Regulated access policies and infrastructure development Davide Gallino (d.gallino@agcom.it)

1. Regulated access policies and infrastructure developmentDavide Gallino(d.gallino@agcom.it)

2. Regulation vs investment? • The traditional assumption is that regulation [or an excess thereof] stifles incentives for investments, thus damaging innovation and infrastructure development. • Trade offs between regulation and investment policies are possible, as well-commanded regulatory policies can act as incentives for infrastructure creation and integration.

3. Access policies Access (and Interconnection) regulated using: • Non discrimination • Cost orientation • Retail minus • Price/Network Caps • Accounting and company separation

4. Regulatory strategy on access • From service to infrastructure competition: • Carrier selection and preselection • Different Interconnection thresholds (GER/ITA model vs FRA/SPA model) • Local loop unbundling, X-DSL, • UMTS, direct access (ftth) • CAS non discrimination

5. New regulatory framework • Framework Directive (21/2002) • Access Directive (19/2002) • Competition Directive (77/2002)

6. The new regulatory framework • Keep regulation to a minimum • Framework directive + 4 specific directives (authorisation, access+ interconnection, universal service, data protection) • Better defined objectives for regulation • Technological neutrality • Hard and soft law

7. Infrastructure development incentives • Preserve “value added” (=leave extra-profits untouched) • Regulation compatible with marketing (price cap, mobile termination price-cap, transparency, quality of service) • Regulation for a more competitive market • Sunset clauses • De-regulation (es. International calls in Italy)

8. EU electronic communication mkt value

9. Regulation does create incentives for investment • Regulation provide certainty, by way of long term decision (such as those introducing price or network caps) • NRA’s decisions have set the return on capital investment at levels that, at least in the telecom sector, are significantly higher than those in gas or water distribution. • This is probably due to a more intense competition, and is - correctly – reflected in higher returns on capital.

10. The market 2003 - 2004 • Price and quality leverage; new services • Increasing competitive pressure and consolidation • Integrated services (fixed/mobile/content and Internet services + ASPs) • Vertical and horizontal integration • Three mkts: origination - transport - termination

11. Regulation and revenues • Revenues in the regulated set of services (ie a basket, or several indipendent services which may be regulated) may and normally do provide the source for investment in non-regulated services. • Es: local calls  Internet dial up  DSL broadband - direct access

12. The regulator 2003-2004 • Crossroads: • implementation of new regulatory framework; • spectrum / numbering allocation plan; • price control of intermediate services offered by the incumbent (I/C, leased lines, access including mobile); • competition law; • regulation of a single communications infrastructure (TLC-TV-RADIO-INTERNET); • benchmarking.

13. Regulation of access • Increased externalities (no. of customers, new services) • Competitive cycle • Reduced costs (more traffic, more efficiency)

14. In conclusion, three main elements can be derived from the present situation: • Sound access regulation policies may promote innovation, and increase the number of users; • Investment can be modulated either by incumbents and by new entrants; but the latter must build a customer base, incur “switching costs” (they have to be chosen by customers) and control their own inefficiencies as well; this takes time that has to be provided by regulation. • Regulatory wisdom (if any) and technology driven development can co-exist.