Interconnection Public Seminar Final
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Transcript of Interconnection Public Seminar Final
Interconnection RateBenchmarking
Namibia
Dr. Christoph Stork
Tuesday 28 July 2009
Namibia’s Success Story:9 months from dispute to resolution
October 2008: Minister of ICTs Joel Kaapanda hosts a workshop to address an interconnection workshop between telco operators. Operators agree to conduct a benchmarking study
January 2009: NCC commissioned Research ICT Africa to conduct a benchmarking study
June 2009: NCC prescribes new termination rate ceiling of N$ 0.60 with glide path to N$0.30 by January 2011
Tuesday 28 July 2009
Table of Contents
Interconnection background
Situation in Namibia
Benchmarking termination rates & trends
Benchmarking cost of termination
Namibian benchmark model
Conclusion
Tuesday 28 July 2009
Termination rates
What operators charge each other for terminating a call for the other network
Example: A Vodacom customer calling a CellC customer
Vodacom collects the revenue from its customerCellC has a cost, the cost of terminating the call on its networkVodacom pays CellC a termination charge to compensate for that cost
Tuesday 28 July 2009
Why Regulate Interconnection?Each operator holds a monopoly for termination on its network
Incumbent may seek to limit competition and preserve its market power:
Refusing to interconnectHigh prices that make it difficult for new entrant to compete“Sabotage” by providing a lower quality interconnection service
Regulatory intervention can lead to a more efficient outcome
ITU: Interconnection = single most important problem in the development of competitive telecom sectors
Tuesday 28 July 2009
International trends and best practice
International best practice: Termination rate = cost of termination of efficient operator:
Promote economic efficiencyProvide incentives to invest in new technologies to reduce costs and expand service offeringsPromote competition Promote universal service (through low retail prices)
NGN / IP based voice traffic will become insignificant...new pricing principles RPNP... SKA
Tuesday 28 July 2009
Interconnection Price - Too LowBelow cost recovery of terminating network
Often sited: Incumbent operators may not invest in the network or maintain its quality. However...
Operators build their networks to make money off their subscribersTermination revenue makes up around 10% of total revenueReceiving party benefits from the call too, therefore the terminating network provides a service for own subscribers
However, SKA can lead to undesirable arbitrage in CPNP
Tuesday 28 July 2009
High Interconnection PricesCustomers pay more than they need to
Incumbent can prevent new entrants from gaining market share
New entrants need to compete with their off-net rates against incumbent’s on-net pricesHigh termination rates can prevent them from doing that
Incumbents high off-net price makes it expensive to be called for switchers
Causing traffic imbalanceNet termination payment outflow of new entrant
Tuesday 28 July 2009
CellOne
MTC
Switch
Benefit of size:Customer Switching has Initially mostly on-net calls ie MTC to MTC callsAfter switching mostly off-net call eg CellOne to MTC
Tuesday 28 July 2009
Approaches
Industry Consensus
Regulatory InterventionCost based
Benchmarking
SKA or Bill and Keep
Retail minus pricing
Tuesday 28 July 2009
Situation in Namibia
Tuesday 28 July 2009
The best outcome for Namibia
Fair competition among telecommunication operators
Lower consumer pricesBetter servicesMaximum job creationHighest income for government through company tax and individual income taxReasonable returns for shareholders / Investors
Tuesday 28 July 2009
Competition has been good for Namibia and MTC, it needs to be fair to new investors as well!
