1. This project is funded by the European Union Commercial aspects of regulation Peter Lundy MSc DIC BSc(Eng) Information and Communications Technology consultant November 2008 1

2. This project is funded by the European Union Agenda 1.Telecoms technologies 2.Overview of competitive telecoms markets 3.The main market players 4.Customer service and convergence 2

3. This project is funded by the European Union Networks, services and technologies Telecoms networks have been around since the late 19 th century They have used many methods and different technologies but the basic principles remain the same 3

4. This project is funded by the European Union The main elements The person being called (a friend, a business, a computer, a recorded message, or no answer) Q: How do we know their number? 4 The line (network) (a metallic cable, an optical fibre, a radio signal or a combination of these) Q: Who provides these and isn’t it expensive? The person making the call (from a home, from an office, or a mobile, from a car, a ship, a ‘plane, or on a computer) Q: How do they pay for the calls?

5. This project is funded by the European Union Basic features of a successful “public” telecoms service It needs customers It has to be able to carry voice and data It has to be “economic” – right technologies in the right places – right services in the right places – right tariffs The operator of the network and its services must be able to calculate bills, send them out and collect the money Q: What is a “Virtual Operator?” 5 Networks Services Customer Interfaces

6. This project is funded by the European Union 6 Local Exchange 2 Local Exchange 1 The Local Loop, (or access network or “last mile”) To Tandem Exchanges B, C, etc To Local Exchanges 3,4,5 etc International Gateway Exchange To other countries Tandem Exchange A The “Core Network” The “Access Network” Transmission links International links and “world-wide-web” The “Fixed Network”

7. This project is funded by the European Union The essentials of switching and transmission Switching Local digital switches connected to customers – Route each call to its destination – Record each call’s time, duration and charge – Provides a testing point for maintenance – Main point for competitors to interconnect – Need special power and environment Tandem and international digital switches ensure economic network design Conventional switches being replaced by internet “servers” and “routers” technology (“Next Generation Networks” – NGNs) 7 Transission Local loops between the customer and the local switch –Can now be converted to “broadband” by installing digital boxes at each end (ADSL) –Wireless Local Loop (WLL) becoming more attractive than metallic cables –Local Loop Unbundling gives new operators the chance to compete (this is especially important for the growth of broadband) Core and international networks use optical fibres for reliability and economy Satellites now mainly used commercially for TV broadcasting

8. This project is funded by the European Union Part of a telecoms switch room 8

9. This project is funded by the European Union Another part of the same switch room 9

10. This project is funded by the European Union 10 Local Exchange 1 Tandem Exchange A The Local Loop, (or access network or “last mile”) To Tandem Exchanges B, C, etc To Local Exchanges 3,4,5 etc International Gateway Exchange To other countries Alternative Fixed Network Technologies All the links can be metal, fibre or radio fibre “point-to-point” radio relay copper wires All the switches are digital (or becoming digital), now using Internet techniques Cable, radio and satellite links, submarine cables “wireless local loop”

11. This project is funded by the European Union 11 Cables in ducts Hrvatska agencija za telekomunikacije

12. This project is funded by the European Union 12 What happens underground Hrvatska agencija za telekomunikacije

13. This project is funded by the European Union Things about telecoms technologies What they say Digital Analogue Optical fibre Voice over IP Broadband GSM and 3G WiMax Interconnect (ion) Local Loop Unbundling Leased line Any more? 13 What you need to know ═More economic, reliable and flexible for all networks ═Crap, the sooner it goes the better ═Higher capacity transmission, better for nearly everything ═A way of using your computer to get cheap phone calls ═A brilliant way to get all the services you want ═Today’s and tomorrow’s mobile phone networks ═A way to serve customers without having to lay cables ═How to ensure your customers can phone customers on your competitors’ networks ═Re-connecting an existing customer’s line to a competitor’s network ═A dedicated link paid for and used by a business customer

