1. CEPS workshop: Promoting investment through competition ECTA European Competitive Telecoms Association

2. Contents  What drives growth and investment?  What kind of market structure will maximise growth?  What regulatory environment is needed?  How can we build a ladder of investment?  Different ladders for different circumstances?

3. What drives investment? (1)  i2010 goal is to drive GDP growth through ICT  2 main ways for telecoms to contribute to this aim: Direct investment in communications networks Productivity gains through cheaper services and innovation  Both are needed to bridge the growth gap  Both are dependent on effective competition

4. What drives investment? (2)  Both incumbent and new entrant investment is stimulated  Competition has not deterred investment by incumbents eg in broadband, NGN  Clear link between regulatory effectiveness and total telecoms investment

5. What drives investment? (3)  Dynamic effects on wider economy  Spectrum ‘reaping telecoms dividend’: potential for £20b from productivity gains in UK through increased competition More competition  Lower prices  Higher penetration  Greater innovation eg IP MPLS, triple play broadband

6. What drives investment? (4)  Competition focus still key to investment "... we need not only to focus on global competition, but also on competition inside the European Union and at a national level. It is through competition that firms innovate, strive to get the best from their people, make the most effective use of their resources, push up quality and push down prices…” Commissioner Neelie Kroes September 2005

7. What kind of competition promotes investment? (1)  Ongoing debate about what drives effective competition  Consensus that network competition vital for sustainable outcome. Requires resources and scale.  But infrastructure competition alone not always sufficient: network duplication may not be viable or efficient everywhere. Some areas may be ‘natural monopolies’ If networks are closed, a limited number of large network operators may not deliver range in content and services  An effectively competitive market which drives network investment and service innovation will have competition both at network and service level

8. What kind of investment promotes competition? (3)  Current reality is that last mile competition, if any, is limited to densely populated areas  Unrealistic to expect significant change in near term  Cannot rely on network investment alone to drive competition nationwide  Some communities and businesses branches will be entirely reliant on service competition Source: Ovum

9. What kind of competition promotes investment? (4)  Successful broadband economies have used variety of measures to stimulate growth from networks through services  Progress in Japan, UK and France can be associated with action on unbundling and bitstream access

10. What kind of competition promotes investment? (2) ITU Best Practice Guidelines for the Promotion of Low Cost Broadband and Internet Connectivity Dec 2004 We believe that competition in as many areas of the value chain as possible provides the strongest basis for ensuring maximum innovation in products and prices and for driving efficiency.

11. What is the role of regulation in achieving effective competition?  Economic regulation is an essential driver of competition and therefore investment  Regulation will promote competition as well as efficient investment and innovation so long as: Returns on investment are sufficient for shareholders Regulation is clear and predicable (ie low risk)  No rationale for ‘moratorium’ on economic regulation  No rationale for raising threshold for ex ante regulation. Competition-law based (3 criteria test) triggers are effective at targeting market failure

12. Building competition throughout the value chain (1)  Promoting effective competition requires close assessment of each stage of the telecom value chain  Possible to erode dominance from top down by building steps on value chain ‘ladder’  Ladder concept can be applied to all SMP markets  Ladder should as far as possible be neutral, allowing efficient buy/build decisions. operators should not be deterred from investing (including in last mile infrastructure) where economically viable There should be no ‘obligation’ or artificial incentives to invest in infrastructure where it would be inefficient to do so  Pricing of products on the ladder is key to achieving efficient investment and right competitive balance

13. Building competition throughout the value chain (2)  Key requirements for effective ladder are: Full understanding of costs and acceptable return (WACC) across the value chain Non-discrimination enforced at each level through to retail Efficient migration processes within the chain Clear policy on withdrawal of products. Rungs should not be removed if undermine downstream competition Retail Resale Wholesale Component Minimum Margin Dominance

14. ResidentialBusiness Rural Urban Different remedies for different circumstances?  Competition and investment flows to higher return customers (lower costs, higher revenues)  Temptation to segment markets and tailor ladders eg fewer rungs, different prices to reflect cost  Theoretically pure, but practically complex. Creates scope for gaming. Requires deep understanding of markets and costs  Highlights digital divide, with higher prices and less choice for rural customers. Effects of urban competition are ‘contained’ requiring greater intervention elsewhere

15. Conclusions  Competition in telecoms drives investment directly and GDP growth and productivity indirectly  Economic regulation has been shown to promote competition  Regulation will not deter investment providing it is clear and predictable and returns are sufficient. No need for ‘moratorium’  Both network and services competition are needed to achieve growth goals. A few closed networks will not deliver full choice and innovation. Successful broadband countries use mix of measures  Ladder of investment concept can be used in all sectors to erode dominance from top down, but should be neutral to promote efficient build/buy decisions  Theoretically attractive to split geographies and customer types but requires deep understanding of market boundaries and costs + rigorous enforcement. Could extend digital divide

16. Thank you Ilsa Godlovitch igodlovitch@ectaportal.com