Reassuringly Sensible Approach to Future Regulation

It was good to read a press release titled, "ECTA Regulatory Conference - Competition should remain at the heart of EU telecoms regulatory policy." I reproduce it (verbatim) below as it is in my view a very significant post.What is particularly important is to not let political compulsions or economic downturns allow a movement away from competition and towards monopoly as incumbents would like. This is especially important as the arguments against competition in the era of NGN sound very similar to those propagated by interested parties in the eral of fixed line services before mobile services proved them wrong. Telecoms are always going to be subject to disruptive technologies and to be lulled into thinking that competition can harm or than monopoly is inevitable or desirable in view of the pressing need for universal broadband or in view of declining profit margins would be shortsighted.

This argument applies equally well to developing countries. In India, a short phase of  cut throat competition in the mobile voice segment caused by faulty policies of the recent past (ending with cancellation of licenses) and a sudden resurgence of faith in public rather than private sector for rural roll outs (owing to a beleaguered bureaucracy facing the aftermath of a phase of crony capitalism)  is leading many to the wrong conclusions.

The post reads as follows:

"European policy makers, regulators, key players from the telecoms industry and other stakeholders meet for three days under the auspices of ECTA to discuss pressing issues for the telecoms sector, including the recent European Commission proposal on the telecoms single market.With high level speakers, including Vice-President Neelie Kroes, the ECTA Regulatory Conference will address a plethora of issues ranging from net neutrality, data protection and consumer protection to regulation, competition, market structure, investments, the review of relevant markets and spectrum harmonization.

The implementation of a genuine single market for telecoms ranks high on the EU agenda, as does the role that regulation should play going forward. This conference will promote an open debate on the challenges the sector is facing and provide the opportunity to discuss how regulation can continue ensuring that tangible benefits are delivered by the EU’s pro-competitive framework and maintained in an NGA setting.

Tom Ruhan, Chairman of ECTA said "This conference is a great opportunity to stop and think. Alarming misconceptions regarding the state and performance of the sector and the role of regulation could divert the EU from a competition and end-user friendly path. We must not forget that competition has proven to be the best driver for efficient investments and also acknowledge the key role played by competitors in driving innovation and affordable prices for users (consumers, businesses and public administrations) as well as network investments. The immense benefits associated with open and competitive telecoms markets must not be undone by attempts to push for premature de-regulation. The review of relevant markets is particularly important in this regard. Regulation should also not be used to give a hand to those dominant companies, which have failed to take the necessary business decisions to adapt to a data centric world and now want to reduce competition instead of correcting their mistakes. Using regulation to implement the wrong industrial policies is a no-go.”

Erzsebet Fitori, Director of ECTA said “Experience has shown that ‘two is not enough competition’ for European consumers. More than ever we need pro-competitive policies, which recognise that regulation of the fixed infrastructure remains an essential competition enabler in an NGA environment and that investments are fostered and not hindered by competition. We must ensure that regulation remains neutral to whoever invests.”

The pro-competitive principles enshrined in the EU Regulatory Framework, namely the need to promote market liberalization and ensure open access to infrastructure, have been regarded outside EU borders as “best-practice”.[1] Indeed access based regulation - namely to physical access products of dominant operators - has played a key role in ensuring that new entrants are able to enter the telecoms markets, climb the ladder of investment, start rolling out their own networks and take the driver’s seat when it comes to NGA broadband deployment.[2] The need to make available, across all EU Member States, fully equivalent and fit-for-purpose wholesale access products, at a fair price and tailored to the needs of business services, is all the more necessary in the transition to NGA.

The development of a true single market depends on the genuine barriers being tackled, not on meeting demands of dominant operators for intervention aimed at reducing competition. Premature de-regulation or the implementation of unfit regulation must therefore be outright prevented. The upcoming review of relevant markets will have a fundamental role to play in this regard."

Basic Broadband Now Universally Available Across Europe

As per an EC press release, Europe has achieved 100% coverage as far as basic broadband goes.

"Vice President of the European Commission, Neelie Kroes, today welcomed the milestone achievement of one of the main goals of the Digital Agenda for Europe:

“My motto is Every European Digital – now every European genuinely has the opportunity. We have more to do to improve networks and equalise the opportunity, but the opportunity is there.”

