1. MARKET ANALYSIS IN SERBIA Workshop on EU telecommunications regulation, Belgrade, June 13 2012 Aleksandar Utjesinovic Market Analysis and Cost Accounting Department Workshop on EU telecommunications regulation Belgrade, Serbia June 13, 2012

2. Pursuant to the Law on electronic communications, RATEL carried out the first round of market analysis following EC 2007 Recommendation and BEREC (ERG) Guidelines The whole process of Market Analysis started in Sept. 2010, and ended in Nov. 2011 2007-2010 is the period of collected and analyzed data 2 METHODOLOGY Workshop on EU telecommunications regulation, Belgrade, June 13 2012

3. Data collection Questionnaires with data for the last three-and-a-half years were sent to all major operators in electronic communications markets Market definition - relevant markets were defined based on the 2007 EC Recommendation, including 2 additional retail markets For product dimension definitions we took into account the characteristics of the products or services provided, on both retail and wholesale level Geographic dimension of all markets is the territory of Republic of Serbia, because regulatory and legal conditions are uniform, and major operators provide services with national coverage 3 METHODOLOGY – steps 1 2 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

4. Market analysis: set of criteria were applied to determine the level of competition, the presence of a SMP operator and potential barriers to efficient competition Identification of SMP operators for each market Defining the set of regulatory measures for each SMP operator 4 METHODOLOGY – steps 3 4 5 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

5. Wholesale markets wholesale call origination on the public telephone network wholesale call termination on the public telephone network wholesale (physical) access to network elements and associated facilities (including shared and full unbounded access to the local loop) wholesale broadband access wholesale leased lines wholesale call termination on the mobile network Retail markets retail access to the public telephone network retail media contents distribution retail publicly available telephone service at a fixed location 5 RESULTS OF MARKET ANALYSIS Workshop on EU telecommunications regulation, Belgrade, June 13 2012

6. Retail Access To The Public Telephone Network Market 1 6 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

7. Market definition – retail market for narrowband access to the public telephone network at a fixed location for business and residential users of electronic communications network. – Product dimension includes all available types of access: – PSTN – ISDN – CDMA Regardless of the category of users (residential or business) Market players: – Telekom Srbija (the incumbent) – Orion Telеkоm (large internet provider) (began with work in 2010) – Telеnor (the second largest mobile operator) (began with work in 2011) 7 MARKET 1 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

8. SMP operator Telekom Srbija Market share of almost 100%, which is stable and not likely to change substantially before the next analysis Significant advantage over the competitors due to owing the infrastructure which is not easily duplicated, service diversification, economies of scope and economies of scale etc Imposed remedies Prohibition of excessive pricing Prohibition of barriers to entry or excessive pricing or underpricing such as to limit the competition Prohibition of preferential treatment of an end-user Price control Obligation to obtain a formal approval from NRA for price formulation and price changes for bundled services Individual tariff control measures Cost-oriented prices or benchmarked prices 8 MARKET 1 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

9. Wholesale Call Origination on the Public Telephone Network Market 2 9 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

10. Market definition – relevant market involves the services of call origination on the public telephone network at a fixed location, both for calls to numbers within its own network and to numbers in other networks in the country or abroad. Market players: – Telekom Srbija – Orion Telеkоm – Telеnor 10 MARKET 2 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

11. SMP operator Telekom Srbija Market share of almost 100%. Telekom Srbija controls the whole network infrastructure that can not be easily replicated and realizes economies of scale and economies of scope. Imposed remedies Publication of relevant data –reference offer Non-discriminatory actions Accounting separation Provision of access and use of parts of the network infrastructure and associated facilities Price control and cost-based accounting 11 MARKET 2 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

12. Wholesale Call Termination On The Public Telephone Network Market 3 12 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

13. Market definition – the relevant markets for wholesale call termination on the public telephone network at fixed location are: – Market for call termination on the public telephone network of Telekom Srbija (fixed network, including the capacities of the fixed CDMA network) – Market for call termination on the public telephone network of Orion telekom regardless of the national network of call origination. Market specifics – Call termination markets are specific since the technology of call termination excludes the possibility of competition 13 MARKET 3 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

14. SMP operators Telekom Srbija Orion telekom Imposed regulatory obligations to Telekom Srbija Publication of relevant data - reference interconnection offer Non-discriminatory actions Accounting separation Provision of access and use of parts of the network infrastructure and associated facilities Price control and cost-based accounting Imposed regulatory obligations to Orion telekom Publication of relevant data - reference interconnection offer Non-discriminatory actions Provision of access and use of parts of the network infrastructure and associated facilities Price control 14 MARKET 3 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

15. Wholesale (Physical) Access to Network Elements and Associated Facilities (Including Shared and Full Unbounded Access to the Local Loop) Market 4 15 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

16. Market definition – relevant product market includes the following services: – full and shared unbundled access to the local loop – access to network infrastructure – Collocation 16 MARKET 4 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

17. SMP operator Telekom Srbija with a 100% share in the relevant market Telekom Serbia controls the whole fixed network infrastructure that can not be easily replicated, and as vertically integrated operator realizes economies of scale and economies of scope Imposed remedies Publication of relevant data –reference offer Non-discriminatory actions Accounting separation Provision of access and use of parts of the network infrastructure and associated facilities Price control and cost-based accounting 17 MARKET 4 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

18. Wholesale Broadband Access Market 5 18 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

19. Market definition – relevant broadband access on a retail and wholesale level includes the following services: – ADSL access via copper pair provided by Telekom Srbija for their own needs – ADSL bitstream access via copper pair 18 MARKET 5 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

