Liberalisation and regulation in the telecommunication sector

							Liberalisation and regulation in the
electronic communications sector:
  Theory and empirical evidence



  Week 1
  Introduction to the course
  The International and European
   framework of telecom reform
Introduction to the course
 Objective: To provide an in-depth understanding of the main issues
  and options of telecommunication regulations and reform at the EU
  level.
 Main Tools: Economic & Legal principles of Competition Law,
  Technological Advances in Electronic Communications (e.g.
  Broadband & Wireless Access to the Internet), Empirical Evidence
  of Regulation in European countries (e.g. Interconnection &
  Unbundling of Services)
 Topics addressed:
       The international framework of telecom reform
       Cost modelling and price regulation
       Interconnection: Economic and policy aspects
       Universal Service, Universal Access and the digital divide
       The European experience in telecommunications regulation
       The new EU Regulatory Framework (July 2003)
       Local Loop Unbundling: Economic & technical aspects

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Logistics

Information resources for the course
      See the course site
Students’ evaluation
      See the course site
      Group assignments
      Possible topics for study
      Methods of communication


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 Setting the Stage: The International and
 European framework of telecom reform


  The historical approach to telecommunication service
   provision
  Main pressures for change (technological and socio-
   economic)
  Major steps of reform: Strategies for the restructuring of
   markets from the 1980s till now
  Reform experiences in the US, the UK, and Europe
  Main features of the telecommunications industry that
   are important in the process of regulatory reform

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The historical approach to
telecommunication service provision

 The PTT (Post, Telephone and Telegraph Administration) was granted a
  monopoly on the provision of telecommunication infrastructure and services
  since late 19th century.

 Basic model world-wide = monopoly on equipment and on basic network
  and service provision (public monopoly in Europe vs. private monopoly in
  the US)

 The natural monopoly doctrine: the industry enjoys large fixed costs whose
  duplication was neither profitable for private investors nor socially desirable.
  Telecommunications was one of the societal benefits that economic
  development allowed.

 European PTTs became large and powerful employers, often capable to
  subsidise other social programmes.



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(…cont’d)

 PTTs had multiple roles as policy-maker, regulators, and operators.

 During this time, experiences in telecommunication performance &
  liberalisation varied among countries (e.g. UK, France, Greece)

 Current Liberalization Phase 1990-2004: Competitive service
  provisioning by alternate PNOs (Public Network Operators)
  protected against incumbent PNO (former state monopoly) by State
  Regulations; fair competition monitored / enforced by independent
  National Regulatory Authorities (NRAs) after the US FCC paradigm
  (UK OFTEL, now OFCOM, Greek EETT etc.)




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Main pressures for change (since late 1970s)

 Radical developments in the electronics/computer industry and
  digital technology lowered the costs for certain types of
  infrastructure, exposed the inefficiencies of PTT monopolies, and
  offered opportunities for market entry.
 Increasing technological convergence between previously
  separated industries (consumer electronics industry,
  telecommunications, and media publishing) created new types of
  value-added services.
 Internationalisation of business urged national carriers to
  compete in attracting customers wishing to establish multinational
  private networks.
 In Europe, concerns were raised over creating a single European
  market for equipment and services able to compete against the US
  and Japanese rivals.
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Major steps of reform: Strategies for the
restructuring of markets in the 1980s

 Market structure Strategies
      Liberalisation
      Deregulation
      Divestiture (e.g. AT&T)
      Consolidation (for capturing economies of scale and scope, e.g.
       through mergers and acquisitions)
 Ownership strategies
      Semi-Public Corporation (loosens direct government control on
       the PTT)
      Full Privatisation – Competition



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… (cont’d)

 International Strategies
      Expansion into new international markets
      Alliances


 Competitiveness Strategies
      Industrial policy considerations
      Vertical integration (often with equipment manufacturers)




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Reform experiences in the US
 Until the 1960s US telecom industry was dominated by a single private
  monopoly, AT&T.
 1963: Competition in the long distance market following a request
  filed by MCI. This generated policy debates on interconnection
  arrangements with the local operating facilities of the Bell System.
 1968: Carterphone decision (FCC approves third party CPEs to the AT&T
  network)
 1974: the Department of Justice filed an antitrust complaint against AT&T
  monopoly position asking for its divestiture.
 1984: break up of AT&T. AT&T kept its long-distance operations, its
  manufacturing subsidiary, and its R&D facilities (Bells Labs). It was also
  allowed to enter other markets. The seven Bell Operating Companies
  (BOCs) were restricted to local telephone service. Also known as LECs
  (Local Exchange Companies) or ILECs (Incumbent LECs). Each LEC was
  serving one of the 192 Local Access and Transport Areas (LATAs). Inter-
  LATA services were provided by long-distance carriers such as AT&T and
  MCI.
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… (cont’d)

