Session 8
Regional Seminar on Costs and Tariffs for
Member Countries of the Regional Group for
Asia and Oceania (SG3RG-AO)
Roaming: Tariffs aspects and
regulatory trends
A presentation by Dr. Antonio G. Zaballos
April 2010
Beijing, China
Contents
1.
Introduction
2.
Trends in roaming: country case
3.
Roaming Policy Options
3.1 Regulatory policy applied to
wholesale services
3.2 Regulatory policy applied to retail
services
2
4.
Treatment of bundle of services
5.
Recommendations
1. Introduction
3
Introduction
What about the Roaming Service:
• How the prices of roaming should be set?
• Wholesale roaming is the sum of an access, a transit and a termination, although the operator
know what are the costs of termination, the access and the transit might differ depending on the
origin…
• Up to what extend the users who are roaming are willing to pay a premium for that service?
Regulatory policy applied to the setting of wholesale prices is a key issue for guaranteeing the
level playing field competition in the different markets where the designated SMP operator is
operating.
The model followed by the NRAs to set the wholesale services could eventually affect the
investment decision, in this regard, there are at least a couple of questions to be discussed and
clarified:
1.Should we apply a bottom up rather a top down?
2.Should we recognize symmetric or asymmetric prices?
These questions are part of the debate that we have had in Europe regarding the FTR/MTR, and the
regulation of bitstream and wholesale broadband services
Can we shed some of light on it?
4
Introduction
Market included in the “old” Recommendation
(February 2003)
Markets considered in the “new” Recommendation
(December 2007)
1. Access to the public telephone network at a fixed location for residential customers
1. Access to the public telephone network at a fixed
location for residential and non residential customers
2. Access to the public telephone network at a fixed location for non residential
customers
3. Publicly available local and/or national telephone services at a fixed location for
residential
Three criteria test:
4. Publicly international telephone services available at a fixed location for residential
users
1.Presence of high and non transitory barriers to entry.
5. Publicly available local and/or national telephone services at a fixed location for
non-resid.
2.market structure which does not tend towards effective
competition within the relevant time horizon .
6. International telephone services publicly available at a fixed location for nonresidential
3.insufficiency of competition law alone to adequately address the
market failure(s) concerned.
7. Minimum set of leased lines
8. Call origination in the public telephone network at a fixed location
2. Call origination in the public telephone network at a fixed location
9. Call termination in individual public telephone networks at a fixed location
3. Call termination in individual public telephone networks at a fixed location
Three criteria test
10. Transit services in the public fixed telephone network
11. Wholesale provision of unbundled access to provide broadband and voice services
4. Wholesale network infrastructure access at a fixed location
12. Wholesale provision of broadband access
5. Wholesale broadband access
13. Wholesale market for leased line terminal segments
6. Wholesale market for leased line terminal segments
NGaN
14. Wholesale market for leased line transit segments
Three criteria test
15. Call access and origination in public mobile telephone networks
7. Voice call termination in individual mobile networks
16. Voice call termination in individual mobile networks
EC Regulation
17. Roaming
Three criteria test
')
18. Broadcasting services for the delivery of content transmitted to final users
-5-
')
2. Trends in roaming:
Country cases
6
The case of Europe: European roaming regulation
There are two key rules in the European roaming regulation:
• 30 June 2007: the high cost for for voice roaming abroad were regulated if those were called between
customers in another EU Member State
• 1 June 2009: The Comission reviewed the previous regulation and decided to include text messages
and data services.
The main aspects were the following:
1.Mobile roaming calls with a maximum tariff of €0.43 for making a call and €0.19 for receiving one.
2.Limits the price for sending a text message while abroad at €0.11. Receiving an SMS in another EU
country will remain free of charge.
3.Reduces the cost of surfing the web by introducing a maximum wholesale cap of €1 per megabyte
downloaded.
4.There will also be introduced a cut-off mechanism once the bill reaches €50, unless they choose
another cut-off limit
5.Per second billing introduction after the first 30 seconds for calls made and immediately for calls
received.
