Transcript J Scott Marcus – Regulatory models for Internet growth

Regulatory models
for Internet growth:
What way forward for South Africa?
J. Scott Marcus, Director and Department Manager
Cape Town, 24 May 2010
0
What way forward for South Africa?
• The Internet is widely recognised as contributing
to societal welfare.
- Increasing the overall performance of the economy by
making markets more efficient.
- Enhancing the access of the disadvantaged to
information.
- … and far, far more.
• What can regulation and public policy do to foster
healthy growth of the Internet?
• What can South Africa learn from international
best practice?
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Agenda
• Introduction
• Regulation and public policy in the EU and US
-
Authorisation / licensing
Access
Interconnection
Spectrum policy
Universal service: basic service for all
Industrial policy: ultra-fast service for many
• Relevance to South Africa today
• Conclusions: What way forward?
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Introduction:
What drives Internet growth?
• Physical availability to all.
• Affordable prices.
• Applications and content of interest.
• Prerequisites:
- Suitable devices: PCs, smart phones, whatever
- Educated consumers
• Consumer privacy, security, and trust
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Introduction:
What drives Internet growth?
• Competition is crucial
- Widespread availability
- Consumer choice
- Affordable prices
• Promote widespread availability of fast services
• Avoid bottlenecks to applications and content
• Ensure that users have access to suitable devices,
and know how to use them to access the Internet
• Promote a culture of security and privacy
• … but how????
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Introduction:
What drives Internet growth?
• As conventional networks migrate to IP-based
NGNs, the technological basis is essentially the
same as that of the Internet.
• Substantial practical differences remain between
(closed) NGNs and the open Internet.
• All in all, it is increasingly clear that the health of
the Internet is closely linked to that of the
electronic communications sector overall.
• If the sector at a whole does not enjoy effective
competition, Internet innovation will be impacted.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Key principles
• Let the market operate unimpeded wherever it is likely
to generate appropriate results.
• Intervene only to the extent needed to address likely
market failures:
- Market power
- “Public goods”, universal service, and related challenges
- Management of scarce public resources (spectrum, numbers)
• Prefer wholesale remedies over retail.
• Prefer ex post competition law over ex ante regulation
in those cases where ex post would likely be effective.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy
• Authorisation / licensing
• Access
• Interconnection
• Universal service: basic service for all
• Industrial policy: ultra-fast service for many
• Spectrum policy
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy
• The US and the EU represent two increasingly
divergent approaches.
• Through the nineties, liberalised US approaches
were widely admired and emulated.
• Since 2001, pro-business US regulators radically
deregulated, with mediocre results.
• The EU system put in place in 2002 should be
viewed as representing best practice today.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Europe
• In the past, nearly every European country had a
government-owned telecoms operator (PTT).
• Fixed, mobile, and in many cases cable television
were all a single government monopoly.
• Comparisons with (especially) the US convinced
most European experts that these government
monopolies were inherently inefficient, and were
impeding technological innovation.
• A period of privatisation and liberalisation followed,
culminating in a European framework in 2002-2003.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Authorisation / licensing
• Intense licensing regimes are often put in place in
order, ostensibly, to protect consumers.
• There is a cost! They impede competitive entry.
• European practice:
- Set low thresholds for the maximum burdens that
national regulators (NRAs) can impose.
- The ECS can be required to notify the NRA.
- If, however, the NRA fails to quickly respond, the ECS
can proceed as if a licence had been granted.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access
• The wired last mile is a competitive bottleneck in
nearly all countries.
• In the absence of regulation, last mile market
power leads to:
- Inflated prices
- Lack of consumer choice
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access
• Mitigating factors need to be considered.
• Portions of the national territory might support
some facilities-based telecoms competition.
- High density of subscribers.
- High disposable income.
• Cable television and wireless may, where present,
provide an alternative means of access.
• The degree to which these represent meaningful
competition needs to be carefully and objectively
assessed by means of competition economics.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access
• Mitigating factors need to be considered.
• Portions of the national territory might support
some telecoms competition.
- High density of subscribers.
- High disposable income.
• Cable television and wireless may, where present,
provide an alternative means of access.
• The degree to which these represent meaningful
competition needs to be carefully and objectively
assessed by means of competition economics.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access
• Europe is characterised by a systematic approach
where the European Commission initially identifies
markets that are potentially problematic.
