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Liberalisation and regulation in the telecommunication sector: Theory and empirical evidence

Liberalisation and regulation in the telecommunication sector: Theory and empirical evidence. Week 6 Call Termination on Mobile Network Operators Regulating a Market, the case of Mobile Operators in the UK. Overview of presentation. The Case Consultation Procedure Defining a Market

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Liberalisation and regulation in the telecommunication sector: Theory and empirical evidence

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  1. Liberalisation and regulation in the telecommunication sector: Theory and empirical evidence Week 6 Call Termination on Mobile Network Operators Regulating a Market, the case of Mobile Operators in the UK

  2. Overview of presentation • The Case • Consultation Procedure • Defining a Market • Market Analysis • Market Failure • Suggestions for regulatory obligations Β. Μerekoylias

  3. The Case • Call origination and termination • On net • Off net • New regulatory framework on 25/7/2003 • NRAs carry reviews of competition in communication markets • The case of Mobile Operators • Services sold and purchased by communications providers in order to complete end-to-end calls. • Wholesale voice calls terminated on individual mobile networks. • Wholesale 2G voice call termination provided to the subscribers of “3” • The definition of a new Market Β. Μerekoylias

  4. Market Review • Definition of the relevant market or markets • Assessment of competition in each market. Is there any company with a SMP? • Assessment of the options for regulation and proposal or obligations. Β. Μerekoylias

  5. Existing Regulation • 1998 Competition Commission • Vodafone & Cellnet (now O2) • 11.7 pence per minute ceiling • (Retail Price Index) RPI-9% reduction for two years until March 2002 • Oftel 2002 • Termination charge reduction by RPI-12% each year for four years until March 2006 for all four mobile operators, Vodafone, O2, Orange and One 2 One (now T-Mobile). • The operators rejected the proposed licence modification. • February 2002 the director modified the licences of Vodafone and O2 to extend the existing controls of RPI-9% on termination charges for one year to March 2003. • December 2002, Competition Commission Report • Termination charges of the four mobile operators operate against public interest • 30%-40% above a fair charge • Fixed to mobile and off net mobile too expensive • High termination charges deters people from calling mobiles • High off net usage customers unfairly subsidise customers who mainly receive or make on net calls • Recommended • 15% reduction • O2 and Vodafone should further reduce RPI-15% and for each of the subsequent years to March 2006 • Orange and T-Mobile should reduce charges by RPI-14% and for each of the subsequent years to March 2006 Β. Μerekoylias

  6. Consultation Procedure • Relevant market definition • Market analysis, assessment of SMP • Detrimental effects arising from SMP • Regulation Options • Proposed charge controls • Consultation • Final plan of the Regulation documents • Defining the market • Analysis of the market • Regulatory obligations for the players • Basic principles of LRIC for the market and the services Β. Μerekoylias

  7. Defining a Market • All the services that can be substitutes based on • Characteristics • Price • Usage • Competition • Existence of Demand and Supply • SSNIP Test • Critical loss analysis test • Supply Substitution • Demand Substitution • Common pricing • 3G • Region Market Β. Μerekoylias

  8. Conclusions • Six Separate Market • Wholesale voice call termination provided to the subscribers of “3” • Wholesale voice call termination provided by Inquam • Wholesale voice call termination provided by O2 • Wholesale voice call termination provided by Orange • Wholesale voice call termination provided by T Mobile • Wholesale voice call termination provided by Vodafone Β. Μerekoylias

  9. Market Analysis, Assessment of SMP • SMP, Significant Market Power • Potential Competition. Even in a 100% monopolistic market. • Low entry barriers • Alternative technological solutions • Structural changes can effect the negotiation position. • Countervailing customer power • The end customers • The fixed operators • Shares: • BT 26,4% • Other fixed 14,8% • Off net 18,6% • On net 40,2% • Evidence of Operators behavior • Price trends • Excessive pricing, discriminatory pricing, price squeeze • Actual price • Benchmarking • Excessive profits Β. Μerekoylias

  10. Detrimental effects arising from SMP • Is Ex-ante Regulation a solution? • Entry barriers • The market over time is not competitive • Is competition effective? • Negative impact of high prices • Distortion of the customers choices • The fixed operators can not compete with the mobile operators equally for voice services • The fixed operators can not compete with the mobile operators equally for corporate networks • The mobile operators offer lower prices for end to end on-net call service than the call termination service • The mobile operators points • Competition in the end customer level. The prices are getting lower. • Redistribution of cost. (“Swings and roundabouts” or “Waterbed effect”) • Customers welfare increases as more people use mobile phones. • The Cost for non efficiency of the market being paid from the non customers of the mobile operators. Β. Μerekoylias

  11. Regulation Options - Proposed charge controls (1) • Alternative solutions • Receiving Party Pays • Call Back • Call divert • Mobile Virtual network operators with multiple roaming agreements • Multiple SIMs • GSM Gateways • Trying termination charges to competitively supplied services • Delivering a call further into the terminating network • Obligations the Director can impose: • The provision of network access • No undue discrimination • Transparence • Cost Orientation • Cost recovery, charge controls • Cost accounting and accounting separation Β. Μerekoylias

  12. Regulation Options - Proposed charge controls (2) • Options • A. No ex ante regulation • B. Requirement to secure transparency through publication of prices and prior notification of price changes • C. B + transparent the charges, terms and conditions through publication of a reference offer, a requirement to provide mobile voice call termination on far and reasonable terms, not to unduly discriminate in the provision of the service and imposition of charge controls. • D C + requirement to maintain cost – accounting systems, to set prices on the basis of Forward looking LRIC, separate account systems • Director Initial View • MNOs 3G in Option A • MNOs 2G in Option C • Charge Control • Final target level • How the charges should be brought down to this fair target charge. • Ramsey prices • Network externalities • ….Resulting to a cost based pricing LRIC + EPMU • What may be the results? • Mobile operators. The medium-term nature permits a time for restructure. • Mobile customers. A higher price may occur based on the level of competition • Fixed operators and customers. Lower costs for both. A better positioning for the corporate networks market. Β. Μerekoylias

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