Fibre: a new bottleneck?

Spain was on summer holidays, but on the hot morning of friday 1st August, CMT (the Spanish NRA) ruled out that Telefonica will not be regulated in wholesale fibre market, opening up the launch in September of their first commercial offer. See here.

It was my first summer in Madrid, and I thought it was a joke when one of my colleagues explained to me about the perfect move of the Spanish regulator. In Telecom regulation slang this practice is called "regulatory holidays", and CMT couldn't find a better time for it. But,...

...as the new manager of the Irish Football Team ,Giovanni Trapattoni, once said "don't say cat, if you don't have it in the bag",....

... in the meantime, during the summer, Vodafone and Orange's regulatory experts and lawyers have been called back to work on preparing their positions and propositions to the press and finally the court. They are questioning why Telefonica's investments in new technologies are protected, and why theirs are not.

After critics from the EU commission and a preliminary hold ruled by a national court, (La Audiencia Nacional) Telefonica had to stop its plans to commercialise FTTH in Spain.

Is this decision Bad or Good for the market? Let's try to evaluate the possible impact.

Bad for Innovation in the short term: In general terms we can say that with this move the Audiencia National has postponed FTTH in Spain for at least one year.

Good for service competition: It is certain that giving absolute rights on the fibre network would have reduced competition on the very high speed internet market. It is most unlikely that competitors, like Jazztel, would have been able to provide a comparable offer to Telefonica's.

Bad for infrastructure competition: It is also true that by launching new services competitors would have felt the pressure to combine their resources with other investors, like public utilities for example, and invest in open access models. Moreover, communities can promote open system networks, instead of closed ones.

Neutral for municipalities: It is also true that in some Municipalities the incentives to protect Telefonica (a major contributor to the national welfare) might be very hight. However, in distant locations and autonomous regions local partnerships have more possibilities to build FTTH networks than the Spanish giant.

Good for new entrants and investors: New entrants, such as utility companies that do not suffer from economic downturns, cable companies, that do not have a modern network infrastructure that can compete with FTTH, and financial investors, have the opportunity to profit from a polical/burocratical/legal still-stand and invest in the lucrative areas.

For example, if compared to other European cities Madrid has bad coverage of the ADSL and Fibre access network: there are many areas of the city where the maximum speed offered by Telefonica for DSL is still 3MB!
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I personally like the French approach, of having only one operator cabling the building, while the others can access on an equally first come first basis of the house infrastructures.

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Finally, what are the options policy makers have?

- the deep pockets firm takes all model: we let operator X with larger capital build the network and maintain a monopoly for following years. Operator X will invest in the most lucrative areas, and postpone the entrance in rural areas. The entrance of a second large operator is unlikely. A small regional operator, with regional financial aid, might be able to build regional FTTH networks.

- the sharing model: operators that invest in FTTH are obligated to deploy extra fibre to rent to competitors and permit access to the houses and to other firms. It might be possible also to introduce obligatory network coordination. All operators have the same chance of entering the market and investing.

- the utility-type model: network providers build regional networks and offer dark fiber or wholesale services. This model would probably promote service competition in rural areas.

- a combination of the three: there is a first mover (investor) advantage of 2 years, but it has to build a network that supports the sharing model and open access. Moreover, ADSL and VDSL wholesale prices will be massively reduced, to increase competition from alternative operators in areas where FTTH is deployed.

The best model? Drop me a line and we can discuss about it.

The national and European policy on this subject is still wide open. Many European countries these days have policy makers, regulators, stakeholders and investors who are discussing how to bring Europe into the next century of communications services. Interests are very strong for one and the other model, and the threat of another era of high prices/low quality monopoly is back!

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The Audiencia Nacional has given right, for the moment, to CMT on 26/09/2008. The case is still to be decided in court, probably before December.
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www.regulation.tk

See also my previous posts on NGN.

Managing Regulation in a NGT World

I have been asked to organise a workshop in Berlin at the next Next Generation Telecom Wholesale forum organised by Marcus Evans in January 2009.

I will chair the event's first half workshop and my colleague Julio Villalobos will do one of the presentations.

