Business Strategy and Regulation Forum

Regulation and MVNOs: a Happy End?‎

2008-07-02T13:31:00.004+02:00

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

2008-05-28T09:04:00.002+02:00

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

2008-05-22T09:29:00.011+02:00

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.

2008-05-21T09:20:00.004+02:00

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

2008-03-27T16:07:00.004+01:00

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?

Lower Termination Rates for All: A New Hope

2008-03-20T14:36:00.008+01:00

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

2008-01-31T18:00:00.000+01:00

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...

NGN Regulatory and Commercial Aspects

2008-01-23T12:34:00.000+01:00

Commercial aspects of NGN interconnection should be not underestimated when setting wholesale rates.

We know that in wholesale there are two main groups of services that will be interconnected: regulated and not regulated. We can include also two other categories more common in the retail market, services that are perfectly homogeneous and 'status' goods.

What I intend with this?

Perfectly homogeneous a.k.a. commodities: The firm in this case is a passive actor with absolutely no power over the market for its products. This is a key feature of the ‘perfect competition’ model of the market place, in which the individual firm is a price-taker (e.g. voice services).

Premium (Veblen goods): The firm has a power on the market of this product. Elasticity for these products can be positive or neutral.(e.g. Euro2008).

We should consider all these elements when we decide the pricing mechanism we want to choose for our wholesale product.

Analyzing the issue I realized that there are a multitude of pricing mechanisms that are not always compatibles with retail. If we run a compatibility test between pricing and charging principles we see that they are almost always only directly compatible (for example, QoS at wholesale with QoS at retail).

In my study I have identified the implications at retail level of applying indirect relashionships. It might seems absurd but the less destructive methodology remains the per minute charging. I am not saying that it should be always used, but that there should be a direct relationships between wholesale charging and retail if we want to reduce market's distortion.

This would suggest that ….

1- there isn’t a best way to price products where there are a multitude of diverse services, but there’s a multitude of options.
2- Therefore it depends on several environmental factors e.g. product, market and regulation.
3- However combinations of models are not infinite or without constrains.
4- the importance of costs of wholesale products to assure innovation, fair competition and flexibility in the market.

Intrafirm collaboration Myth or Reality?

2008-01-04T08:58:00.001+01:00

Can competitive firms have a collaborative relationship in a fast changing and competitive market? I tried to address this question in this short essay on collaborative strategy I developed for a client last year. I post here a short extract.

An extensive literature review reveals how Intrafirm collaboration is often the result of an egoistical behavior, a wish of disproportionate collaborative rents and advantages, expected long-term externalities and sometimes irrational trust on alliance partners.
We can observe that there is asymmetry of expected pay-off depending on the size of the firm, the invested resources and the kind of private and common benefits that arise in collaborating in a project in particular or in the organisation in general.
We also note how trust and cultural fit are important for a successful alliance. Change in the external environment and distance from the buyer can become a powerful stimulus and interest aggregator for alliances. We argue that when a fast-changing market is not under control, even strong partners’ private interests can have more chances to overlap with common interests, consequently alliances are more likely to be successful.

From the above discussion and in particular from Khanna et al (1998) ‘relative scope’ concept we propose a conceptual framework (figure 1).

We identified four archetypes of partners in alliances according to the ‘relative scope’ and the interest to collaborate (‘collaboration factor’). The ‘relative scope’ values are from zero to one, a firm that scores zero will have no interests in participating in the alliance.

If the value is closer to ‘one’ the firm will have interests only in markets or areas of strategic interests covered by the alliance.

The ‘collaborative factor’ represents the collaborative effort of a firm in the organisation, its values are from high (H) to low (L).

The proposed archetypes are:

• Philanthropic: these are firms that do not have high interests in the organisation but still continue to be active in everyday works, for example, for strategic or political reasons. A philanthropic company should evaluate whether to continue or not the collaboration or, alternatively, reduce its activities (blue arrow).

