umniah’s response to the trc public consultation regarding ...§ستشارات/استشارات...

Umniah’s response to the

TRC Public Consultation Regarding

Licensing the Use of 3G Cellular Communications Technologies Radio Frequencies in Jordan

Amman, 25 August 2008

Umniah – Response to TRC consultation on “3G Radio Frequencies”

Table of Contents

A. Introduction and Key Points....................................................................................... 3

A.1 General Introduction........................................................................................ 3A.2 Rationale for Regulatory Intervention.............................................................. 3A.3 The Green Paper.............................................................................................. 5A.4 The ‘Financial Model’..................................................................................... 8A.5 The Proposed Auction Design......................................................................... 9

B. Specific Comments on the TRC Consultation Document......................................... 14

B.1 Comments on the TRC’s Foreword................................................................ 14B.2 Comments on the TRC’s Executive Summary............................................... 15B.3 Comments on Chapter 3: Spectrum Allocation and Band Configuration.......15B.4 Comments on Chapter 4: 3G Standards......................................................... 17B.5 Comments on Chapter 5: Policy Considerations............................................ 18B.6 Comments on Chapter 6: Regulatory Considerations.................................... 19B.7 Comments on Chapter 7: Numbering Requirements & Addressing (etc…).. 22

C. Umniah’s Comments on the ‘Financial Model’........................................................ 24

C.1 Section of Green Paper on the ‘Potential of the Mobile Market’................... 24C.2 Purpose: Viability of Entry ‘Given Acceptable Levels of Profitability’........ 24C.3 Relevance of Section: ‘Creating Conditions for Effective Competition’....... 25C.4 Observations Regarding the Robustness of the ‘Financial Model’................ 25

D. The Green Paper’s Reliance on a Superseded IRG Recommendation .....................29

D.1 Green Paper Depends on a Definition that was Superseded in 2002............. 29D.2 Poor Application of the Superseded 2001 IRG Recommendation................. 30

Annex. 2006 Exchange of Correspondence between Umniah and the TRC................ 33


A. Introduction and Key Points

A.1 General Introduction

Umniah welcomes the opportunity to provide its comments on the Consultation Regarding Licensing the Use of 3G Cellular Communications Technologies Radio Frequencies in Jordan, issued by the TRC on 25 June 2008.

Umniah’s comments are informed by the consultation document itself as well as by the Green Paper: Creating the Conditions for Effective Competition in the Mobile Sector, published by the TRC on 9 July 2008. Umniah also bases its comments on presentations made, and discussions held, at the Mobile Communications & 3G Services Forum, which was held on 25 June 2008 as well as meetings held with the TRC and with the TRC’s consultants EuroStrategies on 23, 24, and 31 July 2008.

Reference is made in the Green paper to a ‘financial model’, developed by Eurostrategies, the aim of which is purportedly to test the potential of the mobile market in Jordan and which apparently has informed the TRC’s view as to the viability of further infrastructure-based entry by a 4th and 5th operator into the Jordanian Public Mobile market. Umniah includes (in the Section C of this response) its views and comments on the usefulness and appropriateness of EuroStrategies’ ‘financial model’ (the actual detail of which was never communicated to interested parties). Our views and comments are based on discussions held with the TRC and Eurostrategies in July.

In terms of the structure of this document, Umniah provides its key comments, which address prominent contextual issues that provide the setting and rationale for the TRC consultation as an extensive introductory part (this Section A), followed by responses and comments that are specific to the TRC’s questions raised in the consultation document (Section B), a specific set of comments on the ‘financial model’ (Section C) and a specific set of comments on the reliance by the TRC and its consultants on a superseded IRC Recommendation dating back to 2001 (Section D), and an Annex (in Arabic) containing a key previous exchange of correspondence between Umniah and the TRC.

A.2 Rationale for Regulatory Intervention

Allocating and assigning hitherto unavailable frequency spectrum for civilian use must be regarded as a ‘regulatory measure’, given that it influences the market, i.e. market dynamics are changed through exogenous intervention.

Any introduction of regulatory measures is generally a remedy to an identified market failure. A market failure is generally understood to constitute the absence of competition within a defined product or service market and relevant geographic area that have been identified, using an explicit market definition method. Market definition is generally achieved by applying, for example, the small-but-significant-non-transitory-increase-in-


price-test (“SSNIP Test”) to determine which constraints are present that prevent sustained market power (or the absence of such constraints). Characteristics that need to prevail for there to be abusive market power (and hence a lack of effective competition) are high price levels, limited customer choice, poor product quality, customer lock-in, discrimination, the ability to dictate market conditions at supply and demand level etc. Once the state of competition has been assessed within such an economic (scientifically defined) market, and the absence of effective competition has been identified therein, the least burdensome and most appropriate remedy is to be identified that will effectively correct the absence of effective competition.

