G.Pūras Market analysis and remedies1 Giedrius Pūras Communications Regulatory authority of Lithuania

G.Pūras Market analysis and remedies2 Contents I.Interconnection issues 1.Overview of interconnection in Lithuania (statistics) 2.Current FTR and MTR regulation 3.Current Glide path; 4.Current issues to solve 5.Bill & Keep issue II.Other issues I.Leased lines II.Local loop unbundling (LLU) III.Broadcasting III.Market analysis. Notification plans.

G.Pūras Market analysis and remedies3 I.1. Interconnection. Overview (1) Summary: 1.Most traffic is on-net: Interconnection traffic amounts 25% of all terminated traffic and on-net traffic – 75 % 2.Most traffic is on mobile: 2/3 traffic is on mobile and increasing (both on-net and termination) 3.Fixed network traffic (both on-net and termination) is almost stable

G.Pūras Market analysis and remedies4 I.1. Interconnection. Overview (2) Terminated traffic on fixed and mobile networks (2009 IIQ)

G.Pūras Market analysis and remedies5 I.2. Interconnection. Current regulation FTRMTR Price control methodIncumbent: HY-LRAIC Alt.net.: reciprocity (intermediate remedy) BU-LRAIC (based on highest cost individual BU-LRAIC model) Year of approval Mark-up for common costsYes Glide path (currently under revision) 40 % yearly reductions20% yearly reductions Modelling results (average)0.95 €-cents/min.1.62 €-cents/min. EC view1.5 – 3.0 €-cents/min. Current rates (2009) (average) 1.88 €-cents/min.6.67 €-cents/min.

G.Pūras Market analysis and remedies6 I.2. Interconnection. MTRs in EU context

G.Pūras, Market analysis and remedies7 I.3. Interconnection. Current Glide path LRAIC+

G.Pūras, Market analysis and remedies8 Main issues to solve within current Market review: 1.Fixed-to-Mobile subsidy problem 2.Alternative fixed network TR regulation 3.POI charges regulation I.4. Interconnection. Current issues to solve

G.Pūras, Market analysis and remedies9 Reasons for MTRs being higher than FTRs: Differentiated price regulation (glide path): –FTR: 40% reductions –MTR: 20% reductions; Results in mobile subscribers subsidised by fixed subscribers Target – to ensure equal conditions to compete for all operators I.4. Interconnection. Current issues to solve Fixed-to-Mobile subsidy problem Mobile networks (Omnitel, Tele2, Bitė Lietuva) Fixed networks (TEO, Alternative fixed operators) M-2-F traffic – 2X F-2-M traffic - 1X €

G.Pūras, Market analysis and remedies10 Revised glide path New glide path MTR/FTR ratio

G.Pūras, Market analysis and remedies11 Impact on revenues Fixed – Mobile payments balanced

G.Pūras, Market analysis and remedies12 During the previous market research Alternative fixed operators were designated as SMP, but no price control was imposed: –Reason: bargaining power of Incumbent and condition to align FTRs to Incumbent’s FTRs in Interconnect contracts After a certain dispute resolution, Alternative fixed network operators found that they (being not price regulated) can keep higher FTRs while Incumbent is forced to reduce them by regulation  asymmetries; In 24 th April 2009 RRT took provisional measures to set price control for Alternative fixed network operators in the form of Reciprocity (to align FTRs to ones of Incumbent); Provisional measures applied to 9 SMP operators: incumbent TEO and ANO’s. Decision was challenged in the court, but still valid. Time period for the measures: April 24 – December 31, It is planned to adopt the final measures before the expiry of the provisional measures. I.4. Interconnection. Current issues to solve Alternative fixed operators’ TR regulation problem

G.Pūras, Market analysis and remedies13 Current status – hidden barriers: all 4 big operators actually do not charge (or charge the same amounts) each other for the means to interconnect (2 Mb/s ports and etc.), but require certain POI charges from small operators (latter being not paid for the same resources to interconnect); Although fixed network operators historically set FTRs based on reciprocity, asymmetrical POI charges made FTRs asymmetrical in fact; As both ERG and EC foresees TR symmetry as a way forward, RRT is considering solving hidden asymmetries by next market review. Considered POI cost sharing solution: each party bears the costs of its 2Mb/s port and network configuration and Interconnect link costs are shared between parties according traffic distribution I.4. Interconnection. Current issues to solve POI problem Network 1 Network2 Interconnect link (costs shared) 2 Mb/s ports & config. (own costs recovered)

