Universal Service Costs

Peter KLUNE, Prague 23rd May 2007

Universal Service Costs

Peter KLUNEPrague, 23rd May 2007


Agenda

1. Definition and scope of USO– Services covered– Rational behind USO– Some critical issues– Situation in Austria

2. Calculation of USO Costs– Cost calculation scheme– Reasons for deficit

3. How to finance USO?– European Benchmarks


Definition and scope of USO

According to the USD, universal service covers the following services:

– Provision of access at a fixed location

– Comprehensive directory

– Directory enquiry services

– Public pay telephones


Rational behind USO obligation and designation

• Provision of a minimum set of services to all end-users

• Affordable price• Ensure quality of service level

->compensation is needed if obligation can only be provided at a loss


Some critical issues

• USO provision denotes an obligation but no right of exclusiveness

• Why designate a provider in the case of competition?

• How to ensure that a compensation is competitively neutral?

• Problems may accrue if the ordering party (or caller for bids) differs from the paying party


Situation in Austria

Telekom Austria is currently designated to provide the following three services:

Directory enquiry servicesDirectory enquiry servicesComprehensive directoryComprehensive directory

EffectiveCompetition

EffectiveCompetition

Yellow & white pagesprinted formatupdate once a yearfinanced by advertising

Yellow & white pagesprinted formatupdate once a yearfinanced by advertising

Access at a fixed locationAccess at a fixed location Public pay telephonesPublic pay telephones

PSTN-access at a fixed location Dial in internet access affordable price

PSTN-access at a fixed location Dial in internet access affordable price

Area wide provisionof sites

affordable price

Area wide provisionof sites

affordable price


Agenda





Cost calculation scheme (1/2)

Avoidable costs

- foregone revenues

= direct net costs

+ indirect benefits

= overall net costs

Those costs which would not arise if there would be no universal service obligation

Revenues which would not accrue if there would be no universal service obligation

Benefits, including intangible benefits, which relates to the provision of universal service elements

Costs ofuniversal service

Benefits ofuniversal service

Net costs ofuniversal service


Cost calculation scheme (2/2)Situation with Universal Service Obligation

-15

5

-10

-20

-15

-10

-5

0

5

10

unprofitableelements

profitableelements

totalresult

Pro

fit

/ Lo

ss

Situation without Universal Service Obligation

0 5 5

-20

-15

-10

-5

0

5

10

unprofitableelements

profitableelements

totalresult

pro

fit

/ lo

ss


Avoidable Costs

Costs which relates to uneconomicelements:

– Uneconomic areas

– Uneconomic customers

– Uneconomic sites (e.g. public payphones)


Forgone Revenues

Localarea 1

localarea 2

calls to mobile

national calls

intern.incomingtraffic

internationalcalls

active calls

passive calls

Fixed fees RT+WS

margin xDSL

1

2

2

2

3

4

- loss of installation

national calls

calls from mobile

3

3


Indirect benefits

Life cycle effects

Non USO services

Ubiquity

Volume discounts

Advertising

Customers may not be profitable now, but may become so in the future

The benefit that accrues of having a USO presence and infrastructure and thereby being able to offer non-USO services at marginal cost

Cost savings e.g. in equipment made as a result of providing the USO

The advantages of having a nationwide presence as a result of being the USP

The benefit of being able to advertise e.g. on payphones and bills

Brand/corporate reputationThe enhancement of the brand and image through leveraging the USO role


Reasons for unprofitable areas

• Austria does have a large number of small villages with only a small number of subscribers. About 19 % of the sites does have less than 500 lines. About 45% of the sites does have less than 1.000 connections.

