1. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School L IBERALISATION & R EGULATION IN THE E LECTRONIC C OMMUNICATIONS S ECTOR http://www.netmode.ntua.gr/ Courses/Graduate/Liberalization & Regulation in the Telecommunication Sector Vasilis Maglaris maglaris@netmode.ntua.gr Costas Troulos ktroulos@netmode.ntua.gr Vassilis Merekoulias merek@netmode.ntua.gr Introduction – The International & European framework of Telecom Reform

2. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA2 Introduction to the course Objective: To provide an in-depth understanding of the main issues and options of telecommunication regulations and reform at the EU level. Main Tools: Economic & Legal principles of Competition Law, Technological Advances in Electronic Communications (e.g. Broadband & Wireless Access to the Internet), Empirical Evidence of Regulation in European countries (e.g. Interconnection & Unbundling of Services)

3. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA3 Topics addressed The international framework of telecom reform Cost modelling and price regulation Interconnection: Economic and policy aspects Universal Service, Universal Access and the digital divide The European experience in telecommunications regulation The new EU Regulatory Framework (July 2003) Local Loop Unbundling: Economic & technical aspects Metropolitan Area Fibre Networks – Fibre to the X (FTTX)

4. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA4 Logistics Information resources for the course –See the course site Students’ evaluation –See the course site –Group assignments –Possible topics for study –Methods of communication

5. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA5 Setting the Stage: The International & European framework of telecom reform The historical approach to telecommunication service provision Main pressures for change (technological and socio- economic) Major steps of reform: Strategies for the restructuring of markets from the 1980s till now Reform experiences in the US, the UK, and Europe Main features of the telecommunications industry that are important in the process of regulatory reform

6. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA6 The Historical Approach to Telecommunication Service Provision The PTT (Post, Telephone and Telegraph Administration) –granted monopoly –provision of telecommunication infrastructure and services –since late 19th century. Basic model world-wide = monopoly (public or private) on equipment and on basic network and service provision The natural monopoly doctrine: –Large fixed costs –Duplication was neither profitable for private investors nor socially desirable. –Telecommunications was one of the societal benefits linked with economic development. European PTTs became large and powerful employers, often capable to subsidise other social programmes.

7. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA7 (…cont’d) Until 1990s: PTTs acted as policy-maker, regulators & operators. Experiences in performance & liberalisation varied among countries (e.g. UK, France, Greece). 1990-2008: –Competitive service provisioning by alternate PNOs (Public Network Operators) –Protection against incumbent PNO (former state monopoly) State Regulation, Competition Monitored & Enforced by independent National Regulatory Authorities (NRAs) after the US FCC paradigm (UK OFTEL, now OFCOM, Greek EETT etc.) –Towards competitive service – network providers & infrastructure utilities (natural monopoly ?)

8. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA8 Main pressures for change (since late 1970s) Radical developments in the electronics/computer industry and digital technology lowered the costs for certain types of infrastructure, exposed the inefficiencies of PTT monopolies, and offered opportunities for market entry. Increasing technological convergence between previously separated industries (consumer electronics industry, telecommunications, and media publishing) created new types of value-added services. Internationalisation of business urged national carriers to compete in attracting customers wishing to establish multinational private networks. In Europe, concerns were raised over creating a single European market for equipment and services able to compete against the US and Japanese rivals.

9. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA9 Major steps of reform: Strategies for the restructuring of markets in the 1980s Market structure Strategies –Liberalisation –Deregulation –Divestiture (e.g. AT&T) –Consolidation (for capturing economies of scale and scope, e.g. through mergers and acquisitions) Ownership strategies –Semi-Public Corporation (loosens direct government control on the PTT) –Full Privatisation – Competition

10. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA10 … (cont’d) International Strategies –Expansion into new international markets –Alliances Competitiveness Strategies –Industrial policy considerations –Vertical integration (often with equipment manufacturers)

11. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA11 Reform experiences in the US Until the 1960s US telecom industry was dominated by a single private monopoly, AT&T. 1963: Competition in the long distance market following a request filed by MCI. This generated policy debates on interconnection arrangements with the local operating facilities of the Bell System. 1968: Carterphone decision (FCC approves third party CPEs to the AT&T network) 1974: the Department of Justice filed an antitrust complaint against AT&T monopoly position asking for its divestiture. 1984: break up of AT&T. –AT&T kept its long-distance operations, its manufacturing subsidiary, and its R&D facilities (Bells Labs). Also allowed to enter other markets. –Seven Bell Operating Companies (BOCs) restricted to local telephone service. Also known as LECs (Local Exchange Companies) or ILECs (Incumbent LECs). Each LEC was serving one of the 192 Local Access and Transport Areas (LATAs). Inter-LATA services were provided by long-distance carriers such as AT&T and MCI.

12. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA12 … (cont’d) 1993: Restrictions in RBOCs’ line-of-business started to be gradually abandoned and were allowed to offer information services 1994: RBOCs filed a request to enter into long-distance service provision and equipment manufacturing 1995: Restrictions in RBOCs’ long-distance service provision and equipment manufacturing were abandoned 1996: Release of the US Telecommunications Act of 1996 –The Act aims to foster local market competition and will enable RBOCs to enter the long distance market once there is ‘sufficient competition’ in the local market –Entry into local markets can be done through own facilities, resale, or unbundling –Players need to enter into symmetrical and non-discriminant interconnection agreements

13. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA13 US Recent Developments 1995: WorldCom formed after LDDS acquired Williams Telecommunications Group (WilTel) for $2.5 billion. 1996: WorldCom merges with MFS Communications Company (MFS) and UUNet Technologies, an Internet access provider for businesses. SBC Communications1997: SBC Communications, Inc. acquired Pacific Telesis Group ($ 16.5 billion). 1997: Bell Atlantic Corporation acquired NYNEX Corporation - New York Telephone Company and New England Telephone and Telegraph Company ($25 billion). 1998: BT fails to acquire MCI 1998: WorldCom completes three mergers: with MCI Communications ($40 billion), Brooks Fiber Properties ($1.2 billion) and CompuServe ($1.3 billion). 1998: SBC Communications, Inc. acquired Ameritech ($62 billion). 1998: SBC Communications, Inc. acquired Southern New England Telecommunications Corporation ($4.4 billion) 2000: 5 January 2000 - AT&T and BT announce the $10 billion joint venture, Concert (October 2001 - Final death of Concert).

14. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA14 … (cont’d) Verizon2000:Bell Atlantic Corporation and GTE Corporation merged into Verizon Communications ($53 billion – 250,000 employees). Qwest Corporation2000: U S WEST Communications Group merged with Qwest Communications International, forming Qwest Corporation. ($45 billion) Verizon Wireless2000: Verizon Wireless, a joint project of Verizon Communications and Vodafone (55% - 45%). Largest wireless US service provider (51,000 employees – 43.8 Million customers - $24.4 Billion annual revenues 2004) 2002: July 21 — WorldCom CEO Sidgmore says the company will file for Chapter 11, with the company listing assets of over $100 billion, and having more than 1,000 creditors, debt estimated at $32.8 billion, serving around 20 million consumers and running the world's biggest Internet network 2004: Cingular Wireless acquired AT&T Wireless Services Inc. 2nd largest wireless US service provider($41 billion) 2004: Sprint Corp. acquired Nextel Communications Inc. forming the 3 nd largest wireless US service provider. ($35 billion) 2005: SBC Communications (a Baby Bell) acquiring the No. 1 long- distance carrier, AT&T, for $16 billion.2005: SBC Communications (a Baby Bell) acquiring the No. 1 long- distance carrier, AT&T, for $16 billion. 2005: Verizon, MCI to link up in $6.7 billion deal2005: Verizon, MCI to link up in $6.7 billion deal

15. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA15 Reform experiences in the UK 1982: Licensing of Mercury for long-distance and international service provision. Operations began in 1986 and duopoly maintained until 1991. Discussions over interconnection charges began. 1984: Privatisation of British Telecom (BT) 1991: Licensing of several new long-distance and international operators. Cable TV companies allowed to offer local telephony services and long- distance and international through wholesale agreements with BT’s competitors. BT and Mercury were excluded from offering television services on existing phone lines. 1996: Ionica entered the local market through a fixed wireless service. BT and Mercury were excluded from offering fixed wireless service. Currently BT is loosing significant market share out of new competitors

16. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA16 Reform experiences in Europe (up to 2001) 1987: Issue of the EC Green Paper on Telecommunications. It proposed the introduction of competition in the equipment and services market. 1988: Commission Directive on competition in the markets for telecommunications equipment. 1990: Commission Directive on competition in the markets for telecommunications services. Its scope was gradually extended until 1998 when voice telephony and networks were completely liberalised. 1996: Commission Directive with regard to the implementation of full competition in telecommunication markets (96/19/EC).

17. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA17 The New European Regulatory Regime (2003) From Telecommunications to Electronic Communications Electronic Communications Networks (ECN) Electronic Communications Services (ECS) Framework Directive (2002/21/EC)2002/21/EC Authorization Directive (2002/20/EC)2002/20/EC Access & Interconnection Directive (2002/19/EC)2002/19/EC Universal Service and Users' rights Directive (2002/22/EC)2002/22/EC Data Protection Directive (2002/58/EC)2002/58/EC Unbundled Local Loop Regulation (2000/2887)2000/2887

18. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School April 2015 NETMODE/NTUA18 … (cont’d) Major principles underlying EC liberalisation measures: –removal of special or exclusive rights –objective, non-discriminatory and transparent conditions for granting of licences and access to networks –breaking of “monopoly bottlenecks” e.g. local loops, obligation for fairness in wholesale services market. –universal service provisioning The old Regulatory Framework: ex-post regulation of incumbent operators The old Regulatory Framework: The ONP Principle (OPEN NETWORK PROVISION), access and interconnection rights for licenced operators at wholesale, cost-based tariffs imposed by NRAs to ex-post regulation of incumbent operators. The new Regulatory Regime: ex-ante regulation of SMP (Significant Market Power) holders. The new Regulatory Regime: Competition Law. Definition, Analysis and Remedies of Markets by NRAs, ex-ante regulation of SMP (Significant Market Power) holders.

19. N ATIONAL T ECHNICAL U NIVERSITY OF A THENS Electrical & Computer Engineering School EU Framework Update Digital Agenda for Europe 2020 http://ec.europa.eu/digital-agenda/en/telecoms-rules The framework is made of a package of 5 Directives (unofficially consolidated versions) and 2 Regulations: o The Framework Directive is based on the Framework Directive 2002/21/EC and the Better Regulation Directive 2009/140/EC Framework DirectiveFramework Directive 2002/21/ECBetter Regulation Directive 2009/140/EC o The Access Directive is based on the Access Directive 2002/19/EC and the Better Regulation Directive 2009/140/EC Access Directive Access Directive 2002/19/ECBetter Regulation Directive 2009/140/EC o The Authorisation Directive is based on the Authorisation Directive 2002/20/EC and the Better Regulation Directive 2009/140/EC Authorisation Directive Authorisation Directive 2002/20/EC andBetter Regulation Directive 2009/140/EC o The Universal Service Directive is based on the Universal Service Directive 2002/22/EC and the Citizens' Rights Directive 2009/136/EC Universal Service DirectiveUniversal Service Directive 2002/22/ECCitizens' Rights Directive 2009/136/EC o The Directive on Privacy and Electronic Communications is based on the Directive on Privacy and Electronic Communications 2002/58/EC, the Amending Directive 2006/24/EC and the Citizens' Rights Directive 2009/136/EC Directive on Privacy and Electronic CommunicationsDirective on Privacy and Electronic Communications 2002/58/EC,Amending Directive 2006/24/ECCitizens' Rights Directive 2009/136/EC o The Regulation on Body of European Regulators for Electronic Communications (BEREC)Regulation on Body of European Regulators for Electronic Communications (BEREC) o The Regulation on roaming on public mobile communications networksRegulation on roaming on public mobile communications networks EU 2014 Update: https://ec.europa.eu/digital-agenda/en/news/2014-report- implementation-eu-regulatory-framework-electronic-communicationshttps://ec.europa.eu/digital-agenda/en/news/2014-report- implementation-eu-regulatory-framework-electronic-communications April 2015 NETMODE/NTUA19