20. SMP operator Telekom Srbija share of over 90% in the revenues from broadband wholesale, share of over 65% in the number of broadband ADSL end-users, being the only operator with a complete infrastructure for the provision of wholesale broadband access via copper pairs Imposed regulatory obligations Publication of relevant data Non-discriminatory actions Accounting separation Provision of access and use of parts of the network infrastructure and associated facilities Price control and cost-based accounting 20 MARKET 5 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

21. Wholesale Leased Lines Market 6 21 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

22. Market definition: – the relevant market involves only wholesale leased lines, – based on available data there are no division between the terminating and trunk segment, and the market was treated as end-to-end leased line Ethernet is a substitute for traditional leased lines on demand side Market players: – Telеkom Srbija – Теlenor – JP PTT (public postal services company) – Vip Mobile (mobile operator) 22 MARKET 6 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

23. SMP operator Telekom Srbija market share of 89% in terms of revenues, it controls the whole infrastructure for providing leased line services on wholesale level Imposed regulatory obligations Publication of relevant data Non-discriminatory actions Accounting separation Price control and cost-based accounting Provision of minimum set of leased lines 23 MARKET 6 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

24. Wholesale Call Termination on the Mobile Network Market 7 24 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

25. Relevant markets for wholesale call termination on the public mobile telephone network are: – market for call termination on the mobile network of Telekom Srbija – market for call termination on the mobile network of Telenor – market for call termination on the mobile network of Vip Regardless of the national call origination network Market players (all three mobile operators) – Telekom Srbija – Telenor – Vip Mobile Market specifics: – the technology of call termination excludes the possibility of competition 25 MARKET 7 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

26. SMP operators Telekom Srbija, Telenor and Vip (having in mind the market specifics) Imposed regulatory obligations to Telekom, Telenor and VIP Publication of relevant data - reference interconnection offer Non-discriminatory actions Provision of access and use of parts of the network infrastructure and associated facilities Price control 26 MARKET 7 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012 It is decided not to impose accounting separation and cost accounting to SMP operators due to following reasons: Mobile operators mutually agree on terms and conditions for mobile termination and RATEL hasn’t intervened in the past Mobile termination is the only service in the mobile market which needs to be monitored and regulated.

27. Media Contents Distribution Market 8 27 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

28. Market for media content distribution is not stipulated as relevant under the Serbian Law on Electronic Communications, nor under the European Commission Recommendation Market definition – relevant market includes solely retail market for media contents distribution. Media contents distribution service is a single service regardless of technology (network) deployed (e.g. cable, satellite - DTH, or fixed network - IPTV) Market players – 81 media content distributors out of which 76 are cable operators, 3 are DTH and 2 IPTV service providers The three-criteria test – having applied the three-criteria test it was found that all three criteria are cumulatively met and that, hence, the retail market for media contents distribution was subjected to ex-ante regulation 28 MARKET 8 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

29. SMP operator Serbia Broadband SBB market share of 50% in terms of revenues and users, which is stable over the past years having significant advantage over the competition due to a lack of bargaining power of customers, because it provides the service through cable network and satellite having significant advantages over the competition on the basis of diversification of services and economies of scale, because it is one of the major operators in the Internet market having significant advantages over the competition on the basis developed sales network in towns, since it has easy access to end users 29 MARKET 8 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

30. Media contents distribution market is rapidly changing, and RATEL will closely monitor the development of potential competition in this market, especially in IPTV segment which is the fast growing in Serbia 30 MARKET 8 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012 Imposed regulatory obligations Prohibition of excessive pricing Prohibition of barriers to entry or excessive pricing or underpricing such as to limit the competition Prohibition of preferential treatment of an end-user Price control Obligation to obtain a formal approval from NRA for price formulation and price changes for bundled services Individual tariff control measures Cost-oriented prices or benchmarked prices

31. Retail Publicly Available Telephone Service at a Fixed Location Market 9 31 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

32. Market definition – retail market for the provision of publicly available telephone service in the local, national and international traffic to business and residential users via public fixed telecommunication network Product dimension includes all available types of access – PSTN – FWA – CDMA – VoIP Market players – Telekom Srbija (PSTN, ISDN, CDMA) – Orion telekom (CDMA) – VoIP operators (40 operators) – Telenor having applied the three-criteria test it was found that all of the three criteria were met 32 MARKET 9 Workshop on EU telecommunications regulation, Belgrade, June 13 2012

33. SMP operator Telekom Srbija market share of almost 100%, which is stable and not likely to change substantially before the next analysis significant advantage over the competitors due to the infrastructure that is not easily duplicated having significant advantage over the competitors due to service diversification and economies of scope and economies of scale Imposed regulatory measures Prohibition of excessive pricing Prohibition of barriers to entry or excessive pricing or underpricing such as to limit the competition Prohibition of preferential treatment of an end-user Price control Obligation to obtain a formal approval from NRA for price formulation and price changes for bundled services Individual tariff control measures Cost-oriented prices or benchmarked prices 33 MARKET 9 (Cont’) Workshop on EU telecommunications regulation, Belgrade, June 13 2012

34. Monitoring of SMP operator’s activities Price control according to cost-accounting model and principles Regulation of Bundled services Implementing the regulated prices in MTRs according to predefined glide path 34 FUTURE CHALANGES Workshop on EU telecommunications regulation, Belgrade, June 13 2012

35. 35 Thank you for your attention Workshop on EU telecommunications regulation, Belgrade, June 13 2012