"Thanks to the extra coverage provided by satellite broadband, we have achieved our 2013 target of broadband for all. That's a great result for European citizens.

How we got to 100 % coverage?
Fixed (ADSL, VDSL, cable, fibre, copper) 96.1%
Mobile (2G, 3G, 4G) 99.4%
Satellite 100%

By the end of 2012, 99.4% of EU household had access to basic fixed or mobile broadband coverage; including 96.1% of households in rural areas. But the final 0.6% (or roughly 3 million citizens) included many families and businesses in isolated or rural areas where fixed or mobile broadband rollout is more cumbersome and expensive."

Going further,

"The Digital Agenda for Europe (DAE), has set a goal to make every European digital and ensure Europe's competitiveness in the 21st century. Essential to this goal is fast connectivity and the DAE broadband targets:

basic broadband for all by 2013;[achieved]
Next Generation Networks (NGN) (30 Mbps or more) for all by 2020;

50% of households having 100 Mbps subscriptions or higher"

 It is true that public funding has played a major role in these achievements but it is noteworthy that the same is subject to careful ex ante scrutiny to avoid market distortions that can harm the sector in the long run. I am of the opinion that India has a lot to learn from the EU's regulations in this regard.

Access Regulation as Important as Nationwide Backhaul

I have been repeatedly stressing on the importance of competition as a means to ensure not only universal service and access to telecommunications but also sustained growth of the telecommunications sector.  Even in situations where there is  platform competition, due attention needs to be paid to competition is copper line access networks. 

As reported in a news item from Telecomputer.com 

"Access regulation remains a necessity in the Netherlands to ensure effective competition between fixed networks, according to a report from Ecorys for Tele2. Most EU countries have just one national access network, based on copper. Regulation is aimed at creating a 'ladder of investment', providing alternative operators various ways to deliver services. The tariffs and conditions should be structured in such a way to encourage alternative operators to invest in their own networks and equipment, allowing them to differentiate their offering, according to the report. The last step on the ladder is deploying a competitive local loop. 

In the Netherlands, the country benefits from DSL, cable and FTTH infrastructure for broadband. The roll-out of fibre will mean an eventual end to the use of the copper network. The telecom regulator has always found that "two is not enough" with the copper and cable networks and supported third-party providers with wholesale access regulation. The report concludes that access regulation will remain necessary to support this in future and during the transition to fibre. "

For the market to remain competitive, competition on copper must continue, and the position of alternative DSL providers such as Tele2 and Online must be protected. This should include access to a regulated virtual local access service and a continuation of subloop unbundling.

Competition in  last mile connectivity is particularly important in developing countries like India where platform competition is very limited. The Indian situation is that unbundling is not mandated and has not taken place and 3G wireless services are largely unavailable in rural and remote areas. USOF  India's wireless broadband scheme that would have introduced competitive provision of the same in rural areas was criticized by the regulator as being premature and in conflict with 3G roll out obligations and never took off. This is one of the major reasons for the minimal wire line broadband penetration in India. 

Please also see my previous posts on Wire Lines in India, Broadband Networks, National Broadband Plans and Competition

Regulate in Haste Repent at Leisure-Comments from India and EU

I have used this title for another post  under the label Telecom Regulation, but I feel compelled to use it again.

 I read a very interesting article in the Financial Express yesterday. It is called, "A little less lazy pragmatism please" While its focus is monetary policy, it makes an interesting observation which applies across the board,

"In India, we have largely abandoned basing policy and reforms on theory and empirical evidence. Instead, we have chosen to justify badly structured ad hoc policy changes on pragmatism and reality."

It also states that,the label 

"...Only when policies are based on theory and empirics and not on the insiders' insistence on pragmatism does market efficiency increase."

I agree wholeheartedly with this thinking. I believe that In India policy making and regulation could benefit greatly from sound theoretical and empirical analysis rather than the current trend of short cuts and literally what the author of the above mentioned article calls "lazy pragmatism". Correcting this problem calls for greater role of subject specialists in policy making. They are in fact slowly being allowed into the Government regardless of a  bureaucracy who believe they are smart enough to manage anything through a common sense approach and don't a theoretical basis for their decision making. 

