Overview of Regulation Challenges

in Telecommunications
Task force: E. Agiatizidou, C.Kalogiros,
G. D. Stamoulis, and N.Vettas
Athens University of Economics & Business
1st Workshop on New Methods in the Analysis of Market
Competition: Oligopoly, Networks and Regulation
December, 2012
THALES: Regulation Challenges - 2
Outline
Relevant markets
Functional Separation
Digital Dividend
Dynamic Spectrum Management
Universal Service Obligation
Net Neutrality
THALES: Regulation Challenges - 3
Outline
Relevant markets
Functional Separation
Digital Dividend
Dynamic Spectrum Management
Universal Service Obligation
Net Neutrality
THALES: Regulation Challenges - 4
Relevant Markets
Not enough competition due to Significant Market Power (SMP)
leads to loss of social welfare in that market.
Telecommunication markets are frequently characterized by SMP.
NRAs have the authority to impose ex-ante remedies, if justified.
A 3-step process:
Definition of relevant product/service market & geographic scope
Competition assessment & identification of SMP operators
Imposition of remedies on SMP operators
which is periodically repeated.
NRA identifies
scope of market
NRA assesses
market power
NRA imposes ex-
ante obligations
(if SMP found and
accepted by EU)
Next
analysis
round
THALES: Regulation Challenges - 5
New Recommendation on Relevant Markets

()

()

