Transcript LLU a failed model for competition? - fu

Local Loop Unbundling a Failed Model for
Local Competition?
The German Experience
Dr. Bernhard Kallen
Ralph-Georg Woehrl
International Telecommunications Society
14th European Regional Conference
August 23-24, 2003
Helsinki, Finland
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Contents
Access regulation: Current situation
EC approach: Preference for service competition
FCC’s new ruling: Significant relief of regulatory
measures
German experiences: LLU a success story?
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Access regulation
Current Situation in Europe and the US
Market situation:
 The telecommunication sector goes broadband, enabling people
to make the first steps towards the information society.
 Telecommunication network operators have to meet
extraordinary challenges.
A variety of different access technologies (DSL, Cable, Fibre, WLAN, 3G
etc.) is available to serve as the broadband connector for the information
society.
Regulatory impact:
 Decision-making by existing and new companies is strongly
determined by sector-specific regulation.
 Regulatory authorities are now in a situation where intervention in this
sector has crucial, far reaching impacts on society as ever before.
Diverging approaches between the EU and the US:
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 The FCC and the EC seem to have diverging approaches as to how to
regulate the local access market. The two approaches are underpinned by
opposed convictions.
 The FCC believes in the inter-platform-based competition as the
only force capable of delivering investment and growth.
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– In Europe, the opinion is that service-based competition and
EU approach
Competition via wholesale access for service provider
Objectives of the EU 1998 regulatory package
– Liberalisation: break-up of state owned POTS monopolies
– ONP: regulation to ensure most benefits to customers
– network access: price regulation strictly cost-based to foster competition
The aim of the New Regulatory Framework (NRF)
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– EC recommendation on relevant markets, explanatory memorandum p. 25
“Regulation mandating access to existing networks serves as transitional
measure to ensure service competition and customer choice until such
time as sufficient infrastructural competition exist.”
– NRF enables more flexible regulation, AID gives NRAs a variety of
instruments and remedies to chose the one minimum necessary to address
market failure
– The definition of 12 wholesale market out of 18 relevant markets shows
that EC does not believe in platform-competition but service competition via
wholesale access for narrowband (WLR) as well as for broadband services
WLR: Wholesale line rental
(DSL bit-stream).
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Significant relief for US-Incumbents
ILECs and CLECs benefit from the new FCC rules
The Federal Communications Commission (FCC) delegated more
authority to the Public Utility Commissions (PUC):
– Intensity of competition on the local markets diverges too much to
enhance or stabilize it with a unique set of regulatory measures
– Therefore: No one-fits-all-solution for regulation exists
FCCs decision provides substantial unbundling relief to the
ILECs for broadband:
– Unbundling of new fibre loops, line sharing and broadband services at
cost based tariffs will no longer be required
– Unbundled switching for business customers was eliminated from
UNE-P, for mass market customers the decision was delegated to the
PUCs
It seemed that the conflict between FCCs members was primarily
induced by the future role of PUCs
FCCs decision offers both advantages and disadvantages to the
ILECs and CLECs:
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– ILECs obtained substantial regulatory relief for their broadband
facilities
– CLECs will benefit from the stronger role for the states, since the
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ULL in Europe
EU officials state ULL has been a flop
Officials of the DG competition claim*:
– Although ULL obligations are in place at national level since 1998
and at European level since December 2000, the market structure
has not changed significantly.
– Alternative network operators do not make use of ”Unbundled Local
Loops”.
– What once was described as the big breakthrough for local
competition has so fare been an expensive regulatory experiment
almost without any effect on competition.
– The reason for that is to a large extent the pricing policy of
incumbent operators and the price regulation of NRAs. Pricesqueezing is pursued by incumbents and is not adequately
sanctioned by the regulators.
Pricing of ULL is not to blame for the poor development. The data
Klotz, Juan Delgado, Jerome Fehrenbach (2003), Zugangsentgelte in der
shows no correlation between prices and demand for ULLs.
Telekommunikation,WUW 4/2003, Brussels
The mix of access obligations is responsible for the undesirable
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situation.
*Robert
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German experiences
Regulation has borne two types of competitors
Regulatory setting in 1998
RegTP set framework for competition in a fully liberalised sector.
– Implementation of ONP
– Promotion of competition between local fixed networks
The German regulatory approach in 1998 was based on two
elements:
– First, OLOs are able to connect subscribers via ULLs.
– Second, no obligation for Telekom to provide local carrier
(pre-) selection
Market (regulatory) results: creation of two types of network
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operators
– City-carrier: Subscriber network operators entered the
market, with their own local infrastructure predominantly
between the copper loops of Deutsche Telekom.
