Bundling and regulatory
issues
Davide Gallino
European Regulators’ Group
European Commission
©Ofcom
Bundling is inevitable
• “Voice only” business case no longer
sustainable
• Need to justify high prices with “value
added provision”
• By giving access, traffic and content SMP
operators try to secure any direction their
customers might like to take
Bundling is inevitable
(too many players)
• Application providers
(Skype)
• Service providers
(Vonage)
• Network providers
(incumbent, altnets with
infrastructure)
• Content providers (VoIP
used in bundled offer to
counter application and
service providers)
• MNOs buying cable, fixed
operations and offering
DVB-H
What's in a regulator's mind
• A) Bundled offer – triple play (VoIP, fast
Internet Access, IP TV)
– Is it completely below the cost? (each
component is offered for a lesser price than
bought individually)
– Is it replicable, totally or partially (i.e. If fast
Internet access means 20 Mbit/s, is there a
wholesale offer allowing competitors to
replicate at least this segment?)
Hypothesis A
– Are contents distributed via IP TV bound by an
exclusive contract with the content provider(s)?
– Are there lock-in clauses (24 months
subscription, take or leave the money)
Hypothesis B
• B) quadruple play (VoIP, fast Internet
Access, IPTV and mobile calls)
– Individual components are not below the cost
– But offer is not replicable because of
fixed/mobile convergence and integration of
Dect, Wi-Fi and MNP at home
Hypothesis C
• C) Bundled offer is not replicable
– But market definitions do not cover the offer
– Or each segment of the offer, if analysed
individually using market definition and
analysis as per EU legislation, is competitive
when taken individually
Typical reactions
• I - block the offer
• II – allow offer under conditions of total /
partial replicability at wholesale level
• III – green light with compensations of
different nature
Regulatory conditions
• SMP notification (bundles can be forbidden
if they come from SMP operators)
• Replicability of offer (if the wholesale offer
is replicable or not)
• Competitiveness (apparent conditions in
the offer which are clearly anti-competitive)
• Discount to downstream arm not allowed
Methodologies for evaluation - I
• Price squeeze or margin squeeze tests
• When discounts in ADSL Services and bundling, occur, a
calculation can be based on:
– the promotional costs of the offer (including the discounts
and the free gifts given to the client accepting the offer i.e.,
the modem…,etc)
– the time expected to recover these costs (an average
estimate of how long the client is staying in the service).
– Taking the provision of ADSL services costs and clients’
average life as starting point, NRA sets the maximum
discount in promotions the operator can offer. Any discount
over this quantity is considered as an illegitimate discount
as it would suppose a margin squeeze
Methodologies for evaluation -II
• Price/margin squeeze tests entail the need
to define which is the (most) efficient
operator:
– Is that always the incumbent?
I/ERG work on bundling
• 2006 - PT on bundling issues for
consumers
• 2007 Work Programme
– Price squeeze / margin squeeze
– Convergence
Future areas
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DRM
Access to content
Distribution issues
Leveraging of SMP
Dominance at content accessibility level
Dominance over distribution platforms
(Youtube)