It is interesting to note that  BEREC, the body of European electronic communications regulators has come out in similar criticism of the European Commission's draft regulation on a single telecoms market. Please see my post titled "Bold Brave Telecom Reforms in EU."

They are quoted to have said that, they fear that these proposed reforms will be "rushed through the European legislature without proper explanation and full exploration of its potential consequences..... the proposals represent an aggregation of several unrelated measures, whereas the EU Framework is a complex regulatory ecosystem that should be approached as a coherent whole." It is said that "BEREC is concerned that the draft regulation will jeopardise the integrity of the EU framework and its achievements, in terms of investment, competition and consumer benefit."

Given that EU's regulatory framework for electronic communications is indeed an excellent one so far I would hope that they are not right. 

Bold, Brave Telecom Reforms in EU

With a view to boost investment and growth in electronic communications in the EU and with a view to serve customer interests better the European Commission has announced a new set of reforms for a connectec Europe. A post on this subject from International Business Times quotes the European Commission's telecoms chief Neelie Kroes as follows,

"Global competitors caught on to this long ago; Europe, once an ICT leader, is now lagging behind. Japan, South Korea and the USA combined have around the same population as the EU - but over eight times more fixed fibre broadband, and almost 15 times more 4G,"

The proposed legislation is reported to include:

Open internet - the proposals aim to enshrine net neutrality into law across the EU, meaning operators will no longer be allowed to block, slow down, degrade or discriminate against specific, content, applications or services, except in very limited, concretely defined cases.

Actual data speed - Operators will be obliged to provide clear information about the actual available data speed for downloads and uploads, including at peak-hours. If the actual speed the consumer receives is lower than the advertised speed, the operator will be considered to be in breach of their contract obligations.

Easier control of consumption - Consumers will be able to set how much they want to spend every month and once they hit 80% of this figure they will get a notification - also, detailed and itemised bills will be available free-of-charge.

End of roaming charges - The most high profile change being pushed through, the legislation could see the end of extra charges for making and receiving calls when you travel outside of your home country. While the proposals only seek to see the removal of charges for taking calls while roaming, they EC is also looking to get operators to promote "roam-like-at-home" offers where voice, SMS and data are all charged at the same rate while roaming within the EU.

The proposals will need approval from all 28 EU nations and the European Parliament if they are to become law, and if it does get approval the first changes are likely to take effect by July 2014.

While  these appear to be excellent reforms, it is also reported that the Industry [has] attack[ed these] EU telecoms reforms. Clearly roaming is a major source of revenue and their profits will take a hit. They warn against rising prices and less consumer choice as a consequence of these reforms. Small operators complain that roaming  reforms have been "watered down" on account of lobbying by big operators. There are also proponents of anti-net neutrality argument who plead that they should atleast be allowed to provide premium packages.

What I liked best was a quote from Stephen Howard, head of telecoms research at HSBC, “Politics is the art of the possible, and this initiative at last sets Europe on what we regard as a pro-investment course."

Unbundling in Access, Spectrum, Roaming, Cross-Holding, International Bandwidth Sharing -Telecom Regulation Potpourri

I will begin with a tit bit from New Zealand. I have written about NZ's National Broadband Plan and ongoing Review of its Telecommunications Act in a  post titled "More on Broadband Networks and Ecosystems-New Zealand's efforts." An article,  "Telecom unbundling key to regulator's copper conundrum." suggests that the tussle between lower wholesale prices for access to copper lines  to give customers' cheap services and "protecting the government-funded build of a nationwide fibre network" or encouraging the transition from copper to optic fibre. The regulator's consultation paper says that "[o]ur current view is that taking account of dynamic efficiencies, a UBA price above the median will best promote competition for the LTBEU (long-term benefit of end-users),"  

News from Europe suggests that the EC is finding ways to promote a genuine single telecommunications market. This would include a common authorization for service providers to operate throughout EU. Also included would be harmonization of inputs:  

"To deliver equivalent services across the EU, operators need harmonised access to basic “inputs” like fixed networks or spectrum. In particular this could involve:

(a) More coordination of spectrum assignment for mobile/wireless services, in particular to align timing and specific authorisation conditions, so operators can more easily organise pan-European activities. This would not need to entail pan-European licensing, and revenue generated from spectrum auctions/sales should remain with Member States.

