tsm & termination rates eric debroeck ar/ drg 2006/06/30

TSM & Termination ratesEric Debroeck AR/ DRG2006/06/30

TSM & Termination rates IDEI / 30 june 2006/ED 2 Groupe France Télécom

Agenda

Interconnection between fixed telecommunications networksInterconnection rate for fixed legacy networksCPS sunsetTowards symmetric interconnection prices in a NGN environment

Interconnection services provided by Mobile NetworksMobile call termination issues :

• Market development• Usage prices

Impact of MVNOs


1Interconnection between fixed telecommunications networks


Fixed access networks interconnection (1) Termination Rate (TR) Asymmetry in fixed interconnection

Throughout Europe : asymmetric TR between incumbent and new entrantsFrom the regulatory perspective, entry assistance due to :

• Volume asymmetry• Interconnection points covering greater zones• Infancy concept• Higher TR could be recovered via higher retail price / asymmetry level has no

material effect on the incumbent economic equilibrium

From an incumbent perspective• Technologies deployed by competitors are more cost effective than those of legacy

network• Asymmetric TR distort retail markets• Incumbent customers de facto subsidize entrants’ customers

There is no clear case for a TSM in the narrowband marketnarrowband vs broadband ?


Fixed access networks interconnection (1) TR Asymmetry in fixed interconnection

TA OBL Alternatif (cent€/min)

0,0000,2000,4000,6000,8001,0001,2001,4001,6001,800

2001 2002 2003 2004 2005 2006 2007 2008

Intra-CA FTAllemagneEspagneRoyaume UniItalieARCEP

Alternative fixed operators’ TR


France Télécom starts (at best) on the same footing as efficient competitors from a Voice over Broadband costs perspective :

No legacy infrastructure (apart from ducts and poles)

Lower volumes (incumbents switch later than new entrants from narrowband to broadband access)

Remedies applicable after recent market analysis of legacy termination market should not apply to NGN terminations services :

Same obligations for incumbents and new entrants on NGN Termination Rates• Non excessive rates

Identical costs + identical obligations => symmetrical rates

Fixed access networks interconnection (2)


Towards the end of carrier selection

Carrier selection (CPS) + Wholesale Line Rental (WLR) are substitutes of direct access on legacy fixed networks

Enduring dominant position on copper access justify specific remedies on access :

ULL & BSA for broadband servicesWLR & CPS for remaining narrowband access on NGNThose obligations allow vibrant competition on the retail market

Carrier selection on NGN networks would lead to costly, cumbersome and socially inefficient developments

Carrier selection on BB access and stand alone carrier selection on POTS are no longer justified.

Outdated remedy, such as CPS, should not apply to NGN networks


2Interconnection services provided by Mobile Networks


Mobile termination prices have historically favoured the great success of GSM services throughout Europe

GSM development had a positive impact on European customers, operators and industry

Clear TSM case

Today’s challenge is to repeat this success with UMTS services

Mobile termination prices may help : is it wise to abandon such a tool ?

Mobile termination issues (1) : global market development


GSM services reached very high mass-market penetration, thanks to a combination of low handset and access prices with initially high usage prices

Once penetration objective reached, commercial and regulatory attention focussed at usage prices :

The market currently manages to develop low marginal prices• Convergence and NGN will strengthen this trend

Inappropriate regulatory intervention should be avoided as it could destroy market value, investment incentive and lead to retail price increase

Mobile termination issues (2) : usage prices


Within a year, MVNOs brought :Strong brands (Virgin, M6, Tele 2, …)Competitive convergence (F&M) offers New prices modelsService innovation (“Ten” with integrated SMS and IM services, “Beautiful Phone” from 9)

The outcome of commercial negotiations, not of regulatory intervention :

Commercial dynamics are strong and regulatory intervention would slow and distort them.

MVNOs


Fixed NGNSymmetric terminations between FT and Alternative OperatorsNo carrier selection

Mobile interconnectionOperator’s strategy is to lower mobile usage pricesMVNOs based on commercial agreements intensify competition and bring innovations on the marketInopportune regulatory intervention would lower market value and jeopardise 3G development

Conclusions


Thanks

tsm & termination rates eric debroeck ar/ drg 2006/06/30

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