Market analysis and remedies

1. Market analysis and remedies Giedrius Pūras Communications Regulatory authority of Lithuania www.rrt.lt Market analysis and remedies

2. Contents • Interconnection issues • Overview of interconnection in Lithuania (statistics) • Current FTR and MTR regulation • Current Glide path; • Current issues to solve • Bill & Keep issue • Other issues • Leased lines • Local loop unbundling (LLU) • Broadcasting • Market analysis. Notification plans. Market analysis and remedies

3. I.1. Interconnection. Overview (1) Summary: Most traffic is on-net: Interconnection traffic amounts 25% of all terminated traffic and on-net traffic – 75 % Most traffic is on mobile:2/3 traffic is on mobile and increasing (both on-net and termination) Fixed network traffic (both on-net and termination) is almost stable Market analysis and remedies

4. I.1. Interconnection. Overview (2) Terminated traffic on fixed and mobile networks (2009 IIQ) Market analysis and remedies

5. I.2. Interconnection. Current regulation Market analysis and remedies

6. I.2. Interconnection. MTRs in EU context Market analysis and remedies

7. I.3. Interconnection. Current Glide path LRAIC+ Market analysis and remedies

8. I.4. Interconnection. Current issues to solve Main issues to solve within current Market review: • Fixed-to-Mobile subsidy problem • Alternative fixed network TR regulation • POI charges regulation Market analysis and remedies

9. I.4. Interconnection. Current issues to solve Fixed-to-Mobile subsidy problem • € Fixed networks (TEO, Alternative fixed operators) Mobile networks (Omnitel, Tele2, Bitė Lietuva) M-2-F traffic – 2X Reasons for MTRs being higher than FTRs: • Differentiated price regulation (glide path): • FTR: 40% reductions • MTR: 20% reductions; • Results in mobile subscribers subsidised by fixed subscribers • Target – to ensure equal conditions to compete for all operators F-2-M traffic - 1X Market analysis and remedies

10. Revised glide path New glide path MTR/FTR ratio Market analysis and remedies

11. Impact on revenues Fixed – Mobile payments balanced Market analysis and remedies

12. I.4. Interconnection. Current issues to solve Alternative fixed operators’ TR regulation problem • During the previous market research Alternative fixed operators were designated as SMP, but no price control was imposed: • Reason: bargaining power of Incumbent and condition to align FTRs to Incumbent’s FTRs in Interconnect contracts • After a certain dispute resolution, Alternative fixed network operators found that they (being not price regulated) can keep higher FTRs while Incumbent is forced to reduce them by regulation  asymmetries; • In 24th April 2009 RRT took provisional measures to set price control for Alternative fixed network operators in the form of Reciprocity (to align FTRs to ones of Incumbent); • Provisional measures applied to 9 SMP operators: incumbent TEO and ANO’s. • Decision was challenged in the court, but still valid. • Time period for the measures: April 24 – December 31, 2009. It is planned to adopt the final measures before the expiry of the provisional measures. Market analysis and remedies

13. Network 1 Network2 Interconnect link (costs shared) I.4. Interconnection. Current issues to solve POI problem 2 Mb/s ports & config. (own costs recovered) • Current status – hidden barriers: all 4 big operators actually do not charge (or charge the same amounts) each other for the means to interconnect (2 Mb/s ports and etc.), but require certain POI charges from small operators (latter being not paid for the same resources to interconnect); • Although fixed network operators historically set FTRs based on reciprocity, asymmetrical POI charges made FTRs asymmetrical in fact; • As both ERG and EC foresees TR symmetry as a way forward, RRT is considering solving hidden asymmetries by next market review. Considered POI cost sharing solution: each party bears the costs of its 2Mb/s port and network configuration and Interconnect link costs are sharedbetween parties according traffic distribution Market analysis and remedies