Umniah considers that no serious or scientific analysis has preceded the identification by the TRC of the remedy of issuing additional frequency spectrum, bundled or combined with Public Mobile-Service-licenses in the manner proposed (and to be subject to auctions that would clearly concern more than simple frequency spectrum auctions).

The TRC’s proposal to introduce further regulatory measures is purely based on a misunderstanding of the Government 2007 ICT Policy Statement and the previous Government commitments and statements of intent in the 2003 Program for Further Licensing in the Public Mobile Sub-sector. The TRC’s proposal is also made in isolation of economic testing as to whether such a measure would be effective in enhancing consumer welfare in the medium to long-run

If the TRC’s aim is to facilitate the introduction of innovative services, then distributing frequencies across existing players would be a better targeted regulatory intervention that would be in accordance with the previous Government commitments and statements of intent in the 2003 Program for Further Licensing in the Mobile Sub-sector.

To be very clear, Umniah does not dispute that the Government could decide to offer new Public Mobile Service Licenses (as opposed to frequency spectrum) through an auction process. However, we insist on pointing out that the 2003 Program, upon which Umniah was licensed, explicitly: (i) provided for the granting of additional 900 MHz and 1800 MHz expansion spectrum through a simple administrative process and administrative pricing, and certainly not through auctions, and (ii) committed the Government to offer the 2 GHz IMT-2000 spectrum to the “existing” Public Mobile Telecommunication Licensees upon expression of “a showing of need”. Umniah considers that these terms are an integral part of the conditions upon which it was licensed, and that any retroactive change can only represent severe prejudice to legal certainty, and would have to be disputed to full exhaustion of all available legal processes. According to the previous commitments, only previously licensed Public Mobile Operators (licensed previously to the date of frequency offer) are eligible to be offered the frequency spectrum. Moreover, the value for such frequency spectrum must be estimated based on the demand of the Licensed Public Mobile Operators for such frequency spectrum and not based on exaggerations caused by bundling different frequencies together and combining them with Public Mobile Service Licences, thus obscuring the value of each of the components.


A.3 The Green Paper

Misinterpretation of Government Policy

The Green Paper, as well as the TRC consultation document, are based on a misinterpretation of the Government 2007 ICT Policy Statement that was adopted by the Cabinet of Ministers on 29 May 2007, in at least the following respects:

• The first part of article 55 of the Government Policy requires the TRC to: […] promote the entry of additional mobile providers primarily by taking actions necessary to facilitate and promote the entry of non-facilities based mobile operators. […] This Government prioritisation of non-facilities based entry is completely ignored and cast aside by the TRC’s proposals. (MVNOs have not been permitted long enough to enable any assessment of the efficacy of the primary measure required by the Government Policy).

• Article 54, stipulates a Government commitment to the current licensing regime: "The decision whether further facilities-based operators should be introduced should be left to the market and the current open licensing regime" (emphasis added). Accordingly, it would be a misinterpretation to believe that the policy required the modification of the Public Mobile licensing regime as is being proposed by the TRC’s consultation document. Moreover, the second part of article 55 of the Government policy only requires an examination: “The TRC shall also examine whether it is desirable to make spectrum capacity … (3G/4G), whether for new or existing licensees” (emphasis added). Hence, it becomes clear that the Government policy does not call on the TRC to modify the current licensing regime for frequency spectrum assignment in the Public Mobile sub-sector, and does not call on the TRC to rely on the auction mechanism for the assignment of frequency spectrum to possible new entrants but only calls on the TRC to examine whether doing so would be desirable. In fact, the Government policy (article 68 J) explicitly limits the requirement for the pricing of spectrum using auctions to cases “where appropriate”.

Therefore, (and contrary to the misinterpretation presented by the TRC in the meetings) the second part of article 55 of the Government policy does NOT require making (‘3G/4G’) frequencies available to new operators and only requires the TRC to “examine” whether doing so is desirable. Moreover, the government had previously explicitly set out its intent in article 3.6 of the 2003 Program for Further Licensing in the Mobile Sub-sector: “to offer [IMT2000 in the 2 GHz band] to the then existing Public Mobile Telecommunications Licensees upon a showing of need”.

