Regulation and MVNOs: a Happy End?‎

MVNOs are becoming in some European countries a real alternative to mobile ‎operators in overcrowded markets. Operators identified as SMP in market 15 ‎‎(Rec. 2003/311/EC) or market 7 (Rec. 2007/879/EC), can be imposed as remedy ‎to open their networks to MVNOs. In this case regulator should help MVNOs to ‎develop their own strategic proposition. ‎

In April 2008, Malta Communications Authority (MCA) issued guidelines to MVNOs, ‎Enhanced Service Providers (ESP) and Service Providers (SP), following a November 2005 ‎decision on market 15. For the first time in the small holiday island with less than 400.000 ‎mobile users, competition in mobile services is becoming reality and alternative service ‎providers are coming to the market. Vodafone Malta already announced several new ‎agreements for hosting ESPs, and it is the evidence that even small markets can sustain ‎diverse and innovative service providers.‎

MVNOs has been often used in mature markets by MNOs for several reasons:‎

‎-‎ to reduce regulatory pressures or to comply with market’s review decisions;‎
‎-‎ voluntarily to have a ready way to enter in new markets and win new customers;‎
‎-‎ reduce spare voice capacity, mainly for small network providers;‎
‎-‎ as pre-emptive move to reduce overall attractiveness of the market and increase ‎barriers to entry;‎
‎-‎ increase market power in international roaming (e.g. united-mobile).‎

The main reason for being anti-MVNO is the treat of cannibalization of current business and ‎increase of competition. However, when operators realized that in saturated market achieving ‎growth is very difficult and that their brand could not achieve all nice markets (e.g. ethnic ‎groups) or could be active in all segments some operators realized the positive potential effect ‎on their cash flow of MVNOs alternative business model. Some of them in very developed ‎markets also realized that the future of their business model were less focused on low-end and ‎prepaid customers, but on more post-paid and business customers. A similar concept is also ‎argued by Chriss Zook in a recent article on the Harward Business Review (04/07), he ‎emphasis on the research of the core business and to reconfigure orphan products.‎

Regulation should help MVNOs to develop their own strategic proposition and not just re-sell ‎pre packaged services. It is important for MVNOs to have a clear and stable harmonized ‎European framework where they can replicate their business model and invest in innovative ‎Pan-European services. For example, try to access SIMYO webpage in Germany and Spain, ‎they have a strong brand identity with tariffs that are almost identical (€9c for voice in all ‎networks and for SMS).‎

However, we should not limit competition to price. Another key issue is service ‎differentiation. Regulation should also promote differentiation in business models.‎

Some examples of MVNOs and their main business strategy:‎

Country MVNO Hosting ‎ MNO Strategy
Belgium Mobisud Belgacom Etcnic group
Belgium Aldi Base Price
Italy Tiscali Telecom Italia Bundling
Italy Postemobile Vodafone Service
Poland Aster City ‎Cable PTK ‎Centertel Bundling
Spain Jazztel Orange Bundling

World Lycambobile Many Etcnic group and price

World United-Mobile Many price and differentiation


There are some issues that should be discussed and analyzed from a regulatory point of view, ‎these are:‎

‎-‎ rights and obligations of MVNOs;‎
‎-‎ interconnection rights of MVNOs;‎
‎-‎ termination rates, impact on business case;‎
‎-‎ wholesale prices for MVNOs (bundle of minutes and volume discounts);‎
‎-‎ numbering range and routing;‎
‎-‎ legal interception;‎
‎-‎ number portability.‎


Conclusions
In many countries the regulatory framework has been neutral to MVNOs and their life has ‎been very difficult; in other markets the threat of more strength regulatory intervention (e.g. in ‎Switzerland, Italy and Spain) has been enough to open up networks and to promote price ‎competition. ‎

What MVNOs ask is certainty and transparent offering from MNOs and a clear regulatory ‎framework. MVNOs find themselves as second class operator, no rights and no control over ‎customers. ‎