The new rules had an important effect in European mobile operators. The following table shows the effect
in Spain which was one of the countries with higher roaming tariffs.
7
Sent calls
Received calls
Vodafone
0,75 €/min
0,5 €/min
Orange
0,75 €/min
0,51 €/min
Movistar
0,79 €/min
0,5 €/min
After
regulation
Sent calls
Received calls
2007
0,49 €/min
0,24 €/min
2008
0,46 €/min
0,22 €/min
2009
0,43 €/min
0,19 €/min
The case of Europe: European roaming regulation
EU Roaming I
EU Roaming II
The European Commission has defined a glide path for regulating the
originating and receiving calls when roaming as well as a cap for the
wholesale services when the customer is roaming.
The aim is to decrease the price of voice while roaming in more than a
70% and the price of SMS while roaming in a 62%
8
The case of USA
For FCC, “roaming” occurs when the subscriber of one provider utilizes the facilities of another provider
with which the subscriber has no direct pre-existing service or financial relationship to place an outgoing
call, to receive an incoming call, or to continue an in-progress call. Roaming therefore occurs when a
subscriber places or receives a call while physically located outside of the service area of its “home”
provider.
There are basically two forms of roaming – manual and automatic. With manual roaming, the
subscriber must establish a relationship with the host carrier on whose system he or she wants to roam
in order to make a call. Typically, the subscriber accomplishes this in the course of attempting to
originate a call by giving a valid credit card number to the carrier providing the roaming service.
With automatic roaming, instead, the roaming subscriber is able to originate or terminate a call
without taking any special actions. Automatic roaming requires a pre-existing contractual
agreement between the home and the roamed-on host system.
Notice that an alternative to such [Calling Party’s Network Pays] arrangements, however, is a “bill-andkeep” arrangement. Because there are no termination charges under a bill-and-keep arrangement, each
carrier is required to recover the costs of termination (and origination) from its own end-user customers.
This situation leads to changes in the pricing policy and provoke the entrance of flat rates.
In recent years, roaming has emerged as an issue because of some merger transactions. Despite
the Commission’s approval, a number of smaller carriers asserted that the mergers are detrimental to
roaming. Roaming arrangements can only be made with a technologically compatible network,
and the mergers resulted in a reduction in analogue carriers in many geographical markets, reducing
the competition at a wholesale level and increasing the risk of anticompetitive roaming practices
carried out by the big operators. In contrast to national roaming, the international is the most
expensive due to lack of competition and lack of international regulation.
9
The case of Hong Kong
The Hong Kong mobile market is highly developed. Cellular mobile telephone subscriber numbers have
increased from 0.29 million (1993-1994) to 9.37 million (2006-2007), while population coverage has
increased from 4.9 per cent (1993-1994) to 135.4 per cent (2006- 2007), with an average yearly growth of
10 per cent.
The Hong Kong telecommunication regulator OFTA (Office of the Telecommunications Authority) does
not normally regulate the roaming service. The regulatory framework that OFTA adopted does not
entail price capping of roaming charges, but instead aims to set fair competition rules (on an ex post
basis) in the market. To ensure fair competition in the Hong Kong mobile market, OFTA has adopted a
technology-neutral approach in licensing (1996) to facilitate customer switching to alternative
networks, to process consumer complaints and examine the fairness of retail practices.
International (i.e., non-China) roaming charges are relatively high. (See the figure below)
Source: Europe Economics
10
3. Roaming Policy
Options
11
Roaming policy options
1. No policy change
2. Transparency regulation only
In this case the option of ‘no policy change’ would mean no
regulatory intervention i.e. allowing market forces to work.
By taking these option the problems related with
transparency and high wholesale charges would likely
remain.
Transparency measures will help to address the problem of
'bill shock' by increasing consumer awareness of the retail
charges and by giving consumers the tools to control
expenditure.
3. Wholesale regulation
4. Retail regulation only
High wholesale charges combined with traffic steering
difficulties for roaming, are causing difficulties with providing
transparent retail offers and clear information to consumers.