Accordingly, the use of auctions for 2 GHz IMT-2000 frequency spectrum assignment in the Public Mobile sub-sector contradicts the statement of intent issued by the Government and would clearly be inappropriate in the sense of the policy statement in (article 68 J). The examination which the Government policy requires from the TRC in article 55 should have concluded that previous statements-of-intent by the Government (mainly in


the 2003 Program for Further Licensing in the mobile Sub-Sector, but also referred to in other documents) make offering frequency spectrum through auctions to previously unlicensed companies aspiring to become Public Mobile network operators inconsistent with the Government’s commitments. At the same time, article 54 requires that the current licensing regime be unchanged.

Misunderstanding of the notion of (absence of) effective competition

The Green Paper addresses the creation of the conditions for effective competition in the mobile sector without stating and considering the ‘base case’ of the current competitive state of the Jordanian Mobile Market. In fact, the Green Paper is clearly defective on several counts, and the Green Paper, as well as the TRC consultation document, are grossly misleading in the function of guiding Government policy by presenting a faulty and incomplete assessment, which, from an effects-based and best practice approach, sets wrong market signals and will be to the detriment of consumers and the industry as a whole. Jordan has the advantage to learn from Europe, where billions of misguided investment had to be written off by new entrant and existing operators, and where several late entrant mobile operators either have never built significant networks, exited the market or were consolidated after a few years of struggling operations. A proper examination by the TRC will find that most countries with comparable or far higher population numbers than Jordan that have undergone further entry by infrastructure-based Public Mobile operators find themselves in a state of intense consolidation only a few years post-introduction, with customers not better off. Key examples include The Netherlands (reduction from 5 to 3 operators) and Greece (reduction from 4 to 3 operators).

The Green Paper and the TRC proposals pre-judge and allege absence of effective competition in the Public Mobile sub-sector in Jordan, without providing any evidence and analysis, and this is done prior to having defined the market and having conducted a market analysis, i.e. the sequence of events is wrong and this is unjustifiable.

The TRC cannot conclude that a market lacks effective competition whilst the TRC has neither defined nor analysed the market (and its possible sub-segments), neither on the supply-side nor on the demand-side.

Furthermore, the TRC (in the Green Paper) and its consultants have relied on an IRG recommendation which first saw the light in 2001 (the purpose of which was analysing effective competition in the European markets), and which was never applied in practice and was superseded by the 2002 EU Directives and European Commission Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation. The first edition of this Recommendation put forward 18 markets which, in accordance with the directives, must be studied (in accordance with a methodology compatible with competition law prescribed by the directives) by National Regulatory Authorities in order to assess whether there is dominance in each of these markets and only then proceed to define possible ex-ante remedies.


On the basis of the currently applicable Jordanian market definition (which concerns the mobile market in its entirety), or on the basis of past and present market definitions and regulation in the European Union (including the 2001 IRG recommendation), and in the presence of 3+1 mobile network operators, claiming that the mobile market in Jordan would not be effectively competitive today, whilst relying on EU-inspired principles and definitions, stands in total contradiction with the situation in the European Union Member States themselves. None of the 27 National Regulatory Authorities in the European Union has ever found the mobile retail market in its country to be characterised by the absence of effective competition (and these are all markets which the IRG recommendation from 2001 had targeted). Following the adoption of the second edition of the Recommendation, the only market that has been found to potentially require ex-ante regulation is that of mobile termination (which is a wholesale market). Even a cursory examination of the number of mobile network operators and their market share in each of the 27 European Union Member States indicates clearly that the number of operators in Jordan and their market shares is no different from these European markets in which competition was found to be effective.

The correct application of the effective competition test (defined in accordance with past or current EU principles or any internationally accepted definition) in Jordan, provides clear and unequivocal evidence that effective competition exists in the mobile market in Jordan. This is due to the following (non-exhaustive list of) reasons:

1- the manner in which market shares have moved in the last 3 years to become 38% for Zain, 35% for Orange, and 27% for Umniah is proof that there is no persistent market power in the Public Mobile sub-sector. It is clear that whatever market power existed was transient and not sustainable.

