commercial aspects of regulation

This project is funded by the European Union

Commercial aspects of regulation

Peter Lundy MSc DIC BSc(Eng) Information and Communications Technology consultant

November 2008

1


Agenda

1. Telecoms technologies2. Overview of competitive telecoms markets3. The main market players4. Customer service and convergence

2


Networks, services and technologies

• Telecoms networks have been around since the late 19th century

• They have used many methods and different technologies but the basic principles remain the same

3


The main elements

The person being called(a friend,

a business, a computer, a recorded

message, or no answer)

Q: How do we know their number?

4

The line (network)(a metallic cable,an optical fibre,

a radio signalor a combination of

these)

Q: Who provides these and isn’t it expensive?

The person making the call

(from a home, from an office,

or a mobile, from a car, a ship,

a ‘plane, or on a computer)

Q: How do they

pay for the calls?


Basic features of a successful “public” telecoms service

• It needs customers• It has to be able to carry voice and

data• It has to be “economic”

– right technologies in the right places– right services in the right places– right tariffs

• The operator of the network and its services must be able to calculate bills, send them out and collect the money

Q: What is a “Virtual Operator?”

5

Networks

Services

Customer Interfaces

This project is funded by the European Union 6

Local Exchange 2

Local Exchange 1

The Local Loop,(or access network

or “last mile”)

To Tandem Exchanges B, C, etc

To Local Exchanges 3,4,5 etc

International Gateway Exchange

To other countries

Tandem Exchange A

The “Core Network”

The “Access Network”

Transmission links

International links and “world-wide-web”

The “Fixed Network”


The essentials of switching and transmission

Switching• Local digital switches

connected to customers– Route each call to its

destination– Record each call’s time,

duration and charge– Provides a testing point for

maintenance– Main point for competitors to

interconnect– Need special power and

environment• Tandem and international

digital switches ensure economic network design

• Conventional switches being replaced by internet “servers” and “routers” technology (“Next Generation Networks” – NGNs)

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Transission• Local loops between the

customer and the local switch– Can now be converted to

“broadband” by installing digital boxes at each end (ADSL)

– Wireless Local Loop (WLL) becoming more attractive than metallic cables

– Local Loop Unbundling gives new operators the chance to compete (this is especially important for the growth of broadband)

• Core and international networks use optical fibres for reliability and economy

• Satellites now mainly used commercially for TV broadcasting


Part of a telecoms switch room

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Another part of the same switch room

9


Local Exchange 1

Tandem Exchange A

The Local Loop,(or access network

or “last mile”)

To Tandem Exchanges B, C, etc

To Local Exchanges 3,4,5 etc

International Gateway Exchange

To other countries

Alternative Fixed Network Technologies

All the links can be metal, fibre or radio

fibre

“point-to-point” radio relay

copper wires

All the switches are digital (or becoming

digital), now using Internet techniques

Cable, radio and satellite

links, submarine

cables

“wireless local loop”


Cables in ducts

Hrvatska agencija za telekomunikacije


What happens underground

Hrvatska agencija za telekomunikacije


Things about telecoms technologies

What they say

• Digital• Analogue• Optical fibre• Voice over IP• Broadband• GSM and 3G• WiMax• Interconnect

(ion)• Local Loop

Unbundling• Leased line

• Any more? 13

What you need to know═ More economic, reliable and flexible for all networks

═ Crap, the sooner it goes the better

═ Higher capacity transmission, better for nearly everything

═ A way of using your computer to get cheap phone calls

═ A brilliant way to get all the services you want

═ Today’s and tomorrow’s mobile phone networks

═ A way to serve customers without having to lay cables

═ How to ensure your customers can phone customers on your competitors’ networks

═ Re-connecting an existing customer’s line to a competitor’s network

═ A dedicated link paid for and used by a business customer


The “Mobile Network”

To other countriesLocal Exchange

The “Access Network”

International links and “world-wide-web”

The same core network

“Fixed Network”

Tandem Switch

GSM Exchange 1GSM Exchange 2

Interconnection links

“Base Transmitter Stations”


Some GSM “base transmitter stations”

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Another type of GSM transmitter

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Basic telecom network economics

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High Fixed Cost

Low Marginal (or Incremental) Cost

Size of network (capacity, or demand)

Cost of network


18

Forward-looking incremental costs

traffic

costs existing network line

operator’s fixed cost

operator’s variable cost

operator’s incremental cost= CI

TO TO+I

modern network line


Access to the Internet

19

Local Exchange

Cable, wireless or 3G mobile

network

International links to “world-wide-web”

The same core network

“Fixed Network”

SBroadband or

“dial-up”

Internet Services Provider 1


Old and new market players

• Today’s telecom networks can be provided by anyone• Different operators can (and do) provide local,

regional, national and international networks and services

• The players can provide all or only part of the networks and services

• Interconnection has to be easy and economic, so that we don’t need lots of separate national networks

• The ex-monopoly operator – “the incumbent” has;– advantages (size, money, customers, know-how) and– disadvantages (legacy networks and attitudes, inefficiency and

often relatively poor quality and customer service)

20


To other countries

Who are the market players?

