Presentation on theme: "Liberalisation and regulation in the telecommunication sector: Theory and empirical evidence Week 6 Call Termination on Mobile Network Operators Regulating."— Presentation transcript:
Liberalisation and regulation in the telecommunication sector: Theory and empirical evidence Week 6 Call Termination on Mobile Network Operators Regulating a Market, the case of Mobile Operators in the UK
24/06/2004Β. Μerekoylias2 Overview of presentation zThe Case zConsultation Procedure zDefining a Market zMarket Analysis zMarket Failure zSuggestions for regulatory obligations
24/06/2004Β. Μerekoylias3 The Case zCall origination and termination yOn net yOff net zNew regulatory framework on 25/7/2003 yNRAs carry reviews of competition in communication markets zThe case of Mobile Operators yServices sold and purchased by communications providers in order to complete end-to-end calls. yWholesale voice calls terminated on individual mobile networks. yWholesale 2G voice call termination provided to the subscribers of “3” zThe definition of a new Market
24/06/2004Β. Μerekoylias4 Market Review zDefinition of the relevant market or markets zAssessment of competition in each market. Is there any company with a SMP? zAssessment of the options for regulation and proposal or obligations.
24/06/2004Β. Μerekoylias5 Existing Regulation z1998 Competition Commission yVodafone & Cellnet (now O2) y11.7 pence per minute ceiling y(Retail Price Index) RPI-9% reduction for two years until March 2002 zOftel 2002 yTermination charge reduction by RPI-12% each year for four years until March 2006 for all four mobile operators, Vodafone, O2, Orange and One 2 One (now T-Mobile). yThe operators rejected the proposed licence modification. zFebruary 2002 the director modified the licences of Vodafone and O2 to extend the existing controls of RPI-9% on termination charges for one year to March 2003. zDecember 2002, Competition Commission Report yTermination charges of the four mobile operators operate against public interest y30%-40% above a fair charge yFixed to mobile and off net mobile too expensive yHigh termination charges deters people from calling mobiles yHigh off net usage customers unfairly subsidise customers who mainly receive or make on net calls yRecommended x15% reduction xO2 and Vodafone should further reduce RPI-15% and for each of the subsequent years to March 2006 xOrange and T-Mobile should reduce charges by RPI-14% and for each of the subsequent years to March 2006
24/06/2004Β. Μerekoylias6 Consultation Procedure zRelevant market definition zMarket analysis, assessment of SMP zDetrimental effects arising from SMP zRegulation Options zProposed charge controls zConsultation zFinal plan of the Regulation documents yDefining the market yAnalysis of the market yRegulatory obligations for the players zBasic principles of LRIC for the market and the services
24/06/2004Β. Μerekoylias7 Defining a Market zAll the services that can be substitutes based on yCharacteristics yPrice yUsage yCompetition yExistence of Demand and Supply zSSNIP Test zCritical loss analysis test zSupply Substitution zDemand Substitution zCommon pricing z3G zRegion Market
24/06/2004Β. Μerekoylias8 Conclusions zSix Separate Market yWholesale voice call termination provided to the subscribers of “3” yWholesale voice call termination provided by Inquam yWholesale voice call termination provided by O2 yWholesale voice call termination provided by Orange yWholesale voice call termination provided by T Mobile yWholesale voice call termination provided by Vodafone
24/06/2004Β. Μerekoylias9 Market Analysis, Assessment of SMP zSMP, Significant Market Power zPotential Competition. Even in a 100% monopolistic market. yLow entry barriers yAlternative technological solutions yStructural changes can effect the negotiation position. zCountervailing customer power yThe end customers yThe fixed operators yShares: xBT 26,4% xOther fixed 14,8% xOff net 18,6% xOn net 40,2% zEvidence of Operators behavior yPrice trends yExcessive pricing, discriminatory pricing, price squeeze yActual price yBenchmarking yExcessive profits
24/06/2004Β. Μerekoylias10 Detrimental effects arising from SMP zIs Ex-ante Regulation a solution? yEntry barriers yThe market over time is not competitive yIs competition effective? zNegative impact of high prices yDistortion of the customers choices yThe fixed operators can not compete with the mobile operators equally for voice services yThe fixed operators can not compete with the mobile operators equally for corporate networks yThe mobile operators offer lower prices for end to end on-net call service than the call termination service zThe mobile operators points yCompetition in the end customer level. The prices are getting lower. yRedistribution of cost. (“Swings and roundabouts” or “Waterbed effect”) yCustomers welfare increases as more people use mobile phones. zThe Cost for non efficiency of the market being paid from the non customers of the mobile operators.
24/06/2004Β. Μerekoylias11 Regulation Options - Proposed charge controls (1) zAlternative solutions yReceiving Party Pays yCall Back yCall divert yMobile Virtual network operators with multiple roaming agreements yMultiple SIMs yGSM Gateways yTrying termination charges to competitively supplied services yDelivering a call further into the terminating network zObligations the Director can impose: yThe provision of network access yNo undue discrimination yTransparence yCost Orientation yCost recovery, charge controls yCost accounting and accounting separation
24/06/2004Β. Μerekoylias12 Regulation Options - Proposed charge controls (2) zOptions yA. No ex ante regulation yB. Requirement to secure transparency through publication of prices and prior notification of price changes yC. B + transparent the charges, terms and conditions through publication of a reference offer, a requirement to provide mobile voice call termination on far and reasonable terms, not to unduly discriminate in the provision of the service and imposition of charge controls. yD C + requirement to maintain cost – accounting systems, to set prices on the basis of Forward looking LRIC, separate account systems zDirector Initial View yMNOs 3G in Option A yMNOs 2G in Option C zCharge Control yFinal target level yHow the charges should be brought down to this fair target charge. yRamsey prices yNetwork externalities y….Resulting to a cost based pricing LRIC + EPMU zWhat may be the results? yMobile operators. The medium-term nature permits a time for restructure. yMobile customers. A higher price may occur based on the level of competition yFixed operators and customers. Lower costs for both. A better positioning for the corporate networks market.