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Quirino Brindisi
Senior economist, H3G Italy
Mobile Regulation & Competition Law Bruxelles 12/06/08 page 1
Agenda
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You can consider H3G as the latest infrastructure-based newcomer in an ordinary way, or the first mobile video company in Europe... ... but, most of all, H3G is a developer of new technologies & business models
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UMTS network
H3G s.p.a.
100%
DVB-H network
3lettronica Industriale
H3G provides mobile telecoms and broadcasting services to the market, 3Lettronica provides digital broadcasting capacity to H3G Italian law imposed to setup 3lettronica as a separate company, in order to avoid risk of cross-subsidies between tlc and broadcasting
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Some figures
H3G has achieved so far over 8,2 m subscribers, more than 10% of these enabled to mobile TV services via dual-mode UMTS / DVB-H hs In Italy H3G has about 9% share on total mobile lines and 9% on revenues, while keeping the leadership on UMTS with 38% lines H3G reached 2.1 bn turnover in 2007, and EBITDA breakeven in the 2nd half of the same year, but it is still far from profitability H3G has achieved about 88% population coverage with both its UMTS and DVB-H networks, providing basic mobile services to 99% pop Hutchison Whampoa has invested in H3G, up to now, almost 9bn. The single largest greenfield foreign direct investment ever in Italy
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Agenda
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Premium channels*
* Available only through a personal security code.
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Agenda
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Spain
112% 77% 40.3%
France
89% 82% 39.4%
German y
118% 72% 37.5%
UK
122% 50% 27.4%
* Italy has the most concentrated 4 MNOs market, whereas France and Spain have 3 MNOs ,Germany has 4 and UK 5 (Source Merrill Lynch Global wireless matrix 4Q07).
EBITDA/pop 181 162 142 92 117 Italy has also the largest UMTS market, with over 21 m subscribers, out of ()
90 m overall (i.e. 24% of total), and more than 50% of net adds The market is very concentrated, with TIM and Vodafone accounting for 74% of customers and revenues, with shares stable from 2006
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H3G obtained favourable roaming rates for voice and SMS, with NRA intervention. Other provisions largely remained on paper
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Most H3G subscribers decided at least to delay MNP request, so becoming multi-terminal customers, using at the same time two networks
Multi-terminal customers keep receiving calls on their old line so leading to an imbalance in outgoing vs. incoming traffic
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Traffic imbalance could be, at least partially, offset by very low off-net retail prices. This is not applicable when competitors have high MTRs BEFORE introducing MTR symmetry, NRAs have to solve competitive issues
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Current MTRs regime is based on NRA decisions n. 3/06, ruling a price cap 2006 - 2009 for TIM/ Vodafone (RPI -13%) and Wind (RPI -16%), and n.628/07 ruling a -13% cut on H3G
Mobile Regulation & Competition Law Bruxelles 12/06/08
* Before 1999, TIM and Omnitel had the right to set the whole retail price for incoming calls(!). After a sentence from NCA, they agreed on voluntuary annual reductions of their MTR up to the NRA dec
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13
11
c/min
NRA estimates a 30% cut on avg. rate (H3G is -57%) to Ofcom like rates H3G would bear another 20% one-off cut, only 6 months after the 1st one (for a total -31%)
Ju l-0 8 Se p08 No v08 Ja n09 M ar -0 9 M ay -0 9 Ju l-0 9 Se p09 No v09 Ja n10 M ar -1 0 M ay -1 0 Ju l-1 0 Se p10 No v10 Ja n11 M ar -1 1 M ay -1 1 Ju l-1 1
TIM / Vodafone
Wind
H3G
H3G is going to be damaged by the announced NRA decision because of an excessive MTR reduction vs. competitors
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Agenda
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Looking forward
H3G is still committed to invest in innovation, for example completing HSPA coverage and developing DVB-SH (trial to be launched soon) The competitive outlook is getting tougher also due to factors non imputable to H3G:
Unfair win-back and retention campaigns performed by its competitors; MVNO entry on the market, among telcoms specialists (BT, Fastweb etc...); Sudden regulatory changes, like Bersani law banning prepaid top-up fees.
All this is resulting in a slowdown of H3G Italy performance, this is leading many analysts to forecast an imminent exit of H3G from the market H3G has the strength and willingness to keep competing on the Italian market but needs a pro competitive and stable regulatory framework
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Conclusions
HWL invested in Italy also thanks to a regulatory environment supportive of new entrants Now H3G is not asking NRA and EC aid to effectively compete on the market, but to remove competitive distortion in the Italian market The main issue arises from high incumbents MTRs enabling on-net discrimination. H3G has had a high MTR vs. Eu avg. not vs. competitors H3G MTR grace period has been 5 years, vs. 10 for TIM/Vodafone 6.5 for Wind. H3G ought to maintain enough asymmetry to compete The old ONP framework has established competition in EU telecoms at the advantage of customers. Now consolidation has become the best option?
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Thank you
Address for comments and/or questions: Quirino Brindisi Economic analyses manager Regulatory affairs H3G S.p.A. Via Alessandro Severo, 246 00145 Rome Italy Tel: +39 0659556586 Fax: +39 0659556928 Mobile: +393931113258
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