Open Access, Incentives and Superhighway Access... · 2015-01-30 · David Butcher and Associates...
Transcript of Open Access, Incentives and Superhighway Access... · 2015-01-30 · David Butcher and Associates...
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David Butcher and Associates
Open Access, Incentives and Superhighway
Hon David Butcher
October 2014
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David Butcher and Associates
Open Access in Asia
• Open access: – wholesale networks must interconnect with networks, many owned by
bundled (network and services) utilities
• Many ideas are hangovers from fixed line monopolies– broadband is creating a natural separation: networks - services– can incumbents be encouraged to allow access to competitors?– origin of the problem and solutions
• This presentation shows that many problems are a legacy of fixed utilities acting as monopolists
• Broadband is forcing change, understanding drivers can speed it up
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David Butcher and Associates
Vertical Matrix of old telecom utilities
• Telecom companies remain a fixed line vertical matrix: exchanges, local lines, trunk lines, retail and billing,
• Conflicts are caused by two different businesses in one organisation with often conflicting objectives
VerticalMatrix
Ex-changes
Trunk Network
Local Network
Retail and
Billing
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David Butcher and Associates
Vertical Organisation technology based
• Licenses followed the vertical matrix,
• Matrix was based on technologies,
• Response was to block competition,
• Infrastructure “a competitive advantage” and a barrier to competition
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David Butcher and Associates
Services Bundled with Infrastructure blocked Competition
VerticalMatrix
Ex-changes
Trunk Network
Local Network
Retail and
Billing
Telecom
Ex-changes
Trunk Network
Local Network
Retail and
Billing
Broad-cast
Ex-changes
Trunk Network
Local Network
Retail and
Billing
ISP
Ex-changes
Trunk Network
Local Network
Retail and
Billing
VAS
Ex-changes
Trunk Network
Local Network
Retail and
Billing
Etc etc
Ex-changes
Trunk Network
Local Network
Retail and
Billing
Broadband separates infrastructure and servicesCreates a Platform for Competition
Bar
rier t
o C
ompe
titio
n
Monopolistic Infrastructure
Competitive Service
Competitive Service
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David Butcher and Associates
Technology Neutral Licensing
Network Services
Applications Services
Content Services
Network Facilities
Began in Malaysia and Singapore Technology-neutral; service-neutral
The technology neutral framework promotes vertical separation between facilities, network, applications, and
content
Bro
adca
stin
glic
ense
Old licenses were issued based on specific technologies, and services
A particular service through a designated technology and vertically integrated for the
provision of that service
Serv
ice
Li
cenc
eN
etw
ork
Li
cenc
e
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David Butcher and Associates
Different Business Characteristics mean that different investors are required
Service CompanyNetwork Company
high risk venture fundBest Investor low risk pension fund
high rateReturn low rate
highRisk low
privateInformation public
highComplexity low
shortProduct Life long
lowCapital Required high
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David Butcher and Associates
PREVIOUSLY
Bundled Telecom Company Network and
Services - Barrier to competition
Service Company
Competes with new competitors
Network CompanyMarkets Network
Services to Competitors
Chinese Wall
Facilities and cable sharing - Split RetailHong Kong and UK, Australia and New Zealand – shared towers India
High rate of return
Low rate of return
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David Butcher and Associates
FTH
NETCO
Secondary Cables
NETCO
M
D
F
Trunk Line
CCC-Cross connection
cabinet
Primary Cables
MULTIPLEXOR
FTH
NETCO – SERVCO Demarcation
FTH
FTH
SERVCO
DSLAM
SWITCH (Exchange)
ISP
FTH
Competitor
Competitor
DSLAM
DSLAM
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David Butcher and Associates
NETCOTower
NETCO
Fiber Transmission
Mobile - NETCO – SERVCO Demarcation
SERVCOBase Station
SERVCO Antennae
SERVCO /Switch
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David Butcher and Associates
Service competition on a broadband digital platform
Broadband Internet Platform
IP CORE Network / VPNs
Access
WLAN
DSLTDM
IXC
Frame/ X.25
GPRS
SCDMA
Ethernet
CDMAWCDMA
InternetTransport
IP Transit
Hosting & ContentVoIPService
Application
IP VPN
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David Butcher and Associates
Separation’s Effect on Incentives
• Network Manager has an incentive to maximise traffic– An operator of a broadband network is service neutral – incentive is to
maximise revenue by maximising traffic