• National Regulatory Authorities then analyse:
- The market definitions in their national context
- Whether any market players have Significant Market
Power (SMP)
- What remedies should be applied to those with SMP
• The Commission then reviews the results.
• The process is public and very transparent.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access
• Last mile fixed network access has been a central
focus in Europe.
• A range of remedies, enabling competitive entry with
different levels of investment and different risk/reward
profiles, comprise a “ladder of investment”.
-
Simple resale
Bitstream access (ATM or IP)
Shared access (high frequency only)
Full Local Loop Unbundling (LLU)
• As you move downwards, greater investment is
required, but there is greater opportunity as well.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Bitstream Access
• Bitstream access is similar to Telkom wholesale service.
• With bitstream, the incumbent always operates the DSLAM.
Source: ERG Common Position, Bitstream Access, 2005
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
LLU and Shared Access
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Forms of Access
Source: European Commission, 13th Implementation Report
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in France
Source: European Regulators’ Group (2006)
Broadband market competition report - French Case Study
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in France
France Broadband Adoption 7/2004
425,000 , 9%
635,155 , 13%
Incumbent DSL Lines
2,270,407 , 46%
Full ULL
Shared Access
Bitstream Access
Resale
Cable, FTTH, WLL, PLC, Other
854,205 , 17%
717,654 , 15%
13,066 , 0%
Source data: European Commission, 10th Implementation Report
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in France
France Broadband Adoption January 2008
1% 5%
15%
Incumbent DSL Lines
Full ULL
46%
11%
Shared Access
Bitstream Access
Resale
Cable
22%
Source data: European Commission, 13th Implementation Report
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access
Source: European Commission 14th Implementation Report
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in the United States
• The US was on a similar trajectory in the nineties, but
has now taken a very different course.
• Historic recognition of market power, but little or no
explicit market power analysis.
• No over-arching technological neutrality.
• Competition law mutually exclusive with regulation.
• Radical deregulation during the period 2001-2008.
• Increasing market concentration.
• Collapse of competitive network operators.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in the United States
CLEC Percent of ADSL High-Speed Lines
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
De
c01
Ja
n02
Fe
b02
Ma Ap Ma
rr- y02 02 02
Ju
n02
J
ul02
Au
g02
Se Oc
p- t02 02
No
v02
De
c02
Ja
n03
Fe
b03
Ma Ap Ma
rr- y03 03 03
Ju
n03
J
ul03
Au
g03
Se Oc
p- t03 03
No
v03
De
c03
Ja
n04
Fe
b04
Ma Ap Ma
rr- y04 04 04
Ju
n04
J
ul04
Au
g04
Se Oc
p- t04 04
No
v04
De
c04
Source: FCC reports based on Form 477 carrier data
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in the United States
Source: FCC reports based on Form 477 carrier data
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in the United States
US 2%
Source: European Commission 14th Implementation Report
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in the United States
OECD Broadband subscribers per 100 inhabitants, by technology, June 2009
40
DSL
Cable
Fibre/LAN
Other
35
30
25
OECD
20
15
10
5
N
et
he
rl a
D nds
en
m
N ar
Sw orw k
i tz ay
er
la
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Ko
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el
S and
Lu wed
xe e
m n
bo
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Fi r g
nl
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an
G ada
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m
an
U
ni Fr y
te
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do
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ni
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d
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st s
ra
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ew J a
p
Ze an
al
an
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st
ri
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la
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Sp
ai
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n
ze
ch
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ep l y
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rtu
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Sl
c
ov Hun e
ak g
R ary
ep
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Po lic
la
Tu nd
rk
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M y
ex
ic
o
0
Source: OECD
• Apologists for US incumbents will say that the US is not doing
all that badly.
• Possibly true but irrelevant. US performance is vastly inferior to
what it could have been.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in the United States
• United States had an enormous head start on
broadband deployment over everybody else.
• Ubiquitous cable television: A second pipe to
nearly every home.
• High GDP, high disposable income, lots of PCs.
• The US arguably should have been among the top
countries in the OECD in broadband adoption.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Access in the United States
• Slower-than-expected roll-out and adoption of
broadband.
• Loss of consumer choice.
• Higher retail prices?
• Network neutrality problems that are likely to
necessitate highly intrusive re-regulation.
