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Broadband price regulation

ITU Regional Workshop on Bridging the Standardization Gap (Yangon, Myanmar, 28-29 November 2013). Broadband price regulation. Matthew O ’ Rourke Partner, Incyte Consulting mor@incyteconsulting.com. In summary….

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Broadband price regulation

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  1. ITU Regional Workshop on Bridging the Standardization Gap (Yangon, Myanmar, 28-29 November 2013) Broadband price regulation Matthew O’Rourke Partner, Incyte Consulting mor@incyteconsulting.com

  2. In summary… If you are thinking of regulating the retail prices of broadband services…please don’t If broadband prices are too high, or penetration too low, fix the upstream problems first If you must regulate retail prices, limit intervention to entry-level pricing only

  3. High costs lead to high prices • Penetration is a reflection of many factors, including price and quality • Price and quality are greatly influenced by upstream costs • E.g. international connectivity and national distribution • Operators’ pricing has to cover their costs plus a reasonable ROCE

  4. Look upstream… • Take a holistic view of the broadband value chain • Identify and fix any competition problems that may exist in relevant upstream markets

  5. …and also look more broadly • There may also be other policy initiates that can help reduce costs and thus prices • telecoms taxes • import duties • licence fees and other levies • IXPs

  6. A word of caution • Retail price regulation can be tempting • Everyone wants lower prices • Butprice intervention in broadband markets risks retarding the long-term development of those markets • Riskier than narrowband

  7. Why is intervention so problematic? • Broadband markets are not yet mature • Demand is still uncertain and fragile • Distorting price signals can make actual demand even more opaque • This can deter essential investment • Narrowband era regulatory methodologies are not suitable to broadband environment

  8. Maturity of broadband markets • When considering maturity, distinguish between: • physical connections (i.e. penetration) • utilisation and application of the bandwidth of those physical connections • It would be premature to regard the latter as mature until its potential is more fully utilised

  9. Regulation must fit a market’s position on the innovation diffusion curve

  10. Next generation broadband A relatively recent innovation in most economies Occupies a separate—and subsequent—diffusion curve to the first generation of broadband services

  11. The risks of premature intervention • Price regulation in any new market can harm long-term development • Demand is embryonic and needs to be fostered • Innovation may be distorted by regulatory signals • Experimentation with price models may be constrained • The market might work differently to other markets

  12. Narrowband solutions to broadband problems Risk of viewing broadband markets and pricing through prism of the narrowband regulatory frameworks Narrowband markets • Voice-centric • Sunk investment costs • Simple supply chain • Known demand profiles Broadband markets • Not service specific • Considerable new investment in infrastructure required • Unclear / evolving customer demand and expectations

  13. Changing imperatives of price regulation

  14. Narrowband-era retail price regulation methodologies are ill-suited • Rate of return • Requires an understanding of the risks associated with the undertaking and the returns commensurate with such risks • Price caps • Require a price driver that is related to prospective levels of efficiency relative to the price levels in the economy generally • Benchmarks • Not easy at the best of times, and especially where the retail services are broadband

  15. The least worst option • Any price intervention should: • maximise scope for competition to develop and • minimise the distortion of demand • This can be achieved by applying the retail price control only to entry-level broadband services • Leaving all other retail prices unregulated

  16. A focus on entry-level pricing • This would: • ensure an acceptable minimum broadband service is affordable • encourage competition among the higher speed services • achieve policy objectives relating to affordability and adoption with minimal distortion to competition or the development of the market

  17. Examples of any entry level focus Lebanon • New entry-level plan required by Government decree • Lowered cost of entry level product by up to 70% • Helped increase penetration by 9% points to 61% in first 12 months Uruguay • State-owned ANTEL offers a prepaid entry-level plan • 512 kbit/s and 1 GB of 
data per 30-day period • Free of charge to ANTEL’s fixed telephone line customers (i.e. only pay for a fixed line) • Government aiming for 80% penetration by 2015.

  18. Examples in a USO context Finland • 26 US providers • 1 Mbps service to every permanent residence/business at “a reasonable price” • Agreed to be between €30 - €40 per month • Avoided a price cap • Allows price variations to reflect cost differences Ireland • National Broadband Scheme • MNO awarded a contract to supply a 1.6 Mbps service for €19.99 per month in specified parts of the country where broadband availability is insufficient

  19. Entry-level fixed broadband prices

  20. Entry-level mobile handset-based broadband prices

  21. Entry-level mobile computer-based broadband prices

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