1. Challenges in Telecom Regulation APEC Telecenter Workshop, Taipei, 2005 Challenges in Telecom Regulation Dr. C. K. Mao Chair Professor National Chiao-Tung University

2. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 1 Observations, Vision and Propositions Observations – a perfect storm is forming –PSTN-based telephony business’ ever difficult position –Saturating Mobile Voice Service –Emerging Wireless technology – disruptive innovation –Regulatory regime at crossroad Vision – A Structure Change –The Convergence of Fixed, Mobile, Wireless, Broadcasting, and Information Services –Industry Structure: from vertical to horizontal Propositions –Regulatory solutions going forward

3. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 2 PSTN --- Endangered Spicy Voice Empire -- Collapsing –Price Cap, ILD Price Competition  Shrinking pie –Traffic shift – Fixed Mobile Substitution  20% to 50% –Hi-growth VOIP business  10% to 20% evaporated, up to now Core Network – Obsolete and Vulnerable –Expanding IP Network – PSTN marginalized –Venders Maintenance Capacity – divested Access Network -- Challenged –Bandwidth: Cable and Fiber vs. ADSL –Deployment Cost: WiFi (WiMax) vs. ADSL Regulation -- Unfriendly –Asymmetric Regulation vs. Mobile and Wireless Businesses’ USO, Interconnection charge, UNE (for incumbent), … Business – Stalled –Broadband VAS not taking off, no promising new revenue stream

4. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 3 PSTN’s Vanishing Point ? Market Share* 100% Chinese Taipei:13 mn 75% ? 50% Chinese Taipei:1 mn July ‘04 Jan ‘09 Jan ‘05 Jan ‘07 Jan ‘06 Jan ‘08 Jan ‘10 PSTN VOIP Skype 1 mn/5-month (by Skype alone in Chinese Taipei) Incumbent abandons PSTN service? Sub-base unable to support full scale network operation * The fixed-mobile substitution effect not included.

5. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 4 Interplay among Alternative Technologies The Game –The mantis is seizing the cicada not knowing the oriole just behind The hunter has the power to decide who wins –What the hunter should really do is the creation of a win-win-win situation mantis cicada oriole hunter w/ sling shot Mobile PSTN Wireless Regulator

6. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 5 Vision: Horizontal Convergence Fixed-Line Infrastructure Fixed-Line Application Fixed-Line Content Mobile Infrastructure Mobile Application Mobile Content Vertical Regulatory Regime Wireless Services, Broadcast Electronic Communication Infrastructure (Fixed+Mobile+Wireless+Broadcast) Electronic Communication Application Electronic Communication Content Evolve Horizontal Regulatory Regime Lines between vertical markets blurred Industry structure Change  Horizontal “Integration”; Vertical Division

7. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 6 Propositions for New Regulatory Policy -- 1 Don’t work against Technological Trend –It’s useless to prevent a trend from happening Don’t naively copy other countries’ practices –Differences in infrastructures’ status, competition intensity, consumer spending, calling pattern, … Set Clear Goals –Reconcile the interests of governments, incumbents, new entrants, and consumers –Provide incentives to promote investment and infrastructure-based competition, and continued development of networks and technological innovation

8. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 7 Propositions on New Regulatory Policy -- 2 Policy Refocus –Fixed-line incumbent’s last mile monopoly had been broken by mobile and other wireless technologies Transferring the incumbent’s profit to consumer or competitor is no longer a “real” issue going forward –Mobile, wireless, cable, fiber, and the old fixed-lines should be all put into regulatory regime’s overall picture in the future –From asymmetric to symmetric regulation, e.g., USO issue For Developed Economies –Horizontal integration (interconnection) of various electronic communication technological platforms –New form of Virtual Network Operators (VNO) and Content Providers to use new hybrid infrastructure to provide broad-band multi-media seamless services at market cost –More market competition force than regulation power For Developing Economies –Parallel deployment of alternative electronic communication technological platform –Watch the digital divide between urban and rural areas

9. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 8 Wireless Mobile Fixed-Line -- ADSL, Cable, Fiber Infrastructure Deployment Strategy Deployment CostLoHi Technology Novelty HiLo Value Proposition Hi-end B-band Mobility Ubiquity USO Basic Voice F%M%W% Telecom Infrastructure Composition 0%0%100% Hi Income Level Lo

10. ©Dr. C.K. Mao: Telecom Regulation (APEC Workshop) Jan. 24, 2005 9 Info-communication Service in the future Mainframe + LAN Client/Server + WAN Machine-Centric Systems Network-Centric Systems Global Electronic Communication Platform Global Web-based Platform Domain-Specific Application Platform App Module App Module App Module Contents Web-Based Application Systems

11. Thank you ckmao@mail.nctu.edu.tw