• Possibly some acceleration of fibre deployment by
incumbents, but at the cost of greatly impacted
deployment by competitors.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
US versus EU
• Network Neutrality only a minor concern in the EU.
- The more robustly competitive environment discourages
anticompetitive discrimination.
- Richer palette of regulatory tools.
• Most Europeans have access to multiple
broadband providers (not all of which are fully
facilities-based).
• EU regulatory reform seeks minor changes to
ensure e.g. that consumers are informed, and can
switch without cost if their network operator
changes its policies.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection
• Internet interconnection globally takes place primarily
through variants of two main mechanisms:
- Peering: ISPs exchange traffic destined for their respective
customers (or customers of their customers), often without
explicit payment.
- Transit: An ISP carries another party’s traffic to third parties,
possibly to the entire Internet, generally for pay.
• These arrangements typically do not depend on any
regulation.
• Interconnection in the telephony network, by contrast,
tends to be highly regulated and highly focused on
voice minutes.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection
Call placed
Call received
Retail
CPP
Payment
Originating
Network
Terminating
Network
Wholesale CPNP Payment
• Termination rates represent wholesale payments between
network operators under the Calling Party’s Network Pays
(CPNP) arrangements.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection
• A substantial economic literature tells us to expect
high termination fees (from small operators as well
as large) in the absence of regulation.
• These prices result from the termination monopoly.
• Termination rates for the fixed network have long
been constrained by regulation in European Member
States so not to exceed the terminating network
operator’s marginal cost.
• Mobile termination rates were, however, unregulated
in most Member States until 2003 or so.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection
• European experience supports the expectation of
high MTRs in the absence of regulation.
- MTRs before regulation
- MTRs after regulation
(2002): € 0,187.
(2008): € 0,086.
Source: 14th Implementation
Report, Annex 2, 2009,
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Mobile Termination
Rates
(MTRs):
How low
should
they go?
How low should they go?
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Termination Rates
• A substantial economic literature argues that
termination rates should be set at the level of the
terminating network operator’s cost (however
determined).
• An alternative school of thought argues that there
should be no wholesale payments (Bill and Keep).
• There are some arguments for setting TRs lower
than cost, but few if any have argued that TRs
should be higher than cost.
• There is no perfect price.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
• The MTR affects MNOs in two very different ways:
- For calls Mobile-to-Mobile (M2M) calls, a lower MTR
represents a reduced wholesale cost for the originating MNO.
• In a competitive market, a reduced cost should lead to a reduced
price.
• A reduced unit price will tend to lead to increased consumption.
• The impact on ARPU depends on the relative magnitude of these
effects, since they push in opposite directions.
- For calls to the mobile network from either fixed or mobile, a
lower MTR tends to mean reduced wholesale income.
• However, as noted above, it is also likely to result in reduced retail
unit price, both for F2M and for M2M.
• Again, reduced unit price for calls to the mobile network should
result in increased call volumes.
• The increase in call volume pushes ARPU in the opposite direction
as the reduction in MTRs, such that the combined effect is not
easy to predict.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
• Historical experience is that overall European unit prices for
mobile voice service move in parallel with MTRs.
Service-Based Revenue per MoU vs MTRs in Europe
$0.30
$0.25
$ (US)
$0.20
SBR/MOU
MTR (PPP corrected)
$0.15
$0.10
$0.05
$0.00
2004
2005
2006
2007
2008
Source: ERG (for MTR data), Merrill-Lynch
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
• One would expect high unit price to be associated with low
demand and vice versa (price elasticity of demand).
900
800
700
USA
ARPU
USA
600
500
Hong-Kong
400
Kanada
Indien
y = -1720,3x + 534,54
R2 = 0,5691
Singapur
300
Finnland
Schweden
200
ARPU Österreich
100
Frankreich
Norwegen Irland
UK
Dänemark
Österreich
Griechenland Spanien
Italien Belgien
Niederlande
Portugal
South Africa
Deutschla
nd
ARPU Deutschland
-
0,05
0,10
0,15
0,20
0,25
0,30
Schweiz
0,35
Source: WIK. based on Merrill Lynch 3Q2008 data.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection
Voice Revenues
3.500
3.000
Million euro
2.500
2.000
Other (Mio.)
M2F (Mio.)
M2M off-net (Mio.)
M2M on-net (Mio.)
