Commercial aspects of regulation
Peter Lundy MSc DIC BSc(Eng)
Information and Communications Technology consultant
November 2008
This project is funded by
the European Union
1
Agenda
1.
2.
3.
4.
Telecoms technologies
Overview of competitive telecoms markets
The main market players
Customer service and convergence
This project is funded by
the European Union
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
This project is funded by
the European Union
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?
This project is funded by
the European Union
The line (network)
(a metallic cable,
an optical fibre,
a radio signal
or 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?
4
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
Customer
Interfaces
• The operator of the network and its
services must be able to calculate bills, send
them out and collect the money
Services
Q: What is a “Virtual Operator?”
Networks
This project is funded by
the European Union
5
The “Fixed Network”
Local Exchange 1
Transmission links
Local Exchange 2
The “Access
Network”
To Local Exchanges
3,4,5 etc
To Tandem
Exchanges B, C, etc
Tandem
Exchange A
The Local Loop,
(or access network
or “last mile”)
The “Core
Network”
International
Gateway
Exchange
To other
countries
International links and
“world-wide-web”
This project is funded by
the European Union
6
The essentials of switching and
transmission
Switching
•
Local digital switches connected to
customers
Transission
•
– 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)
This project is funded by
the European Union
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
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Part of a telecoms switch room
This project is funded by
the European Union
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Another part of the same switch
room
This project is funded by
the European Union
9
Alternative Fixed Network Technologies
All the links can be metal, fibre or radio
“wireless local
loop”
Local Exchange 1
“point-to-point”
radio relay
copper
wires
To Local Exchanges
3,4,5 etc
To Tandem Exchanges B, C,
etc
All the switches are digital (or becoming
digital), now using Internet techniques
This project is funded by
the European Union
Tandem
Exchange A
fibre
International Gateway
Exchange
The Local Loop,
(or access network
or “last mile”)
To other
countries
Cable, radio
and satellite
links,
submarine
cables
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Cables in ducts
This project is funded by
the European Union
Hrvatska agencija za telekomunikacije
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What happens underground
This project is funded by
the European Union
Hrvatska agencija za telekomunikacije
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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?
•
•
•
•
•
•
•
•
•
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
This project is funded by
the European Union
13
The “Mobile Network”
“Base Transmitter
Stations”
GSM Exchange 2
Interconnection links
GSM Exchange 1
Tandem Switch
Local Exchange
The “Access
This
project is funded by
Network”
the European Union
The same
core network
“Fixed
Network”
To other
countries
International links and
“world-wide-web”
14
Some GSM “base transmitter
stations”
This project is funded by
the European Union
15
Another type of GSM transmitter
This project is funded by
the European Union
16
Basic telecom network economics
Cost of
network
Low Marginal (or
Incremental) Cost
High Fixed Cost
Size of network
(capacity, or demand)
This project is funded by
the European Union
17
Forward-looking incremental costs
costs
existing network
line
operator’s variable cost
modern network
line
operator’s incremental cost= CI
operator’s fixed cost
traffic
TO
This project is funded by
the European Union
TO+I
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Access to the Internet
Internet Services
Provider 1
Broadband or
“dial-up”
S
Cable, wireless
or 3G mobile
network
The same
Local Exchange core network
“Fixed
Network”
This project is funded by
the European Union
International links to
“world-wide-web”
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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)
This project is funded by
the European Union
20
Who are the market
players?
Mobile Operator
and Service
Provider A
Virtual
Operators
(Mobile and
Fixed)
Mobile Operator
or Service
Providers C, D, E
etc
Internet
Service
Providers
Operator or
“Service
Provider”
X,Y,Z etc
Fixed Operator or
Service Providers
B, F, is
G,funded
H etc by
ThisA,
project
the European Union
TV and
Radio
Channel
Providers
To other
countries
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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
This project is funded by
the European Union
22
Competitive markets -agenda
• How is competition provided?
• How the incumbents behave
• The role of regulation
This project is funded by
the European Union
23
Monopoly
Incumbent
network and service provider
This project is funded by
the European Union
24
How competition is provided
(1: alternative network)
Cable (or wireless) local loop
Mobile (GSM)
Interconnection
Alternative network and
service provider
Incumbent
network and service provider
This project is funded by
the European Union
25
How competition is provided
(2: carrier selection)
Carrier selection
Interconnections
Alternative network and
service provider
Incumbent
network and service provider
This project is funded by
the European Union
26
How competition is provided
(3: local loop unbundling)
Unbundled Local Loop
Interconnections
Alternative network and
service provider
Incumbent
network and service provider
This project is funded by
the European Union
27
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
This project is funded by
the European Union
28
Local loop Unbundling
Customers now
have a choice
Incumbent Operator
Individual local loops
1
3
3
Incumbent’s cable
[Note: alternative unbundling point]
1
New operator in town
B
[Note: The new operator should
be allowed to put their
interconnection equipment in the
incumbent’s exchange = “physical
This project is funded by
co-location”]
the European Union
2
2
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
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How competition is provided
(4: “no network” providers)
Customer relationship,
including billing
Information
flows
Incumbent
network and service provider
This project is funded by
the European Union
Alternative retail
service provider
(e.g. Mobile and Fixed
Virtual Network Providers)
Relationships with
other providers (e.g.
other network operators,
content providers)
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How incumbents behave
It is possible to observe 3 stages of transition for an incumbent:
1. Traditional
monopolist
2. Reluctant
competitor
3. Competing
enterprise
The transition is normally accompanied by a dramatic
improvement in efficiency and customer service
This project is funded by
the European Union
31
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)
This project is funded by
the European Union
32
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
This project is funded by
the European Union
33
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
This project is funded by
the European Union
34
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
This project is funded by
the European Union
35
Staff numbers – decline and fall?
BT Staff - last 20 years
300000
Employees
250000
200000
150000
Staff
100000
This project is funded by
the European Union
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
0
1984
50000
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BT since 1984
BT Performance since 1984
25000
£ Millions
20000
15000
Revenues
10000
Profits
5000
0
This project is funded by
the European Union
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1096
1984
-5000
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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”
This project is funded by
the European Union
38
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
This project is funded by
the European Union
39
The market is expanding in new ways
BT
BT
Retailer
Wholesaler
Retailer
Retailer
Retailer
BT
Retailer
Wholesaler
Wholesaler
Retailer
Retailer
This project is funded by
the European Union
40
C u s t o m e r s
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 forwardlooking stance on enabling technologies like convergence and
VoIP
• Market analysis in separate and “converged” markets
• Action to ensure competition in all telecoms markets
This project is funded by
the European Union
41
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
This project is funded by
the European Union
42