14. Case LT/2009/0983. Call termination in telephone networks provided at a fixed location. Notified on September 24,2009. 10 operators (incumbent and 9 ANO’s) were designated having SMP. Changes in obligations since previous notifications: Price symmetry between incumbent and alternative SMP operators is imposed; POI regulation is imposed. I.4. Interconnection. Current issues to solve Notifications • Case LT/2009/0990. Voice call termination on public individual mobile telephone networks. • Notified on September 28,2009 • 3 mobile operators were designated having SMP. • Changes in price control obligation. Market analysis 2009 October 16, 2009 14 psl

15. Level of TR FDC + AS + audit HY-LRIC + (total element) Pure LRIC (bottom-up) Bill & Keep Regulatory burden I.5. Interconnection. Bill & Keep issue (1) • Currently a lot of debate is about Bill & Keep (BK) as most prominent form of interconnect charging mechanism in the future; • ERG is currently assessing the BK method as a charging method in NGN environment (draft Common Position on BK is submitted for public consultation on 14th of October 2009); • In 2008 RRT carried out a small survey about implementation of BK. Answers received from market revealed that there is no general agreement on BK at this stage. As anticipated, most of operators were defending their interests: MNOs were against BK, Incumbent supported it. Regulatory trend ? Market analysis and remedies

16. I. Interconnection. Summary timeline Reduction of FTRs by 40% Reduction of MTRs by 20% Bill & Keep??? Capacity based interconnection??? Reciprocity imposed (temporary measures) on Alternative operators Notification of new MTR and FTR price controls (glide path) According Recommendation: Benchmark or Pure LRIC (if calculated) Price controls based on current LRIC+ (updated glide path) April 2008 May 2009 Sept. 2009 Jan. 2009 2010 2012 2013 2014 … EC Recommendation on Termination tariff regulation Market analysis and remedies

17. II. Other issues (1) • Leased lines: in Sept. 2009 RRT approved new prices ceilings for leased lines that solved VAT related issues. Charges were aligned to those currently set by SMP operator (incumbent) according to the cost calculation results. This resulted in reduction of price ceilings for digital leased lines. Price ceilings for analogue LL were not changed; • LLU: in April 2009, during the court procedure (after the RRT resolved the dispute), the agreement to shorten the period of service availability (from 30 days to 10 days) and to lower the charges for ULL was reached. The one-off technical availability charge was lowered from 62 EUR to 14,5 EUR, installation charge was reduced from 59 EUR to 43 EUR, monthly fee was reduced by 0,5 EUR/month for fully unbundled local loop. Market analysis and remedies

18. II. Other issues (2) • Broadcasting: incumbent broadcast operator submitted to RRT cost accounting information in full manner for the first time. The information itself does not show that regulated services would be provided for prices in excess of the costs incurred, but RRT has certain doubts about robustness of the cost accounting system. RRT has engaged the independent auditor to verify LRTC’s cost accounting system. There is certain pressure from broadcasters to reduce the prices for analogue TV broadcasting transmission services – as their revenues from commercials decreased, the obligation to broadcast both analogue TV and DVB-T signals is treated as unjustified burden. • Transparency of regulated tariffs: • Cost information: RRT requested that fixed (TEO LT, AB) and broadcast (LRTC) incumbent operators would disclose at least aggregated information on cost accounting (at the moment almost all costing information is treated as being confidential); • Discounts: RRT took measures that incumbent broadcast operator (LRTC) would make the discounts for regulated products publicly available and applied on non-discriminatory basis. So far, LRTC has complied with such requirement. • Contract prices: RRT is taking measures that certain contract prices would be made publicly available (some SMP operators tend to treat it as confidential information). This issue mostly applies to incumbent broadcast operator (LRTC). Market analysis and remedies

19. III. Market analysis. Notification plans Notification plans for 2009 Q4: 1. Broadcasting markets (M18/Rec. 2003) • Analogue terrestrial TV • Digital terrestrial TV; • Terrestrial radio. 2. Wholesale (physical) network infrastructure access at a fixed location (M4/ Rec. 2007) Market analysis 2009

20. Communications Regulatory Authority of the Republic of Lithuania www.rrt.lt Market analysis and remedies