Transcript Wholesale Line Rental - An Austrian Regulatory Perspective

Wholesale Line Rental An Austrian Regulatory Perspective
Jan Weber
RTR GmbH, Legal Dept.
Disclaimer:
All views expressed are those of the author and do not in any way engage the Austrian Regulatory
Authorities for Broadcasting and Telecommunications(Telecom-Control-Commission, KommAustria, RTR).
17.07.2015
ITS 15th Biennial Conference
Seite 1
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Contents
 Introduction: Definition, Features
 Costing Issues: Monthly Rental, Upfront payment, Margin
Squeeze
 Technical Issues: Carrier Preselection, CDRs
 International Comparison: DK, D, NOR, UK, IRL, AT
 Conclusions
17.07.2015
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Slide 2
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Introduction:
Definition
Features
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Slide 3
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Definition of „Wholesale Line Rental“
„bundle of services which an incumbent fixed
network operator offers to his retail subscribers in
connection with access to his voice telephony
network covered by subscriber´s payment of a
monthly line rental and which is made available to
alternative communication service providers on a
wholesale basis“
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Slide 4
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Standard Situation: Subscription with incumbent´s retail arm
 access and calls services provided by incumbent´s wholesale arm to incumbent´s retail arm
 all retail activities supplied by incumbent´s retail arm
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Slide 5
Costing Issues –
Monthly Line Rental
Introduction
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Rebilling
 access and calls services provided by incumbent to service provider
 all retail activities supplied by service provider (e.g. customer care, billing, invoicing, debt collection)
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Slide 6
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Wholesale Line Rental („WLR“)
 access line and all ancilliary services are made available by incumbent to WLR provider
 calls services are provided by WLR provider via CPS
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Features
 POTS or ISDN access to voice telephony service
 access to service numbers within incumbent´s own network or
alternative networks (e.g. to emergency services, to toll-free lines or to
premium-rate services)
 installation and transfer of access lines
 availability of incoming calls,
 use of the access line telephone number
 fault-repair
 temporary call-barring and release,
 geographical number portability
 additional line features (e.g. call forwarding, caller display, call waiting,
3-party conference call, CLIP = calling line identity presentation, CLIR =
calling line identity restriction, call waiting with call hold or selective call
barring).
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Ratio
 customers are given a greater choice in voice telephony services (more than one
access provider specially in remote areas, single bill)
 creation of new tariff packages by WLR providers e.g. by bundling of services
 former CPS operators get customer ownership + can create own brands
 more specialised customer care and innovative marketing and distribution
activities by WLR providers
 intensification of cost-effciency at retail level
 additional market demand for services in case WLR providers manage to offer
tailor-made service models which are better adapted to customer needs
 decrease of market entry barriers at infrastructure level due to long-duration
contracts for capacity between network operators and WLR providers
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Legal basis
„Operators may be required inter alia to provide
specified services on a wholesale basis for resale by
third parties“ (Art. 12 (1) d Access Directive)
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Costing Issues:
Monthly Line Rental
- Costing Standards
- Discount Calculation
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Slide 11
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Monthly rental
It´s all about calculation of the wholesale discount!
3 principal questions:
 Which costing standard should be applied for calculation of the discount ?
 Which retail tariff should be identified as starting point for discount deduction ?
 Which amount/percentage should be admissible for the discount ?
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Costing Issues –
Monthly Line Rental
Introduction
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Monthly Rental – Costing Standards
ECPR (retail minus)
 deduction of avoidable costs (billing, call center, objections, debt collection,
interest risks, bad debts, marketing, administrative costs) from retail price
 includes access network inefficiencies
FL-LRAIC
 forward-looking long run incremental cost of infrastructure elements used for
a wholesale service (IC, LLU)
 Lower wholesale price due to lower risk by weighted average cost of capital
 higher margin for infrastructure providers
Result:
 WLR provider incurs lower risk (no sunk cost) than infrastructure provider
 FL-LRAIC not appropriate (investment incentives), retail minus preferable
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Monthly Rental – Discount Calculation (1)
Costing rules for incumbent´s retail tariffs
 no cross-subsidization between access network (line rental) and core
network (call charges)
 in case incumbent offers different tariff options: cross-subsidisation
admissible within different line rental charges and within different call charges
 reason: price differentiation  tariff options best suited to fit customers´
communication profiles (bundles of access & call charges, in total costoriented)
 arbitrage (e.g. combination of lowest access and call charge) should be
excluded to ensure cost-orientation and to avoid uniform access and call
charges
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Monthly Rental – Discount Calculation (2)
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Slide 15
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Monthly Rental – Discount Calculation (3)
WLR scenarios
 “bundled resale”: combination of access and calls services for each
individual tariff option; WLR providers largely bound to incumbent´s tariff
structure, introduction of innovative tariff packages unlikely

 WLR for each individual tariff option (access) combined with CPS (calls):