1 & 2
Previously
market 8

9

11

12

13

16
THALES: Regulation Challenges - 6
Relevant Markets across EU Member States
Source: European Commission, DG Information Society
and Media, as of 15 April 2012
http://ec.europa.eu/information_society/policy/ecomm/doc/implementation_enforcement/eu_con
sultation_procedures/market_overview_15_april_2012.pdf
THALES: Regulation Challenges - 7
THALES: Regulation Challenges - 8
Outline
Relevant markets
Functional Separation
Digital Dividend
Dynamic Spectrum Management
Universal Service Obligation
Net Neutrality
THALES: Regulation Challenges - 9
Functional Separation
The aim is to ensure fair and equal access to bottleneck
network assets.
E.g., local loop
Functional separation should be seen as an extreme
remedy against SMP.
A special case of accounting separation.
An NRA must:
Identify persisting competition problems in related relevant
markets
Analyze the impact of proposed separation
Receive EC approval
THALES: Regulation Challenges - 10
Options for Functional Separation
Degree Separation option Description Countries
0 Accounting separation Costs and revenues of upstream and
downstream products are allocated in different
baskets. Preserves efficiency of vertical
integration but does not provide equivalence of
access.
Austria, Denmark, France,
Germany, Greece*, Hungary,
Ireland*, Malta, The Netherlands,
Poland*, Portugal, Spain
1 Creation of a wholesale
division
The incumbent has a separate wholesale division
which supplies upstream inputs to competitors.
The retail arm still has a preferential way to
access products. No equivalence of access.
2 Virtual separation First form of equivalence of access as internal
and external customers are treated equally. No
physical separation of the businesses.
3 Functional separation Physical separation of businesses and new
business practices, e.g. new office location, new
brand, separate OSS/management info systems.
4 Functional separation with
localized incentives and/or
separate governance
arrangements
As 3 plus different managers incentives and
different governance.
UK, Italy, Latvia, Sweden and
intention of Poland*
5 Legal separation (separate
legal entities with the same
ownership)
As 4 but with a separate non-executive board. Intention of Greece* and Ireland*
6 Ownership separation As 5 but with different ownership
Source:
Tropina, Whalley, and Curwen, Functional separation within the
European Union: Debates and challenges. Telemat. Inf. 27, 3
(August 2010)
THALES: Regulation Challenges - 11
Outline
Relevant markets
Functional Separation
Digital Dividend
Dynamic Spectrum Management
Universal Service Obligation
Net Neutrality
THALES: Regulation Challenges - 12
Digital Dividend
Digital dividend refers to spectrum released from the switchover
from analogue to digital terrestrial television.
1
st
digital dividend: 800MHz
2
nd
digital dividend: 700MHz (will come into force from 2015)
How should the digital dividend be shared between different radio
services to maximize social welfare?
Broadcasting: more channels and/or increased quality HDTV
Mobile broadband: higher data rates and/or increased quality (4G)
Other services (e.g., military)
Greece - Technology penetration forecast by
connections [Source: Analysys Mason, 2012]
THALES: Regulation Challenges - 13
Digital Dividend Overview of EU Member States
Figure adapted from
http://en.wikipedia.org/wiki/Digital_terrestrial_television
2013
2015
2013
2013
2013
2013
Analysys-Mason consulted the
Hellenic Republic to allocate the
800Mhz sub-band for mobile
broadband, using a market-based
mechanism, such as an auction.
Source: Analysys Mason, 2012
THALES: Regulation Challenges - 14
Outline
Relevant markets
Functional Separation
Digital Dividend
Dynamic Spectrum Management
Universal Service Obligation (USO)
Net Neutrality
THALES: Regulation Challenges - 15
Spectrum Management and Challenges
Demand for wireless data
traffic has been increased
20.000% the last 5 years
An 18-fold increase in mobile
data traffic until 2016 (10.8
exabytes per month)
NTIA: re-farming1755-1850
MHz band would require 10
years and 18 billion dollars!
Challenge: maximize the use
of under-utilized bands
through spectrum sharing
TV white space (TVWS):
opens up new spectrum
bands
THALES: Regulation Challenges - 16
Current trends
FCC 2010: TVWS spectrum unlicensed use by commercial
devices
FCC: coordination use of 4.9 GHZ public safety band through
a geo-location database
FCC 2012: allow sharing of the 3.5 GHz band between federal
agencies and commercial systems
802.11af: Wireless LAN in TV White Space: IEEE 802.11
standardization efforts to allow operation within this spectrum
ETSI RRS use cases and deployment scenarios: operation of
Reconfigurable Radio Systems (RRS) within White Spaces in
the UHF 470-790 MHz (Europe)
Ofcom Voluntary National Specification (VNS): rules and
requirements for devices using UHF TV Band White Spaces.
THALES: Regulation Challenges - 17
Outline
Relevant markets
Functional Separation
Digital Dividend
Dynamic Spectrum Management
Universal Service Obligation (USO)
Net Neutrality
THALES: Regulation Challenges - 18
Definition
Assurance of the availability of a minimum set of
high-quality services:
to all users
at an affordable price
without distortion of competition
Includes:
A connection to the fixed network
Reasonable geographic access to public call boxes
A range of services for customers with disabilities
Emergency numbers
THALES: Regulation Challenges - 19
Challenges: Universal Service and Broadband
Already adopted in many countries
Switzerland (2008), South Korea, Finland, Japan
Governmental Programs/Plans for broadband
penetration/adoption
Australia Australian Broadband Guarantee
512 kbps download and 128 kbps upload minimum,
3GB/month data usage at a total cost of $2500 over three
years for residents and small business
UK Digital UK
100% broadband coverage by 2012, with a minimum speed of
2 Mbit/s
EU Broadband Package
The Broadband Communication: action and outlining
proposals for achieving the targets
The NGA Recommendation: regulatory guidance to promote
legal certainty
Radio Spectrum Policy Programme: improve coordination and
management of spectrum in the EU
THALES: Regulation Challenges - 20
3
rd
Periodic Review of USO in EU Level
Criteria:
1. Availability to the majority of consumers? Lack of availability by a
minority results in social exclusion?
2. Availability and use convey a general net benefit to all consumers such
that public intervention is warranted where needed?
Criteria in previous reviews (2005/06 and 2008) were not met
In 2010
Broadband Penetration: 95% (EU
population)
Broadband usage rates vary (23%
households in Romania - 83% in
Sweden)
Majority reached for
broadband usage but not yet
a substantial majority
The costs of EU-wide USO
would fall on telecom
providers and consumers
For mobile: competitive provision resulted in
widespread affordable access
No need to include in USO
Next review in 2013
No meet of the second criterion
THALES: Regulation Challenges - 21
Outline
Relevant markets
Functional Separation
Digital Dividend
Dynamic Spectrum Management
Universal Service Obligation (USO)
Net Neutrality
THALES: Regulation Challenges - 22
Definitions
NN is the principle that all Internet traffic should
be treated equally
Absolute non-discrimination
a maximally useful public information network
aspires to treat all content, sites, and platforms
equally.", Tim Wu
Limited discrimination without QoS tiering
Quality of service discrimination as long as no
special fee is charged for higher-quality service,
Limited discrimination and tiering
Higher fees for QoS as long as there is no
exclusivity in service contracts
First come first served
a neutral Internet must forward packets on a first-
come, first served basis, without regard for
QoS considerations, Crawford
THALES: Regulation Challenges - 23
BEREC
January 2010: Body of European Regulators for
Electronic Communications (BEREC) advisor
role
BEREC remarks for NN
Limits on the speed of peer-to-peer (P2P) file-sharing
or video streaming (France, Greece, Hungary,
Lithuania, Poland and the United Kingdom)
Blocking or charging extra for VoIP services in mobile
networks
(Austria, Germany, Italy, the Netherlands, Portugal
and Romania)
Constant consultations and reports for NN
THALES: Regulation Challenges - 24
BEREC October 2011 consultation on draft
Guidelines on Net Neutrality and Transparency
Best practices and Recommended approaches
Transparency obligations to apply to the whole value chain
Extend transparency to interoperability, services and
equipment, applications and content providers, terminal
suppliers
Existence of competition sufficient to handle Net Neutrality
concerns
Regulations must foster competition
Transparency and competition are part of the answer, they
do not provide the full solution
Conclusions: Competition should rely on effective
transparency and the possibility for end-users to easily
switch between service providers
C
o
m
p
e
t
i
t
i
o
n