The problem is caused by the ineffectiveness of traffic
steering which results in operators having to pay exorbitant
rates for the remaining traffic. A wholesale cap combined
with transparency measures would eliminate these excessive
charges.
The imposition of price ceilings for roaming services at the
retail level would be effective in ensuring price reductions.
However the imposition of such a cap would require a
corresponding reduction at wholesale level if all operators
are to be in a position to offer the service without suffering a
loss. Therefore, this solution could prevent even efficient
smaller operators from being able to provide these services.
5. Wholesale and retail regulation
Wholesale and retail regulation may be necessary if there is lack of competition at both levels. However, action to reduce the level
of the wholesale charges is likely to have a positive effect on retail prices given that current levels of wholesale prices constrain
market players (particularly smaller players) from competing at retail level.
12
3.1 Regulatory policy
applied to wholesale
services
13
Regulatory policy applied to wholesale services
The steps (if it is fulfilled with the three criteria test) to be taken prior to
intervention can be summarized as follows:
•Step 1: Define the relevant market form a product point of view as well as
from a geographic perspective.
•Step 2: Identify the Significant Market Power Operator/s
•Step 3: Valuate the conduct followed by the SMP operator/s
•Step 4: Impose the obligation (ex ante/ex post) to stop that behavior and if
needed fine the behavior of the SMP operator/s.
Only by carrying out these steps the NRA would be able to identify, at sight of
the possible anticompetitive behaviors, the type of remedies to be imposed.
Among others, the NRAs could decide to make the wholesale prices become
cost based, or publish a reference offer to guarantee the transparency and non
discrimination
14
Which costing models can be applied?
Key variables and levers
Bottom up Model
Capital Cost
Technology
Criteria
Parameters
f or design
Prices
OPEX
And
And
Usage lif e
Overhead
External layer
Equipment &
Investment
Cost
design
Infrastructure design
Valuation
Valuation
Demographic
Topology
and
market
scenario
Traffic demand
estimation
Quality parameters
and protections
• WACC
• Assets life span
• Assets valuation
• Routing factor matrix
• Identification of the
Network usage for the
provision of the services
Services
Def inition
Taking in account the estimated costs obtained from the LRIC model, the NRAs
eventually set the wholesale prices by summing a mark up which depends mainly
on the playing level field competition
15
Which costing models can be applied?
NRA
Top down Model
Designatio
n of SMP
Operator
and
imposition
of cost
accountin
g
Obligation
s
Study
of the
system
present
ed by
the
operato
r
Operator
Notification
Preparation
of the cost
accounting
system in
accordance
with the
principles
approved
by the NRA
Presentati
on of the
accounting
model for
the
approval
of the NRA
verify?
No
Appro
val of
Yes the
accou
nting
syste
m
Allocatio
n of
costs for
determini
ng the
margins
of the
different
services
NRA
own
auditory
(if
require
d)
Presentat
ion of
audited
results
for the
approval
of the
NRA
Appro
val of
results
UTILIZATION
of the RESULTS:
1. Revision of retail
prices
proposals
2. Establishment of
Interconnection prices
3. Price – cap
4. Net Cost of the
Universal Service· Etc....
NRA EXERCISES CONTROL MECHANISMS THROUGHOUT THE APPROVAL PROCESS
16
Use of
the cost
account
ing for
regulato
ry
purpose
s
Which costing models can be applied?
Reconciliation process
17
Which costing models can be applied?
Access Based
Competition
vs
Infrastructure
Based
Competition
Typology of services that could be regulated with these
methodologies
• Fixed termination rates (FTR) and Mobile Termination Rates (MTR)
• Co-location
• Leased lines
• Wholesale line rental (WLR)
• Bitstream
• Unbundling local loop (totally and shared)
• Intelligent network
• Wholesale broadband services
• Transit
• etc
Current debate on…
1. Symmetry vs asymmetry in FTR/MTR
2. Costing model to be applied to NGN
3. Recognition of additional risk premium for wholesale services provided
under a NGN
4. Removal of the existing regulatory policy on the existing infrastructure
19
When is the asymmetry justified?
