Telecoms Wholesale

Ahmad Nadeem Syed

Director Interconnect & Regulatory Economics

Mobilink, Pakistan

Ahmad.n@mobilink.net

Ansyed56@gmail.com

Meeting The Threats From Increased Retail

Competition And Embracing New Wholesale

Opportunities IIR’s Conference at Berlin

June 24-28, 2007

2

Site Map

● Market Review

● Wholesale Service Opportunities

● Operator’s Challenges

● Role of the Regulator

3

Deregulation – A Bird’s Eye View

● Benefits

- Increased teledensity

- Multiple operators providing right of choice to consumers

● Aftershocks - Lowering ARPUs

- Increasing Opex

- Declining Profitability

● Combating aftershocks - Finding new avenues

- Optimising cost

4

Market

Potential

5

Demography

Source: ITU World Telecommunication Indicators 2006

4,050

511719

38139

252490

26

4,620

525

943

439

54 246

560

29

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Mil

lio

n

2005 2015

Population

Asia Europe Africa South America Arab Stats Russian and Cent. States USA & North America Australasia

951

206 140100 6 85 168 10

1154

227 190135 9 92

200 12

0

200

400

600

800

1000

1200

Mil

lio

n

2005 2015

Households

Asia Europe Africa South America Arab Stats Russian and Cent. States USA & North America Australasia

Based on 5 Years Growth Rate

(2000-2005)

6

Fixed & Mobile Growth

Source: Actual from ITU World Telecommunication Indicators

2005 2015

Asia

Europe

Africa

South America

Arab Stats

Russian and Cent. States

USA & North America

Australasia13 14

230 251

61 92

7 9

69 101

23 47

242227

613 1,154

Fixed/WLL

Million Subs

2005 2015

Asia

Europe

Africa

South America

Arab Stats

Russian and Cent. States

USA & North America

Australasia24 29

302 532

153 184

25 52

166 329

114 330

484 525

910 2,310

Mobile

Million Subs

7

Traffic Growth

Source: ITU World Telecommunication Indicators 2006

307

699

502520

38

104143

262

74

144

6483

428

630

29 35

0

100

200

300

400

500

600

700

Billio

n M

inu

tes

Asia Europe Africa South America Arab Stats Russian and

Cent. States

USA & North

America

Australasia

2005 2015

Long Distance

32

60

13

6 7

12

32

5

72

62

35

1113

15

47

6

0

10

20

30

40

50

60

70

80

Asia Europe Africa South

America

Arab Stats Russian and

Cent. States

USA & North

America

Australasia

Bill

ion M

inute

s

2005 2015

Incoming International

490140 234 154

5,580

22

4,353

508 385 428 297

8,212

27

1,914

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Asia Europe Africa South

America

Arab Stats USA & North

America

Australasia

Bill

ion M

inute

s

2005 2015

Local Traffic

8

International Market Segmented

Category A

(Matured)

● Europe

● USA & North

America

● Australasia

● Asian Segment (Japan, Korea,

Hongkong, Singapore)

Category B

Upcoming

● Asia (Excl.Japan,

Korea, Hongkong,

Singapore)

● Russia & Central

States

● Southern America

● Arab States

Category C

Following up Fast

● Africa

9

Wholesale

Services Opportunities

10

Wholesale service is not an

explicitly defined term, however, it

is normally referred to as a service

for the purposes of resale being

complementary to retail services

11

Wholesale Service Opportunities

On the Platter

● Call origination

● Call termination

● International Voice (Incoming & Outgoing)

● Bandwidth

● Transit Services

● Leased lines (E1 & STM)

● MVNO

In the Oven

● Transit Services

● Dark Fiber/Wavelength - λ ● Interconnect Exchange

● Bulk SMS

12

Size of the Cake in 2015

Regions λ

Long Distance*

Minutes – Billion

Transit

Service** Traffic

Minutes – Billion

SMS***

Billion

Asia 699 635 693

Europe 520 148 409

Africa 104 73 59

South America 262 87 119

Arab Stats 144 58 37

Russian and Cent. States 83 16 133

USA & North America 630 1,080 383

Australasia 35 10 21

Total 2,477 2,107 1,854

***Source: Worked out based on Mobile Data Association report April 2006 *Projected based on ITU Telecom Indicator Data 2006

