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Regulated access policies and infrastructure development

Davide GallinoDavide Gallino (d.gallino@agcom.it)(d.gallino@agcom.it)

Regulation vs Regulation vs investment?investment?

• The traditional assumption is that regulation [or an excess thereof] stifles incentives for investments, thus damaging innovation and infrastructure development.

• Trade offs between regulation and investment policies are possible, as well-commanded regulatory policies can act as incentives for infrastructure creation and integration.

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Access policiesAccess policies Access (and Interconnection)

regulated using:• Non discrimination

• Cost orientation

• Retail minus

• Price/Network Caps

• Accounting and company separation

Regulatory strategy on Regulatory strategy on accessaccess• From service to infrastructure

competition:•Carrier selection and preselection

•Different Interconnection thresholds (GER/ITA model vs FRA/SPA model)

•Local loop unbundling, X-DSL,

• UMTS, direct access (ftth)

•CAS non discrimination

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New regulatory New regulatory frameworkframework

• Framework Directive (21/2002)Framework Directive (21/2002)

• Access Directive (19/2002)Access Directive (19/2002)

• Competition Directive (77/2002)Competition Directive (77/2002)

The new regulatory The new regulatory frameworkframework

• Keep regulation to a minimumKeep regulation to a minimum

• Framework directive + 4 specific Framework directive + 4 specific directives (authorisation, access+ directives (authorisation, access+ interconnection, universal service, interconnection, universal service, data protection)data protection)

• Better defined objectives for regulationBetter defined objectives for regulation

• Technological neutralityTechnological neutrality

• Hard and soft lawHard and soft law

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Infrastructure Infrastructure development development incentivesincentives

• Preserve “value added” (=leave extra-Preserve “value added” (=leave extra-profits untouched)profits untouched)

• Regulation compatible with marketing Regulation compatible with marketing (price cap, mobile termination price-(price cap, mobile termination price-cap, transparency, quality of service)cap, transparency, quality of service)

• Regulation for a more competitive Regulation for a more competitive marketmarket

• Sunset clausesSunset clauses

• De-regulation (es. International calls in De-regulation (es. International calls in Italy)Italy)

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EU electronic communication mkt EU electronic communication mkt valuevalue

EU electronic communications market value (€ billion)

211

231

242

251

200

210

220

230

240

250

260

2000 2001 2002 2003

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Regulation does create Regulation does create incentives for investmentincentives for investment

• Regulation provide certainty, by way of long term decision (such as those introducing price or network caps)

• NRA’s decisions have set the return on capital investment at levels that, at least in the telecom sector, are significantly higher than those in gas or water distribution.

• This is probably due to a more intense competition, and is - correctly – reflected in higher returns on capital.

The market 2003 - 2004The market 2003 - 2004

• Price Price andand quality leverage; new services quality leverage; new services

• Increasing competitive pressure and Increasing competitive pressure and consolidationconsolidation

• Integrated services (fixed/mobile/content Integrated services (fixed/mobile/content and Internet services + ASPs)and Internet services + ASPs)

• Vertical and horizontal integrationVertical and horizontal integration

• Three mkts: origination - transport - Three mkts: origination - transport - terminationtermination

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Regulation and Regulation and revenuesrevenues

• Revenues in the regulated set of services (ie a basket, or several indipendent services which may be regulated) may and normally do provide the source for investment in non-regulated services. .

• Es: local calls Internet dial up DSL broadband - direct access

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The regulator 2003-2004The regulator 2003-2004• Crossroads:Crossroads:

– implementation of new regulatory implementation of new regulatory framework;framework;

– spectrum / numbering allocation plan;spectrum / numbering allocation plan;

– price control of intermediate services price control of intermediate services offered by the incumbent (I/C, leased offered by the incumbent (I/C, leased lines, access including mobile);lines, access including mobile);

– competition law;competition law;

– regulation of a single communications regulation of a single communications infrastructure (TLC-TV-RADIO-infrastructure (TLC-TV-RADIO-INTERNET);INTERNET);

– benchmarkingbenchmarking..

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Regulation of Regulation of accessaccess

•Increased externalities (no. of customers, new services)

•Competitive cycle

•Reduced costs (more traffic, more efficiency)

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In conclusion, three main elements can be derived from the present situation::

• Sound access regulation policies may promote innovation, and increase the number of users;

• Investment can be modulated either by incumbents and by new entrants; but the latter must build a customer base, incur “switching costs” (they have to be chosen by customers) and control their own inefficiencies as well; this takes time that has to be provided by regulation.

• Regulatory wisdom (if any) and technology driven development can co-exist.