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
Labels: business model, Commission, Convergence, Mobile, Modelling, MVNO, Regulation, Regulatory Accounting, termination











