1. Yangon, Myanmar, 28-29 November 2013 Broadband price regulation Matthew O’Rourke Partner, Incyte Consulting mor@incyteconsulting.com mor@incyteconsulting.com ITU Regional Workshop on Bridging the Standardization Gap (Yangon, Myanmar, 28-29 November 2013)

2. In summary… If you are thinking of regulating the retail prices of broadband services…please don’t If broadband prices are too high, or penetration too low, fix the upstream problems first If you must regulate retail prices, limit intervention to entry-level pricing only 2 Yangon, Myanmar, 28-29 November 2013

3. High costs lead to high prices Penetration is a reflection of many factors, including price and quality Price and quality are greatly influenced by upstream costs E.g. international connectivity and national distribution Operators’ pricing has to cover their costs plus a reasonable ROCE 3 Yangon, Myanmar, 28-29 November 2013

4. Look upstream… 4 Yangon, Myanmar, 28-29 November 2013 Take a holistic view of the broadband value chain Identify and fix any competition problems that may exist in relevant upstream markets

5. …and also look more broadly There may also be other policy initiates that can help reduce costs and thus prices telecoms taxes import duties licence fees and other levies IXPs 5 Yangon, Myanmar, 28-29 November 2013

6. A word of caution Retail price regulation can be tempting Everyone wants lower prices But price intervention in broadband markets risks retarding the long-term development of those markets Riskier than narrowband 6 Yangon, Myanmar, 28-29 November 2013

7. Why is intervention so problematic? Broadband markets are not yet mature Demand is still uncertain and fragile Distorting price signals can make actual demand even more opaque This can deter essential investment Narrowband era regulatory methodologies are not suitable to broadband environment 7 Yangon, Myanmar, 28-29 November 2013

8. Maturity of broadband markets When considering maturity, distinguish between: physical connections (i.e. penetration) utilisation and application of the bandwidth of those physical connections It would be premature to regard the latter as mature until its potential is more fully utilised 8 Yangon, Myanmar, 28-29 November 2013

9. Regulation must fit a market’s position on the innovation diffusion curve 9 Yangon, Myanmar, 28-29 November 2013

10. Next generation broadband A relatively recent innovation in most economies Occupies a separate—and subsequent—diffusion curve to the first generation of broadband services 10 Yangon, Myanmar, 28-29 November 2013

11. 11 Yangon, Myanmar, 28-29 November 2013

12. The risks of premature intervention Price regulation in any new market can harm long-term development Demand is embryonic and needs to be fostered Innovation may be distorted by regulatory signals Experimentation with price models may be constrained The market might work differently to other markets 12 Yangon, Myanmar, 28-29 November 2013

13. 13 Narrowband solutions to broadband problems Risk of viewing broadband markets and pricing through prism of the narrowband regulatory frameworks Yangon, Myanmar, 28-29 November 2013 Narrowband markets Voice-centric Sunk investment costs Simple supply chain Known demand profiles Broadband markets Not service specific Considerable new investment in infrastructure required Unclear / evolving customer demand and expectations

14. 14 Yangon, Myanmar, 28-29 November 2013

15. 15 Yangon, Myanmar, 28-29 November 2013

16. Changing imperatives of price regulation 16 Yangon, Myanmar, 28-29 November 2013

17. Narrowband-era retail price regulation methodologies are ill-suited Rate of return Requires an understanding of the risks associated with the undertaking and the returns commensurate with such risks Price caps Require a price driver that is related to prospective levels of efficiency relative to the price levels in the economy generally Benchmarks Not easy at the best of times, and especially where the retail services are broadband 17 Yangon, Myanmar, 28-29 November 2013

18. The least worst option Any price intervention should: maximise scope for competition to develop and minimise the distortion of demand This can be achieved by applying the retail price control only to entry-level broadband services Leaving all other retail prices unregulated 18 Yangon, Myanmar, 28-29 November 2013

19. A focus on entry-level pricing This would: ensure an acceptable minimum broadband service is affordable encourage competition among the higher speed services achieve policy objectives relating to affordability and adoption with minimal distortion to competition or the development of the market 19 Yangon, Myanmar, 28-29 November 2013

20. Examples of any entry level focus 20 Yangon, Myanmar, 28-29 November 2013 Lebanon New entry-level plan required by Government decree Lowered cost of entry level product by up to 70% Helped increase penetration by 9% points to 61% in first 12 months Uruguay State-owned ANTEL offers a prepaid entry- level plan 512 kbit/s and 1 GB of data per 30-day period Free of charge to ANTEL’s fixed telephone line customers (i.e. only pay for a fixed line) Government aiming for 80% penetration by 2015.

21. Examples in a USO context 21 Yangon, Myanmar, 28-29 November 2013 Finland 26 US providers 1 Mbps service to every permanent residence/business at “a reasonable price” Agreed to be between €30 - €40 per month Avoided a price cap Allows price variations to reflect cost differences Ireland National Broadband Scheme MNO awarded a contract to supply a 1.6 Mbps service for €19.99 per month in specified parts of the country where broadband availability is insufficient

22. Entry-level fixed broadband prices 22 Yangon, Myanmar, 28-29 November 2013

23. Entry-level mobile handset-based broadband prices 23 Yangon, Myanmar, 28-29 November 2013

24. Entry-level mobile computer-based broadband prices 24 Yangon, Myanmar, 28-29 November 2013