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NEREC conference Madrid 11 Sept Discussion

NEREC conference Madrid 11 Sept Discussion. Replicability an economic question. Duplication not only limited by resources/time, but economics – sunk cost Fixed networks vary from natural duopoly to monopoly to unviable

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NEREC conference Madrid 11 Sept Discussion

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  1. NEREC conference Madrid 11 SeptDiscussion

  2. Replicability an economic question • Duplication not only limited by resources/time, but economics – sunk cost • Fixed networks vary from natural duopoly to monopoly to unviable • WIK 2008 The economics next generation access, Analysys for OPTA and BIPT, NL Govt for OECD • Significant write-downs in cable, outcome of regulatory forbearance/’light touch’ approaches • Mobile network duplication finding natural barrier • Consolidation in UK – ‘5 cannot be sustained’ – 40% market shares should be considered ‘normal’ • Financial performance of third and fourth operators significantly weaker than early entrants

  3. Fixed and mobile evolve in tandem • Equipment market dynamic – fixed and mobile evolving in parallel but significant speed and price gap remains due to physical characteristics: • ADSL launched at 512kbit/s in 2000 and extended to 25MBit/s in 2009 • Sept 09 vDSL/DSML3 vendors announce triple reach – 50Mbit/s at 850m, Tele2 – vDSL from MDF in NL • Pair bonding extends capabilities further • FTTH capable of 1Gbit/s • Market developments highlight complementarity: fixed incumbents taking combined approach. Mobile operators entering fixed market for triple, quadruple play and cost efficient ‘homezone’ offers – SFR, Bouyges, Orange, Vodafone

  4. Physical bottlenecks affect the whole value chain • Monopoly or oligopoly control over infrastructure bottlenecks affects not just pricing of retail services, but speeds and innovation in equipment and network-related services – VPNs, multicast • Ultimately bottleneck control can affect whole value chain through to applications and content • mobile restrictions on VoIP • ‘freedom of Internet’ debate Content Services Internet Business applications Scale economies/bottlenecks VPNs, multicast Equipment Networks Wires Ducts Innovation

  5. Bottleneck control limits demand/ market growth France • Supply/existence of fibre is not economically or socially interesting without the conditions that maximise speeds, service innovation and take-up. Demand is as important as supply

  6. Pricing NGA for a fair return • Anchor pricing for active products contains important flaw – fossilises price points for current speeds enabling dominant firms to charge excessive prices for higher speeds to maximise profits. Repetition of failed UK broadband policy in late 1990s. Would lead to current generation broadband standstill and limited ‘premium’ speeds rather than increasing speeds and mass-market take-up. Value-based pricing same issue but lacking constraint. For both, how will ‘non-discrimination’/no margin squeeze be assessed in a bundled environment? • Long term contracts can embed or strengthen existing monopolistic or concentrated market structures. Should be prohibited where not compatible with promoting competition otherwise fails to address control over value chain. • Cost-based pricing ‘cleanest’ option – NRAs have tended to err on the side of caution. Wholesale divisions make highest returns. • Functional separation can help to address discrimination concerns due to additional commercial transparency

  7. Concentration is starting point Shaded sections show duplicate infrastructure

  8. Our vision for Europe’s future • Smart investment in open infrastructure which unlocks complementary investment and drives take-up and consumer benefits through enabling innovation and choice • throughout the value chain from equipment through to entertainment through to a truly open Internet • across regions and countries enabling the provision of seamless services to Europe’s businesses • Access products and pricing regimes which enable competitors to innovate on price and services and do not create or compound market concentration • A secure role for private investment alongside public long-term investment wherever the market will not deliver Europe’s need for high-tech open networks • A predictable, lasting and rational regulatory framework in which enduring economic ‘natural’ bottlenecks are acknowledged and regulatory expectations are set accordingly.

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