The topic for this year is Managing Regulation in a NGT World:

The bottom line of regulation: producing innovative regulatory practices

- Discussing current and future challenges in regulation

- Inspecting the current regulatory toolbox and its usefulness for NGT

- Analysing how the current framework can develop

- Introducing to new regulatory practices

- Developing a regulatory strategy that can adapt to a changing environment

How to succeed in turbulent waters: regulatory strategy in practice

- Proposing models to exploit opportunities and avoid risks in regulation

- Analyzing how strategic games are being played by operators and regulators

- Introducing innovative practical techniques to take advantages from regulatory gaps

- Presenting most likely future scenarios and their regulatory implications


If you are interested in partecipating please contact Sumreen Rizvi, at Marcus Evans mentioning my name, you will receive a discount:

e-mail: SumreenR@marcusevansuk.com

5th Annual Next Generation Telecoms Wholesale Forum 2009
Berlin - Germany
12-14 January 2009

Download here the draft program.

www.regulation.tk

MVNO Congress Monaco: Mon 20 Oct 2008 - Thu 23 Oct 2008

I have already published several posts on MVNOs business and the impact of regulation in this blog.

I will be giving an overview of the regulatory situation at the next IIR MVNO Congress, The Riviera Marriott Hotel La Porte de Monaco, Monaco in October.

My presenation focuses on the impact of regulation on MVNOs business, more precisly has as objectives:


•Introduce to relevant issues on regulation

•Explain their importance for MVNO business case, value chain and business strategy

•Evaluate the impact of recent and future regulation on the MVNO business model.


If you are interested contact Sara Bishop, event organiser sbishop@iirltd.co.uk mentioning my name and you will get a discount.


www.regulation.tk

A Regulatory Strategy that Last

In the recent months more and more operators relized the importance of regulation and their impact on their business case.

It is always difficult to organise the information available in the company in a structured and logical way in order to evaluate the opportunitie, risks, treaths and impact of the regulatory agenda on the whole market.

This kind of impact analysis is important not only for operators, but also for policy makers that have to evaluate how their decisions can shape the market and whether information received from stakeholders are plausible.

We at SVP Advisors have developed a methodology and a model that is able to give decision makers the impact analysis every regulatory specialist would like to have.

The model is simple but detailed, it combine information from different sources to give an exact overview, a simulation of the internal situation of the company, the external competitive market and the company's retail market.

Interesting, isn't it?


www.regulation.tk

Reccomendation on Termination Rates 2008

The commission has published for public consultation before summer their last work on termination rates. The consultation last till mid of september. You can find here the relevant documents.

It is quite long time that the commision is triying to sell their position to european stakeholders: harmonisation of termination rates in all Europe is a must for an efficient communication market.

If we look at the broad impact of this reccomendation and the forthcomming challenges of convergence of network a proactive approach of the commission in this direction makes sense.

However, if the objective of the reccomendation is noble, we can hardly say the same for the tools used to achive it.

The commission obsession on using a LRIC bottom up model as a panacea is not supported by any empirical evidence of its effectiveness and superiority against a FAC or a LRIC top down. The IRG/ERG report on regulatory in practice have demostrated several times that there is not a direct correlation between harmonisation, lower interconnect rates and the use of a LRIC model.

For example: UK, currently the country with the lower fixed termination rates in Europe, uses a audited FAC and not the so loved bottom up LRIC. As my friend Gavin was used to say, if you use the right efficiency measures and audit properly the data received you will have comparable, if not in some cases superior results.

We can reconise that the commision knows about the weakness of a LRIC bottom up model in the final words of the draft reccomendation when is mentioned the reconciliation of the data with a top-down audited model.

There are more and more critics to the reccomenation I could do, however, I leave this exercise to the people that are going to answer to the reccomendation. What is imporant is that we discuss about it and may be a new course to the use of LRIC has been taken.

We have many years to prepare ourselves to the new rules, that we will have just to follow; someone out there will have to re-allocate costs to other services and others will have to check this allocations. So just follow the rules? No not really, you have time to send your comments to the draft reccomendation!

www.regulation.tk

Regulatory Cost Accounting and Modelling Conference: Dubai

SVP Advisors will partecipate as speaker, chairman and organiser of a workshop at the forthcoming IIR Cost Accounting and Modelling Conference in Dubai.

Interested?

I will post some update in this blog in September.

Sun 26 Oct 2008 - Thu 30 Oct 2008
Al Murooj Rotana Hotel & Suites, Dubai, United Arab Emirates

www.regulation.tk

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