1.500
1.000
500
0
2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009
Source: Spanish CMT Data
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
€ 0,250
€ 0,200
€ 0,195
€ 0,189
€ 0,195
€ 0,190
€ 0,191
€ 0,186
€ 0,178
€ 0,170
€ 0,190
€ 0,181
€ 0,180
€ 0,171
€ 0,182
€ 0,171
€ 0,177
€ 0,166
€ 0,170
€ 0,168
€ 0,159
€ 0,157
€ 0,150
€ 0,100
€ 0,110
€ 0,166
€ 0,164
€ 0,163
€ 0,153
€ 0,151
€ 0,148 € 0,147
0,16
€ 0,110
€ 0,100
€ 0,100
€ 0,100
€ 0,100
€ 0,080
€ 0,080
€ 0,070
€ 0,070
€ 0,060
€ 0,050
€ 0,000
€ 0,006
2Q2006
€ 0,005
3Q2006
€ 0,005
4Q2006
€ 0,008
1Q2007
MTR
€ 0,008
2Q2007
€ 0,009
3Q2007
Voice SBR / orig MOU
€ 0,010
4Q2007
€ 0,010
1Q2008
€ 0,011
2Q2008
Subscription fees / orig MOU
€ 0,011
3Q2008
€ 0,013
4Q2008
€ 0,060
€ 0,013
1Q2009
€ 0,057
€ 0,057
€ 0,015 € 0,014
2Q2009
3Q2009
Traffic SBR / orig MOU
Source: Spanish CMT Data
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
• Our data for Europe show the following
relationships to MTR:
- Retail price per minute:
- Minutes of use per month:
+0.7
-0.5 to -0.6
• The instrumental variable used to represent retail
price (Merrill Lynch Service Based Revenue per
Minute of Use) is about 85% retail and 15%
wholesale revenue.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
• Most studies (not all) find that high MTRs
encourage more rapid mobile adoption.
-
Lower initial fees.
Higher handset subsidies.
Lower monthly fees.
All result in a lower cost to acquire and retain service.
Cost to use the service, however, can be higher.
• Does penetration greater than 100% represent a
benefit to public welfare?
- Are multiple subscriptions a response to different roles
and responsibilities (work versus leisure)?
- Or are they a response to charging anomalies (on-net
off-net price discrimination, roaming charges)?
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
Source: 14th Implementation Report, Annex 2, 2009,
44
Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
Source: Eurbarometer June 2008, data from Nov-Dec 2007
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection: Effects of MTRs
• Mobile penetration in South Africa was about 101%
as of 3Q2009 (Merrill Lynch), about 81% of them
pre-paid.
• Actual adoption of cell phones is highly variable
from one province to another, ranging from 43.2%
(Western Cape) to 80.8% (Mpumalanga). (Source:
Statistics South Africa, 2009 Household Survey)
• Compare this also to roughly 10% fixed penetration
(or 18% of households).
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Interconnection
• The move to lower MTRs in Europe, or to eliminate
them altogether, has to a significant degree been
motivated by the migration to IP-based NGNs.
• Recovery of the cost of the network solely from the
voice service makes no sense going forward. Voice
represents a small fraction of total traffic and cost.
• With the emergence of over-the-top VoIP services,
the service provider might not be the network
operator in the first place.
• Distorted interconnection pricing inhibits eventual
migration of the PSTN to IP interconnection.
47
Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
• Separate approaches are often needed to driving
- Deployment
- Adoption
• Two interrelated but distinct programmatic aspects
- Universal service
• Ensuring that anyone who wants a basic service can get it.
• Typically addressed as a regulatory matter.
- Ultra-fast broadband
• Ensuring that high speed (e.g. fibre-based) broadband is
available to as much of the population as possible.
• Generally treated as a matter of industrial policy.
• Typically driven by a ministry, not by the regulator.
48
Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
• Universal service recognises network effects – the
more people are connected, the better for all.
• Twentieth Century universal service emphasised
voice service over the fixed network.
• Twenty-first Century universal service must
recognise:
- That in a country like South Africa, where the fixed
network reaches only 18% of households, that mobile
service is of enormous importance.
- That in an increasingly IP-based world, the meaningful
wired universal service is a broadband access.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
• Concepts of best practice emerge in studies by the
ITU and by the World Bank (cf. Bjorn Wellenius)
• The national territory can be viewed as consisting
of three kinds of areas:
- Those where commercial incentives are sufficient to
ensure deployment and ongoing viability of services.
