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
Yangon, Myanmar, 28-29 November 2013
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
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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
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Look upstream…
Take a holistic view of the broadband
value chain
Identify and fix any competition
problems that may exist in relevant
upstream markets
International
connectivity
National
backbone
Yangon, Myanmar, 28-29 November 2013
"Middle
mile"
Access
network
Retail
service
4
…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
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A word of caution
Retail price regulation can be
tempting
Everyone wants lower prices
But price intervention in broadband
markets risks retarding the long-term
development of those markets
Riskier than narrowband
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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
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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
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Regulation must fit a market’s position
on the innovation diffusion curve
100%
Maturity
stage
Laggards (16%)
86%%
Late majority (34%)
Percentage of
people in the
relevant
market
Development
stage
50%
Early majority (34%)
16%
Early adoptors (13.5%)
2.5%
Innovators (2.5%)
Introduction
stage
Source: Adapted from Rogers, E.M. (2003), Diffusion of Innovations
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Next generation broadband
A relatively recent innovation in most
economies
Occupies a separate—and
subsequent—diffusion curve to the
first generation of broadband
services
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100%
86%%
Broadband market
Introduction stage
Development stage
Maturity stage
50%
100%
Percentage of
people in the
Next Generation
broadband
market
86%%
16%
2.5%
Percentage of
people in the
broadband
market
50%
16%
2.5%
Time
Introduction stage
ce: Adapted from Rogers, E.M. (2003), Diffusion of Innovations
Yangon, Myanmar, 28-29 November 2013
Development stage
Maturity stage
Next Generation Broadband market
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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
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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
Yangon, Myanmar, 28-29 November 2013
Broadband markets
Not service specific
Considerable new
investment in
infrastructure required
Unclear / evolving
customer demand and
expectations
13
Narrowband
Broadband
Next Generation
Broadband
Demand
Well known and now
declining in many
developed
economies
Known in developed
economies, emerging
in developing
economies
Emerging in most
economies – cultural
patterns in evidence
as well
Investment
Largely sunk but
some significant new
investment for
coverage in
developing
economies
Significant and ongoing, but is being
now being linked with
the requirements for
next generation
broadband
Potentially huge for
NGA and significant
for NGN. In most
economies the
investment remains
significant and ongoing.
Characteristic
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Characteristic
Narrowband
Broadband
Next Generation
Broadband
Diffusion
Development phase
in developing
economies; maturity
phase in developed
economies. The
subject of most
universal service
schemes
Introduction phase in
developing
economies;
development or
mature phase in
developed
economies
Introduction or
development phase
in most economies
Service
innovation
Mature market;
innovation has been
refocused onto
broadband
Some innovation, but
innovation that is
bandwidth-based is
taking place in Next
Gen Broadband
High-speed
applications are being
developed especially
involving moving
images
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Changing imperatives of price regulation
Narrowband
Broadband
Next Generation
Broadband
Maximise competitive
market pricing
Maximise competitive
market pricing
Maximise competitive
market pricing
Monitor migration
Monitor market
Monitoring and
forbearance
Regulate for access to
wholesale level services
and facilities (minimising
distortion of investment
incentives for NG
broadband)
Promote commercial
access to wholesale level
services and facilities
Ex post regulation for
anti-competitive
practices
Ex post regulation for
anti-competitive practices
Ex post regulation for
anti-competitive practices
Price caps
Entry-level pricing with
price caps
Affordability pricing
Lifeline pricing
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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
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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
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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
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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
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Uruguay
State-owned ANTEL
offers a prepaid entrylevel 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.
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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
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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
21
Entry-level fixed broadband prices
<5% of GNI per person
5%−9.9% of GNI per person
10%−24.9% of GNI per person
Yangon,
>25%Myanmar,
of GNI per 28-29
person November
No data
2013
22
Entry-level mobile handset-based
broadband prices
<5% of GNI per person
5%−9.9% of GNI per person
10%−24.9% of GNI per person
Yangon,
>25%Myanmar,
of GNI per 28-29
person November
No data
2013
23
Entry-level mobile computer-based
broadband prices
<5% of GNI per person
5%−9.9% of GNI per person
10%−24.9% of GNI per person
Yangon,
>25%Myanmar,
of GNI per 28-29
person November
No data
2013
24