(b) Harmonised “access products” – which would make it easier in practice to offer services that run across fixed networks in several Member States."

Removal of roaming charges across EU has been in the news lately.There is also talk about a single telecoms regulator with its many pros and cons.

Indian newspapers today write about the continuing clash between interest groups as regards spectrum re-farming and auctions and the likely fall out the new unified licensing norms with the forthcoming ban on same Service Area cross-holdings  wherein formal m development ergers are likely as between RCOM and RTL

And last but not lease an interesting development-cooperation  in South Asia in terms of leasing of international bandwidth. It is reported that India plans turn to Bangladesh for meeting its global telecom connectivity requirements. "It plans to lease nearly 100 gigabytes (GBs) of international bandwidth from two state-owned suppliers in Bangladesh."Bangladesh also proposes to leverage its proposed OFC links with India to address the international connectivity needs of landlocked SAARC countries like Nepal and Bhutan, (but the Indian government is yet to take a firm view on this.)"

Critiques claim that India should create its own cable landing infrastructure.

The Regulatory Balancing Act-Not so Difficult

I had written a post titled "Closing the Market Efficiency Gap-Regulation and Competition" wherein I has said that closing the Market Efficiency Gap demands putting in place sound laws and regulation modeled on international best practices but adapted to local context. This would ensures inter alia a level playing field which precludes vested interests from rent seeking behaviour that is detrimental to the economy as a whole.

In this post I has mentioned the likely mandating of a reduction in access charges for fixed line grid by the Italian firm Telecom Italia SpA by the Communications Regulator of Italy. This article also speaks about the general trend towards reduction in network access charges (both fixed line and mobile) across Europe as a result of conscious efforts of regulators to enhance penetration. It does mention that the Italian Regulator was under pressure from Telecom Italia's rivals.

It is now reported that the Italian Regulator's (Agcom) ruling has been put on hold by the European Commission on account of doubts as to whether the proper procedure of a separate market analysis of impact of cut was carried out. A quote from The European Commission er in charge of the digital agenda is enlightening and worth emulating by telecommunications' regulators:

"In departing from the approach announced last year for setting access prices in the Italian broadband markets, Agcom undermines the required regulatory certainty for all market players,” ...... “Regulation must aim at creating a level playing field for all operators.”

The lesson here is that a systematic and scientific approach to regulation can ensure that regulators meet the ultimate aim of consumer welfare and not fall prey to regulatory capture or political pressures.

Ubiquitous Broadband Demands Innovative Solutions

An EU study has found that "71% of all EU wireless data traffic in 2012 was delivered to smartphones and tablets using Wi-Fi, possibly rising to 78% by 2016" 

and that,

"The combined use of Wi-Fi and other small cell infrastructures (which complement traditional macro cell mobile base stations) can relieve congestion on the 3G/4G networks by providing “backhaul” functionality outside those networks, while minimising costs to both network operators and users. Wider use of these technologies could allow operators to save tens of billions of euros as they go about upgrading networks to meet customer demand. Consumers would save money by using Wi-Fi instead of paying for mobile data when they are actually near a Wi-Fi hotspot. Small cells can also extend network coverage into hard to reach places, including inside large buildings.

The study recommends to make spectrum from 5150 MHz to 5925 MHz available globally for Wi Fi; to continue making the 2.6 GHz and the 3.5 GHz bands fully available for mobile use and to consult on future licensing options for 3.5 GHz and other potential new licensed mobile frequency bands; and to reduce the administrative burden on the deployment of off-load services and networks in public locations."

There are important lessons here for India where scare and expensive 2G/3G spectrum drives up the price of wireless internet/broadband such that it is quite unaffordable for most people. On the other hand, given the low fixed line penetration, the growth in broadband is expected to come largely from wireless access.

The Long Term Effect of Too Low Wholesale Broadband Acess Tariffs

Effective regulation of tariffs is never an easy task. One argument would be to leave tariff alone but that luxury unfortunately is unavailable when markets are less than competitive. 

Regulating access to incumbents' infrastructure is often a part of ensuring service competition. I have written about this earlier under http://ictsforall.blogspot.in/search/label/Tariff. 