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MTC 2005 2008
subscribers
net profit after tax
Staff
400,000 1 million
293million
358million
302 (2006)
364
OECD Price basket
Tuesday 28 July 2009
Legal Requirement for Termination Rates
MTC’s and CellOne’s LicencesNew ICT policiesNew telecommunications Bill (passed by parliament in July 2009) all require that termination rates are:
Cost basedTransparentSufficiently unbundleddoes not pay for network components or facilities that it does not require for the service
Tuesday 28 July 2009
CellOne and SWITCH cannot compete with their off-net rates with MTC’s on-net prices
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Tuesday 28 July 2009
MTC Connect 50 LeisureMTC Connect 50 FreedomMTC Connect 100 Leisure
MTC Connect 100 ActiveMTC Connect 250 Achiever
MTC Connect 500MTC Connect 1000 Pioneer
MTC ProfessionalMTC Tango per minute
MTC Fusion 59MTC Fusion 39
MTC Tango Day and Night MTC Tango per second
MTC Tango Seven to Twelve 397%571%
397%397%397%
532%310%
259%284%
310%310%
365%365%365%
Peak Fixed Retail Price as multiple of FTR
MTC’s fixed retail rates are causing traffic imbalance and net termination payment outflow for Telecom Namibia...starving the fixed line network
Tuesday 28 July 2009
Termination revenue as share of total revenue
6%
9.8%
11.2%
MTC CellOne Telecom Namibia
Tuesday 28 July 2009
Interconnection net payments in N$ million (Source: Telecom Namibia and CellOne)
Tuesday 28 July 2009
Traffic imbalance (minutes)
Tuesday 28 July 2009
Fixed-Mobile ConvergenceMTC’s Home Phone: cheaper prices for On-Net calls compared to a mobile subscriber but mobile retail rates when calledDifferences between mobile and fixed termination rates favour mobile operators in offering converged services, using mobile termination rates to subsidise the on-net retail ratesConverged termination rates stimulate converged solutions and prevent bias towards mobile operators (Tanzania and Uganda)
Tuesday 28 July 2009
Playing field is not levelTermination rates are neither cost based, nor transparent nor sufficiently unbundledMTC has on-net rates that are below MTR: it makes it impossible for CellOne or Switch to compete on priceHigh Off-net and fixed-line retail rates deter MTC’s customer to call CellOne, Switch or Fixed, causing traffic imbalances and interconnection payment out flows from CellOne and Telecom NamibiaLacking number portabilityHigh Once-Off fee for CellOne N$65.3 million
Tuesday 28 July 2009
Namibia needed to be pragmatic about interconnection regulation
The direct regulatory costs of a detailed forward-looking cost regime is significant:
Operators may hire engineers, economists and lawyers to put forward their views Regulator must have enough resources to assess competing claims about costThere may be costly dispute resolution processes Accounting separation may needed to be pre-scribed which is time consuming and expensive
No guarantee that detailed cost estimation approaches will be accurate
NCC has only 7 staff members and part-time commissioners
Tuesday 28 July 2009
Benchmarking termination rates & trends
Tuesday 28 July 2009
EU Recommendation 7 May 2009
Objectives of regulation:Technological neutrality
Preventing distortions and promoting competition
Deliver maximum benefit for consumers (choice, price and quality of service)
Termination rates should be brought down to the cost of an efficient operator - Cost Model:
Bottom-up LRIC, only taking into account cost that are caused by the provision of wholesale call termination (the increment)
Mobile and fixed core network based on NGN
Mobile access network based on a combination of 2G and 3G
Asymmetric termination rate for max 4 years: if incremental unit costs higher
Tuesday 28 July 2009
Termination Rates April 2009 MTR N$India
CyprusAustria
SwedenFinlandKenya
TanzaniaBotswanaSlovenia
FranceUganda
UKNamibia
South Africa PeakSouth Africa Off peak 0.75
1.251.06
0.930.86
0.830.77
0.710.630.62
0.590.550.54
0.240.04
Tuesday 28 July 2009
Termination Rate Trends in Euro cents
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Tuesday 28 July 2009
0
0.05
0.1
0.15
0.2
0 125 250 375 500
Mob
ile T
erm
inat
ion
Rate
s
Population density 2006
Tuesday 28 July 2009
Benchmarking Cost of Termination
Tuesday 28 July 2009
Market Share 17%17% 25%25% 31%31% 44%44%
Coverage 96%96% 96%96% 96%96% 96%96%