• Blasé: firms in this quadrant of the model should be leaving the organisation soon, they probably do not fit anymore with the alliance, for example, for changed market conditions.

• Hyperactive: They are the fostering members and have strong interests and commitments in the organisation.

• Selfish: the decision of these firms to collaborate is strong only when their private interests overlap with current activities. Some of them were ‘Hyperactive’ members (red arrow) that have fulfilled their urgent interests.

Companies can sit everywhere in the face of the cube and will tend to follow the path described by the arrows in the direction of an alliance’s self extinction.

Figure 1: The cube of collaborative alliance

Source: own analysis.

We identified in this section a number of structural conditions and internal and eternal factors able to facilitate companies to act and behave as collaborators instead of as rivals.

We believe that is worth now to select and summarize them. We found that alliances are likely to be effective and succeed when there are number of conditions (not necessary all together):

• the cost of developing and working in the alliance is lower than future benefits;

• common and private benefits overlaps or are expected to overlap;

• there is no zero-sum game, where the benefit of one member entails a corresponding loss for others;

• organisations are diverse and belongs to a variety of complementing and competing industries;

• there is strategic and cultural fit;

• members of the alliance compete in some but not in all markets;

• there is distance to buyer’s interests,

• absorptive capacity and

• redistribution of knowledge among business units.

How to overcome resistance to change

2007-12-11T13:02:00.000+01:00

I spoke last week with a director of Human Resources of a large Italian organization, we discussed about structural changes. I report here some thoughts.

There is closed relationship between theory and practice in change management. Practitioners and academics jointly recognise that there is not a unique or best way to confront with change, they prefer to identify favourite modus operandi and frameworks (Burns, 1999; Hughes, 2007) than standardised tools.

I propose consequently a number of change tasks an organisation should perform to reduce resistance. I believe that organisations are far from equilibrium systems and that Lewin’s field force field is impossible to be completely overcome.

Making the transformation meaningful

The first task I would suggest to reduce resistance is to plan. Readiness has been often described as a necessary precursor to implementation of change initiatives (Armenakis et. al., 1993; Eby et. al., 2000). I propose to develop and communicate a convincing transformation story. The story should include urgency, description of the crisis, a comprehensive list of alternatives and a clear vision of the future. The story can increase the readiness of individuals to accept the change and the consequences of not changing. Planning can, also, help change agents to prepare resources and anticipate what the future might be.

Build the power to change

The second task is to understand and manage power. The practical matter of overcoming resistance is not limited to the selection of a change strategy or change agent. It is a complex and dynamic process that involves politics.
A strong and committed managing team should make the transformation personal to engage resistance and to reward successful changes personally. Leaders should be considered accountable for failure or success in implementing changes as planned.
The change agent should evaluate how conflicting interests work together and how the new structure, process or strategy change and react to constrains of the organisation.
Political behaviour of change agents can be used, also, to overcome resistance (Buchanan and Badham, 1999).

In my experience, we have noticed that very often change agents tend not to exercise power or, even worst, do not have coercive power to contrast resistance.

Strebel (1994) notes that rolling back change forces is possible, therefore, it is necessary to choose the right change path. From the above observation we can conclude that change agents should reduce the power of Status Quo Agents to avoid failure. I realize that it is not an easy task because even when transition is effectively choreographed from the centre leadership it is a cascade process in which each round engages new and old powers.

Readiness to pursuit impact

Finally, I propose a number of additional tasks change agents can use to reduce resistance to change. Kotter and Shlesinger (1979) recommend six actions managers can perform to reduce resistance to change. These tasks are not exclusive and can be grouped in conflicting (manipulation and coercion) or cooperative (negotiation, education, communication, participation and support). Kotter and Schlesinger tasks are supplement to a careful preparation and the management of power.

In almost all cases it can be recommended to use a balanced carrot and stick approach with the prevalence of context based, either cooperative or resolute, tactics.

