Jerker Torngren 4. USO in Serbia Some personal recommendations Jerker Torngren 1

Jerker Torngren Disclaimer A lot of knowledge of the country specific circumstances are necessary before any detailed recommendations can be given. The following recommendations are thus general and do not necessarily fully take into account the actual situation in Serbia. 2

Jerker Torngren Present market Fixed line Mobile Any alternative providers 3

Jerker Torngren Key USO issues to be addressed The difficult issues To what extent are services available, (access)? Are the services affordable? Can financial support be provided? Quality of service, contract issues and leased lines are easier to handle and not discussed here. 4

Jerker Torngren Possibilities for financial support The only two possibilities 1. Financing over the State budget 2. Fund to which operators should contribute 5

Jerker Torngren Unfair burden Only net cost that is considered to be an unfair burden by the regulator may be subsidised. 6

Jerker Torngren Calculation of Net Cost Very complex calculation, all intangible benefits must also be taken into account, always seriously underestimated by the operator. The result of the calculation must be publicly available, (art 12.2) 7

Jerker Torngren Calculation of Net Cost, cont Negative auctioning used with good result in Romania. Seems to be acceptable but not in conformity with the Directive Will only function if there are several operators that would participate 8

Jerker Torngren Access deficit Access deficit ; when average access charges, line rental and connection, are not set high enough to cover the long-run average incremental cost of providing the access service 9

Jerker Torngren Access deficit, cont The largest part relates to the local loop It must be remembered that the operator normally is cross-subsidising the local loop by revenues from the services provided. 10

Jerker Torngren Rebalancing The most constructive way forward is rebalancing of tariffs. But take into account that some costs are sunk costs. Focus on variable costs Creates the necessary incentives for investments Unbalanced tariffs prevents any competitors from entering the market 11

Jerker Torngren Creation of a Fund ? A fund always creates administrative costs that do not in themselves provide any improvements for subscribers. An annual report must be published which should also describe market benefits (art 14.2) No need for a Fund unless a net cost which constitutes an unfair burden has been identified. 12

Jerker Torngren Fund, cont Expansion based on commercial considerations rather than regulatory interventions is often the most constructive. Financing through a Fund could however assist new operators to be established or new solutions found (such as the Romanian centres) 13

Jerker Torngren Access The lack of access is often the result of rigid pricing regulation which has prevented investments. 14

Jerker Torngren Access cont Be open to innovative technical and organisational arrangements A fixed location should not necessarily be reached by fixed wire. 15

Jerker Torngren Recommendation on access When high demand for access in areas without infrastructure, consider a community approach rather than the individuals Avoid other regulatory interventions but encourage investments by the operators 16

Jerker Torngren Affordability Rebalancing of tariffs must be allowed An incentive based price cap regime could be more constructive than USO subsidies 17

Jerker Torngren To designate or not A designation of existing operators improves the possibilities to monitor and regulate existing services. Some additional services could be requested but watch the concept “unfair burden” 18

Jerker Torngren The USO Directive The USO Directive provides a very good benchmark which however cannot necessarily be met everywhere directly. Concentrate on taking successive steps in the right direction 19

Jerker Torngren Universal Service Policy Draft a policy which sets out the targets; How to get there; including market reform and possible regulatory interventions Within which time period Split the actions in short term and long term The policy is necessary for the national development and good to show the EU Commission 20

Jerker Torngren Personal conclusions Focus on creating proper market forces that will do the job far better than regulatory interventions. Wireless solutions often far more efficient to increase access A dynamic mobile market can be very efficient Follow realistic ambitions 21

Jerker Torngren Personal conclusions, cont Be restrictive with regulatory interventions All regulation cost money. In the end that cost is carried by the subscribers 22