– ‘inter-exchange network operator’: Service provider, which
offer no subscription but national and international calls, come
into the market and eroded former price levels by up to 90 %,
because of almost no infrastructure requirements.
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Carrier pre-selection in Germany
Calls for less than interconnect rates
What is the Market situation
like in 2003?
Flensburg
Greifswald
Altogether 875 telecommunication
licensees exist, more than 40
alternative city-carriers and almost
200 PSTN-service providers.
Rostock
Kiel
Lübeck
Bremerhaven
Schwerin
Neubrandenburg
Hamburg
Leer
Oldenburg
Bremen
Berlin
Frankfurt/O
Lingen
Hannover
Osnabrück
Brandenburg
Braunschweig Magdeburg
Münster
Bielefeld
Wesel
Essen
Cottbus
Paderborn
Dortmund
Duisburg
Leipzig
Halle/S
Göttingen
Bochum
Bautzen
Krefeld
Düsseldorf Wuppertal
Kassel
Meschede
Dresden
Siegen
Köln
Aachen
Gießen
Fulda
Erfurt
Chemnitz
Gera
Bonn
Koblenz
Hof
Frankfurt/M
Mainz
Trier
Bayreuth
Würzburg
NL
ZID
Darmstadt
Nürnberg
Saarbrücken
Kaiserslautern
Mannheim
Heilbronn
–Competitive Market for all calls:
National/International calls:
collapse of prices to 1/10 of the
initial level in 1998
–4,5 Mio. Preselection-customer,
– 10 Mio. Call-by-call customer;
–since April 2003 call-by-call for
local calls with prices less than 1
ct. per min.
Regensburg
Karlsruhe
Passau
Stuttgart
Ulm
Offenburg
Augsburg
München
Rottweil
Freiburg/
Bsg
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Konstanz
Kempten
Traunstein
–Interconnect regime set by RegTP in
2001:
–475 local PoI (10 carrier with
nation wide presence:
Arcor(Vodafone), BT, MCI
Worldcom, Telefonica, tele2,
01051telecom...)
–23 regional PoI
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ULL in Germany
A story of success?
Market situation in the local fixed networks:
– More than 77 % of all customers can choose
between Telekom- or alternative line subscription,
i.e. city-carriers are connected to 77 % of all
Telekom-MDFs.
– But regional differentiated market development:
Beside the concentration of activity in big cities and
for business customer, city-carrier in the north west
of Germany hold a significant market share and
have according to recent business reports positive
operating :
– PSTN-channels of competitors:
Hamburg:
12 %,
Cologne:
21 %,
Oldenburg:
23 %
– Same picture about the DSL-access market:
national:
6%
Oldenburg:
15 %
Hamburg:
34 %
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(Source: RegTP, End of 2002;
Deutsche Telekom, End of 2002)
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ULL development
Unique situation: Significant market appeal...
...with progressive growth rates
1.200.000
1.200.000
1.048.217
1.048.217
1.000.000
1.000.000
800.000
800.000
600.000
600.000
400.000
400.000
200.000
200.000
82.100
0
GB
Number of ULLs
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18.629
1509 1.556 1.043 1.181 7.300
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B
F
S
A
I
NL
44.06135.000
DK
Fin
33.195
0
D
quarterly growth
total number
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ULL succeeded in Germany despite the fact that tariffs are not the lowest
in Europe…
COM(2002)695 final: Telecommunications Regulatory Package - VIII Implementation Report – Annex I – Corrigendum,
March 2003, chart 65
– 1998: 10,56€ per month
– 1999: 12,99€ per month
– 2001: 12,48€ per month
– 2003: 11,81 € per month
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…Instead ULL succeeded by the possibility of compensatory pricing
One form of compensation belongs to the variety of access and
options:
 Revenue per subscription line
18
16
14
12
10
8
6
4
2
0
Options
ISDN
TelAs
Calls
ULL
1999
2000
2001
May 02
Another form of compensation resulted from the exclusive
provision of local calls
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Conclusion
– Both in Europe and the US politicians, regulators and
academics agree that only alternative network facilities will
bring about sustainable competition.
– The phasing out of sector specific regulation in
telecommunication markets therefore depends on real
alternative infrastructure.
– The question is how to achieve it.
EU approach: Service competition sets incentives for investment
Access
Origination
Conveyance
Services
FCC approach: Only investment enables real differentiated services
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In our opinion the German experience supports the new FCC
ruling.
At the threshold of next generation telecommunications a
framework for
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