• Service provider has an incentive to offer quality service– A service operator’s incentive is no longer to block competition, but to
maximise the QUALITY of customer service to maximise revenue
• Regulation is simplified– Principal role of regulation is to increase transparency
• Parties that do not join– miss lower cost transit and better quality, there fore an incentive to join– coercive comparison an annual report on the quality of service in each
participating country will apply pressure to join
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David Butcher and Associates
Changes with Separation
• Incentive to block is removed– Infrastructure not competitive advantage – barrier to competition ended
• Incentive to Maximise Traffic– An operator of a broadband network is service neutral – incentive is to
maximise revenue by maximising traffic
• Incentive to Offer Quality Service– A service operator’s incentive is no longer to block competition, but to
maximise the QUALITY of customer service to maximise revenue
• Simplification of regulation– Principal role of regulation is to increase transparency
• Parties that do not join– Miss out on lower cost transit and better quality
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David Butcher and Associates
Case: Mongolia Huge space small population –priority to serve at low cost
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David Butcher and Associates
Mongolia
• Widely dispersed small population, legacy copper– fibre chosen solution
• Policy recommendations:– netco-servco split (largely implemented) – sale of service business – should qualify to join superhighway
• Implementation– politician blocked a license for govt mobile company – hindered sale– too many staff and too much debt loaded onto the network company– no new capital– business is now managing towers for private mobile companies– high quality private city networks
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David Butcher and Associates
Cambodia
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David Butcher and Associates
Cambodia – fibre squeeze
• 2007 priority completion of fibre network– Cambodia squeezed - high MB charges Thai and Vietnam operators– Japan and China offered financial support if a legal framework in place– Minister rejected opportunity to join submarine cable– Unable to comply with conditions, support lost– Fibre from Vietel, Private Chinese operator and Telecom Cambodia– 11 operators – at least one abandoned by owners– Internet exchanges introduced
• 2014 Awaiting Legal Framework– market is restructuring - one operators abandoned by owners– ties between Vietnam and Cambodian operators– internet access remains expensive
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David Butcher and Associates
Bangladesh – Law Change
• Extraordinary success story – in <9 years, Bangladesh increased subscribers from aprox 1 million, to
78 million (July 2011) an increase of 18 million in that year.– mobile operators achieved 98 percent demographic and 90 percent
geographic coverage– the largest single contributor to the government budget– “Digital Bangladesh Policy” private investment in fibre to the home
• Backtrack– widespread idea licenses were issued cheap (ignoring investment)– led to a major change in regulatory direction 2080– adverse impact on investment– efforts to mitigate – BTRC seeking amendments
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David Butcher and Associates
Adverse Impact of Regulation Y by Y investment
49 46 89 84 119
264
795873
1106
1280
526.68
-1000
-500
0
500
1000
1500
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
US$
US$ million annual
$ change - 2009an estimate
2 period movingaverage
Source:AMTOB - AT Capital Research compiled in Bangladesh Telecoms Sector, AT Capital Research
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David Butcher and Associates
Myanmar – New Licenses
• Government of Myanmar decided to increase competition by issuing two new mobile licences– A transparent process set up – International advisers were appointed– +9 groups expressed interest– Some proposers failed to meet the technical specifications – eliminated– Successful bidders Telenor and Ooredoo
• Process added great credibility to the government decision making• Other ministries want to copy process• Internet service remains weak and competition required
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David Butcher and Associates
Summary
• Superhighway should be designed to create incentives to join and incentives to provide good service
• Decision making should as far as possible be technology neutral• Recognise the dual nature of the telecommunications business:
facilities management and customer service• Use the “force of coercive comparison” to encourage slow partners
to join• Make maximum use of technically and regulatory compliant existing
infrastructure