G.Pūras,October 16, 2009Market analysis psl Case LT/2009/0983. Call termination in telephone networks provided at a fixed location. Notified on September 24, operators (incumbent and 9 ANO’s) were designated having SMP. Changes in obligations since previous notifications: –Price symmetry between incumbent and alternative SMP operators is imposed; – POI regulation is imposed. Case LT/2009/0990. Voice call termination on public individual mobile telephone networks. Notified on September 28, mobile operators were designated having SMP. Changes in price control obligation. I.4. Interconnection. Current issues to solve Notifications

G.Pūras, Market analysis and remedies15 Currently a lot of debate is about Bill & Keep (BK) as most prominent form of interconnect charging mechanism in the future; ERG is currently assessing the BK method as a charging method in NGN environment (draft Common Position on BK is submitted for public consultation on 14 th of October 2009); In 2008 RRT carried out a small survey about implementation of BK. Answers received from market revealed that there is no general agreement on BK at this stage. As anticipated, most of operators were defending their interests: MNOs were against BK, Incumbent supported it. I.5. Interconnection. Bill & Keep issue (1) Regulatory burden Level of TR FDC + AS + audit HY-LRIC + (total element) Bill & Keep Pure LRIC (bottom-up) Regulatory trend ?

G.Pūras, Market analysis and remedies16 I. Interconnection. Summary timeline Jan Reduction of MTRs by 20% EC Recommendation on Termination tariff regulation Reduction of FTRs by 40% April 2008 Reciprocity imposed (temporary measures) on Alternative operators May 2009 Notification of new MTR and FTR price controls (glide path) Sept Price controls based on current LRIC+ (updated glide path) According Recommendation: Benchmark or Pure LRIC (if calculated) 2014 Bill & Keep??? Capacity based interconnection??? …

G.Pūras, Market analysis and remedies17 Leased lines: in Sept RRT approved new prices ceilings for leased lines that solved VAT related issues. Charges were aligned to those currently set by SMP operator (incumbent) according to the cost calculation results. This resulted in reduction of price ceilings for digital leased lines. Price ceilings for analogue LL were not changed; II. Other issues (1) LLU: in April 2009, during the court procedure (after the RRT resolved the dispute), the agreement to shorten the period of service availability (from 30 days to 10 days) and to lower the charges for ULL was reached. The one-off technical availability charge was lowered from 62 EUR to 14,5 EUR, installation charge was reduced from 59 EUR to 43 EUR, monthly fee was reduced by 0,5 EUR/month for fully unbundled local loop.

G.Pūras, Market analysis and remedies18 Broadcasting: incumbent broadcast operator submitted to RRT cost accounting information in full manner for the first time. The information itself does not show that regulated services would be provided for prices in excess of the costs incurred, but RRT has certain doubts about robustness of the cost accounting system. RRT has engaged the independent auditor to verify LRTC’s cost accounting system. There is certain pressure from broadcasters to reduce the prices for analogue TV broadcasting transmission services – as their revenues from commercials decreased, the obligation to broadcast both analogue TV and DVB-T signals is treated as unjustified burden. Transparency of regulated tariffs: –Cost information: RRT requested that fixed (TEO LT, AB) and broadcast (LRTC) incumbent operators would disclose at least aggregated information on cost accounting (at the moment almost all costing information is treated as being confidential); –Discounts: RRT took measures that incumbent broadcast operator (LRTC) would make the discounts for regulated products publicly available and applied on non-discriminatory basis. So far, LRTC has complied with such requirement. –Contract prices: RRT is taking measures that certain contract prices would be made publicly available (some SMP operators tend to treat it as confidential information). This issue mostly applies to incumbent broadcast operator (LRTC). II. Other issues (2)

G.Pūras,October 16, 2009Market analysis psl Notification plans for 2009 Q4: 1. Broadcasting markets (M18/Rec. 2003) -Analogue terrestrial TV -Digital terrestrial TV; -Terrestrial radio. 2. Wholesale (physical) network infrastructure access at a fixed location (M4/ Rec. 2007) III. Market analysis. Notification plans

G.Pūras, Market analysis and remedies20 Communications Regulatory Authority of the Republic of Lithuania