WACC 11.68%11.68% 11.68%11.68% 11.68%11.68% 11.68%11.68%
A$ Cents
N$ A$ Cents
N$ A$ Cents
N$ A$ Cents
N$
Voice On-Net 13.4 0.93 10.7 0.74 9.6 0.66 8.9 0.62
Voice Termination 7.3 0.51 5.9 0.41 5.3 0.37 5 0.35
Voice Origination 6.4 0.44 5.2 0.36 4.6 0.32 4.2 0.29
Termination share of on-net
54.48%54.48% 55.14%55.14% 55.21%55.21% 56.18%56.18%
WIK 2007 study for Australia:TSLRIC
Tuesday 28 July 2009
Sweden Sweden 2008-09 2009-10 2010-11 2011-12 2012-13
Based on costs of highest operator
SEK 0.358 0.275 0.227 0.201 0.183Based on costs of highest operator
N$ 0.449 0.345 0.285 0.252 0.230
Based on costs of lowest operator
SEK 0.213 0.204 0.175 0.144 0.125Based on costs of lowest operator
N$ 0.267 0.256 0.219 0.181 0.157
Analysys 2007 study for PTS in Sweden based on LRIC
Tuesday 28 July 2009
Austria Austria 2005 2006 2007 2008 2009
Operator 1 Euro Cents 6.67 5.69 4.40 3.40 3.08Operator 1
N$ 0.80 0.69 0.53 0.41 0.37
Operator 2 Euro Cents 12.83 6.41 6.49 3.39 2.70Operator 2
N$ 1.55 0.77 0.78 0.41 0.33
Operator 3 Euro Cents 12.88 10.21 4.03 2.42 1.87Operator 3
N$ 1.55 1.23 0.49 0.29 0.23
Operator 4 Euro Cents 16.06 12.45 8.32 4.52 2.71Operator 4
N$ 1.94 1.50 1.00 0.55 0.33
Operator 5 Euro Cents 11.64 8.41 8.74Operator 5
N$ 1.40 1.01 1.05
Tuesday 28 July 2009
TanzaniaTanzania 01-Jan-08
01-Jan-09
01-Jan-10
01-Jan-11
01-Jan-12
LRIC+ equi -proportionate
Mark-Up (EPMU)
Real 2007 US cents
7.15 6.88 6.63 6.51 6.39LRIC+ equi -proportionate
Mark-Up (EPMU) Nominal US
cents7.30 7.18 7.08 7.12 7.16
LRIC+ equi -proportionate
Mark-Up (EPMU)
N$ 0.60 0.59 0.58 0.58 0.59
Glide Path for MTR &FTR & international
incoming
Nominal US cents
7.83 7.65 7.49 7.32 7.16Glide Path for MTR &FTR & international
incoming N$ 0.64 0.63 0.61 0.60 0.59
Tuesday 28 July 2009
Mobile termination costs Namibia (N$/ZAR): MTC being the most efficient operator
Current MTR
MTC total expenditure per minute
MTC opex per minute
MTC direct cost and depreciation per minute
MTC direct cost per minute
MTC 50% of dircet cost and depriciation per minute 0.24
0.34
0.48
0.97
1.02
1.06
Tuesday 28 July 2009
Mobile termination cost per minute in N$
Tanzania LRIC + mark up
Australian Efficient Operator (44% market share)
Swedish Efficient Operator
French Efficient Operator (upper level)
MTC’s estimated cost of termination
Austrian Efficient Operator
Telecom Namibia’s estimated cost of termination
French Efficient Operator (lower level) 0.12
0.14
0.23
0.24
0.24
0.26
0.35
0.59
Tuesday 28 July 2009
Namibian Benchmark Model
Tuesday 28 July 2009
Termination Rates should be
Based on cost of an efficient operatorTechnologically and service neutralFacilitate emergence of IP-based NGNsShould be implemented in terms of the current licence condition and acts
Tuesday 28 July 2009
Benchmarking Models
The proposed termination glide path = ceilings: Operators would be free to negotiate for lower rates:
Model 1: Immediate drop to N$0.30Model 2: Symmetric glide path to N$0.30 starting 1 July 2006Model 3: Symmetric glide path to N$0.30 starting 1 July 2009Model 4: Asymmetric glide path to N$0.30 starting 1 July 2009
Tuesday 28 July 2009
CellOne Telecom Namibia MTC
Model 1: Immediate N$0.30
Model 2: Symmetric glide path to N$0.30 that started 1 July 2006Model 3: Symmetric glide path to N$0.30 starting 1 July 2009
Model 4: Asymmetric glide path to N$0.30 starting 1 July 2009
MTC model: reduction to N$0.60 until 2011
2nd choice: if accompanied by other
regulatory interventions
2nd choice: Removing distortionary factors immediatelybut request higher transit charge for outgoing international calls
No comment
2nd choice: if accompanied by other
regulatory interventions
1st choice: Compensates for market distortions of past
years
No comment
Rejected: sees no reason to wait to remove market
distorting factors
Rejected: only gradually removes market distortions and
disadvantage TN and consumers unjustifiably for two years longer
No comment
1st choice: because of current traffic
imbalance
Rejected: only gradually removes market distortions and
disadvantage TN and consumers unjustifiably for two years longer
No comment
Rejected: same as for Model 3
Rejected: same as for Model 3 Otherwise: Drop in EBITDA margin to 37% because
of having to compete on a
level playing field
Tuesday 28 July 2009
After several consultations with all operators: Industry consensus