- Those that require subsidy indefinitely.
- Those that could be self-sustaining once initially “jump
started”.
• An analogous categorisation into white, black and
grey areas appears in European State Aid rules.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
• Important to avoid needless subsidies to services
that could sustain themselves. Not only is it
wasteful, but it also distorts competition.
• “Reverse auctions” are a best practice means of
providing no more subsidy than necessary.
• Reverse auctions are not trouble free:
- The winner may be unwilling or unable to actually
complete the build-out at the agree-on price.
Encourages “bid to win”.
- Does not automatically adjust to changing
circumstances.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
• WIK report on Next Generation Access for ECTA
(2008)
• Sophisticated models of fibre roll-outs in France,
Germany, Italy, Netherlands, Portugal, Spain
• No country likely to achieve full coverage without
public stimulus/subsidy.
• Only limited prospect of replicating infrastructure.
52
Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
Investment per home connected (in Euro), market share 50%, urban cluster,
stand alone first mover **
Country [in €]
Network
Type
DE
FR
SE
PT
ES
IT
VDSL
457
n.v.
352
218
254
433
PON
2,039
1,580
1,238
1,411
1,771
1,110
P2P
2,111 (54%)
2,025
1,333
1,548
1,882
1,160
** Based on the investment of the urban cluster and a market share of 50%. If other marekt shares are used, it is
mentiond in brackets.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
Viability of NGA roll-out for incumbents across countries and technologies
Country
Network
Type
DE
FR
SE
PT
ES
IT
VDSL
71.5%
n.r.
18.3%
39.0%
67.4%
100.0%
PON
25.1%
25.2%
18.3%
19.2%
12.2%
17.6%
P2P
13.7%
18.6%
18.3%
19.2%
12.2%
12.6%
54
Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
Replicability of NGA roll-out for a second mover, 80 % access to existing
ducts at current cost-based prices
Country
Network
Type
DE
FR
SE
PT
ES
IT
VDSL
18.5%
n.r.
n.v.
39.0%
n.r.
17.6%
PON
0.3%
6.8%
n.v.
n.v.
n.v.
1.6%
P2P
0.0%
6.8%
n.v.
n.v.
n.v.
0.2%
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Driving widespread broadband
• Important initiatives to drive ultra-fast broadband
are under way in a number of European countries,
Singapore, Australia, New Zealand, and the United
States.
• Australia’ National Broadband Network:
- Connect 90-93% with high speed fibre at 100 Mbps.
- Connect the remainder at 12 Mbps (peak) with some
combination of fixed or mobile wireless and satellite.
- Cost initially estimated at $43 billion AUD; recently
revised to $26 billion AUD (about 171 billion ZAR) taking
substantial advantage of aerial fibre.
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Regulatory models for Internet growth: Cape Town, 24 May 2010
Regulation and public policy:
Spectrum policy
• An enormous area in its own right. In the interest
of time, we will make only brief comments.
• A global consensus has emerged for commercial
spectrum allocation and assignment:
- Allocations and assignments should have as few
restrictions as possible, consistent with the need to
avoid harmful interference.
- Technological and service neutrality are desirable.
- Market mechanisms, exemplified by auctions, help to
ensure that spectrum is assigned to those who value it
most (and thus are most likely to put it to good use).
- Secondary markets (trading, leasing) are a useful
complement to auctions.
57
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa
• Competitive access remedies
• Interconnection and MTRs
• Submarine cable, long-haul capacity
• Broadband for all
• Spectrum management
• Government ownership of telecoms
• Institutional arrangements
58
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa
• The following observations, suggestions, and
recommendations are based on an admittedly
fragmentary understanding of your environment.
• Special thanks to Christoph Stork of
researchICTafrica.net, who kindly made a number
of unpublished manuscripts available to me.
• Other observations reflect publicly available data
from sources such as Statistics South Africa, and
from commercial sources such as the Merrill Lynch
Quarterly Wireless Matrix 4Q2009.
• Any errors are my own.
59
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Licensing
• Observation: Licences for competitive new fixed
and mobile entrants have been delayed for years.
-
Neotel
CellC
Infraco (government-owned)
Conversion of licences from VANs to ECNS
• Observation: European experience demonstrates
that lengthy licensing procedures and/or onerous
conditions and unnecessary and unproductive.