However, this tool is to be used with care. A European Commission Press Release dated 25th July 2013 highlights the need to balance short term gains of lowering access charges with the long term impact on investment. 

This press release relates to the suspension of the Austrian Telecom Regulator's calculation of regulated charges for access to the Austrian incumbent's broadband network on grounds that 

" it threatens to impede efficient investment in broadband, and could also create artificial barriers in the internal market." 

and

"The inconsistent access prices across the EU have a dampening effect on investment in modern networks. TKK's proposal must give national and multinational operators the right incentive to replace the old legacy copper network with modern technology, and provide stability and predictability."

Telecom Regulation always Contentious

It is interesting as always to read about the pros and cons of proposed telecommunications reforms. Given the high stakes involved in this dynamic sector, both sides' viewpoints are often debatable and hotly debated,

It is clear that EU's proposed reforms by way of removal of roaming charges and standardisation of wholesale access prices are customer friendly. This seems fairly obvious as far as the regulator is concerned. However this is not  a foregone conclusion according to  incumbent operators. They argue that removal of roaming as a source of revenue will force operators to increase local call tariffs and that cheaper wholesale access will create rivals with little or no committed  investment. The latter may provide cheaper services but not necessarily help in terms of  innovation and advanced services that are favoured by fewer larger players.

The debate surrounding telecommunications regulations in India is equally contentious as may be seen from articles such as TRAI Harder on Roaming. There are invariable some market players who disagree with the Regulator.(http://www.moneycontrol.com/news/business/rcom-flays-trais-revised-rates-says-make-roaming-free_900694.html).

Getting it right may not be easy but is important to bridge the Market Efficiency Gap and hence increase telecom penetration to achieve Universal Service.

Telecom Regulation Reform for Effective Competition & Growth-BCG Report on EU Regulation. Also, Indian Operators Finding Own Unique Solutions

I strongly believe that good regulation and competition are imperative for  achieving at least near universal service and digital inclusion and unlocking the potential of communications as a growth driver.

While in my opinion, the e-communications regulations in EU are worthy of emulation, it would appear there is always scope for improvement.

A study by The Boston Consulting Group (BCG) for the European Telecommunications Network Operators’ Association (ETNO) suggests  “a reformed regulatory framework” to ensure competition and encourage investment in advanced Next Generation networks.

Thus the report finds that “outdated and intrusive regulation is responsible for distorting market-based competition and discouraging capital investment, particularly by telcos, in NGA.  It states that,

“These trends must be turned around if Europe is to remain innovative and competitive in the global digital marketplace. Doing so requires a shift in the approach to regulation towards a new paradigm centred around:

1.    A harmonised-and substantially reduced-pan-European regulatory approach, relying mostly on established competition law

2.    A short- and long-term comprehensive view of all the costs and benefits for consumers which takes into full account the long-term benefits of investments for consumers

3.    A full view of the value chain, in a technology-agnostic manner and with a differentiated geographic lens

The study proposes five measures that will reverse the regulatory root causes of lagging telecommunications investment and help to unlock the funding required to build the ultra-fast connectivity that is increasingly the lifeblood of the digital economy:

• Substantial deregulation of fixed-line wholesale access
• A level playing field for network operators and digital services providers
• Spectrum policy that accelerates the build-out of mobile networks
• Permitting healthy consolidation in mobile
• Harmonising rules and procedures to unlock cross-country synergies

Taken together, BCG estimates that these five measures would increase telecom operator cash flows by a cumulative total of €105 billion to €165 billion by 2020 and asserts that a significant portion of these funds would be available for additional investment in next-generation networks.  Along with the roll-out cost savings that DG Connect initiatives, such as the pending “less digging = more broadband” regulation,are expected to deliver, this programme would significantly close Europe’s next-generation network investment gap, fuel growth and add jobs, and bring the goal of a vibrant Digital Single Market much closer to reality."

A similar approach would greatly benefit many a developing nation and perhaps developed nations too as previous my blog posts on telecom regulation and competition  would suggest.

While on the subject of Competition and Telecom reforms an article from the Economic Times highlights how smaller mobile operators are taking advantage of intra circle roaming to come together, share infrastructure and compete with bigger players even as the industry is critical of the current M&A regulation. Innovation and adaptation is the hallmark of Indian telecom market.