Immediate drop of termination rates to N$0.60 to catch up with the region and international developments
Glide path to the estimated cost of an efficient operator + 25% mark-up, ie NS0.30
Immediate fixed-mobile convergence of termination rates
It gives time to MTC and CellOne to conduct LRIC studies and contest the results
Tuesday 28 July 2009
Compromise ModelCurrent 1 July 2009 1 January
20101 July 2010 1 January
2011MTR 1.06 0.60 0.50 0.40 0.30
FTR 0.63 0.60 0.50 0.40 0.30
Originating internationally, terminating locally via Telecom Namibia
0.59 0.60 0.50 0.40 0.30
Originating in Namibia and terminating internationally
Government Gazette
0.60 + international
settlement rate
0.50 + international
settlement rate
0.40 + international
settlement rate
0.30 + international
settlement rate
Tuesday 28 July 2009
Net termination payment flow in N$ million for 2008 assuming unchanged retail prices and traffic for N$0.6 and N$0.3
Current TR TR N$0.60 TR N$0.30
23.2346.46
91.5
-22.25-44.5
-88.9
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CellOne Telecom Namibia MTC
Tuesday 28 July 2009
MTC EBITDA Margins
MTC current
MTC direct impact of MTR N$0.60
MTC direct impact of MTR N$0.30
Vodacom South Africa
MTN South & East Africa
Orange UK
Orange Spain 15.1%
20.3%
34.4%
34.6%
47.4%
48.1%
49.9%
Tuesday 28 July 2009
CellOne and SWITCH off-net rates compared to MTC’s on-net rates at MTR N$0.60, assuming cost saving is passed on
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Tuesday 28 July 2009
CellOne and SWITCH off-net rates compared to MTC’s on-net rates at MTR N$0.30, assuming cost saving is passed on
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Tuesday 28 July 2009
Cellone and Switch: Minimum requirement= Set off-net price at 2*MTR until it is on par with on-net prices
CellOne: reduce call rates to fixed lines to 2*FTR until it is on par with on-net prices
MTC has a complex pricing structure. Minimum requirement= Fixed or Off-net calls should be On-net rate + MTR/FTR
Recommendations for operators
Tuesday 28 July 2009
Likely ConsequencesFairer competition will lead to lower prices and better services for consumers
The market will expand and Namibia will have more subscribers
Namibians will be able to communicate more
Investment in the sector will increase
The sector will employ more people and contribute more to Namibia’s economic growth
MTC’s EBITDA margin will only be slightly affected despite lower market share due to increase in mobile users and mobile usage
Tuesday 28 July 2009
Conclusion 1Regulators across Europe and Africa agree: Termination rates should be based cost of an efficient operatorThis prepares the markets for a smooth transition to IP based Next Generation NetworksSymmetry between mobile and fixed termination rates supports fixed-mobile convergence and removes distortions that would advantage mobile operatorsAsymmetric termination rates are unsuitable to facilitate market entry - more effective tools exist that do not lead to economic distortions and enshrined traffic imbalances
Tuesday 28 July 2009
Conclusion 2The compromise model removes several market distorting factors
The glide path will bring termination rates down to the cost of an efficient operator
Converged termination rates set the scene for fixed-mobile convergence
Continuous monitoring of the sector by regulator is required
Other regulatory measures may be required to level the playing field further
Tuesday 28 July 2009
Conclusion 3
Implementing cost based termination rates (LRIC eg) is a challenge for many developing countries requiring adequate legal powers and institutional capacity
Benchmarking provides a fast feasible solution if cost data and support is available from other jurisdiction
Something regional regulatory bodies should look into
Tuesday 28 July 2009
How was this possible in 9 months?
Visionary Minister for ICTs, Joel Kaapanda
Dedicated NCC commissioners
Co-operation from African and EU regulators:Botswana Telecommunications AuthorityCommunications Commission of Kenya Instituto Nacional das Comunicações de MoçambiqueTanzanian Communications Regulatory AuthorityUganda Communications CommissionRundfunk & Telekom Regulierungs GMBH (Austria)Swedish Post and Telecom Agency, PTS
Tuesday 28 July 2009
Thank You!Report can be downloaded from:
http://www.ncc.org.naPublications tab
Tuesday 28 July 2009