 dissolution of access and calls bundle of incumbent´s tariff options 
arbitrage: WLR provider will always choose tariff option with lowest
access charge while obtaining calls at FL-LRAIC prices
 Result: incumbent will no longer be able to maintain original tariff
structure with range of different tariff options  high probabilitiy for
inxcumbent to introduce of uniform access and call charges  loss of
price differentiation

 Exit strategy: CbC/CPS exclusion for WLR provider´s subscriber
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Slide 16
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Monthly Rental – Discount Calculation (4)
WLR scenarios (cont´d)
 WLR for a weighted average value of all retail access charges (access)
combined with CPS (calls):
 calculation of the wholesale discount departs from average value of all
retail access charges
, WLR provider procures wholesale access at same conditions offered to
incumbent´s retail segment and can provide calls via CbC/CPS
 cost-neutral scenario: total of access charges in all available retail tariff
options must cover total cost of incumbent´s access network AND
average total of proceeds equals average cost  WLR won´t lead to
access deficit regarding costs of the access network
 Option tariffs could thus be maintained; WLR providers would have an
incentive for own innovative price differentiation models

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Slide 17
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Monthly Rental – Discount Calculation (5)
 provision of access services at wholesale level (production) and retail level
(distribution); in case of WLR, all costs related to retail distribution activities
will be incurred by WLR provider
 retail-minus: retail costs  avoidable costs  to be deducted from
incumbent´s retail price
 BUT: voice telephony services are usually provided as access and calls
bundle  respective distribution costs are common costs of both parts of the
bundle and have to be allocated according to cost-causation
 non-deductible costs include e.g. costs for physical network elements,
corresponding technical support, line card costs, costs for accountancy, HR,
legal service, purchasing and facility management (common costs)
 deductible costs include costs for product mgmt., marketing/distribution,
customer care, retail billing, billing information, debt collection, costs for
processing orders, costs for delivery and postage
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Costing Issues:
Implementation costs
- System Modifications for WLR
- Reimbursement Issues
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ITS 15th Biennial Conference
Slide 19
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Implementation Costs – System Modifications for WLR (1)
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Slide 20
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Implementation Costs – System Modifications for WLR (2)
 currently, incumbent´s network elements and switching systems (eg. call
control, trunk tickets, billing mediation) as well as IT and support systems
(interfaces for CDR transmission, processes and OSS/BSS systems) focus on
retail customers
 many access functionalities implemented at local exchange level  must be
adapted to needs of wholesale partners
  implementation of a resale criterion at local exchange level and in
OSS/BSS systems; individual configuration for specific functionalities
regarding subscriber/subscriber number within ordering, provisioning and
billing systems and systems which account for digital access line features
  availability of different sets of access line features specified by the
individual WLR provider will allow product differentiation between incumbent
and WLR providers and also among various WLR providers
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Slide 21
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Implementation Costs – Reimbursement Issues
 incumbent´s additional costs for WLR implementation must be covered
 NRAs might consider whether a substantial part of the implementation costs
should have to be borne by the incumbent due to considerations of
competition policy (non-discriminatory availability of wholesale access service
to WLR providers like to incumbent´s own retail arm)
 amount of WLR provider´s contribution to implementation costs shall
(somehow) related to (forecasted) number of WLR access lines
 implementation cost can be split up in upfront payment (e.g. 50%) and
markup on wholesale one-off charge for line transferral
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Costing Issues:
Margin Squeeze
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Margin Squeeze Issues (1)
Wholesale monthly rental may create margin squeeze for WLR provider
 due to incumbent´s option tariffs, margin between incumbent´s most
attractive retail line rental and WLR provider´s retail line rental can be rather
small (specially if WLR provider has a focus on residential retail customers)
 might be avoided by cross-subsidization within innovative retail tariffs to be
created by WLR provider
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Margin Squeeze Issues (2)
Implementation costs can create margin squeeze for WLR provider
 the contribution to implementation costs and respective costs of capital will
generally be apportioned by a WLR provider per retail subscriber
 WLR providers can choose whether to increase the amount of the monthly
rental or the one-off charge for line transferral
  higher costs for WLR provider when offering a retail service
 however, one-off payments for line transferral are considered as customary
by consumers when changing to a new operator
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ITS 15th Biennial Conference
Slide 25
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Technical Issues:
Call Detail Records
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Slide 26
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Call Detail Records (1)
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Call Detail Records (2)
 according to interconnection rules for carrier-preselection, calls to premium-rate
service numbers operated within other telephone networks are routed exclusively
via the incumbent´s network
 call detail records must be made available by the incumbent to the WLR provider
in order to enable the WLR provider to bill his retail customer
 in AT, incumbent will deliver CDRs at a fixed charge per CDR to WLR provider