Effective Regulation the key to Bridging the Market Efficiency Gap

 This is a recurring theme that I will be writing on. Its importance lies in the fact that by bridging the market efficiency gap we are economizing on time and cost involved in universal service and 100% digital inclusion. In the absence of effective regulation any attempts towards the latter would only bring short term and non sustainable gains. 

As far as telecom regulation in India is concerned it would appear that we need to take some brave steps to reconcile and simplify our licensing conditions and spectrum regulation. We are at present caught in the trap of  self created rigidities  that are not only at times outdated but often counter productive. The time is right as the telecom sector is at its lowest ebb and even the recent positive announcement of 100% Foreign Direct Investment (FDI) in Telecom is being viewed pessimistically on account of the overall regulatory environment. Please see "FDI Limit Aside, Raise the Bar for Governance"

An article titled An" Emergency Call from the Telecom Sector" appearing in the Business Standard on 17.7.13 draws attention to these issues.It highlights the need for bold decisions akin to the migration policy of 2003. It rues what it considers a tendency on the part of the telecom department to impose maximum penalties for fear of being accused as being partisan to telecom operators. 

Decision makers would find it much easier if rules were clearer.

The state of affairs today can in fact be gauged from the confusion and excessive recourse to litigation that characterizes our telecom sector today.  For example, there is  confusion surrounding the legality of intra circle roaming (ICR) and the distinction between ICR in the case of 2G and 3G licenses. The Controller and Auditor General of India cannot perhaps be faulted for criticizing actions that can be interpreted as being in contravention of stated policy/regulation which is in turn is often ambiguous and hence subject to interpretation.

The improvement of regulation and regulatory capacities is the order of the day. The former is relatively easy as international best practices and experiences can guide us, the latter requires a much broader spectrum of measures extending beyond just the telecom sector.

Talking about regulatory skills and capacities, another news item about the difficulties being faced vis-a-vis Italian communications Regulator's attempts to reduce access charges for fixed line grids, a common trend across EU, indicates that the overall institutional environment of an economy affects implementation and outcomes even where regulation is sound. I had written about this earlier at  http://ictsforall.blogspot.in/2013/07/closing-market-efficiency-gap.html

Closing the market Efficiency Gap-Regulation and Competition

As I mentioned earlier closing the Market Efficiency Gap demands effective regulation and competition. In my view there is no point in utilizing public funds or USFs to take telecommunications to market segments that operators would willingly serve if they were facilitated through effective regulation and forced to as a result of healthy competition. This is one area where developing countries with overall institutional (implementation) weakness may fall short.

This makes it all the more important that they focus on putting in place sound laws and regulation modeled on international best practices but adapted to local context. This would ensures inter alia a level playing field  which precludes vested interests from rent seeking behaviour that is detrimental to the economy as a whole.

As an observer of worldwide developments in the area of telecom regulation I would like to draw the attention of readers to to some recent  news items:

The first is about investigation of several telecom giants for suspected abuse of dominance by the competition wing of the European Commission.  This can be read at:

http://www.theregister.co.uk/2013/07/11/european_commission_inspects_telcos_over_alleged_violation_of_competition_rules/

The second is about the likely  mandating of a reduction in access charges for fixed line grid by the Italian firm Telecom Italia SpA by the Communications Regulator of Italy. This article also speaks about the general trend towards reduction in network access charges (both fixed line and mobile) across Europe as a result of conscious efforts of regulators to enhance penetration.This is available at:  http://www.businessweek.com/news/2013-07-10/telecom-italia-is-said-to-face-about-6-percent-cut-in-grid-access-fees.

The third is about a  more liberalised M&A regime in Europe consistent with market conditions.  This includes a softening of attitude towards active infrastructure sharing. Ultimately increasing penetration is also about ensuring the financial health of the telecom opertaors. This can be viewed at http://www.mobileworldlive.com/fours-a-crowd.

An article  from the Indian Express dated 12.7.13 about present regulations relating to M&A in India may also be of interest to readers. This may be viewed at http://www.indianexpress.com/news/permit-spectrum-trade-m-as-will-follow-vodafone/1140801/