Access to Broadband: Universal Service, challenges and opportunities in Italy

1. Access to Broadband: Universal Service, challenges and opportunities in Italy Vincenzo Monaci v.monaci@agcom.it Sharm El Sheikh, 4-6 March 2005

2. Index • Italian broadband market • Regulation direction • New services and digital divide • Broadband services and universal services

3. Italy profile Economics Demographics Sources: Items 1/3/4/5/7/8: Bank of Italy Annual Report 2003 (May 2004) - Items 2/6/9/10/11/12/13/14, Istat Annual Report 2003 (May 2004)

4. Italian fixed services (bln€) Source: Agcom 2004 Annual Report on IDC data - * Estimate – (**) Excluding CD OLO • Around 30-35 fixed operators offer voice services • Strategy oriented to market specialisation - Competition based on innovative services and broadband solutions • POTS and ISDN lines installed steady around 28,3 mln (21,4 POTS and 6,9 ISDN) at end 2003

5. Italian Internet Users (million) Source: Agcom 2004 Annual Report on IDC data- * Estimate • Internet at the moment driver for broadband development • Traffic from internet dial up larger than local voice services

6. Broadband services flash • 1999 Telecom Italia (TI) starts to offer broadband ADSL services but is stopped for anticompetitive behavior • 2000 AGCOM obliges TI to a ADSL wholesale offer in order to remove the stop • 2001 OLOs have a wholesale offer and customers have the first ADSL offer at 256Kbps • 2002 December: 1.000.000 ADSL users • 2003 formulated the first “pay-per-use” ADSL offers 3G networks start to offer broadband mobile services • 2004 640kbps access at the 256kbps access price: 30€/month • 2005 1280kbps access at the 640kbps access price: 30€/month DTT networks start to offer digital TV services

7. Regulator role: • Foster competition to foster market spread • Support new technologies producing and diffusing in a competitive environment/context • AGCOM issued detailed disposition in order to start broadband DSL competition: • Local loop Unbundling for network operator • ADSL wholesale offer for Internet provide

8. Rules of xDSL market • TI is obliged to offer local loop unbundling (LLU) and Adsl wholesale services • Prices are regulated for both: • LLU: cost orientation • Adsl wh: retail minus • For each services costs are valuated separately in the regulatory accounting

9. ADSL wholesale offer (1/2) Economic and technical conditions of Telecom Italia ADSL wholesale offer: • According to the “equal of treatment” principle, the ADSL wholesale offer must allow competitors to offer retail services at the same level of quality of the retail services offered by Telecom Italia. At the same time, the prices of the wholesale offer must guarantee a reasonable profit to competitors. • Prices are defined on a “retail minus” basis, subtracting, from retail prices (for similar offers) of Telecom Italia, an amount (%) corresponding to “not-relevant” costs (i.e. additional costs for retail offer) • The wholesale offer must permit competitors to control over the technical characteristics of their retail services

10. ADSL wholesale offer (2/2) Obligations imposed to Telecom Italia: • Telecom Italia must communicate to AGCOM and to competitors a new wholesale offer in advance to the commercial launch. • Telecom Italia must submit to AGCOM detailed information on the costs sustained for its retail offers in order to allow AGCOM to verify the absence of “margin squeeze” of the offers. • Telecom Italia has to prove, for any retail offer, that it presents the regulatory margin with respect to a wholesale offer with equivalent configuration

11. Total broadband lines Source: Evaluation on Communications Committee data

12. Broadband lines in Italy 1st October 2004 Source: Agcom

13. New services on broadband technology • VoIP • Web casting • Interactive services: • real time application: public services, home banking, e-procurement • dynamic videostreaming: interactive radio, on-line customer care • TV on mobile Broadband

14. Broadband diffusion • New technology and new services risk to create a digital divide in the country • After five years Adsl services: • are available in 30% of local network equipments equivalent to 70% of population • are used by 15% of household • The question is: is the universal service obligation necessary to cover the whole population?

15. Universal service in Italy • TI has an obligation of universal service provisioning: • POTS Access to the telephone network • National and international calls • Dial up service at “reasonable” bit rate • Emergency services access • Other operators (fixed and mobile) share universal service costs approved by AGCOM

16. Universal service means: • Obligation to offer • Impact on investment • Affordable price • Impact on revenues

17. Broadband and universal services • In Italy we are discussing if introduce or not broadband access in to the obligation of universal services • Pro: avoid digital divide especially in rural area • Versus: interference with natural competitive market development • In the mean time Italian government has approved two important action: • give economical sustain for customer want to subscribe broadband service • Manage big investments for broadband network in rural area by means of a public company

18. Thank you v.monaci@agcom.it