EXOGENOUS FACTORS
• Frequency band
• Moment of entry ENDOGENOUS FACTORS
OTHER VARIABLES
• CAPEX associated to the frequency band
• Demand
• Entry barriers
• Financial muscle
• Brand Image
• Greater unitary costs due to the smaller economies of scale
GREATER UNITARY COSTS
On‐net/Off‐net discrimination
RETAIL PRICING POLICY AS A STRATEGY FOR DIFFERENTIATION. Ex: MVNOs
On‐net(Off‐net discrimination
Comparison of MTR
MTR Premium of Late-Entry Operators compared to Incumbent Operators (in %)
21
Incumbent Operator
Incumbent Operator
Incumbent Operator
Late Entry Operator
Late Entry Operator
Late Entry Operator
Comparison of MTR
MTR Premium of Pure-3G Operators compared to Incumbent Operators (in %)
22
Incumbent Operator
Incumbent Operator
Incumbent Operator
Pure 3G Operator
Pure 3G Operator
Pure 3G Operator
3.2 Regulatory policy
applied to retail services
23
Regulatory pricing models to be applied to retail services
Price Caps
Glide paths
• Step 1: Identification of the regulatory period
• Step 2: Identification of the services included
in the baskets and sub-baskets
• Step 3: Specification of weights according to
the calling pattern
• Step 4: Specification of the unitary price in
homogenous term
• Step 1: Specification of timeframe
• Step 2: Specification of the objective prices:
Previously it requires a cost model which
supports the objective
• Step 3: Specification of the price variation path
• Step 4: Discussion on Symmetry vs
asymmetry prices
• Step 5: Adjustment and verification process
(semesterly, annually, etc)
• Step 6: Category of costs to be included (Ex.
3G)
Price of a standard call = C0 + C p ⋅
⎛ −T0
⎞
⎜
Tm ⎟⎠
e⎝
1− e
⎛ −T p
⎞
⎜
Tm ⎟⎠
⎝
• Step 5: Specification of the productivity
parameter X
• Step 6: Verification of the fulfillment of the limit
RPI − X
This model was mainly used for
regulating retail and wholesale prices.
Particularly important was its application
to reduce the access deficit.
24
This model was mainly used for
regulating MTR and wholesale Roaming
services.
4. Treatment of
bundles of services
25
Treatment of bundles
Roaming offers examples
Orange (France)
T – Mobile (Germany)
•In May 2008, Orange/France Telecom appealed to its customers who
travel frequently within the EU by introducing some new plans. “Data
pass”, aimed at users of data roaming, enables Orange customers to
connect to the internet from any country. Depending on the country, he
or she will see price reductions of up to 90 per cent off the official
tariff.
•The “preferred country” plan allows frequent EU travellers to pay €5
per month and realise savings between 18 and 60 per cent off of the
official tariff in his or her country of choice.
•T-mobile is targeting frequent business travelers by providing a
“World-class International Roaming” mechanism for reduced
roaming charges, which certain users on pre-pay contract can activate
from their phone at no charge. Rates and countries on offer are
available through the T-Mobile website. For Austrian T-Mobile
subscribers, for example, 100 minutes of outgoing calls cost €29 per
month.
3/Hutchinson 3G (UK)
•The popular “3 Like Home” offers monthly minutes and texts to
standard home numbers at the exact same rates and charges
when abroad. Travellers going between Austria, Australia, Denmark,
Hong Kong, Ireland, Italy, the UK or Sweden (countries where 3 shares
sister networks) to use their mobiles abroad as they would do at home.
•The Vodafone “Passport” offer, now on offer in a number of
countries, enables Vodafone users to take their mobiles abroad and, for
a fixed “connection charge”, speak at domestic rates.
•For example, in the UK this non-trivial connection charge is £0.75 and
in the Euro area it is typically around €1. Regardless of the visited
network, this offer applies 31 countries, both in and outside the EU.
•It does not apply to SMS or data charges.
Transatel (MVNO France)
Telefónica / O2 (Spain)
•Transatel offers “multi-country” plans which are either generic or
customised by the subscriber. In addition to its call and text
packages, Transatel offers a flurry of innovative services which are
tailored for the globalised mobile user. These include local tariffs in
several countries, savings on international calls, “Unified
Messaging Services”, and multilingual customer service.
