©Ofcom Bundling and regulatory issues Davide Gallino European Regulators’ Group European Commission

Bundling is inevitable “Voice only” business case no longer sustainable Need to justify high prices with “value added provision” By giving access, traffic and content SMP operators try to secure any direction their customers might like to take

Bundling is inevitable (too many players) Application providers (Skype) Service providers (Vonage) Network providers (incumbent, altnets with infrastructure) Content providers (VoIP used in bundled offer to counter application and service providers) MNOs buying cable, fixed operations and offering DVB-H

What's in a regulator's mind A) Bundled offer – triple play (VoIP, fast Internet Access, IP TV) –Is it completely below the cost? (each component is offered for a lesser price than bought individually) –Is it replicable, totally or partially (i.e. If fast Internet access means 20 Mbit/s, is there a wholesale offer allowing competitors to replicate at least this segment?)

Hypothesis A –Are contents distributed via IP TV bound by an exclusive contract with the content provider(s)? –Are there lock-in clauses (24 months subscription, take or leave the money)

Hypothesis B B) quadruple play (VoIP, fast Internet Access, IPTV and mobile calls) –Individual components are not below the cost –But offer is not replicable because of fixed/mobile convergence and integration of Dect, Wi-Fi and MNP at home

Hypothesis C C) Bundled offer is not replicable –But market definitions do not cover the offer –Or each segment of the offer, if analysed individually using market definition and analysis as per EU legislation, is competitive when taken individually

Typical reactions I - block the offer II – allow offer under conditions of total / partial replicability at wholesale level III – green light with compensations of different nature

Regulatory conditions SMP notification (bundles can be forbidden if they come from SMP operators) Replicability of offer (if the wholesale offer is replicable or not) Competitiveness (apparent conditions in the offer which are clearly anti-competitive) Discount to downstream arm not allowed

Methodologies for evaluation - I Price squeeze or margin squeeze tests When discounts in ADSL Services and bundling, occur, a calculation can be based on: – the promotional costs of the offer (including the discounts and the free gifts given to the client accepting the offer i.e., the modem…,etc) –the time expected to recover these costs (an average estimate of how long the client is staying in the service). – Taking the provision of ADSL services costs and clients’ average life as starting point, NRA sets the maximum discount in promotions the operator can offer. Any discount over this quantity is considered as an illegitimate discount as it would suppose a margin squeeze

Methodologies for evaluation -II Price/margin squeeze tests entail the need to define which is the (most) efficient operator: –Is that always the incumbent?

I/ERG work on bundling PT on bundling issues for consumers 2007 Work Programme –Price squeeze / margin squeeze –Convergence

Future areas DRM Access to content Distribution issues Leveraging of SMP Dominance at content accessibility level Dominance over distribution platforms (Youtube)