1. Davide Gallino (d.gallino@agcom.it) Regulated access policies and infrastructure development Davide Gallino (d.gallino@agcom.it)

2. Regulation vs investment? The traditional assumption is that regulation [or an excess thereof] stifles incentives for investments, thus damaging innovation and infrastructure development. Trade offs between regulation and investment policies are possible, as well- commanded regulatory policies can act as incentives for infrastructure creation and integration.

3. Access policies Access (and Interconnection) regulated using: Non discrimination Cost orientation Retail minus Price/Network Caps Accounting and company separation

4. Regulatory strategy on access From service to infrastructure competition: Carrier selection and preselection Different Interconnection thresholds (GER/ITA model vs FRA/SPA model) Local loop unbundling, X-DSL, UMTS, direct access (ftth) CAS non discrimination

5. 5 New regulatory framework Framework Directive (21/2002)Framework Directive (21/2002) Access Directive (19/2002)Access Directive (19/2002) Competition Directive (77/2002)Competition Directive (77/2002)

6. The new regulatory framework Keep regulation to a minimumKeep regulation to a minimum Framework directive + 4 specific directives (authorisation, access+ interconnection, universal service, data protection)Framework directive + 4 specific directives (authorisation, access+ interconnection, universal service, data protection) Better defined objectives for regulationBetter defined objectives for regulation Technological neutralityTechnological neutrality Hard and soft lawHard and soft law

7. Infrastructure development incentives Preserve “value added” (=leave extra- profits untouched)Preserve “value added” (=leave extra- profits untouched) Regulation compatible with marketing (price cap, mobile termination price-cap, transparency, quality of service)Regulation compatible with marketing (price cap, mobile termination price-cap, transparency, quality of service) Regulation for a more competitive marketRegulation for a more competitive market Sunset clausesSunset clauses De-regulation (es. International calls in Italy)De-regulation (es. International calls in Italy)

8. 8 EU electronic communication mkt value

9. 9 Regulation does create incentives for investment Regulation provide certainty, by way of long term decision (such as those introducing price or network caps) NRA ’ s decisions have set the return on capital investment at levels that, at least in the telecom sector, are significantly higher than those in gas or water distribution. This is probably due to a more intense competition, and is - correctly – reflected in higher returns on capital.

10. The market 2003 - 2004 Price and quality leverage; new servicesPrice and quality leverage; new services Increasing competitive pressure and consolidationIncreasing competitive pressure and consolidation Integrated services (fixed/mobile/content and Internet services + ASPs)Integrated services (fixed/mobile/content and Internet services + ASPs) Vertical and horizontal integrationVertical and horizontal integration Three mkts: origination - transport - terminationThree mkts: origination - transport - termination

11. 11 Regulation and revenues.Revenues in the regulated set of services (ie a basket, or several indipendent services which may be regulated) may and normally do provide the source for investment in non-regulated services. Es: local calls  Internet dial up  DSL broadband -  direct access

12. The regulator 2003-2004 Crossroads:Crossroads: –implementation of new regulatory framework; – spectrum / numbering allocation plan; –price control of intermediate services offered by the incumbent (I/C, leased lines, access including mobile); –competition law; –regulation of a single communications infrastructure (TLC-TV-RADIO-INTERNET); –benchmarking.

13. 13 Regulation of access Increased externalities (no. of customers, new services) Competitive cycle Reduced costs (more traffic, more efficiency)

14. 14 : In conclusion, three main elements can be derived from the present situation: Sound access regulation policies may promote innovation, and increase the number of users; Investment can be modulated either by incumbents and by new entrants; but the latter must build a customer base, incur “switching costs” (they have to be chosen by customers) and control their own inefficiencies as well; this takes time that has to be provided by regulation. Regulatory wisdom (if any) and technology driven development can co-exist.