2- A sustained low price level in comparison to other consumer goods prices: Whilst general consumer prices across the board have reached record highs, telecom prices continue to drop. This constitutes further proof of the absence of market power in the Public Mobile market. Recent statistics in the media show that prices have increased by more than 49% for energy and lighting, 21% for transport, 28% for dairy products and eggs, 27% for oils and greases, while the prices for the telecom basket dropped by 0.85%. Telecom operator costs are rising (salary costs, energy costs, etc.) while strong competition constrains any of the three (four) current operators from increasing prices. This proves that they do not individually or collectively have market power to allow them to behave independently from other suppliers and from consumers.

3- Prices are very low in comparison to the region and globally. For example, according to the 13th Implementation report1 of the European Commission on the

1 See page 24 as well as explanation on page 132 of the European Commission document, (and note that for Jordan a weighted average price of 0.035 JD per minute was used): http://ec.europa.eu/information_society/policy/ecomm/doc/library/annualreports/13th/SEC(2008)356DTSVol2final.pdf


http://ec.europa.eu/information_society/policy/ecomm/doc/library/annualreports/13th/SEC(2008)356DTSVol2final.pdf

http://ec.europa.eu/information_society/policy/ecomm/doc/library/annualreports/13th/SEC(2008)356DTSVol2final.pdf

EU’s telecommunications market, the average of the lowest offers from mobile operators in Europe for a low usage basket is 13.7 €/month, while in Jordan (using weighted average offer prices of 0.035 JD per minute of outgoing calls to Fixed and Mobile on-net and off-net calls) it is only 2.88 JD/month for the same low usage pattern. A value of 2.88JD is lower by more than 50% of the lowest EU operator (Tele2 Estonia) price of 5€/month and represents only 14% of the average EU prices for a low usage basket. For the medium usage basket it is 22.9€/month in Europe and only 5.6 JD in Jordan. For the high usage basket it is 37.9€/month in Europe while it is 10.5 JD in Jordan.

4- High customer satisfaction: customers are satisfied with the level of prices, quality of service and variety regarding the available offers and services. All market research supports this perception and there is not a single study that shows any customer discontent with the current prices or service quality. So any analysis should by definition conclude that effective competition exists.

5- Effective competition requires that the existing operators be allowed to make reasonable returns to allow them to invest in improving their services and quality. If the TRC continues in its current posture to artificially promote further infrastructure-based entry, coupled with the TRC’s aggressive reduction of wholesale call termination rates to levels unheard of internationally in CPNP environments, economies of scale will be dramatically reduced at the same time as margins are being further eroded. The outcome will be weak operators that do not make enough returns to invest further into their services and networks.

A.4 The ‘Financial Model’

The TRC commissioned a study as part of its preparatory work on the Green Paper to test and examine the potential of the Public Mobile sector to absorb further infrastructure-based entry based on profitability (the IRR was used as an indicator). This study produces a result that is suggestive of the viability of further infrastructure-based entry, conditional on accepting lower levels of profitability for all market participants. The ‘financial model’ consists of two models: a first model purely based on macroeconomic data (Long-run-demand-model or “LRDM”), which provides input into a second model, the Multi-Player-Model (“MPM”) that takes into account microeconomic variables. Neither model takes into consideration competitive interactions and dynamics or intermodal competition. The aggregate model predicts market outcomes over a period of 13 years and is based on severe assumptions that may not hold true and that are, in part, in contradiction with the consultation paper.

Umniah’s key comments are as follows:

First and foremost, the usefulness and appropriateness of such a model to justify further regulatory intervention is at best questionable, if not completely inappropriate, as it does not link back the model to any competitive base case that is clearly identified as ‘the


absence of effective competition’ (which would imply high sustained price levels and corresponding profitability, which are NOT characteristics of the Jordanian market). Thus, it is not clear why and on what grounds the TRC commissioned such a study, as it is useless in order to justify any further regulatory intervention. Whilst it is true that a rational investor will only invest into a market where there is a profit opportunity (which suggests that market forces would decide), giving out a combined 2G and 3G Public Mobile Services license combined with rights of use on spectrum in the manner as suggested in the consultation paper is dangerous in this region due to a temporary abundance of cash, which sends wrong signals that are not reflective of underlying market conditions, thereby attracting wrong and unsustainable investments. Hence, it would be far more prudent for the TRC to conduct a proper market assessment that is linked to a competitive benchmark, rather than to rely on theoretical models that are divorced from the market reality. In carrying out a proper assessment, it is highly likely that the TRC will find that the market is already sufficiently competitive (see further comments regarding the model in Section C).

