1. 1 Complements to competition Universal Service in France and regional development 11 March 2003 Olivier Mellina-Gottardo

2. 2 Disclaimer The views expressed in this presentation are those of the author, and do not necessarily represent the views of the Autorité de Régulation des Télécommunications (ART), the Chairman, or any Executive Board member (Commissioners). Only the Chairman and the Commissioners are authorized to speak in the name of the ART.

3. 3 Complements to competition: Universal Service in France and regional development I.Universal service in Europe: an answer to consumer protection II.Implementation in France III.Regional development and related concerns IV.Perspectives

4. 4 Consumer protection in Europe Insufficiency of competition –Competition alone on a wide market not always sufficient to ensure all objectives of general interests a State could wish –When liberalizing, concern of keeping at least the same level of quality as when monopoly European provision for ensuring consumer protection: –Unified framework with competition courts –Technical harmonisations –Privacy protection directives –Mobile coverage –“Universal service” directive

5. 5 Universal Service Definition: set of services that must be –Available for every end user, including disabled users –Without geographic discrimination –With a specified quality of service –At an affordable price Flexible concepts –on perimeter a common European minimum set to be implemented by each country possibilities to extend it to a required national level –on financial aspects Financed by a fund or not (in Europe, only France and Italy) –on time Technology-independant May change if society requirements change Principle –Transparency, non-discrimination, proportionality –With minimal competition and market distortion

6. 6 Services to be included (1) Provision of access at a fixed location: –All reasonable requests must be met by at least one undertaking –Shall allow: voice telephony for local, national, international calls facsimile communications data rates at a sufficient bit rate for Internet (according to common use of it in the country, i.e. 56 kbps in 2002) Directory enquiry services and directories –At least one comprehensive directory available to end-user at least yearly updated –At least one comprehensive telephone directory enquiry service to all end-user (including public pay phones) Provision of public pay phones –Everywhere in the territory (if necessary) –Accessible to disabled users –That must carry emergency calls with no charges or access requirement (without a phone card)

7. 7 Services to be included (2) Additional services to control of expenditure for users –Itemised billing: must include all calls, except free calls free of charge with potentially additional details at reasonable tariffs or at no charge –Selective call barring for outgoing calls, free of charge free of charge –Pre-payment systems –Phased payment of connection fees Conditions to allow payments phased on time –Non-payment of bills Shall not interrupt services without sufficient clear, transparent and non- discriminatory warning If service interruption: limited to the concerned service Possible “limited service” period before interruption for emergency calls

8. 8 Conditions and designation of operator Member State define what shall be an “affordable price” –should depend on the national circumstances –may be under average price in a competitive market (under costs in some or all areas) –may be adjusted with a geographically averaging Choice of undertaking(s) in charge of universal service: –may be several operators for each service –operators designated by State able to provide services most efficient to do it (mobile or fixed network?) transparent, objective and non-discriminatory designation

9. 9 Costing and financing of Universal Service obligations Costing the universal service obligations: –designation made by auction, with several candidates: cost may be the lowest offer –designation made differently or with few candidates: estimating the net cost of providing services –the avoided costs of operator if US service not provided –only elements provided at a loss or outside commercial standards –only consumers that would not be covered without universal service costs should be audited (difficult mechanism) taking in account indirect benefit of providing it Recovery of costs –Compensation for the universal service undertakings –Financial transfer with least market distortion Sharing mechanism possible: sector fund: by all operators furnishing services in the country, except small ones (no incidence on consumer prices) Public fund: could cover obligations for disabled people Implementation in Europe: –only France and Italy, so far, created a sector fund

10. 10 Other provisions Leased Lines –Important furniture for any communication network –“Minimum set” to be provided 64 kbps to 2 Mbps ETSI-normalized everywhere at non-discriminatory and cost-oriented prices transparently provided (prices, conditions, technical interfaces) –Imposed to dominant operators only if market not competitive (market analysis) –No compensation (prices are cost-oriented) “must carry” obligation in broadcasting networks –imposed to company using networks to broadcast radio or television with significant number of end-users using them as main media channel –Not necessarily compensated Number portability reasonable price

11. 11 Complements to competition: Universal Service in France and regional development I.Universal service in Europe: an answer to consumer protection II.Implementation in France III.Regional development and related concerns IV.Perspectives

12. 12 French specificity Heterogeneous density of population and geographic situations Highly geographic- and density- dependant costs for access line installation: –civil engineering –mutualisation of sheaths –concentration in buildings –distances from MDF (répartiteur) Before regulation, “service public” tradition: –access everywhere at a same low price (7€ in 1995) –high cross-subsidy between access and calls different areas –social tariffs –free paper directories First concern with competition: access

13. 13 Access cost and Universal Service answer Till 2004, France Telecom only undertaking able to provide universal access High margin cost to cover non-dense areas Universal Service mechanism: –Non-profitable zones: MDF-depending areas where negative average line profit –Non-profitable users in profitable zones Compensation on access –net costs for non- profitable zones and end-users Main parameter: line rental price (13€) –should reflect costs: competition on other services (unbundling) –“reasonable” price for society