• Only 25 local area networks, or about 2%, have more than 10.000 lines

Structure of local area networks

13%

5%2%

19%

13%

12%36%

< 500

501- 750

751- 1000

1001- 2500

2500- 5000

5.000- 10.000

>10.000

subscriber density



poly centric e.g.: Mettmach

dispersed with centree.g.: Sillian in Tyrol

subscriber density/type of area



costs and revenues per type of area

37%

-5%

-19%

11%

29%

36%

11%

16%

3%

7%

-8%

-10%-9%

-12%-10%

-4%-3%

2%

-30%

-20%

-10%

0%

10%

20%

30%

40%sc

atte

red

villa

ge

disp

erse

dto

uristy

con

cent

rate

dm

eado

w /

ste

et v

illag

edi

sper

sed

with

cen

tre

prov

incial

poly

cen

tric

subu

rban

urba

n

cost

/ r

ev

en

ue

de

via

tio

n f

rom

av

era

ge

costs revenue

high costs and low revenue


Agenda





Financing of universal service obligations

Two possible ways of financing– Public funds– Provider

Who has to contribute?– Fixed + mobile operator + ISP

Principles to respect– Transparency– least market distortion– non-discrimination and proportionality

Member States may choose not to require contributions from undertakings whose national turnover is less than a set limit!

(Sweden)

(Belgium, Czech Republic, Denmark, Estonia, Spain, France,Ireland, Italy, Hungary, Netherlands, Austria, Poland, Slovenia, Slovakia, United Kingdom)


European benchmarks

“Unlikely to be an undue financial burden on BT as a result of USO”

„No significant competitive disadvantage for Telefónica“

2002 about 1,1% of wire line revenues (only ES)

2003 about 0,7% of wire line revenues

2002 about 0,1% of revenue (group)

net costs of USO 1999 2000 2001 2002 2003 2004

England Net costs (in Mio. €) -14 bis 18 - - - - -18 bis 22per capita (€/ J ahr) -0,24 bis 0,30 - - - - -0,30 bis 0,37

Spain Net costs (in Mio. €) 180,0 268,0 182,0 110per capita (€/ J ahr) 4,5 6,6 4,5 2,6

France Net costs (in Mio. €) 110,5 119,3 119,6 183,7 53,2 32,0per capita (€/ J ahr) 1,9 2,0 2,0 3,1 0,9 0,5

Italy Net costs (in Mio. €) 62,4 58,9 40,5 38,9 41,0per capita (€/ J ahr) 1,1 1,0 0,7 0,7 0,7

Belgium Net costs (in Mio. €) 48,4per capita (€/ J ahr) 4,7

Austria Net costs (in Mio. €) 0,6 2,7 4,0 4,7 5,0 5,0per capita (€/ J ahr) 0,07 0,33 0,49 0,58 0,61 0,61

Source: Cullen International and own calculations

Only preliminary values


Summary

USO cost calculation means:– Huge data gathering effort– Detailed cost and revenue assignment– Dealing with legal uncertainties

Results are:– Highly vague (indirect benefits, unfair burden)

Outcome depends on:– Willingness of the NRA to refund costs

Conclusion -> try it, but manage expectations


Thank you for your timeQuestions?

Peter KLUNERegulatory Affairs

TELEKOM AUSTRIA AGLassallestraße 9A-1020 Austria

›E-Mail [email protected] +43 (0)59059 1 16012Fax +43 (0)59059 91 16012Mobile +43 (0)664 629 61 76

mailto:[email protected]


Appendix: helpful legal documents

• DIRECTIVE 2002/22/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 March 2002 on universal service and users' rights relating to electronic communications networks and services (Universal Service Directive)

• Review of universal service obligation undertaken by OFCOM(http://www.ofcom.org.uk/consult/condocs/uso/statement/)

• COCOM07-08 FINAL Universal service implementation issues (http://circa.europa.eu/Public/irc/infso/cocom1/home)

• COCOM07-08_ANNEX1 FINAL Universal service financing table(http://circa.europa.eu/Public/irc/infso/cocom1/home)

http://www.ofcom.org.uk/consult/condocs/uso/statement/

http://circa.europa.eu/Public/irc/infso/cocom1/home

http://circa.europa.eu/Public/irc/infso/cocom1/home

Universal Service Costs

Documents

Transcript of Universal Service Costs