Mobile Operator and

Service Provider A

Mobile Operator or Service

Providers C, D, E etc

Operator or “Service Provider” X,Y,Z etc

Fixed Operator or Service

Providers A, B, F, G, H etc

Virtual Operators

(Mobile and Fixed)

Internet Service

Providers

TV and Radio

Channel Providers


Regulation

• Technical standards are now global, this is the equipment manufacturers’ problem

• A regulator has to help all market players to provide good quality networks and services, irrespective of the technologies being used

• Fair competition means a fair amount of co-operation too, technically and commercially

• The suppliers, the technology, the networks, the services, the operators and the regulators are really only there for one reason - consumers

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Competitive markets -agenda

• How is competition provided?• How the incumbents behave• The role of regulation


Monopoly

Incumbentnetwork and service provider


How competition is provided (1: alternative network)

Mobile (GSM)

Interconnection

Cable (or wireless) local loop


Alternative network and service provider


How competition is provided (2: carrier selection)

Interconnections

Carrier selection




How competition is provided (3: local loop unbundling)



Interconnections

Unbundled Local Loop


Types of local loop unbundling

• Local loop unbundling is where the local line to the customer is disconnected from the incumbent’s network and reconnected to an alternative operator

• The technology allows all or part of the capacity of each local loop to remain connected to the incumbent also all or part to the new operator (“partial” and “full” unbundling)

• “Partial unbundling” means that part of the service (e.g. voice calls) can remain with the incumbent, while new services (e.g. broadband) can be provided competitively by a new operator

• “Full unbundling” means that all the services are now provided by the new operator

• The re-connection can take at any place in the local network


Local loop Unbundling

B

1

3

2

Incumbent Operator

New operator in town

Case 1: “Partial Unbundling” = where customer continues to get voice calls with incumbent but chooses new operator for broadband (also called a “shared access line”)

Case 2: “Full Unbundling” = where customer gets all services from new operator

Case 3: Customer continues with incumbent operator

2

3

Individual local loops

Incumbent’s cable

Customers now have a choice

[Note: alternative unbundling point]

[Note: The new operator should be allowed to put their

interconnection equipment in the incumbent’s exchange = “physical

co-location”]

1


How competition is provided (4: “no network” providers)

Customer relationship, including billing

Alternative retail service provider

(e.g. Mobile and Fixed Virtual Network Providers)


Information flows

Relationships with other providers (e.g.

other network operators, content providers)


How incumbents behave

It is possible to observe 3 stages of transition for an incumbent:

3. Competing enterprise

2. Reluctantcompetitor

1. Traditional monopolist

The transition is normally accompanied by a dramatic improvement in efficiency and customer service


Phase 1: the incumbent as a traditional monopolist

• Government-owned, no competition• Tariffs out of balance• Under-investment• Inefficient, unreliable and inconsistent• Poor customer service• Long waiting times for customers

(The bad old days)


Phase 2: the incumbent as a reluctant competitor

• Reorganising• Competing against new entrants• Rebalancing tariffs• Launching new services• Investing in modernisation, training and customer service• “Monopolist tendencies” remain:

– barriers to interconnection, both economic and technical– poor service culture– culture of superiority over new entrants and regulators– resentment at regulator’s encouragement of new entrants– defensive about being compared unfavourably to new entrants


Phase 3: the incumbent as a true competitor

• Running retail and wholesale services as efficient, commercial businesses

• Forward-looking investments, innovation• Profitable “carriers’ carrier”• Proper systems and processes for:

– products and services management– customer services (e.g. CRM, billing)– managing relationships (media, shareholders, regulator,

partners, competitors)

• Improving service performance and profitability • Using “universal service” as a brand virtue


British Telecommunications was separated from the British Post Office in 1981.

It has been competing in telecommunications in the UK since 1983 and by 1993, it became a 100% privatised company.

In 2001, its mobile operations (now O2) were de-merged from BT.

As BT Group plc, it now serves customers in 170 countries.

In the UK it offers voice, broadband, internet, mobile and TV services


Staff numbers – decline and fall?

BT Staff - last 20 years

0

50000

100000

150000

200000

250000

300000

Em

ploy

ees

Staff

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006


BT since 1984

BT Performance since 1984

-5000

0

5000

10000

15000

20000

25000

£ M

illio

ns Revenues

Profits

1984

109

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

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BT now• Operates in 170 countries• 28 million UK customer lines (40% more than in

1984)• BT Retail “new wave” revenues increased by 20%

in 2007, while traditional revenues reduced by 3%

• 12.7m broadband lines in the UK, 4.4m connected to BT, the remainder via wholesale

“BT is transforming from a traditional telecoms company to a leading provider of converged networked services and its aim

is to help customers get the most out of communications technology by providing tailored solutions that are easy to use”


BT: successful as a retailer and as a “carriers’ carrier”

2006 2007

Revenue Profit Revenue Profit

BT Retail £8,507m £569m £8,414m £674m

BT Wholesale £7,343m £759m £7,584m £724m

Source: BT published accounts


The market is expanding in new ways

Retailer

BT

C

u

s t

o

m

e

r

s

Wholesaler Wholesaler

BT

Retailer

Retailer

Retailer

Retailer

Wholesaler

BT

Retailer

Retailer

Retailer


What does this mean for regulation?

• The regulator’s role is to further the interests of consumers in relevant markets, where appropriate by promoting competition

• “Light regulatory touch”, for example adopting a forward-looking stance on enabling technologies like convergence and VoIP

• Market analysis in separate and “converged” markets

• Action to ensure competition in all telecoms markets


Overall regulatory environment

• Regulator independence– regulators should be able to exercise their powers

impartially and transparently • Converged regulators

– most Member States have established converged regulators with powers covering the whole e-communications sector

• Regulatory focus– local loop unbundling– effective interconnection– Regulatory accounting: separation of costs, cost

modelling• Regulator involvement

– well-ordered public consultation in relation to regulatory decisions

commercial aspects of regulation

Documents