14. 14 Public pay phones, social tariffs, universal directory Public pay phones on low-density areas: –1 per village and each 1500 inhabitants, only on towns of less than 10000 people –net costs (costs – revenues) compensated by the universal service fund Social tariffs: –FT provides for unemployed, disabled users, war invalids, etc. : lower line rental for 7€ instead of 13 € debt cancelling possibilities –Compensation by universal service fund Universal directory and directory enquiry service France Télécom in charge  2004 Profitable  no compensation The new universal directory (State order in 2003) fixed and mobile end-user numbers “red list” (not in the directory): choice of a user, free of charge “orange list” (number not used for commercials except operators): free of charge free paper version, electronic consultation possible

15. 15 Fund and evolution French choice of a sector fund to finance universal service –paid by operators (including France Télécom), except small ones –proportional to net revenues on all telecommunication services –Figures in 2002: –geographic averaging on access: 175,2 M€ –public payphones: 18,6 M€ –social tariffs: 102,8 M€ Problems: –sensitive for low profitable markets (low-bandwidth internet) –difficulty in taxing only added value –long process of account audit with few precise prevision From 2005 on, calls for candidate on each lot: access public payphones social tariffs universal directory  shall not be compensated directory enquiry services  shall not be compensated

16. 16 Complements to competition: Universal Service in France and regional development I.Universal service in Europe: an answer to consumer protection II.Implementation in France III.Regional development and related concerns IV.Perspectives

17. 17 General interests of regional development in France France 5 th industrial power Need of more competitiveness and attractiveness Risk of a growing digital fracture between: concentrated metropolitan area –technological poles (Paris, Lyon, Marseilles, Toulouse, Nice-Sophia Antipolis, Rennes) –high demand in telecommunication  natural competition nest for new telecom services less dense areas –traditional industries –tourism potential (mountain, sea, countryside)  higher costs in infrastructures, but big need in telecom Competition between operators perhaps not sufficient will of a local public investment in telecommunications  local administrations may become “operators of operators” and deploy dark fibre or neutral high bandwidth networks: possibility to invest for a longer time need to be compatible with regulated competition

18. 18 Example of GSM coverage in France: development (1992-2004) through obligations included in licenses minimal obligation (use of rare resources) written in licence: – 90% of population with a definite schedule –in 2001, achieved results, but: 8,4% of territory uncovered about 390 000 persons uncovered –uncovered zones: low-density, high-relief areas with highest fix costs and few potential direct revenues –indirect competitive benefit of a wider deployed operator licence renewal: –new obligations: 99% of population, fewer SIM-locking, environment protection, data quality of service (2,5G with GPRS) common competitive and politic pressures for a wider coverage of the standard: –Agreement between operators in July 2001 to cover further sites: 1 st phase, with public aid: pylons construction with authorisation for the 3 operators 2 nd phase: wider coverage, with itinerancy and mutualisation agreements at competitive conditions

19. 19 High bandwidth technologies deployment 3G (UMTS) coverage in France: –similar power as GSM through licences obligation –industrial and public pressure to start ADSL high-debit technology –available on most regular fixed lines in metropolitan areas (up to 512 kbps, even 2 Mbps or 8 Mbps in centre of towns) –allows new services (voice on IP, TV on DSL) –up to 80% of territory potentially covered –direct competition with unbundling in big cities (Paris, Lyon, Marseilles, Nice) with new competition on new services: Free Telecom and LDCom with “Freebox” and “9box” offers that include: –free phone (voice on IP) for national calls –television broadcast Telecom Italia with new offers –commercial incentive + fear of public investment  France Télécom decides in 2004 to extend ADSL up to 90% of population Professional SDSL similar extension, directly competing with leased lines Highest concern for an homogeneous development in all regions

20. 20 Complements to competition: Universal Service in France and regional development I.Universal service in Europe: an answer to consumer protection II.Implementation in France III.Regional development and related concerns IV.Perspectives

21. 21 Considerations on future Universal Service Reviewed every 3 years by Commission –In the light of technologic and economic developments Inclusion of new developed services: ADSL, GSM, 3G ? highest demand of the regions to be similarly covered risk of social exclusion if developed in “substantial majority” of population –No artificial technology choice –No artificial market distortion or cross-subsidy between markets How to measure indirect benefit of “universal service operator” Articulation of universal service with –European fund for regional development (FEDER) –intervention of local public administration development of public networks where no operator? which limits? –other social aids (other sectors): sector fund or public fund?

22. 22 The new regulatory framework in experimentation Just beginning, in an already liberalized market –transposed in half of the member States –market analysis finished in some countries Convergence of technologies: –more independent new framework –fear of a larger regulation on previously unregulated markets (e.g. broadcasting) More flexibility given to NRA –market analysis –real interrogation on complexity European tools for coherence and coordination –ERG, COCOM, etc. General tools to protect consumers and to develop regions –Universal Service –European or State regional aids

23. 23 Questions for a future regulation Traditional view of regulation future –Incentive to soften regulation now Pertinent non-answered questions: to soon to relax regulation? new technologies flourishing: conjectural or due to regulation and liberalization? simple competition laws able to regulate market afterward? existence of a natural monopoly? –markets turn back to previous state? (concentrations in industry) –going to another stable state: which one? is competition viable on infrastructure? services? how to correctly combine region development and competition? First answers: not going back to a previous state of monopolies time delay between countries, markets and regulators Next step of a European regulation not ready

24. 24 Question? Olivier Mellina-Gottardo Autorité de Régulation des Télécommunications Unité Évaluations Économiques 7 square Max Hymans, F-75730 Paris Phone: +33 1 40 47 71 57 Fax: +33 1 40 47 71 93 Mail: olivier.mellina-gottardo@art-telecom.fr