14. This project is funded by the European Union 14 The “Mobile Network” To other countries Local Exchange The “Access Network” International links and “world-wide-web” The same core network “Fixed Network” Tandem Switch GSM Exchange 1 GSM Exchange 2 Interconnection links “Base Transmitter Stations”

15. This project is funded by the European Union Some GSM “base transmitter stations” 15

16. This project is funded by the European Union Another type of GSM transmitter 16

17. This project is funded by the European Union Basic telecom network economics 17 High Fixed Cost Low Marginal (or Incremental) Cost Size of network (capacity, or demand) Cost of network

18. This project is funded by the European Union 18 Forward-looking incremental costs traffic costs existing network line operator’s fixed cost operator’s variable cost operator’s incremental cost= C I TOTO T O+I modern network line

19. This project is funded by the European Union Access to the Internet 19 Local Exchange Cable, wireless or 3G mobile network International links to “world-wide-web” The same core network “Fixed Network” S Broadband or “dial-up” Internet Services Provider 1

20. This project is funded by the European Union Old and new market players Today’s telecom networks can be provided by anyone Different operators can (and do) provide local, regional, national and international networks and services The players can provide all or only part of the networks and services Interconnection has to be easy and economic, so that we don’t need lots of separate national networks The ex-monopoly operator – “the incumbent” has; – advantages (size, money, customers, know-how) and – disadvantages (legacy networks and attitudes, inefficiency and often relatively poor quality and customer service) 20

21. This project is funded by the European Union 21 To other countries Who are the market players? Mobile Operator and Service Provider A Mobile Operator or Service Providers C, D, E etc Operator or “Service Provider” X,Y,Z etc Fixed Operator or Service Providers A, B, F, G, H etc Virtual Operators (Mobile and Fixed) Internet Service Providers TV and Radio Channel Providers

22. This project is funded by the European Union Regulation Technical standards are now global, this is the equipment manufacturers’ problem A regulator has to help all market players to provide good quality networks and services, irrespective of the technologies being used Fair competition means a fair amount of co-operation too, technically and commercially The suppliers, the technology, the networks, the services, the operators and the regulators are really only there for one reason - consumers 22

23. This project is funded by the European Union 23 Competitive markets -agenda How is competition provided? How the incumbents behave The role of regulation

24. This project is funded by the European Union 24 Monopoly Incumbent network and service provider

25. This project is funded by the European Union 25 How competition is provided (1: alternative network) Mobile (GSM) Interconnection Cable (or wireless) local loop Incumbent network and service provider Alternative network and service provider

26. This project is funded by the European Union 26 How competition is provided (2: carrier selection) Interconnections Carrier selection Incumbent network and service provider Alternative network and service provider

27. This project is funded by the European Union 27 How competition is provided (3: local loop unbundling) Incumbent network and service provider Alternative network and service provider Interconnections Unbundled Local Loop

28. This project is funded by the European Union 28 Types of local loop unbundling Local loop unbundling is where the local line to the customer is disconnected from the incumbent’s network and reconnected to an alternative operator The technology allows all or part of the capacity of each local loop to remain connected to the incumbent also all or part to the new operator (“partial” and “full” unbundling) “Partial unbundling” means that part of the service (e.g. voice calls) can remain with the incumbent, while new services (e.g. broadband) can be provided competitively by a new operator “Full unbundling” means that all the services are now provided by the new operator The re-connection can take at any place in the local network

29. This project is funded by the European Union 29 Local loop Unbundling B 1 3 2 Incumbent Operator New operator in town Case 1: “Partial Unbundling” = where customer continues to get voice calls with incumbent but chooses new operator for broadband (also called a “shared access line”) Case 2: “Full Unbundling” = where customer gets all services from new operator Case 3: Customer continues with incumbent operator 2 3 Individual local loops Incumbent’s cable Customers now have a choice [Note: alternative unbundling point] [Note: The new operator should be allowed to put their interconnection equipment in the incumbent’s exchange = “physical co-location”] 1

