Pricing issues...

James Allen's argumentations on Analysys.com about pricing for NGN fixed interconnection is not new. Despite this limitation, it is one of the first professional consultants that looks at the business prospective and the numbers behind the well-known dichotomy, interconnection and NGN.

How the wholesale interconnect market will evolve it is not for us to decide; the consequences of regulatory decisions on corporate strategy and business' rentability can have unpredictable consequences. Prudence is here a must!

Just think how the market can be distorted from a inflexible an outdated regulatory policy that have a predilection on a per-minute charging system while the retail market is going to the direction of flat rates or capacity based packages.

On the other end James concludes that there is a future per the old-fashioned price per minute system, non-geographic and premium number will continue to be priced as before.

I personally think that the termination of premium services will look more as the current pay-per view models. Probably a more transparent price-per-information (click) on-demand system, instead of remaining as it is know, a mix of setup and per minute charging.

Definitely more fashionable ... Isn't?

Relevant Markets: A New Hope?

The commission is investing a considerable political capital in the deregulation of the communication market. In particular there are a main issues in the draft recommendation on relevant markets I like to highlight.

The exclusion of markets in the forthcoming commission recommendation represents a clear political signal of success to European stakeholders. In other words it means that competition works, regulation has been effective and it was just temporary devil. However, commission's arguments to justify the exclusion of retail markets do not fully satisfy and could be dangerous for policymakers and competition in the future.

The inclusion of the old markets will be still possible, but NRAs will face a significant burden of proof to demonstrate those market can be again regulated. Can you imagine the commission, after having invested considerable resources in deregulation, agreeing with NRAs that the devil is back?

Regionalisation vs Nationalisation

Regional or Geographical based regulation is becoming a new trend in the industry. Spain's Telefonica and UK's regulator OFCOM are, among others, discussing, promoting and introducing the concept of a de-averaged regulatory policy.

Let me explain the concept.

From one side regulators recognize the fact that under competitive and revenue maximization pressures there are certain areas of a country where one provider of communication services is more than enough or where it is not economically sound to enter the regional market. For example, the cost of full unbundling in disperse populated regions might be able to sustain no more than one competitor at the same time.

On the other side Operators face competition in highly density cities and are willing to invest only in regions where they are getting a higher than average RPU. This competitive logic would leave some distant regions behind the center increasing the digital divide in the nation. Telefonica & Friends are leveraging their bargaining power with the NRA requesting regulatory holidays for services deployed in regional areas to promote investment competition.

What to do?

There are two basic concepts to analyze here. Social benefits and cost causation. We are all aware that every state should promote an economic environment that maximize consumer benefits and (here) reduce the digital divide between centers and peripheries. This policy objective would suggest that either we have to put an obligation on the USO provider to provide a minimal set of services or we promote the deployment of advanced technologies in rural areas via special regulatory tools, for example de-averaged wholesale tariffs. Here we come to the next concept, the cost causation principle. We are aware that rural areas bear a higher portion of costs, building and managing a network costs more there than in dense populated areas. We are also aware than just a few competitors will come to the sparse populated regions, it's too expensive to build for a few customers. Why not promote competition in the cities, with low wholesale rates for access to the network while, permitting the incumbent operator to continue its monopoly in less developed areas? It can achieve the policy objectives.