** Worked out based on ITU Telecom Indicator Data 2006

13

Demand Potential

Services Category

A

Category

B

Category

C

Transit Services

Dark Fiber / Wavelength - λ

Interconnect Exchange

Bulk SMS

14

Transit Service

● Growing demand because of - Increasing number of small LDI and WLL operators

- Increasing traffic because of lower tariffs

- Direct interconnection may not be possible in all cases

● Not defined as relevant market in many countries

● Incumbents (Fixed line) have monopoly in general

● Mobile operators becoming are potential competitors

● Issues: - Terms & conditions in the RIO

- Tripartite billing & settlement

- Quality of Service issues – Fixing the responsibility

15

Dark Fiber/Wavelength - λ

Dark Fiber ● Incumbents may not be interested due to limited No. of

available pairs

● May be an opportunity for new entrants in backbone business

Wavelength - λ ● Advent of DWDM technology has enabled the

incumbents to offer this service on optic fiber

● The mobile operators are the major potential customers

● Easy means of acquiring high capacity for new entrants

● Pricing may be based on opportunity cost

● Dependence on incumbent for Quality of Service as first level control always with the network owner

● Regulatory framework does not exist generally

16

Interconnect Exchange

● Multiplicity of operators demands simple interconnection

solutions

● Direct interconnection may not be feasible for small operators because of:

- Cost involved

- Network Complexities

- Distance from POIs of major players

● Incumbent operator is in perfect position to offer this service

● Pricing could be based on opportunity cost

● Danger of abuse of position by incumbent is there

● Regulatory framework is not present in general

17

Bulk SMS

● Market is growing because of growth in

- Mobile sector

- WLL sector

● SMS based value added services like telemarketing becoming popular

● Small WLL operators & content providers prefer to deal with one aggregator than multiple operators

● Incumbent’s can provide services as aggregator

● Low cost high premium service

● Billing and accuracy could be an issue

● The market is unregulated

18

Challenges

for the

Operators

19

New Entrants - Build vs Buy

● Issues faced by new entrants

- High cost of wholesale services

- Competing the incumbent against its “economies of scale” advantage in retail market

- Build vs Buy decision

● Why should new entrant go for build? - To lower operating cost

- Independence

- Prospective revenue stream

● Challenges of Build Strategy

- High O&M cost in the initial period

- Hitting back by incumbent in case of long buildup period

20

Incumbent’s Strategy

● Recognizing threats of new entrant’s build strategy - Loss of revenue

- Emergence of competition

- Idle capacity

● Capitalize on its position to offer wholesale services

● Optimal utilization of excess capacity

● Take competition an opportunity not a threat

● Keep the new entrant in state of indecision with respect to Build vs Buy

● Keeping new entrants dependent

● Ensure that new entrant does not become competitor in wholesale market

21

Role

of the

Regulator

22

Key Responsibilities of The Regulator

● Watching Consumer’s Interest

● Ensuring Fair Competition

23

Regulatory Framework

● Regulatory Framework (RF) is

dependent upon

- market maturity

- regulator’s competence

● Relatively virgin area w.r.t RF

● The need will soon arise for

Regulator to:

- conduct market study for identification

of relevant markets

- Determining SMP

- Imposing obligations on SMP

● Because:

the larger the demand/dependence,

larger the chance of margin squeeze by

the service provider

Category

A

Category

C

Category

B

24

Challenges for the Regulator

● Wavelength

- Developing framework for cost based pricing for wavelength

- Implementation of Service Level Agreement

- Developing dispute resolution mechanism related to SLA

● Transit Traffic

- Developing dispute resolution mechanism mainly related to billing & settlement

- Ensuring Quality of Service

● Interconnect Exchange

- Mandatory or voluntary connectivity by all operators

- Determining cost of services

- Ensuring non-discrimination

● Bulk SMS

- Protecting consumers interests against spamming

- Protecting terminating operator’s interests

- Identification of relevant market

- Determining cost of termination

25

Thank You !