V
S

T
r
a
n
s
p
a
r
e
n
c
y

THALES: Regulation Challenges - 25
BACKUP SLIDES
THALES: Regulation Challenges - 26
Relevant Markets in Greece
Market Greek NRA Analysis Results (Identified SMPs)
EC Rec.
5406/
2007
EC Rec.
497/
2003
Description Round 1 Round 2 Round 3
Market 1 1, 2 Access to PSTN for residential and non
residential users
OTE OTE
3 Retail local/national fixed calls for
residential users
OTE OTE
5 Retail local/national fixed calls for non
residential users
OTE OTE
7 Retail leased lines OTE
Market 2 8 Call origination on fixed network OTE OTE
Market 3 9 Call termination on fixed network VIVODI, FORTHNET ,
COSMOLINE, ALTEC, TELLAS,
TELEPASSPORT, VOICENET,
HOL, ALGONET, LAN-NET,
TELEDOME, , Q
TELECOM/CATIONS
OTE, ALGONET,
COSMOLINE, COSMOTE,
CYTA, FORTHNET, HOL,
, VIVODI, ON
TELECOMS, VOICENET,
VODAFONE, WIND
10 Transit on fixed networks OTE OTE
Market 4 11 Wholesale (physical) network
infrastructure access
OTE OTE OTE
Market 5 12 Wholesale broadband access OTE OTE OTE
Market 6 13 Terminating segments of leased lines OTE
14 Trunk segments of leased lines OTE
15 Access/call origination on mobile
networks
No SMP
Market 7 16 Voice call termination on mobile
networks
VODAFONE, COSMOTE, TIM
HELLAS/Q-TELECOM
VODAFONE, COSMOTE,
WIND
VODAFONE,
COSMOTE,
WIND
Source:
http://www.eett.gr/opencms/opencms/EETT_EN/Electronic_Communications/Telecoms/MarketsAnal/