1. Market trends, Industry metamorphosis & Regulation Closing keynote
Dr. Annegret Groebel, BNetzA
IDATE 1st Transatlantic Telecom Industry Forum Montpellier – 22 Nov. 2005

2. Challenges Convergent technologies leading to new market structures
Disruptive technologies leading to rapid fundamental market changes
Regulation must adjust and not block the development towards the digital economy with advanced broadband networks serving as a basic infrastructure for business customers as well as for residential consumers

3. Objectives 2 main objectives:
Create a competitive environment / promote competition;
Create incentives for investment in new infrastructure
Promote infrastructure or facility-based competition as the most sustainable form of competition spurring innovation

4. Different approaches due to different starting situations:
Solutions (1)
Different approaches due to different starting situations:
Europe
Gradual approach:
Moving gradually from service towards infra-structure competition (ladder of investment)
Because most markets are 1.5 markets: 1 big player, several niche players (due to less scale and scope)
USA
Radical approach:
Service competition considered „synthetic“, only facility-based competition is valuable
Feasable, because the American market is a 2.5 market: 2 complete infrastructures rolled-out (DSL and cable) plus niche players

5. Solutions (2) Europe 2002 ECNS framework USA 1996 Telecoms Act
Principle of technologic. neutrality;
Trigger for regulation: SMP (= dominance) finding;
Remedies in ULL / BB markets: access regulat. plus price control, naked DSL
At least one obligation must be imposed
USA
1996 Telecoms Act
Dichotomy of tele-communications / information services, but
Flexible interpretation after court decisions (Brand-X):
No unbundling requirements on new fibre and DSL loops, no naked DSL
Forbearance: FCC has to prove the necessity for regulation or renounce

6. Results (1)
Europe
More emphasis on promoting competition via regulation
More pro-active regulatory approach
Countries with more competitive markets tend to have higher BB penetration
More intra-modal competiton
USA
More emphasis on promoting investment
More reliance on market forces, „lean-back“ regulatory approach
Both cable op. and telcos are rolling-out new BB infrastructure
More inter-modal competiton

7. Results (2)
EU25 average: 10.5%; 80/20 DSL/cable+ others

8. Conclusions Is it a hen-egg problem?
As the European approach of pro-competitive regulation inciting investment works as well
As the American approach of promoting investment with a hands-off regulatory approach
To be seen which approach works better in the long run
In any case all measures must be adjusted to national market conditions („customized“) and
Regulators must avoid „micro-managing“ the market, but trust in market forces to work as much as possible

9. ANNEX
ECNS – RF: Electronic Communications Networks and Services Regulatory Framework
Ladder of investment (applied to broadband markets)

10. Electronic communications networks and services - Scope
Content Services - outside scope of new framework (e.g. broadcast content, e-commerce services)
Communications services (e.g. telephone, fax, )
Communications networks
(fixed, mobile, satellite, cable TV, powerline systems, networks used for radio and television broadcasting)
and associated facilities (e.g. CAS, APIs, EPGs)

11. EU ECNS Regulatory Framework
Authorisation Directive
Liberalisation
Directive
Framework
Access & Interconnection
Directive
(Art. 86)
Directive
(Art. 95)
Users’ Rights Directive
Spectrum
Decision
Data Protection Directive
(Art. 95)
Guidelines on
Recommendation on
Recommendation
SMP
relevant markets
on Article 7

12. Principles of the ECNS Regulatory Framework
Emerging competitive structures
Technological convergence
Technological neutrality
Market structures, cross-over, rapidly changing market dynamics
Flexibility for regulators
Reliance on competition law
Inconsistent application
Separated national markets
Harmonization

13. Role of the Regulator in the new ECNS Framework
Objectives competition + internal market (Art. 8 FD)
Role of the NRA (Art. 3 FD)
Flexibility = discretion to choose among remedies (Art. 8 AID)
Control = Veto power of the Cion: Consolidation proc (Art. 7 FD)
Consistent Applic. ERG + NRA consultation proc. (Deci. + Art.7 FD)

14. Market Review
A market review consists of 2 steps: - definition of the relevant market (18 markets- Rec.): passed the so-called 3-criteria test (structural/persistent barriers to market entry, no tendency towards competition and competition law is considered insufficient to remedy the probl.) - determination of a dominant (SMP) operator (market analysis)
Definition of the relevant market: - product: concept of effective substitutability - geographical: international / national / regional / local
Dominant position is defined as an uncontrolled room for action of an operator allowing him strategic behaviour (comp. law def.)
Criteria for dominance: - quantitative: -- market share (> 40%) / -- difference in market share - qualitative: -- financial power links to upward/downward markets structural relations to other companies barriers to market entry (legal / factual) actual or potential competition

15. ECNS-RF Remedies process (1)
3 Stages: - market definition: relevant market - market analysis: designation of SMP operator(s) - choice of remedy: imposition of obligation(s)
If an operator is found to be dominant (either individually or jointly), at least one specific obligation must be imposed, which must be proportionate to remedy the problem, justified in the light of the Art. 8 FD objectives and based on the nature of the problem
Remedies are to be chosen from the list in the AID/USD
Remedies must be effective: solve the lack of competition
Remedies on the retail level to be applied only in case wholesale obligations do not work
Instead of the former automatism, NRAs are now given the flexibility to choose the appropriate remedy: increased role for NRAs
Notification procedure acc. to Art. 7 FD: Veto power on the stages (market definition + SMP), but no veto power on the application of remedies, only comments which have to be taken into utmost account by the NRAs when adopting the final measures

16. Definition of relevant market
ECNS-RF Remedies process (2)
Recommendation on Relevant markets 2003/311/EC
Guidelines on market analysis and assessment of significant market power
Assessment of effective competition or significant market power
Cancellation, confirmation or imposition of obligations
National level
EC level
Art. 7 FD
Definition of relevant market
Market analysis
Results can be vetoed
Art FD
Remedies cannot be vetoed
Remedy should be effective solve the lack of competition Important role of NRAs to choose the appropriate remedy

17. Imposing Remedies and the ERG Common Position
Specific challenges for ERG in assisting NRAs in carrying out obligations acc. to Art. 7.2 Framework Directive:
To “seek to agree on the types of instruments and remedies best suited to address particular types of situations in the market place”.
Market analyses
SMP
Development of
the internal market
- Consistent regulatory
practise
- Harmonisation
Sustainable
competition
- No distortion or
restriction of
Remedy
Justified and
proportionate
Consumer benefits
- Choice, price and quality
Investments and
innovation

18. The Regulatory Model
The ladder of investment or infrastructure construction is a concept formulated among others by Martin Cave. It explains how infrastructure competition can develop on the basis of mandated access allowing new entrants to invest in a step by step manner in parallel to reaching a sufficiently big customer base to fill the newly built capacity and make a business case earning the financial means for investment
Thus it functions as a bridge from (short term) service towards (long term) infrastructure competition
The ladder concept is a useful model for regulators to achieve a consistent regulatory approach across a chain of access markets, often applied to e.g. broadband markets
The concept of the ladder of investment provides – at least ex post – a good explanation for recent developments in European BB market competition

19. Ladder of investment (1)
Own infrastructure
I n f r a s t r u c t u r e
Shared / full unbundling
S er v i c e s
Bitstream
Increase in intensity of intra-modal
competition
Resale

20. Ladder of investment (2)
DSL technology
Cable
Own infrastructure
Alternative infrastructure
Shared / full unbundling
Intermodal competition
Bitstream
Resale