Regulating the Belgian cable

Reinhard Laroy - BIPT TNO DSL Seminar

The Hague, June 16th 2014

Market context

3

Broadcast  players  p  Different cable-operators:

n  Telenet (Flanders and Brussels) n  Brutélé (Wallonia and Brussels) under Voo brand n  Tecteo (Wallonia) under Voo brand n  Coditel (Brussels) under Numéricable brand

Each operating in their own coverage area.

p  IPTV-operators: n  Belgacom TV, operating nationwide since 2005. n  SNOW (based on commercial multicast offer), launched early 2013 n  Billi (based on unbundling offer), operating in only 19 communities.

p  Satellite-operators with very limited marketshare: n  Télésat (Wallonia), TV Vlaanderen (Flanders, Brussels) n  Mobistar (nationwide), quit market in 2013

p  Over the top players (OTT): n  Stievie, Netflix, etc…

4

Fast  conversion  towards  digital  TV  p  81% of customers receive digital TV (end 2013) p  19% of customers watch analogue only (40% in 2011) p  However 72% of customers still receive analogue (but only 11% of digital

cable viewers still watch analogue TV, source customer survey Phonecom)

Key  role  of  mul:play  p  TV products are often bundled with other products p  Interactive TV features require a broadband

n  video on demand n  second screen apps on smart phones & tablets

5

59%$

50%$

41%$

37%$

16%$

18%$

18%$

18%$

25%$

32%$

38%$

40%$

3%$

5%$

0%$ 20%$ 40%$ 60%$ 80%$ 100%$

2010$

2011$

2012$

2013$

single$play$TV$

double$play$

triple$play$

quadruple$play$

Source: BIPT

Broadband  Market  OLO’s  are  crowed  out  of  the  market  p  Belgacom’s retail broadband volumes remains stable p  Cable-operators’ volume increases …

6

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

S1

2007

S2

2007

S1

2008

S2

2008

S1

2009

S2

2009

S1

2010

S2

2010

S1

2011

S2

2011

S1

2012

S2

2012

S1

2013

S2

2013

Bro

adba

nd li

nes

(mill

ion)

OLO's Cable Belgacom (Scarlet included)

Source: BIPT

Broadband  Market  OLOs  are  crowed  out  of  the  market(2)  p  ... while alternative operators have negative

net-additions since 2008 à Alternative operators lose customers due to lack of bundle offer

7

21#

18#

14#

10#

21#

30#

15#

14#

97#

83#

74# 80#

58#

74#

70# 83

#

3#

16#

,13#

14#

,21# ,12# ,7

#

,35#

,50#,40#,30#,20#,10#0#

10#20#30#40#50#60#70#80#90#100#110#

S1#2010# S2#2010# S1#2011# S2#2011# S1#2012# S2#2012# S1#2013# S2#2013#

thou

sand

#

DSL#Belgacom#

cable#

xDSL#OLO#

FWA#

 NGA  infrastructure  roll  out  

Belgium  has  one  of  the  largest  coverages  of  NGA  networks  in  EU:  -­‐        >  87%  VDSL2  end  of  2013  -­‐  90%  Eurodocsis  3.0  

Source:    Cullen,  February  2014  

 Belgium  best  in  class  for  high  speed  uptake  

9 Source:    Digital  agenda  scorecard,  European  Commission,  2014  

Broadband  penetra,on  (+30  Mbps)  Subscrip,on  as  %  of  pop  –  Jan  2014  

NGA  subscrip,on  (Docsis  3.0  and  other  NGA)  as  of  total  broadband  subscrip,on  –  Jan  2014  

0%   5%   10%   15%   20%   25%  

IT  CY  EL  SI  FR  ES  AT  EE  CZ  MT  SK  DE  EU  FI  PL  BG  HU  UK  LU  IE  PT  DK  RO  LV  SE  LT  NL  BE  

0%   10%   20%   30%   40%   50%   60%   70%  

HR  CY  EL  IT  FR  AT  DE  ES  LU  EU  SK  UK  IE  HU  SI  FI  EE  DK  CZ  PL  MT  LT  PT  SE  NL  LV  BG  RO  BE  

Market Analysis 2011

Disclaimer  p  The previous market analysis of July 2011 is not

necessary the basis for a potential new market review.

p  Any previous findings on product & geographical market definitions, SMP and remedies are as such not necessarily a basis for the new upcoming market analysis

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Digital TV

Telephony

Telephony

Analogue TV

Analogue TV

Digital TV

Broadband internet

Consumer

12 = currently not available

= currently available

Digital TV

Belgian  market  analysis  

13

Broadband

BGC SMP Market 4

LLU

BGC SMP Market 5

Bitstream incl. Multicast

Broadcast

Cable SMP on analog & digital

Resale analog

Digital TV transmission

Resale broadband

Broadcas:ng  approach  in  Belgium  

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Retail market of the delivery of TV signals

•  Products

•  Geography: corresponding to the cable service coverage areas

Definition

SMP Analysis

Remedies

SMP of the main cable operators

Retail Wholesale

Relevant market?