 CDR format: WLR providers don´t want a proper CDR format to be created;
incumbent wants to avoid need for WLR providers to adapt their billing routines in
case of CDR modifications by incumbent  a proper format is necessary
 provision of CDRs: CDRs for invoicing the WLR subscriber provided by
incumbent according to own retail billing cycles (2 months); in addition, CDRs will
be provided after a fixed period of time from generation at the local exchange
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
International Comparison
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Slide 29
Costing Issues –
Monthly Line Rental
Introduction
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Denmark
 Spring 2000: NITA Decision to oblige TeleDanmark to provide resale of landline
services based on non-discrimination
 Nov. 2000: TeleDanmark Standard Offer on Resale of Landline Services
 Discount: 21%
 CDRs made available by incumbent Überlassung von CDR´s gg. Entgelt
 Obligation to be reviewed following market analyses
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Costing Issues –
Monthly Line Rental
Introduction
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Germany
 March 2001: RegTP decision to oblige DTAG to submit resale offer based on
non-discrimination, confirmed by High Administrative District Court and Federal
District Court
 June 2002: DTAG submits „bundled resale“ offer
 July 2003: further RegTP decision to oblige DTAG to submit unbundled resale
offer based on non-discrimination
 June 2004: entry-into-force of New Telecom Act; bundled resale admissible prior
to June 30, 2008 (sect. 150 para 5)
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Slide 31
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Norway
 Oct. 2001: NPT decision to oblige Telenor to offer resale of subscription to CPS
operators due to non-discrimination (later repealed by Ministry due to lack of legal
basis)
 discount: 21%
 resale of subscription now voluntarily offered by Telenor based on a
commercially negotiated offer
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
United Kingdom
 June 2002: OFTEL concludes its consultation „Protecting consumers by
promoting competition“ by stating that BT should offer WLR on a nondiscriminatory basis and announces removal of retail price-caps within 5 months
from availability of a commercially viable WLR product; establishment of joint
working groups
 Sept. 2002: BT launches WLR product
 Nov. 2002: OFTEL consultation on WLR implementation details
 March 2003: OFTEL statement requiring changes in BT´s WLR product
specification
 mid 2003: following market reviews, OFTEL/OFCOM decides to impose an
obligation on BT to provide WLR products for analogue, ISDN-2 and ISDN-30
lines
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ITS 15th Biennial Conference
Slide 33
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Ireland
 July 2002: ODTR (now ComReg) consultation on „CPS in Ireland“; Eircom
mandated to submit proposal on WLR and single billing until Sept. 2002 and to
technically implement SB-WLR until Jan. 2003
 Feb. 20, 2004: after further discussions within a respective industry working
group, further ComReg decision notice which directs Eircom to launch SB-WLR by
Apr. 1, 2004
 Discount (retail minus): 10%, to be applied until Sept. 30, 2005
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ITS 15th Biennial Conference
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Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Austria
 May 2002: proceedings before Telecom Control Commission to oblige
Telekom Austria to submit WLR proposal due to non-discrimination
 Oct. 2002: submission of first WLR proposal
 May 2003: new proceedings before Telecom Control Commission to
oblige Telekom Austria to submit WLR proposal with non-discriminatory
conditions
 Dec. 2003: submission of revised WLR proposal, then withdrawal
 May 2004: re-submission of revised WLR proposal
 since then: proceedings ongoing, proposal not yet accepted by a WLR
provider
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ITS 15th Biennial Conference
Slide 35
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Conclusions (1)
• WLR introduction can significantly contribute to increase local competition by
enabling consumers in remote areas to choose another access network
provider.
• WLR providers will be able to create innovative access and calls bundles
and can thus better compete with bundles offered by incumbent operators.
• A retail-minus calculation of the wholesale discount on the line rental should
depart from incumbent´s average retail access charge and deduct avoidable
costs attributable to retail services which are no longer provided to retail
customers. NRA´s will have to take into account sufficient incentives for
infrastructure investment.
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ITS 15th Biennial Conference
Slide 36
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Conclusions (2)
• Costs for modifications in incumbent´s switching and IT support systems to
be incurred for WLR implementation will have to be reimbursed by WLR
providers. NRA´s might consider whether to allocate those costs to all
operators who are using the wholesale service in a real or fictitious way
(including the incumbent).
• In general, an obligation to provide CPS should be reserved to providers
with SMP on a market for access to voice telephony services at a fixed
location (see Art. 19 UD). However, a CbC or CPS availability to WLR
subscribers might also depend on the basis used for calculating the wholesale
discount in order to maintain price differentiation within incumbent´s retail
tariffs. Network modifications in order to ensure an exclusion of CbC/CPS
availability to WLR subscribers may lead to a further increase in
implementation costs.
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Slide 37
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Conclusions (3)
• In case further market reviews show evidence of increased competition in
voice telephony access markets due to the availability of WLR, a removal of
retail price controls currently imposed in most EC Member States on
incumbent voice telephony network operators might be considered.
17.07.2015
ITS 15th Biennial Conference
Slide 38
Introduction
Costing Issues –
Monthly Line Rental
Costing Issues –Implementation Costs
Costing Issues –
Margin Squeeze
Technical Issues
International
Comparison
Conclusions
Thanks for your attention !
Any questions ?
[email protected]
17.07.2015
ITS 15th Biennial Conference
Slide 39