Moreover, it is often the case that there’s no effective competition between MNOs and when ‎you are in the deal with one MNO you have to remain with it: sunk costs and number ‎portability problems, are likely to override all benefits in migrating to another MNO.‎

Finally, in some markets the so called Service Providers or light MVNOs struggle in ‎becoming full MVNOs. I can see a MNO wholesale service portfolio for MNOs as the limit to ‎MVNOs’ business case and innovation.‎


ww.regulation.tk

"II European MVNO Summit" Economist Conferences

I have been invited to partecipate to a panel discussion at the next European MVNO Summit in Rome this June organised by Economist Conferences. I will be partecipating to the first round table: "European regulation framework, perspectives and proposals" with Agcom's commissioner Enzo Savarese and my friend of Ovum Stefano Nicoletti.

MVNOs have been very important in the european market for many reasons:

1) can radically change the market's conditions.
2) appeal to nice market's segments: for example, ethnic groups that use their mobile phone for call abroad.
3) give a fresh and innovative look to an old and static market: for example, with new price plans and services.
4) open to completely new business cases: for example United Mobile (a roaming operator) and Blyk (the free mobile network in UK).
5) increase efficiency of the network (especially for UMTS players that have large capacity) and reduce costs.

Time to hear from leading experts on the subject, don't hesitate come to Rome with me!

www.regulation.tk

Regulatory Accounting Roundtable 2008

Cost recovery, transparency and consistency, cost model auditing and simplification in cost accounting are the priorities for the industry and main challenges for the years to come, according to participants to the Regulatory Accounting Roundtable 2008 (RAR08), a high level meeting organized by OFCOM last week.

Last week I had the pleasure of chairing the RAR08, European experts and a delegation from NTC Thailand actively participated to the discussion on the future trends in regulatory accounting policy.

Delegates agreed that a priority for NRAs was to promote transparency and confidence with stakeholders and reduce the incentives of SMP operators to have subnormal cost recovery from regulatory activities.

An interesting presentation came from GSMA, they believe, as I wrote in this blog some time ago, that pricing mechanisms for interconnection should be tailor made for the situation product and market. A standardized pricing mechanism is one solution, but certainly not the best in log term.



Another issue emerged, may be just a trend, many operators agreed that a solution for all our problems in cost accounting and interconnection might be introducing in Europe a regulatory environment that promotes a pricing mechanism similar to Bill & Keep. However, nobody could answer in full to my questions regarding drawbacks of the system:

1) is it possible to have an open market with Bill & Keep? Bill & Keep might promote competition within existing players with same traffic volume, but might reduce competition from new entrants that will face (at least in the short term) much higher termination costs that current players.

2) how should unbalances in traffic volumes be handled? Can small operator ‘profit’ from Bill & Keep or is it (as it is in the internet world) a system advantage only for large players?

3) One operator argued that it will be happy to introduce Bill & Keep on a bilateral basis with the incumbent, but that probably smaller operators will be not able to have the same conditions as the others in the market.

I believe that Bill & Keep might become new barrier to entry in the market, what do you think?

I think that if we introduce Bill & Keep as it is, we might end up with a cost based termination rate valid for small players, that will not be able to ‘play’ a role or enter the market, while existing mid and large operators will be able to have a cost advantage and may-be a sustainable competitive advantage.

Julio Villalobos from SVP Advisors, gave us an open minding presentation on the complexity of the auditing process for regulatory cost modeling. I believe that auditing will be one of the most important activities in the future to come (with the new commission’s recommendation on interconnection due to see the light very soon) and that the importance to validate regulatory cost modeling will arise very soon when interconnection price will collapse. We have time to think about this issue!

Finally, I have to speak about the change in trend from small mobile operators. I wrote about this issue in this blog before. My friend John Blackmore from H3G explained that mobile termination rates based on LRIC and large common costs give suboptimal results now, in time of full coverage and small growth of the market.