Relevant market for ex ante regulation

3 criteria test

scope of wholesale remedies

Resale of analogue

TV

+

transmission digital TV

+

resale of broadband

Defini:on  broadcast  market  Retail market of the delivery of TV signals,

including analogue or digital signals over fixed networks (cable/xDSL)

Does not include:

n  Free TV n  Satellite TV n  DVB-T n  TV mobile n  OTT-TV

15

16

Cable  and  satellite  TV  :  no  subs:tu:on  Demand side substitution p  High set-up costs p  Several legal constraints to the installation p  Low penetration and a "niche positioning” p  Limited interactivity and on-demand services due to the lack

of a return channel à  No Substitution

Supply side substitution p  Not possible for a satellite operator to provide Cable TV

services and the opposite is also true à  No Substitution

SMP  of  cable  operators  

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p  Market shares of cable operators in their geographical markets are superior to 70% and remains high despite presence of Belgacom TV since 2005

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

2006

2007

2008

2009

Q1

2010

Sub

scrib

ers

(mill

ions

)

IPTV Anlogue + Digital (cable) Analogue only

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SMP  of  cable  operators  (2/3)  

p  Operators have raised prices or not reduced them

€ 7

€ 8

€ 9

€ 10

€ 11

€ 12

€ 13

€ 14

€ 15

€ 16

2005 2006 2007 2008 2009 2010

Price Basis subscription (excl. VAT)

AIESH Brutélé Numericable Tecteo Telenet Belgacom TV

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SMP  of  cable  operators  (3/3)  

p  Analogue TV (used together with digital TV) was key factor in barriers to change (40% households had more than one TV in Belgium)

p  The economics of scope and scale and the multi play advantages

p  Refusal of access

3  criteria  test  p  Broadcasting market was and is not listed in the

Recommendation on relevant markets and is therefore subject to 3 criteria test: High non-transitory barriers to entry

• Network and economies of scope/scale (including analogue functionality) not easy to duplicate for new entrants

No tendency to effective competition

• High market shares (higher than 70%) despite presence of challenger since 2005 • Stable or increasing prices • Impact of bundles

Efficiency of competition law

• Refusal of access (and other remedies) are difficult to tackle with competition law alone • Delays of a possible competition case are too long and unpredictable

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Remedies  imposed  p  3 types of access remedies were imposed

n  Access to an analogue TV resale offer n  Access to digital platform n  Access to a resale of the Broadband offer

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Analogue  TV  resale  offer  

p  Allows alternative operator (having appropriate content rights) to resell the SMP analogue TV offer under its own brand

p  Offer does not differ from existing offer

p  Price control: retail-minus

p  Only remedy available to Belgacom (it has the possibility to offer the other services via its own network)

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Access  to  digital  plaeorm  p  Allows alternative operators to inject their signals into the

encoding platform of SMP operator

p  A different television offer can be formulated

p  Alternative operator is responsible for acquiring content rights as well conditional access systems

p  Price control: retail-minus.

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Resale  of  Broadband  offer  

p  Allows alternative operator to resell SMP broadband offer under its own brand, but only in combination with TV

p  Remedy is applied because of increasing importance of

multiple play and multiplatform and therefore only applies in combination with access to the TV offer

p  Price control: retail-minus.

EC  lefer  of  comments  p  Lack of wholesale analysis

BIPT added hypothetical wholesale analysis (cable only) leading to the same conclusions as the analysis of retail market.

p  Necessity of analog remedy. Does it hamper evolution? n  Still 42% watched analog & Telenet added 3 new channels n  Competitive advantage for multiple tv sets n  Analog switch off remains possible (notification period)

p  Aren’t market 5 broadband measures sufficient? n  Bundle TV+broadband necessary to remain competitive n  Paying twice access fee leads to anti-competitive thresholds n  Multi platform broadcast (tablet, smartphone) needs broadband

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Final  Decision  

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1

DECISION OF THE CONFERENCE OF REGULATORS OF THE ELECTRONIC COMMUNICATIONS SECTOR (CRC)

OF 1 July 2011

CONCERNING THE TELEVISION BROADCASTING MARKET ANALYSIS IN THE BILINGUAL REGION BRUSSELS CAPITAL

PUBLIC VERSION

Impact  of  the  cable  regula:on  p  Creates opportunity for cable operators to

extend their coverage area to where they don’t have an own infrastructure (e.g. Telenet in Brussels & South of Belgium)

p  Mobistar, Base & other OLOs can use cable network next to Belgacom’s network to offer bundels internet+tv to customers

p  Infrastructure competition at wholesale level could create beter service & lower prices 27

