New Regulatory Approaches
Fostering Innovation Dynamics in the
Telecommunication Sector
How to deal with “emerging markets” and
investment incentives?
Drs. Robert Stil (r.stil@opta.nl)
Economic Analysis Team, OPTA
The Netherlands
Disclaimer
This presentation is given by the Economic Analysis
Team (EAT) of OPTA. EAT is responsible for
developing economic reasoning and stimulating
discussion on key issues within the telecoms and
postal markets. The analyses and conclusions
expressed by EAT do not necessarily reflect the
opinions of the Commission of OPTA. As such, the
opinions of EAT, in whatever shape or form, do not
have legal status.
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Contents
• The meaning of the emerging market-concept;
• Can the NRF handle emerging markets?
• An alternative approach;
• Possible synthesis.
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New Regulatory Framework (NRF)
The NRF:
• Recommends assessment of 18 service markets;
• preaches technological neutrality;
• has approx. 3 year horizon;
• poses strict requirements for adding to or subtracting
from list of 18 markets.
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Emerging markets in the NRF
The Framework recognises emerging markets as a
special case:
• in which first mover will probably have substantial
market share (Recommendation Para 15)
• should not in principle be regulated ex ante
(Recommendation Para 15) since this could distort
market development but...
• ...allows ex ante regulation if necessary (Market
analysis guidance Para 32)
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Emerging markets in practice
Next generation All-IP networks lead to:
• new service markets;
• convergence between services;
• bundling (e.g. triple play);
• inter-bundle (inter- or intra-infrastructure)
competition.
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Pitfalls when applying NRF
Applying NRF to service markets on NGN creates a
dilemma:
• Technologically neutral approach follows NRF but
service-based approach may lead to overregulation
and hamper investment incentive;
• Asymmetric regulation, with light-touch or
forbearance for the NGN-based service markets
goes against NRF
• Be careful not to allow leveraging of market power
and re-monopolisation.
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Interim conclusions
• NRF focuses on services, no focus on underlying
technology;
• service-based approach does not suit All-IP NGN’s;
• No regulation of All-IP NGN’s is best for investment
incentive but risk of re-monopolisation and
leveraging;
• Too much regulation leads to under investment.
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Categories of regulatory attention
Established
services
Emerging
services
Legacy infrastructure
Cell 1
Use NRF
Cell 2
No ex ante regulation
New infrastructure
Cell 4
Current debate
Cell 3
No ex ante regulation
• (Cell 1) Established services on legacy infrastructure: use standard market analysis
process to decide on when/how to impose ex ante remedies
• (Cell 2) Emerging services on legacy infrastructure: subject to competition law
constraints but no ex ante regulation. Note: prevent leverage of market power from
services  regulate established services
• (Cell 3) Emerging services on new infrastructure: no ex ante regulation in principle
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Cell 4: Regulatory options for existing
services on new infrastructure
1. Use NRF because of technology-neutrality concept
2. Forbear from regulation because of preserving
investment incentives in infrastructure
3. Focus on bottlenecks: regulate non-replicable
assets only
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Pros and cons regulatory options 1 and 2
• Using the NRF:
+ technologically neutral
- high risk of regulatory error because of
uncertainties
- investment incentives negatively affected
• Forbearance:
+ investment incentives not affected
- not technologically neutral
- risk of re-monopolisation not dealt with
• Conclusion: Both options only deal with the
disadvantage of the other
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Option 3: A non replicable assets
approach
• Identify assets used by new technology platforms
which are non replicable. i.e. it does not make
commercial sense for an entrant to replicate these
assets;
• Focus all ex ante regulation on these assets and use
competition law to constrain behaviour in the
provision of services over these assets.
• This approach deals with both preserving investment
incentives and re-monopolisation problem.
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Questions to be dealt with
• How to determine replicability;
• Replicable within what time horizon? Often much
longer than 2-3 years due to large infrastructure
investments;
• technical vs functional replicability.
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How does this approach fit with current
NRF? (1)
Some thoughts:
• Replicability of infrastructure is already used to
choose between infra based and service based
competition (see ERG common position) in
determining proportionality;
• Direct assessment of replicability of infrastructure vs.
analysis of market power on wholesale services
markets.
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How does this approach fit with current
NRF? (2)
Non-replicable assets approach is possible within NRF
but the NRF time horizon of 2-3 years often leads to
a too short term perspective. With the review of the
regulatory framework the European Commission
could:
• encourage a longer-term view of regulation;
• focus on bottleneck (non-replicable) infrastructures.
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Conclusion
The clear long term signal should be: ex ante
regulation limited to non-replicable assets in
combination with general competition law the is the
best method to ensure that investment incentives are
not hampered by the regulatory environment.
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Questions?
Drs. Robert Stil (r.stil@opta.nl)
Economic Analysis Team, OPTA
The Netherlands