 1993: Restrictions in RBOCs’ line-of-business started to be
  gradually abandoned and were allowed to offer information services
 1994: RBOCs filed a request to enter into long-distance service
  provision and equipment manufacturing
 1995: Restrictions in RBOCs’ long-distance service provision and
  equipment manufacturing were abandoned
 1996: Release of the US Telecommunications Act of 1996
      The Act aims to foster local market competition and will enable RBOCs
       to enter the long distance market once there is ‘sufficient competition’ in
       the local market
      Entry into local markets can be done through own facilities, resale, or
       unbundling
      Players need to enter into symmetrical and non-discriminant
       interconnection agreements

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US Recent Developments
 1995: WorldCom formed after LDDS acquired Williams Telecommunications
  Group (WilTel) for $2.5 billion.
 1996: WorldCom merges with MFS Communications Company (MFS) and
  UUNet Technologies, an Internet access provider for businesses.
 1997: SBC Communications, Inc. acquired Pacific Telesis Group ($ 16.5
  billion).
 1997: Bell Atlantic Corporation acquired NYNEX Corporation - New York
  Telephone Company and New England Telephone and Telegraph Company
  ($25 billion).
 1998: BT fails to acquire MCI
 1998: WorldCom completes three mergers: with MCI Communications ($40
  billion), Brooks Fiber Properties ($1.2 billion) and CompuServe ($1.3 billion).
 1998: SBC Communications, Inc. acquired Ameritech ($62 billion).
 1998: SBC Communications, Inc. acquired Southern New England
  Telecommunications Corporation ($4.4 billion)
 2000: 5 January 2000 - AT&T and BT announce the $10 billion joint
  venture, Concert (October 2001 - Final death of Concert).
 2000:Bell Atlantic Corporation and GTE Corporation merged into Verizon
  Communications ($53 billion – 250,000 employees).
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… (cont’d)
 2000: U S WEST Communications Group merged with Qwest
  Communications International, forming Qwest Corporation. ($45 billion)
 2000: Verizon Wireless, a joint project of Verizon Communications and
  Vodafone (55% - 45%). Largest wireless US service provider (51,000
  employees – 43.8 Million customers - $24.4 Billion annual revenues 2004)
 2002: July 21 — WorldCom CEO Sidgmore says the company will file for
  Chapter 11, with the company listing assets of over $100 billion, and having
  more than 1,000 creditors, debt estimated at $32.8 billion, serving around
  20 million consumers and running the world's biggest Internet network
 2004: Cingular Wireless acquired AT&T Wireless Services Inc. 2nd largest
  wireless US service provider($41 billion)
 2004: Sprint Corp. acquired Nextel Communications Inc. forming the 3nd
  largest wireless US service provider. ($35 billion)
 2005: SBC Communications (a Baby Bell) acquiring the No. 1 long-
  distance carrier, AT&T, for $16 billion.
 2005: Verizon, MCI to link up in $6.7 billion deal



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Reform experiences in the UK
 1982: Licensing of Mercury for long-distance and international
  service provision. Operations began in 1986 and duopoly
  maintained until 1991. Discussions over interconnection charges
  began.
 1984: Privatisation of British Telecom (BT)
 1991: Licensing of several new long-distance and international
  operators. Cable TV companies allowed to offer local telephony
  services and long-distance and international through wholesale
  agreements with BT’s competitors. BT and Mercury were excluded
  from offering television services on existing phone lines.
 1996: Ionica entered the local market through a fixed wireless
  service. BT and Mercury were excluded from offering fixed wireless
  service.
 Currently BT is loosing significant market share out of new
  competitors
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Reform experiences in Europe (up to 2001)

 1987: Issue of the EC Green Paper on Telecommunications. It
  proposed the introduction of competition in the equipment and
  services market.
 1988: Commission Directive on competition in the markets for
  telecommunications equipment.
 1990: Commission Directive on competition in the markets for
  telecommunications services. Its scope was gradually extended
  until 1998 when voice telephony and networks were completely
  liberalised.
 1996: Commission Directive with regard to the implementation of
  full competition in telecommunication markets (96/19/EC).



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The New European Regulatory Regime (2003)

From Telecommunications to Electronic Communications
   Electronic Communications Networks (ECN)
   Electronic Communications Services (ECS)

   Framework Directive (2002/21/EC)
   Authorization Directive (2002/20/EC)
   Access & Interconnection Directive (2002/19/EC)
   Universal Service and Users' rights Directive (2002/22/EC)
   Data Protection Directive (2002/58/EC)
   Unbundled Local Loop Regulation (2000/2887)



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… (cont’d)

 Major principles underlying EC liberalisation measures:
      removal of special or exclusive rights
      objective, non-discriminatory and transparent conditions for
       granting of licences and access to networks
      breaking of “monopoly bottlenecks” e.g. local loops, obligation
       for fairness in wholesale services market.
      universal service provisioning

      The old Regulatory Framework: The ONP Principle (OPEN
        NETWORK PROVISION), access and interconnection rights for
        licenced operators at wholesale, cost-based tariffs imposed by
        NRAs to ex-post regulation of incumbent operators.

      The new Regulatory Regime: Competition Law. Definition,
        Analysis and Remedies of Markets by NRAs, ex-ante
        regulation of SMP (Significant Market Power) holders.
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