60
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Licensing
• Recommendation: Licensing procedures should
be simplified and streamlined, and maximum
conditions firmly limited. ICASA needs to make a
decision, up or down, within a short period of time.
• Question: I am told that ICASA granted and
issued 288 individual Electronic Communications
Network Services (I-ECNS) licences in January
2009. They granted another 256 I-ECNS licences
without issuing them. Is this problem solidly on the
mend? Is it fixed?
61
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Competitive access
• Observation: Policies for ensuring that competitors
gain access to bottleneck facilities seem to be
ineffective. New rules have languished pending
ICASA’s definition of relevant markets.
• Observation: There are large parts of the country
that are not served by the fixed network;
nonetheless, it is vital in key metropolitan areas.
• Recommendation: Detailed rules for a basic ladder
of investment need to be put in place, using rules in
a country where they are effective as a template.
• Recommendation: ICASA’s ability to promptly
enforce such rules needs to be assessed.
62
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Interconnection
• Observation: MTRs in South Africa continue to be high,
despite commitments to lower them.
• Observation: High MTRs may be leading to high unit
prices in South Africa, and clearly to low usage (MoU).
• Observation: High MTRs can also likely inhibit effective
competitive entry (e.g. by on-net off-net price
discrimination).
• Observation: MTRs in Europe are about to decline
80% or more (e.g. to € 0.006 in the UK in 2015).
63
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Mobile Subscribers (000)
60,000
50,000
40,000
Other
Cell C
MTN
Vodacom
30,000
20,000
10,000
7-Mar
7-Jun
7-Sep
7-Dec
8-Mar
8-Jun
8-Sep
8-Dec
9-Mar
9-Jun
9-Sep
Source: Merrill Lynch Quarterly Wireless Matrix 2Q2009
64
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Mobile Minutes of Use per Month
120
100
80
Vodacom
MTN
60
40
20
0
7-Mar
7-Jun
7-Sep
7-Dec
8-Mar
8-Jun
8-Sep
8-Dec
9-Mar
9-Jun
9-Sep
Source: Merrill Lynch Quarterly Wireless Matrix 2Q2009
65
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Mobile Revenue per MoU
ZAR 1.80
ZAR 1.60
ZAR 1.40
ZAR 1.20
ZAR 1.00
Vodacom
MTN
ZAR 0.80
ZAR 0.60
ZAR 0.40
ZAR 0.20
ZAR 0.00
7-Mar
7-Jun
7-Sep
7-Dec
8-Mar
8-Jun
8-Sep
8-Dec
9-Mar
9-Jun
9-Sep
Source: Merrill Lynch Quarterly Wireless Matrix 2Q2009
66
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa: MTRs
• Observation: Market shares here, in terms of
subscribers, are about 52% / 33% / 13%.
• Observation: Relatively low levels of on-net offnet price discrimination, despite high MTRs,
suggests a market where competition is weak.
• Conjecture: MNOs will not return all of the
savings of lower MTRs to the public. In Europe,
they return about 70% on average. Here, the
proportion might be somewhat lower. Lowering
MTRs is nonetheless in order.
67
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa
• Observation: Changes need to implemented with
care. High MTRs probably also lead to high
penetration, and to widespread availability of prepaid plans.
• Recommendation: MTRs urgently need to be
brought to much lower levels, but perhaps not
quite as low as the target rates in Europe.
68
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Broadband
• Observation: Broadband deployment initiatives in
South Africa need to take an integrated view of
multiple potential bottlenecks:
-
Submarine cable
Back-haul between metropolitan areas
Back-haul into the countryside
Last mile (or last air mile)
69
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Submarine cable
• In many markets I have worked in (Jamaica,
Australia, New Zealand), undersea cable capacity
represents a crucial bottleneck.
• Low capacity can impede development of content
and applications in country.
• Low capacity sometimes forces hosting to the US.
• Observation: Submarine cable, at least, appears
to be in a promising state, including:
-
2009 –SEACOM (commercially launched mid-2009)
2010 –EASSy
2010 –MainOne
2011 –West African Cable System (WACS)
70
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Backhaul
• Back-haul capacity between metropolitan areas,
deeper into the countryside, and also to submarine
cable landings, seems to continue to represent a
crucial ongoing bottleneck.
• Experience in many countries suggests that lack
of back-haul at competitive prices is likely to
impede a wide array of other forms of competition.