•The roaming package “My Europe” offers roaming customers reduced
and flat-rate monthly voice roaming rates across the EU (and across
networks) during the summer months. According to Telefónica / O2, the
My Europe package amounts to savings of over 60 per cent when
compared with previous tariffs.
26
Vodafone (UK)
Treatment of bundles
Network and service converge is
changing the scope of the
telecom sector from different
perspectives: (i) competition, (iii)
regulation, and (iv) customer
demand.
In this regard, NRAs should adjust
their regulatory framework and
revise the boundaries of the
defined markets since there is not
anymore a direct relationship
between the services provided and
the markets in which they are
commercialized.
Static
vs Dynamic
How the existing regulatory framework should evolve to guarantee the level
playing field competition despite changes in the pricing policy of both the
incumbent and the entrants operators?
27
Treatment of bundles
The imputation test requires the fulfillment of the following expression:
Other aspects to consider:
p ≥ w + Cnet + Cretail
•Difference between offer and promotion
•Specification of a methodology of analysis and information requirements to periodically check the possibility for other
operators to retort the SMP offers/promotions
28
6. Recommendations
29
Recommendations
1. There is not a clear regulation on roaming due to the fact that it is
supranational markets.
2. Roaming charges can be estimated as the sum of an origination and a
termination. In this regard, although termination might be known, the origination
is totally unknown for the regulator of the visited network.
3. Having costing models is key to at least have an understanding on what the
costs of termination are.
4. Sometimes NRAs, as it has happened in the case of the European Commission,
have designed and implemented retail and wholesale caps and also a
particular glide path for setting the evolution of both, retail and wholesale
throughout the regulatory period.
5. In this regard, having a proper costing model, either a bottom up or a top down
will be key to at least get a proxy of the costs and the way in which the retail
cap and wholesale cap should eventually evolve.
6. It is important to take in account that convergence is becoming a reality, so
that the pricing policies that customers have at home (bundles of services) might
not be replicated taking in account the existing regulatory framework. In addition,
the model could evolve towards a situation where voice is just a mere commodity
(flat rates) having a clear impact on the price of roaming services.
30
Antonio García Zaballos
Fernando Huerta
Antonio García Zaballos is PhD in Economics at Universidad Carlos III de Madrid.
Currently he is senior advisor to the Global ICT Department of the World Bank and
expert to the International Telecommunications Union (ITU).
agz@profesor.ie.edu
Móvil: 617 66 87 60
Areas of expertise:
•Telecommunications
•Regulation
• Strategy
Academin Background:
• PhD in Economics,
Universidad Carlos III de
Madrid
•PDD IESE business School
•Higher Education en
Administración de Empresas
en Heriot-Watt University
(Edinburgh)
•Bachelor degree in
Business Organization at
Universidad de Salamanca
31
Dr. García Zaballos was Head of the Cabinet for Economic Studies and Regulation
(GEER), and was also Deputy Director at CMT, the Spanish telecoms regulator,
where among others he was responsible for market analysis and economic issues
applied to the estimation of the cost of Universal Service Obligations (USO), FixedMobile convergence, regulatory policy applied to bundling, regulatory policy applied
to retail and wholesale services and auditory of cost accounting models. He has a
broad experience in economic consulting applied to the telecom sector in countries
as: Saudi Arabia, Dominican Republic, Guatemala, Costa Rica, Argentina, Latvia,
Bulgaria, Poland and Albania.
Additionally, Dr. García Zaballos is a professor at Instituto de Empresa Business
School and University Carlos III in Madrid, where he teaches telecoms economics
and applied finance at the Global MBA and the Master in Industrial Economics.
Regional Seminar on Costs and Tariffs for
Member Countries of the Regional Group for
Asia and Oceania (SG3RG-AO)
Roaming: Tariffs aspects and
regulatory trends
A presentation by Dr. Antonio G. Zaballos
April 2010
Beijing, China