Termination a new step ahead, or not... (update)

Update from 18/08/09 post

Today some friends of mine are celebrating after the Commission's new heartbreaking announcement regarding termination rates. Others will be surprised and astonished, as I am now.

This revelation could be the result of the hot summer in Brussels or the start of a new trend. This is for you to decide.

On 17/08 the Commission released a comment "Telecoms: European Commission comments on the German regulator's proposals for the regulation of fixed and mobile termination rates" regarding the German NRAs proposal to not regulate alternative operators and MVNOs’ termination rates.

BNetzA's argument is very simple - in my view - since termination rates of fixed alternative operators are the same as those of DT and MVNOs, as well as mobile termination rates being the same as the hosting operators, there's no need to regulate. Regulation would be not proportionate to the case and would do more harm than good.

Background

In its decisions of mid-2006 BNetzA expressed its expectation at that time that this would be the last time asymmetric rates were accepted. Previously BNetzA accepted asymmetric rates for two reasons:

1- Limited impact (traffic of alternative operator was very low)

2- Structural cost differences due to economies of scale

BNetzA is of the opinion that alternative operators’ rates should be below the one of an efficient operator

“Entgelte an ihren Kosten der effizienten Leistungsbereitstellung erfolgt, so dass die Entgelte gegenüber der Deutschen Telekom AG nur eine Obergrenze darstellen und eventuelle Effizienzgewinne der alternativen Teilnehmernetzbetreiber bei diesen verbleiben.“

Therefore, they should be the same of DT.

What is the Commission’s point of view?

"The Commission stressed that commercial agreements together with a non-discrimination

obligation cannot always ensure interconnection and that operators do not raise termination rates above costs."

This is true, but it's also true that we do not have an indication of termination costs of these operators in Germany right now. The French NRA indicated in 2008 in a Market Analysis that cost-orientation obligations for Altnets were not proportionate

"It has invited BNetzA to impose an access (interconnection) obligation and a cost

orientation obligation on each of the alternative fixed network and virtual mobile network

operators, taking into account the Commission's recent Recommendation on termination rates

(IP/09/710)."

What are the implications for fixed operators?

All 56 small operators should calculate the costs of providing termination services and set termination rates on costs. [can you imagine reviewing and negotiating the new tariffs?]

Potentially some will have higher termination rates of DT, therefore, I am sure DT will not accept them and go to court. Moreover, it is possible it will have an impact also on the retail market.

NOTE:

I cannot be certain that 56 termination rates are consistent with the recent recommendation on termination rates that advocate one single termination rate for mobile networks. What do you think?

What are the implications for MVNOs?

MVNOs will have to set termination rates at the same levels of the negotiated MVNO termination price (for non full MVNOS) or as a combination of their costs. Also, in this case it is probable that we will have several MTRs for every small MVNO.

NOTE:

Again, as above, I am not sure the commission has really internalised its own recommendations. What do you think?

What about in other countries?

UK

There are reciprocal termination rates since 1997. In a statement issued in July 1997, Network Charges from 1997, the Director General supported the principle of reciprocal charging for Operators termination. The aim of reciprocity was to ensure competitive neutrality between BT and Operators and to remove the distortive effects of the call termination externality. The current Operator Charge Change Noticedistinguish between single switching operators and multi switching operators.

France

In France, reciprocal termination charges were ordered in earlier rulings, in 1999 and 2001. In decisions taken on 20 June 2003, ART has allowed Completel, Estel and UPC France to require charges from France Télécom until the end of 2007 not more than the level of charges that the incumbent had levied for like services five years previously. In 2008 Arcep in a market review proposed new caps and a glide path to reach harmonisation.

Italy

In Italy Agcom decided with a costing model differential termination rates for Altnets, however, the asymmetry will be eliminated in July 2010. As you can see from the table below Fastweb had in 2007 a 400% higher termination rate than Telecom Italia.

	Fastweb	Wind	BT Italia	Tiscali	Tele2	Eutelia	Other Operators
1/07/2007	2,01	1,90	1,78	1,76	1,45	1,25	1,25
1/07/2008	1,53	1,44	1,38	1,36	1,15	1,02	1,02
1/07/2009	1,05	1,01	0,97	0,97	0,86	0,80	0,80
1/07/2010	0,57	0,57	0,57	0,57	0,57	0,57	0,57

My view

It is a very interesting development to a very boring and old subject. I don't think the effort is worth the costs (potentially very high for operators and regulators) of developing costing models, negotiating new tariffs, changing business models and retail rates. It will be interesting to see the development of this new trend and monitor its implication.

The international experience highlight that harmonisation will be reached in two or three years in Europe. Thus, the burden or calculating with a cost model termination rates for alternative operators is very high, and, in my view, it does not justify the effort.

What do you think?

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

"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