Nothing Changes with Sunrise New Face and Strategy

2007-10-29T06:30:00.000+01:00

Sunrise, the integrated Swiss alternative operator, recently changed its logo and strategy in an attempt to re position itself as the real and only alternative to Swisscom.

It's not the first time, in the last 8 years Sunrise had tried everything to increase its market share and become a real threat to Swisscom and Orange and a major player in the market.

With alternative successes and failures Sunrise has modified several times its prices, services and position in the market achieving only confusion and lack of trust from its customers.

First: Sunrise, do what you do best and don't confuse with different and conflicting messages your customers!

Sunrise's customers are unaware of the differences between the new and the old Sunrise.

Prices models changed, yes, but why?

At the end of the day nothing really changed!

The same basic price plans that diAx introduced 8 years ago, with some variations but - at the end of the day - the same. There is a lack of innovation.

Second: Decide! What is your business like?

Accessing your homepage a mobile phone welcome me. Almost immediately I realize that your strategy is focused only on the mobile market.

I do not see any information on your fixed and broadband businesses; and it takes some time, several clicks, to find them.

I understand that you are not doing lots of money with them, but if you want to be an alternative to Swisscom you should actively bundle, pack and supply your products as communication services. Not as separated products.

Are you shifting the attention of your customers to your core business?

Clever, business-school type strategy, however, in doing this you are now very similar to Orange. Why should customer choose you instead?

Third: Learn from your mistakes and take the best from other markets.

You have the unique opportunity of becoming the 'only' real alternative to Swisscom.

Don't miss it with 'cleaver' top-down strategies, instead try hard to be different, unique!

And actively communicate, every time, your uniqueness.
:-)

Net Neutrality: Who Pays for it?

2007-10-26T15:34:00.001+02:00

In the last two days I had the pleasure to meet and discuss with Martin Cave, Director of the Centre for Management under Regulation, Warwick Business School, Coventry. He came to Switzerland to present his views on the economics of the ICT market at the annual Comdays. A must be event of the Swiss ICT industry.

Martin highlighted a contradiction of the Net Neutrality principle. Capacity doesn't come for free. Someone has to pay for extra capacity used for new services and the investments operators do for providing a good QOS.

I personally agree with the basic concept of any-to-any communication of the bit and net neutrality. I also respect the decision of some governments to block inappropriate content, such as porn and offensive material. I personally disagree that providers can decide what kind of services I - customer - can have (e.g. block my Skype or Zatoo packets).

As Martin said, someone has to pay for the 'neutrality'.

I agree with this principle, let's look together what the options are:

- operators, can recover investments from the monthly broadband subscription or from advertising: a mix of paid and advertised support model might be the solution.

- Operators, can charge a premium for valued content (efficient pricing) to recover these costs.

- Service providers (e.g. google) can support the extra costs with a revenue sharing model.

- Finally, governments, communities and philanthropic associations.

I know, it's not so easy to pick the best option. However, we should be aware that we will be confronted with this dilemma soon.

As already argued in this Blog there is another risk, the formation of new bottlenecks from network / content to distribution. The distributor of the 'information' (everything that can be digitized) might be the next real monopolist. See for example, the rights for sport events, such as Euro08!.

More Info:

6. Biel-Bienne Kommunikationstage, 25. / 26.10.2007, im Kongresshaus, Biel

ICT Industry strategic landscape

2007-10-20T15:34:00.000+02:00

In the last years in the ICT industry many firms had a strategy focussed on implementing technology, rather than effectively managing resources.

I believe that the industry is now at a new, so-called, transformation point, where the environmental pressures to transform and adapt to the context are not sustainable.

In this case, to evolve and mature I would suggests to integrate all systems and successively manage the resources.

Online advertising and the decline of the broadcasting sector

2007-10-01T08:05:00.001+02:00

On 19. September Ofcom, the UK independent regulator and competition authority for communications industries, hosted a briefing to address current and future regulatory issues in the UK broadcasting sector.

What impresses is not not the regulatory agenda, that aims to promote the development of next generation communication services, such as HD TV, but the status of a part of the traditional broadcasting sector.

