Theory and Practice Under The New Regulatory Framework: Some Case Studies

1
Theory and Practice Under The New Regulatory
FrameworkSome Case Studies

• Peter Alexiadis
• Partner
• Gibson, Dunn Crutcher LLP/Brussels

FROM TELECOMMUNICATIONS TO ELECTRONIC
COMMUNICATIONS 28 March 2005 Hotel GRANDE
BRETAGNE/ATHENS
2

• TABLE OF CONTENTS
• Mobile Access Call Origination
• Mobile Call Termination
• Leased Lines
• Fixed Transit
• Fixed Call Termination Services

3
1. Access and call origination on public mobile
telephone networks (mkt 15)

• A. Characteristics
• Network access and call origination are
  typically supplied together by a network operator
  as part of the same market (absent the
  introduction of call selection on mobile
  networks).
• The market is still subject to entry barriers in
  the absence of spectrum trading, entry by
  acquisition or future spectrum assignments.
• Intervention at the wholesale level may not be
  warranted if the level of competition at the
  retail level is satisfactory.

4

• B. Issues arising from case studies
• The role of pre-pay and post-pay.
• The role of advanced services.
• The interaction between wholesale and retail
  levels.
• The importance of whether there exist
  commercially negotiated access agreements.
• The role of MVNOs.
• Measuring single market dominance.
• Elements of collective dominance
  (retaliation/transparency/price
  competition/fringe competition).

Finland / Austria / UK / Ireland
5
2. Voice call termination on individual mobile
networks (mkt 16)

• A. Characteristics
• There is limited evidence of widespread
  constraints on the pricing of wholesale call
  termination, despite the fact that (i) mobile
  end-users have a choice between networks, and
  (ii) the relative ease of switching between
  networks.
• Supply side substitution might in theory
  constrain wholesale call termination charges if a
  network operators attempt to raise termination
  prices was unprofitable, but such substitution is
  not currently possible (e.g., software-enabled
  SIM cards).

6

• Demand side substitution at the retail level
  could in theory constrain termination charges,
  but this is a matter of adducing empirical
  support. There is currently no reason to believe
  that any of the demand substitutes would operate
  at a level that would constrain the operators
  behaviour.
• Under a Calling Party Pays system, the
  conclusion is that call termination on individual
  networks is the appropriate relevant market. Such
  a definition would only be undermined by (i)
  technical possibilities to terminate via other
  networks (ii) evidence that users can otherwise
  circumvent high termination charges or (iii)
  evidence that users subscribe to networks on the
  basis of what it costs to be called (i.e., a
  market definition which brings together access,
  call origination and termination).
• Whether every mobile operator has market power
  will still depend upon whether there exists any
  countervailing buyer power which would render
  unprofitable any non-transitory price increase.

7

• B. Issues arising from case studies
• Market structure.
• Countervailing bargaining power.
• Use of SSNIP test surrogates.
• Impact of GSM gateways.
• Treatment of smaller mobile operators.
• The use of glidepaths.
• Importance of best practices for termination.
• Accounts separation / transparency considerations.

Greece / UK / Portugal / Ireland
8
3. Wholesale terminating segments of leased
lines (mkt 13) Wholesale trunk segments of leased
lines (mkt 14)

• A. Characteristics
• Dedicated connection may be an alternative to
  unbundled local loops and vice versa in certain
  circumstances. Dedicated trunk or long distance
  connections may also be an alternative to long
  distance call conveyance.
• Dedicated capacity or leased lines may be
  required by end-users to construct networks or
  link locations, or be required by undertakings
  that in turn provide services to end-users. It is
  therefore possible to define retail and wholesale
  markets that are broadly parallel.

9

• The key elements in the demand and supply for
  dedicated connections are bandwidth, distance and
  the location or locations to be served, and there
  may also be qualitative characteristics (to
  distinguish between voice grade and data grade
  circuits).
• At the retail level, specific reference is made
  to the provision of the minimum set of leased
  lines under the Universal Service Directive. It
  is not necessary to identify specific market for
  each category of leased line in the minimum set,
  since the market structure will be similar for
  each sub-set. It is also not necessary to expand
  the retail leased line categories to capacities
  beyond the minimum set, since there must be a
  presumption that intervention at the wholesale
  level will be sufficient to address any problems
  that arise.
• At the wholesale level, it is possible to
  distinguish separate markets, especially between
  the terminating segments of a leased circuit
  (i.e., tails or local segments) and trunk
  segments. What constitutes a trunk segment will
  depend on the topology specific to particular
  Member States, and will be decided upon by the
  relevant NRA.

10

• B. Issues arising from case studies
• Difficulties with legacy definition for
  minimum set (not accounting for innovation
  dedicated/uncontended/transparent).
• Difficulties in differentiating between retail
  and wholesale lines ( evidentiary issues).
• Difficulties in breaking down tails and
  trunks at wholesale level (especially regarding
  end-to-end products).

UK / Ireland / Sweden / Finland
11
4. Transit services in the fixed public
telephone network (mkt 10)

• A. Characteristics
• The long distance conveyance of switched calls
  on the public telephone network provided at a
  fixed location (contra the provision of dedicated
  capacity even if some transit services are
  provided over leased circuits or lines).
• An alternative could be to use interconnected
  leased lines or dedicated trunk capacity (for a
  limited number of end-users).
• The range of operators providing services or the
  necessary network elements depends on traffic
  volumes on particular routes. Thin routes have
  little or no available capacity.

12

• Depending on network topologies, the delineation
  between call origination and transit services can
  vary, and it is left to the NRAs to define those
  elements constituting each part.
• If call origination and call termination are
  already defined, transit is also defined by
  default.

13

• B. Issues arising from case studies
• Boundaries between origination/termination/transi
  t.
• Critical question of treatment of self-supply.
• Absence of indirect pricing constraints (i.e.,
  5 of retail call costs).
• Application of greenfield approach.

Austria / Ireland
14
5. Call termination on individual public
telephone networks provided at a fixed location
(mkt 9)

• A. Characteristics
• Alternatives for demand and supply substitution
  do not appear currently to provide sufficient
  discipline on call termination at fixed locations
  or an argument in favour of a wider market
  definition than any individual fixed networks.
• The key aspects giving rise to a rise in call
  termination prices are (i) that there is no
  technical alternative by which a call can be
  terminated and (ii) the calling party pays for
  the call. Such an incentive would not arise/would
  be limited if no charge was levied for incoming
  traffic or if the receiver rather than the caller
  paid any charge, or if there was a very close
  financial relationship between the calling and
  the called party.

15

• A relevant market of call termination on
  individual networks does not automatically mean
  that every network operator has SMP this depends
  on the degree of any countervailing bargaining
  power and other factors potentially limiting that
  market power. It would in principle be more
  difficult for a small network to resist a move by
  a large network to lower its termination charges.

16

• B. Issues arising from case studies
• Distinction between termination to end-to-end
  users or service providers.
• Role of other retail relationship with service
  provider.
• Distinction between termination where retail
  service is provided under the Called or Calling
  Party Pays principle.
• Timing of greenfield approach.
• Countervailing bargaining power issues.

Ireland / UK / Finland / Germany
17
(No Transcript)