30. This project is funded by the European Union 30 How competition is provided (4: “no network” providers) Customer relationship, including billing Alternative retail service provider (e.g. Mobile and Fixed Virtual Network Providers) Incumbent network and service provider Information flows Relationships with other providers (e.g. other network operators, content providers)

31. This project is funded by the European Union 31 How incumbents behave It is possible to observe 3 stages of transition for an incumbent: 3. Competing enterprise 2. Reluctant competitor 1. Traditional monopolist The transition is normally accompanied by a dramatic improvement in efficiency and customer service

32. This project is funded by the European Union 32 Phase 1: the incumbent as a traditional monopolist Government-owned, no competition Tariffs out of balance Under-investment Inefficient, unreliable and inconsistent Poor customer service Long waiting times for customers (The bad old days)

33. This project is funded by the European Union 33 Phase 2: the incumbent as a reluctant competitor Reorganising Competing against new entrants Rebalancing tariffs Launching new services Investing in modernisation, training and customer service “Monopolist tendencies” remain: – barriers to interconnection, both economic and technical – poor service culture – culture of superiority over new entrants and regulators – resentment at regulator’s encouragement of new entrants – defensive about being compared unfavourably to new entrants

34. This project is funded by the European Union 34 Phase 3: the incumbent as a true competitor Running retail and wholesale services as efficient, commercial businesses Forward-looking investments, innovation Profitable “carriers’ carrier” Proper systems and processes for: – products and services management – customer services (e.g. CRM, billing) – managing relationships (media, shareholders, regulator, partners, competitors) Improving service performance and profitability Using “universal service” as a brand virtue

35. This project is funded by the European Union 35 British Telecommunications was separated from the British Post Office in 1981. It has been competing in telecommunications in the UK since 1983 and by 1993, it became a 100% privatised company. In 2001, its mobile operations (now O 2 ) were de-merged from BT. As BT Group plc, it now serves customers in 170 countries. In the UK it offers voice, broadband, internet, mobile and TV services

36. This project is funded by the European Union 36 Staff numbers – decline and fall? 198419861988199019921994199619982000200220042006

37. This project is funded by the European Union 37 BT since 1984 1984 1096 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

38. This project is funded by the European Union 38 BT now Operates in 170 countries 28 million UK customer lines (40% more than in 1984) BT Retail “new wave” revenues increased by 20% in 2007, while traditional revenues reduced by 3% 12.7m broadband lines in the UK, 4.4m connected to BT, the remainder via wholesale “BT is transforming from a traditional telecoms company to a leading provider of converged networked services and its aim is to help customers get the most out of communications technology by providing tailored solutions that are easy to use”

39. This project is funded by the European Union 39 BT: successful as a retailer and as a “carriers’ carrier” 20062007 RevenueProfitRevenueProfit BT Retail £8,507m£569m£8,414m£674m BT Wholesale £7,343m£759m£7,584m£724m Source: BT published accounts

40. This project is funded by the European Union 40 The market is expanding in new ways Retailer BT C u s t o m e r s Wholesaler BT Retailer Wholesaler BT Retailer

41. This project is funded by the European Union 41 What does this mean for regulation? The regulator’s role is to further the interests of consumers in relevant markets, where appropriate by promoting competition “Light regulatory touch”, for example adopting a forward- looking stance on enabling technologies like convergence and VoIP Market analysis in separate and “converged” markets Action to ensure competition in all telecoms markets

42. This project is funded by the European Union 42 Overall regulatory environment Regulator independence – regulators should be able to exercise their powers impartially and transparently Converged regulators – most Member States have established converged regulators with powers covering the whole e-communications sector Regulatory focus – local loop unbundling – effective interconnection – Regulatory accounting: separation of costs, cost modelling Regulator involvement – well-ordered public consultation in relation to regulatory decisions