I fully agree with him, that usually too many irrelevant costs are included, under full competition firms can only recover their marginal costs of producing the extra output. Common and joint costs should be therefore not recovered by this ‘monopoly’ product.

Why should we subsidize mobile operators, usually large and very rich, with fat-cat termination rates? We can if there is a long-term regulatory objective (e.g. coverage or low retail rate), but sometime at cost distorting the market.

Good point John, did you speak with the commission recently?

Presentations files can be found here

www.regulation.tk

Setting the Course.

I will be joining SVP Advisors in August as responsible of the regulatory department.

SVP Advisors is a boutique consultancy firm specialised in regulation and financial analysis based in Madrid, Spain.

SVP Advisors won the bid for auditing Telefonica's Regulatory Accounts for 2007.

Plans on Termination Rates: No Good News

The commission presented yesterday, to a selected number of representatives of NRAs, a plan for a new recommendation on Termination Rates.

Commission's objective is to achieve a coherent harmonized approach to ex-ante regulation of termination rates. They realized that, despite a common approach (LRIC) there is still 'inconsistent application of remedies' and that there are 'different levels of termination rates across Europe'.

The good news is that the commission is supported by ERG experts on this matter and that they plan to have a transitional period to achieve symmetrical termination rates.

I believe that symmetrical termination rates should be the objective of each NRAs, if we consider an efficient operator there's only one 'efficient' termination rates. Ideally one per country, but potentially, as expected by the commission in the long run, one per the entire European continent.

The bad news is that the commission is still in trouble defining the 'ideal' parameter and approach. At this stage of the process, I would argue that no recommendation is better that a bad 'recommendation" and that the fasted and less painful solution would be a kind of Bill & Keep solution with a level of cap, a trash hold, of about 10-15% above where symmetrical (ideally low) termination rates are charged.

The reason is simple, to prevent destructive retail tariffs, "Free calls to operator's A customers", so that I gain new customers and the costs of these customers are burden by the largest operators that have to increase capacity to its network.

What do you think on this issue? And what about fixed to mobile termination rates? Will it be the old / new problem of next year?

n

Lower Termination Rates for All: A New Hope

European smaller mobile operators have changed their strategies on regulated mobile termination rates.



In the last ten years smaller operators have always argued that size and market's entry matters when speaking about termination rates. Smaller operators due to lack of economies of scale and scope and the market's situation would have the right to ask for premium rates for terminating calls on their networks.

The Mobile Challengers Group (Italy's Wind, Poland's Play, Turkey's Avea, Bouygues Telecom, E-Plus, Base and 3 Europe) is promoting a change of course. They argue that, since termination rates based on LRIC are way above costs, Regulators imposing these pricing methodologies are promoting the position of a handful of large operators to the detriment of new entrants.

The Mobile Challengers Groups realized that "network economy matters", they terminate less calls that they send. They are net payers to large operators. For example, 3 has large outflows of cash due to terminations.

Their solution looks 'simple', reducing termination rates at 'marginal' costs.

They did not present, however, solid evidences on the level of reductions necessary to solve the problem and, as support, a cost model reproducing an efficient marginal cost for termination. The lack of evidences and weak/faulty arguments do not facilitate the regulator's work.


Picture Source: http://www.flickr.com/photos/63878179@N00/956430203/

International Roaming and Switzerland: bad taste

European tourists using their mobile phones in the French Guiana are paying less than when they are in Switzerland.

How is it possible? Thanks to the Eurotariff, the European regulated tariff for European roamers.

The French Guiana, despite far far away from Europe, is part of the French Overseas Departments and Territories and therefore legally France. As consequence of the new regulation Swiss mobile operators negotiating wholesale roaming rates (IOTs) with European will be considered 'rest of the world' and will have to pay much more that their Neighbors for the right to roam.

What are the implications for the Swiss mobile market? is the wholesale market now competitive? and what can we do to solve this problem?

In April I will be part of a panel discussion on this topic at the next IIR "Roaming World Congress" in Vienna.

more to come...