1. SHAPING A REGULATORY AGENCY IN A PERIOD OF CONVERGENCE OR EUROPEAN TELECOM SYSTEM FROM A COUNTRY PERSPECTIVE Dániel Pataki 2006 Annenberg-Oxford Summer Institute 24th July 2006.

2. 2 „EUROPE WANTS TO BECOME THE MOST DYNAMIC AND MOST COMPETITIVE KNOWLEDGE-BASED ECONOMY BY 2010”. ICT IS ONE OF THE KEY FACTORS REGARDING THE COMPETITIVENESS The positive growth and productivity effects of ICT infrastructure emerge through broadband access. Within this the widespread adaptation of ICT tools and services has a highlighted role: how is it built in the traditional industries, how does it alter their operation (transmission mechanism). Lisbon strategy (2000) i2010 (2005) Bridging the Broadband Gap (2006)

3. 3 THE STATE SHOULD IDENTIFY AND DO AWAY ANY BOTTLENECKS THROUGH REGULATORY, PUBLIC POLICY AND FISCAL MEANS IN A HARMOISED WAY.

4. 4 TWO BASIC PARADIGMS WITH SAME TARGET: WELL- PERFORMING TELECOM INFRASTRUCTURE

5. 5 TELECOM PRIVATIZATION DRIVEN BY LIBERALIZATION TREND, FINANCIAL NEEDS, AND INCREASING INDUSTRY COMPLEXITY

6. 6 AN ULTIMATE OBJECTIVE OF REGULATION IS TO RENDER ITSELF UNNECESSARY. TEMPORARY STEPPING-UP OF REGULATION TO BREAK MONOPOLISTIC DOMINANCE Source:Center for Economic Policy Research; BCG analysis

7. 7 NRAs ARE PROMPTED TO COORDINATE WITH OTHER INSTITUTIONS

8. 8 „NEW” REGULATORY FRAMEWORK: COMPETITION POLICY (APPLIED EX-ANTE) WITH DECENTRALISED IMPLEMENTATION

9. 9 „NEW” REGULATORY FRAMEWORK: A HARMONIZED MARKET BASED APPROACH TO EX-ANTE REGULATION AND TECHNOLOGICAL NEUTRALITY (TO BE IMPLEMENTED BY JULY 2003)

10. 10 REGULATION OF WHOLESALE LEVEL IS CRUCIAL FOR DEVELOPMENT OF COMPETITION: POSSIBLE MEANS OF WHOLESALE REGULATION

11. 11 NCAH PREPARES A STRATEGIC CONCEPT ON THE FUTURE REGULATION OF ELECTRONIC COMMUNICATIONS MARKETS IN HUNGARY Goals Guideline for the strategy development of market players, providing the general framework and direction of regulation, thus enabling the increase of transparency and communication between the regulator and the industry and also limiting regulatory uncertainty Internal guideline for NCAH assisting in its (daily) decision making process Ensuring alignment between the strategic programs and actions of NCAH and other governmental institutions directed at overlapping segments/markets Process Phase I Phase II Phase III Strategic discussion paper and consultation (Aug – Sep 2005) goal to facilitate the structuring of common strategic thinking, and does not follow the strict format of a strategy Strategic concept (Oct – Dec 2005) Vision (based on market scenarios) and vision-based regulatory strategy Final statement (Sept 2006) Finalized strategy

12. 12 SCENARIO-BASED APPROACH APPLIED, NCAH IS PREPARED FOR DIFFERENT MARKET EVOLUTION PATHS

13. 13 NRA’S OBJECTIVES FROM NCAH POINT OF VIEW: EFFECTIVE COMPETITION BASED ON A DEVELOPING SECTOR FULFILLS MAJOR CONSUMER INTERESTS Consumers’ interests: price, value (1), choice Penetration/usage Sector interests: InnovationInvestment Financial stability Effective competition (2) Competition is sustainable and effective with a developing and stable sector Enabling viable competition is the only possible approach to fulfill consumers’ interest Note: For some other information society objectives (e.g. universal services) competition is not the primary fulfilment tool (1) Quality, security, content etc. Utility given by the service (2) Effective competition means high intensity of competition among market players at the retail and access infrastructure level. In case of effective competition there is no operator who could significantly influence the dynamics of the competition by itself, and the level of market concentration is low.