In particular, the broadcasting sectors is facing new forms of competition from telcos, cable operators and 'search engines'. Competition comes mainly from production of programs and in advertising budget; "launching additional channels has been successful but not enough to offset losses on core channel".

Advertising

Since 12 months ago online advertising agencies, such as Adsense and Doubleclick, did not compete directly with traditional advertising agencies for a share of the advertising market.

What happened?

Traditional advertising agencies did recognize the opportunity of online advertising, but were not able to adapt and transform their value-chains, in particular production and distribution, and corporate strategy to the online world. Combining online and offline advertising would be too destructive to their businesses. As in the 60s TV changed the market, now Internet shifts part of the advertising market to new communication tools that have (for the moment) the exclusive advantage over TVs to be interactive and the response measurable.

The online advertising is already dominated by digital-born firms, Google owns Adsense while Microsoft owns Doubleclick, that have two advantages over traditional advertising agencies to know the technology and the market well. On the other end, advertising agencies can produce unique advertising propositions for Internet as they have the right human assets and capabilities.

Broadcasting companies can reduce competitive pressure by doing what they do best and concentrate on their core capabilities, produce shows and entertainment. Good quality shows will attract advertisers and new interactive technologies will fill the gap between the online and offline broadcasting sector.

This a evolution and not a revolution, don't panic!

Pricing issues...

2007-09-27T16:16:00.000+02:00

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?

2007-09-27T09:22:00.000+02:00

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

2007-09-13T09:52:00.000+02:00

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.

NGN Interconnection: far from an agreement

2007-08-29T09:32:00.000+02:00

There is no agreement or even a consensus on how NGN interconnection in UK will look like. The current debate is so far from reality that many operators (someone says also BT) do not know even what the problems are. Part of the challenges arises from a general lack of experience in interconnection of a so large and extended set of products and services.

Consultants, regulators and academics have different and divergent views on how to set interconnect rates for NGN. Views essentially spread from bill&keep innovative models to old-fashioned per minute or per service charging.

A possible solution might be to charge per 'contended capacity' and per 'quality of service'. However, even here there is no agreement whether voice needs more or less priority.

Some observers argue that voice do not need more quality as it can be accepted and priced at low quality (see Skype). Therefore regulated voice services will be almost free of charge and priced according to capacity. Others instead argue that voice needs a high prioritisation and should cost more than other services. What is clear from the above discussion is that there is still lot to say and argue about this topic in the future.

Interconnection of NGN can remain billed per minute for quite some time during the transitional phase, even if minutes are not a cost driver for NGN. However, prices probably should be adapted to the costs of an efficient operator (e.g. overcapacity should be reduced) in order to avoid irrelevant costs.

Simplicity and continuity in pricing models (for retail customers at least) are and should remain a must in the near future in order to reduce cases of anti-competitive behaviors and the effect of bottlenecks. Operators should look for a solution that combine the need for stable rates and the request of innovation and profitability from shareholders. Two kings for the same throne!

Openreach & Co: the network separtion

2007-08-20T14:30:00.001+02:00

BT Openreach has solved many of the old-time competition problems and promoted the deepest level of infrastructure competition possible. In

Sweden

and

Italy

, both Telia Sonera and Telecom Italia have started the process of creating clones of Openreach in an attempt to satisfy upcoming regulatory pressures and EU attempt to increase NRAs powers with functional separation.

However, the approach of the two clones is different. While in Sweden PTS has announced lighter regulatory pressures on Telia-Sonera in case of voluntary network separation, in Italy AGCOM is struggling to convince Telecom Italia that network separation does not mean a complete relief from all obligations in all markets. Telecom Italia proposed to have all retail caps levied.

Network separation can be the solution for some competition problem, but it is not a panacea or a one-size fits all incumbent strategy. It a tool that should be adapted to the environment it wishes to regulate. In some cases, I believe that a sound cost separation system can give similar results to a fraction of the costs and time of a separation.

