on
  NRAs:
• IRG is preparing itself for the implementation by developing a
  common understanding of the new principles in order to adjust
  regulatory activities to new market situations
• The passing over from the old to the new regime requires
  careful analyses of the impact that the application of regulatory
  and competition law instruments will have on the
  telecommunication markets
• The new framework allows a differentiated approach to address
  different market stages adaquately, less intrusive intervention in
  more advanced markets, continue regulation where necessary
  such as in bottleneck type markets
                   Conclusion III
• Market analysis must take into account different national
  circumstances, but the same regulatory consequences
  should be triggered by dominance
• If the same regulatory consequences follow the
  determination of market power, a level playing field is
  created as operators are aware that they face the same
  consequences as dominant operators by all regulators
• With the veto power of the Cion and the ERG, a closer
  co-operation among NRAs takes place and a consistent
  application of European legislation is achieved
• The aim of regulation to create an effectively competitive
  market should guide the regulatory reactions, which should
  be proportionate and appropriate to remedy the problem
• With the Remedies document now being consulted, the ERG
  has taken an important step to achieve the aims of the NRF

				
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