14. 14 THE REGULATOR’S ‘MAP OF COMPETITON’ SHOWS THE LEVEL OF EFFECTIVE COMPETITION (1) All the coordinates are scaled by the values of Herfindahl-Hirschman index used to measure market concentration Note: The ‘theoretical maximum’ level of retail market and access infrastructure competition may differ in each of the markets

15. 15 NCAH IS CAPABLE OF INCREASING THE CONSUMER SATISFACTION ALONG THE REGULATION IMPACT CURVE

16. 16 SIX TRENDS SEEM TO BE CRITICAL ON THE HUNGARIAN MARKET THERE ARE STRONG INTERDEPENDENCIES BETWEEN THE TRENDS (E.G. CONVERGENCE AS AN OVERARCHING MEGA- TREND) 1 2 3 4 10 11 12 5 6 7 8 9 x Most important trends Technological trendsService trendsValue chain trends Voice traffic grows only with price decrease Data usage shows strong growth The difference between services diminishes – all become IP-based data service Services will be offered in bundles Interactive, on-demand services become more widespread Voice and data services are increasingly distributed on more technological platforms Audiovisual services are available on new platforms Technological convergence on several elements of the value chain New, upcoming technology (e.g, WiMax) becomes a relevant factor on the market The role and importance of content provisioning is growing Stronger division between network operation, service provision and customer relationship functions Fight between device producers and service companies for service intelligence

17. 17 MOST IMPORTANT BOTTLENECKS IN THE MEDIUM TERM: ACCESS AND CUSTOMER REALITONSHIP. BOTTLENECKS CAN ALSO EMERGE IN THE AREA OF CONTENT

18. 18 SCENARIOS CREATED ALONG DIMENSIONS WITH HIGH IMPACT AND UNCERTAINTY Main issues Extreme situations considered To what extent will the communications market infrastructure be dominated by a single provider that can offer the majority of the services? Incumbent transforms its network to NGN and acquires a significant competitive advantage More than one, by-and-large equal infrastructures and their independent providers compete To what extent the difference between services will disappear, what will be the market success of bundled services? Services converge, companies able to offer bundles have competitive advantage Significant demand remains for separate, non-bundled services To what extent will the functions and market players diverge or converge along the value chain? Significant market players appear, which are active in only some elements of the value chain Vertically integrated companies dominate the market, which are active in all elements of the value chain Technological trendsService trendsValue chain trends

19. 19 FOUR BASIC SCENARIOS IDENTIFIED AS POTENTIAL MARKET EVOLUTION PATHS IN HUNGARY UNTIL 2010

20. 20 EXPECTED OUTCOME OF COMPETITION SHOULD BE TAKEN INTO ACCOUNT WHEN DETERMINING REGULATORY APPROACH

21. 21 THE LADDER OF INVESTMENT CONCEPT FUNCTIONS AS A BRIDGE FROM (SHORT TERM) SERVICE TOWARDS (LONG TERM) INFRASTRUCTURE COMPETITION (1)Voice and dial-up internet. In case of VoIP backbone technology bitstream access ensures relevant alternative even at the voice services.

22. 22 DETERMINATION OF CONCRETE INTERVENTIONS SHOULD BE PRECEDED BY DETAILED MARKET REVIEW AND IMPACT ASSESSMENT. THE FOCUS AND WEIGHT OF SAME INTERVENTION CAN DIFFER ACCORDING TO THE SCENARIOS

23. THANK YOU FOR YOUR ATTENTION!