• ISPs need back-haul to link major cities, reach
cable landings, and serve their customers. Mobile
operators need large capacity back-haul. High
back-haul prices lead to many distortions.
71
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Backhaul
• Observation: Infraco was supposed to address
the shortfall in back-haul; however, Infraco
encountered substantial delays in licensing and
launch.
• Questions: Commercial parties are building out
on their own. Will capacity be available to third
parties? Will it be enough to close this gap?
• Recommendation: Back-haul appears to need
much more focussed attention in terms of public
policy initiatives.
72
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Broadband for all
• Observation: Only 18% of households have
access to the wired network; thus wireless
broadband, whether fixed or mobile, has to play a
critical role in any broadband strategy.
• Observation: In Europe, many bands have been
made available under liberalised arrangements
suitable for broadband (e.g. WAPECS). Digital
Divided spectrum is being made available.
• Observation: An inquiry into spectrum allocation
(especially for WiMAX), launched in 2006,
published findings in 2008 but has not concluded.
73
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Broadband for all
• Observation: The Department of Communication
(the SMA) has committed itself to an audit that it
believes will take two years.
• Observation: ICASA has said that it intends to
auction spectrum.
• Recommendation: Attention is urgently needed.
Large blocks of spectrum suitable for wireless
broadband need to be identified, and need to be
made available through auction with as few
restrictions as possible on mode of use.
74
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Broadband for all
• Observation: South Africa has a diverse
population with a fairly wide dispersion of income
(e.g. GINI coefficient).
• Observation: In metropolitan areas with high
disposable income, the challenge is not to achieve
coverage, but rather to lower price.
• Suggestion: For prosperous metropolitan areas,
the focus should probably be on competitive
access to bottleneck facilities, not on stimulating
deployment.
75
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Broadband for all
• Observation: As previously noted, the tools used
to achieve basic broadband to a larger segment of
the population are different from those used to
achieve ultra-fast broadband to those who can
afford it.
• Suggestion: South Africa might be well advised to
focus first on getting basic broadband rolled out to
a larger proportion of the population. Otherwise,
you risk exacerbating the Digital Divide.
76
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Broadband for all
• Observation: South Korea was an early leader in
ADSL. They did not subsidise the last mile.
- They subsidised a fibre backbone linking all major
metropolitan areas.
- They subsidised PCs for Korean families
• Observation: About 15% of South African homes
have a PC, which poses an effective ceiling to the
number of Internet connections.
• Question: What could be done to stimulate PC
penetration in South Africa, thus stimulating
demand for broadband services?
77
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Spectrum
• A comprehensive program of spectrum
liberalisation is urgently needed.
• Elements should include:
- Auctions
- Secondary markets (but restricted to simpler forms of
spectrum trading or leasing)
- Liberalised allocations
- In a second phase, consider implementing
administrative controls for spectrum for defence forces
(as exemplified by the Netherlands)
78
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa:
Government ownership
• Observation: After the transactions of 2009, the South
African government reportedly still owns 37.7% of Telkom,
and retains a 14% direct shareholding in Vodacom.
(Source: researchICTafrica.net)
• Observation: Experience in Europe and elsewhere
strongly suggests that a share this large distorts the
government’s own incentives.
• Recommendation: More of this share should be sold off.
• Recommendation: Any direct government investment
should focus on segments where competitive entry would
otherwise be unlikely.
79
Regulatory models for Internet growth: Cape Town, 24 May 2010
Relevance to South Africa
• Observation: ICASA seems to have enormous
difficulty in bringing proceedings to a definitive
conclusion. MTRs are a case in point.
• Observation: Interminable delays cause
uncertainty that harms businesses, and ultimately
consumers.
• Suggestion: I would respectfully suggest that
ICASA’s institutional arrangements need analysis
and probably some serious re-thinking.
• Suggestion: ICASA might benefit from capacity
building.
80
Regulatory models for Internet growth: Cape Town, 24 May 2010
Conclusions: What way forward?
• Implement effective competitive access remedies
• Lower MTRs
• Address back-haul deficits
• Liberalise spectrum management
• Focus broadband initiatives on universal service
• Consider demand stimulation
• Further reduce government ownership of telecoms
• Bolster the institutional effectiveness of ICASA
81
Regulatory models for Internet growth: Cape Town, 24 May 2010
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