Implementation

Reference  Offers  p  Feb 2012 : first draft by cable operators

(6 months after Decision of July 1st 2011) n  Incomplete n  Not implementable

p  Summer 2012 : CRC writes own reference offer as model for cable operators + sents a list of remarks to cable operators

à  New draft by cable operators in Autumn 2012

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Reference  Offer  Decisions  

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Dec 2012 Consultation qualitative elements

Spring 2013 Consultation retail minus tarifs

Sep 2013 Qualitative Decision

Dec 2013 Retail minus tarifs decision

Cos:ng  issues:  upfront  fees  Treatment of wholesale specific costs (i.e. the startup implementation cost) à upfront fees

p  Upfront costs based on the costs of an efficient operatorà Coditel (Numéricable) as reference

p  Upfront costs have to be shared between SMP and OLO p  Close cooperation between operators is taken into

account (i.e. Brutélé/Tecteo)

p  Consider that 1 OLO will request dual play offer (TV + broadband)

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Result:  upfront  fees  

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Telenet   Coditel   Brutélé  +  Tecteo  

Analogue  TV  

Upfront  cost   €   369.951     332.263     365.195    

Per  line  one-­‐time  fee   €  per  line   2,00     2,00     2,00    Analogue  TV  +  digital  TV  

Upfront  cost   €   639.695     626.833     637.751    

Per  line  one-­‐time  fee   €  per  ligne   4,00     4,00     4,00    

Dual-­‐play  (Analogue TV + digital TV +  broadband)  

Upfront  cost   €   750.000     750.000     750.000    

Per  line  one-­‐time  fee   €  per  ligne   5,00     5,00     5,00    

Upfront fees from 330.000 € (analogue TV) to 750.000 € (dual play) Per line fees from 2,00 € (analogue TV) to 5,00 € (dual play)

NB: a part of these amouts has to be paid in advance if the new entrants signs a letter of intent (respectively 200.000, 500.000, 600.000 €) Possibility to review the upfront fees based on an ex post verification of the reality of the costs

Cos:ng  Issues:  retail  minus  (1)  p  The minus has to be expressed as a percentage of

reference tarifs p  The appropriate reference is the ARPU

n  It eliminates VAT and content rights n  It takes discounts and promotion into account

p  If no 2P retail offers exist, the ARPU of 3P offers are used as reference

p  Treatment of the avoidable costs and ARPU à level of the minus

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Cos:ng  Issues:  retail  minus  (2)  p  These cost categories have to be deducted:

n  Content costs (billed separately) n  Billing and bad debt n  Marketing, sales and customer service n  Modems and set-top-boxes n  Installation and repair at customer side

p  The promotional value of the Barker (self-promotion) channel is discounted in the analogue minus

34

Cos:ng  Issues:  retail  minus  (3)  

p  Cable operators have relatively high Return on Sales (RoS)

p  No entry if the retail margin is fully retained by SMP p  5% RoS included in the minus calculations

Opérateurs   2006   2007   2008   2009   2010   2011   2012   Moyenne  

Brutélé   13,26%   15,85%   17,24%   13,88%   4,69%   3,24%   3,95%   10,30%%  

Coditel   32,48%   29,37%   28,47%   34,80%   32,56%   40,09%   44,35%   34,59%  

Telenet  S.A.   5,72%   9,95%   11,17%   8,92%   16,45%   12,77%   16,63%   11,66%  

Telenet  Group  Holding  

17,67%   22,03%   23,43%   24,93%   26,52%   23,70%   26,18%   23,49%  

Tecteo   20,72%   9,47%   20,96%   -­‐37,66%   -­‐39,24%   -­‐24,09%   -­‐16,43%   -­‐4,77%  

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Results  :  minus  

p  Wholesale price = (retail price VATincl. - VAT – content cost) x (1 - M %)

p  Where minus M:

p  Possibility to review the minus yearly

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    Coditel   Telenet   Brutélé  

Analogue TV 20%   30%   30%  

Analogue TV + digital TV 20%   30%   30%  

Dual-play (Analogue TV + digital TV + broadband)

20%   23%   23%  

Launch  of  cable  offers  

37

Jan 2014 Mobistar’s Letter of Intent to Telenet, Brutélé & Tecteo

July 2014 Implementation Ready 6 months after Letter of Intent

Summer 2014 Friendly User Tests

Last quarter 2014??? Retail launch Mobistar

Thank you for your attention

Any questions?

©  2014  -­‐  Reinhard  Laroy  –  Reinhard.Laroy@BIPT.be