Moreover, we should not underestimate the cultural factor. Something that worked in UK and Sweden, can be very dangerous in other organizations and cultures. Process and procedures should be therefore carefully adapted and alternatives evaluated before taking any decision. A network separation is a radical change that can take years to recover in case of very complex or old-fashioned organizations structures, therefore, distortion effects on competition can be unpredictable.

Skype Regulatory and Business Concerns

2007-08-19T09:13:00.001+02:00

Skype has been down for quite some time on an algorithm problem in the last days. What are the business and regulatory concerns?

A traditional telephony network have a back-up system that works in case of major problems, such as peak season, break down or catastrophe. It can, for example, re-route the traffic to another region if the network is down and there is normally enough capacity to handle the traffic even in peak situations.

I can agree that the Skype P2P service shouldn't have a 99.99% reliability, it's free, but I believe that Skype-in and Sype-out have to provide a minimum quality of service otherwise it should be replaced by competitors.

I am personally against the current political trend that give the opportunity to 'innovators' to have a completely free regulatory regime to the damage of consumers and competitors. We should think also at consumer's interests and not only on innovation per-se. For example, it is technical possible and not so expensive for Skype to provide a CLI for its clients (as required by ITU), however, it does not want to do so claiming a too high burden for them.

Skype is also another monopolist. Just think at the level of lock-in situations with Skype. If you buy a Skype phone (e.g. SMC) you cannot run another client on it or have a multiple VOIP provider (for example, on top of Skype Google Talk).

Security is another big concern. On one side Skype does not provide lawful interception, but on the other side there are rumors that the US 'Homeland Security' is controlling the traffic and has an hand on Skype's Algorithm. Can you immagine the 'Homeland Security' not able to listen to Skype's or other VOIP calls? Food for thought...

Vodafone ultra low handset strategy: let's see

2007-08-16T11:37:00.000+02:00

VODAFONE Group offer of ultra-low 2G handsets is a move to follow further developments in the mobile market. Vodafone UK latest information on subscribers net addition shows that almost 500,000 new customers, out of 700,000, were pre-paid, however, with very low ARPU. With this move Vodafone is clearly targeting low budget segments and people that are not confident with high-tech technological and complex phones. In Switzerland a similar move of Swisscom Mobile two years ago has been not as successfully as expected. No frills and virtual operators are offering old models of Nokia mobile phones at less than €10 with €10 pre-paid credit. Swisscom mobile handsets were too expensive (€120) and able to offer only basic functions, such as, voice and SMS.

However, the GSM association forecasts that this segment could be a incredible opportunity for acquiring new customers. It has been demonstrated that voice become a commodity for many customer segments in Europe, however, low wage customers have higher then the average price elasticity for making calls as they still think that the benefit of 'mobility' is higher that its relative cost. Let's see the Q1 2008 for a critical analysis of this move.

ITC: Future Perspectives in Regulation and Strategy

2007-08-15T13:50:00.000+02:00

There is a potential threat from new bottlenecks in the case of access to user and content. In the case of access to user, some forms of access to networks (e.g. Access Directive 2002/19/EC) may need to continue to be regulated in the future to guarantee competition. Regulation in this case can be effective when it helps to avoid the formation of anti-competitive behaviors, such as for example the customer lock-in effect where customers are dependent from a service provider and are unable to migrate to competitors. For example, customers should be able to switch operator and receive ‘unbundled’ services from different players, as noted in OFCOM’s Annual Report 2006/7 (OFCOM, 2007 p. 6). I am of the opinion that regulation should also prevent excessive prices on bottlenecks facility and, if necessary, introduce a charge control mechanism on operators having significant market power.

In the access to content, from one side clients need content via competing networks and, from the other side, service providers need to channel their services via competing content providers. There may be a real threat to competition in cases of low cable penetration, strong pay-tv operator and a high level of vertical integration. In this case, we might argue that more difficulties may result from the application of different regulation (e.g. broadcast and telecom) to converging services; therefore, coordination of frameworks and remedies is critical for a competitive marketplace.

In this transitional period, it can be recommended to manage this change using a flexible approach, balancing continuity and change – holding one foot in the old system while tempting a coalition of resources and intents with potential supporters and partners for the future. I believe that the best option in this transactional period is self-regulation, allowing a ITC fast-changing industry to take responsibility for necessary rules. However, it is also necessary that current regulations that protect innovation, investments and consumer’s choice remain in place.

Convergence and Digitalisation

2007-08-14T17:16:00.000+02:00

Convergence and digitalisation are part of a new and important phenomenon that influences strategy and business models. There is no surprise that it attracted so much attention from so many stakeholders. David Currie, OFCOM chairman, argued in December 2003 that convergence was slowly happening at network, device, industry and regulatory levels (4th ECTA Regulatory Conference, 10 December 2003). Now, almost four years later, convergence is reality with, as industry’s norm, Quad and Triple play offers (fixed, mobile, data and TV). In the EITO 2007 Report the European Commissioner for Information Society and Media, Viviane Reding, defines digital convergence as the ‘heart of new technology revolution’ (EITO, 2007 p. 12) and notes how the ICT sector is ‘adjusting to stronger competition and digital convergence’ (EITO, 2007 p. 14).
In the telecommunication industry convergence is based on the integration of IP systems and telephony. In ICT it can be described as the integration of fixed, mobile, data and telephony networks and IT systems (e.g. IMS). An example is the application of e-commerce systems to mobile networks.
Convergence has been enabled by the decreased cost of digitalisation of products, success of Internet and increase digital systems customisation opportunities. Digitalisation permits to deliver a wide range of push and pull products, mainly designed as voice, data and video services, in an innovative, intuitive and customisable fashion and over a sole electronic communication platform. An integrated IP-based network gives diverse firms the opportunity to invest and launch flexible and timely products for a considerable lower unit cost; in this perspective economy of scale and scope is expected to be maximised, competition at retail level enhanced and value-to-customers efficiently delivered. However, our understanding of convergence should not be limited to technological convergence. As phenomenon, it expands to business models (e.g. from e-commerce to m-commerce), markets (no boundaries), services (bundles) and organisation (horizontal organisations serving different markets). For example, e-Bay acquired Skype and Pay-Pal to address two basic needs of its customers: communicate about the products and pay. Telecom Italia merged with TIM to increase efficiency, offer a complete set of communications products and upgrade its business model.

This work is licensed under a
Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 Switzerland License.

iPlayer and the net

2007-08-14T16:43:00.000+02:00

BBC is offerring a new Internet download and broadcasting service for a wide range of BBC television programmes (currently in Beta Phase) and ISPs are already complaining that this new service will use a large amount of bandwidth and places an intolerable strain on networks. Some ISPs want to sniff traffic and limit download speed for IPlayer traffic. BBC download service is potentially less dangerous that Joost, that offers P2P TV, because it tolerates higher delay of traffic and can for the moment be run at flexible quality of service (for example, at peak or off-peak network times). BBC tries in this way to redesign its value-chain and deliver its services via Internet, cable and other platforms. Digitisation permits, therefore, to rewrite the rules of production and distribution of content. However, BBC plans do crash with network's operators own plans of convergence. In this case, it can be suggested to include in the strategy a collaborative approach and include the largest number of potential value-chain participant in the project.

United Mobile and Roaming Regulation

2007-08-13T15:24:00.000+02:00

The Erotariff is available or will be soon available in Europe after one of the fastest legislation processes in the history of the European Parliament. It is a clear example on how regulation can be positive for consumers and competition.

Let me explain you, I do not mean that consumers will pay less, operators are already re balancing tariffs and packages and re-negotiating wholesale charges to cope with the reduction of international roaming revenues.

It is just a start! Let wait and see how the industry evolves. For example united-mobile have launched a new virtual roaming services from the Isle of Jersey with incredible good rates (http://www.united-mobile.com/)