Given the above comments and in the absence of a proper TRC assessment, Umniah urges the TRC to formally withdraw the unsubstantiated allegation of there being an absence of effective competition in the Public Mobile sub-sector, and Umniah calls on the Cabinet to refrain from drawing any conclusions from the TRC’s unsubstantiated allegations. Also, the Government policy requires that, when there is effective competition, the TRC should forebear from regulation. Accordingly we insist that the TRC forebear now from regulating the Public Mobile sub-sector.

A.5 The Proposed Auction Design

The proposed way of ‘giving out’ further frequency spectrum combined with Public Mobile licenses is determinative of the desired effect this measure will have on the market. It determines the audience, the scope, the value etc… It reflects a policy choice (whilst it is the Government’s, not the TRC’s role, to make policy choices) thereby setting clear market signals.

In terms of effects, as it stands, the proposed auction design is, without any possible doubt, aimed at fostering additional new infrastructure-based entry. This is mainly achieved by: (i) proposing to hold an auction on frequency assignments bundled with Public Mobile Service Licenses; and (ii) proposing to split the available frequency spectrum into 2 licenses: 1A- Combo license targeted at new entrants; and 1B - 3G license only aiming at attracting an existing operator to expand his business, and, if not all frequency spectrum made available is taken up (which is a possibility), thereby setting what could later be considered as ‘reference fees that the market would be prepared to pay’ (potentially to establish ‘reserve prices’) for possible subsequent auctions.

The market signal that would be set by such an auction design is one of abundant financing capacity and ‘market interest’. It does not, however, have as its ultimate goal


the increase of consumer welfare. An increase in consumer welfare in such a setting may be a positive externality that may or may not arise, and indeed seems unlikely to arise.

The overwhelming evidence presented by Umniah in this response to the TRC’s consultation (which would even apply if the assessment would be made in accordance with the superseded IRG recommendation on how to analyse effective competition) is that the market is already competitive, and therefore an increase in consumer welfare is unlikely to arise in the medium to long term by the introduction of one or more infrastructure-based operators, as this would reduce economies of scale (and hence investment capability) for all network operators.

By contrast, if the goal is to provide more innovative services to Jordanian citizens, businesses and administrations in a quick and efficient manner, additional frequency spectrum should be given out to all existing operators, as previously committed by Government in the 2003 Program for further licensing in the Mobile Sub-sector, in a manner that ensures an equivalent spectrum mix for all operators.

The proposed auctions are not for specific frequency blocks, but for an “entry ticket” into the Public Mobile market. This results in discriminatory treatment, reducing the chances of existing public mobile network operators securing the frequency spectrum, and the TRC proposes to maintain and introduce unacceptable further distortions to the estimates of the value of frequencies which would be unacceptable.

The auction mechanism proposed by the TRC includes 1.8 GHz spectrum alongside 2 GHz spectrum (traditionally associated with “2G” and “3G” respectively), and as such it encourages new players to buy an “entry ticket” on the Public Mobile market as a whole, whereas existing Public Mobile network operators would only buy spectrum to offer higher mobile data speeds.

In essence, the existing Public Mobile operators are aiming to serve perhaps 400.0002

users that can be expected to be interested in higher speed mobile data services, whereas the new entrant(s) would be aiming to target nearly 5 million voice users, mainly for traditional mobile telephony and messaging. In such circumstances it is clear that the proposed use of the auction mechanism, and the proposed auction design, are tilted in favour of new entrants, and that the proposed auction design has a thinly veiled goal of raising a large up-front sum for the State at auction, rather than providing a procedure for non-discriminatory frequency spectrum assignment. This stands in direct contradiction with both the Telecommunications Law and Government Policy, which stipulate explicitly that income maximisation for the State should not be a primary objective of telecommunications policy.

2 Estimated roughly by assuming that Jordan will reach a Broadband (BB) penetration by Household (HH) that is similar to advanced countries (say 50%) but that advanced mobile data services (which the TRC calls 3G) will not be predominantly used by multiple users per household. Accordingly 50% of households will mean 1.2 million accounts and will be divided into 50% for wired BB and 25% for WiMax and 25% for the more expensive advanced mobile data services (3G). 3G is assumed more expensive than WiMax due to the comparably very high annual frequency fees.


This analysis is reinforced by the fact that the TRC proposes to continue to restrict the existing Public Mobile operators from using the spectrum that is already assigned to them to provide “3G services”, which itself stands in direct contradiction with article 55 of the Government Policy, which states that the TRC should give consideration to: "Promoting the utilization of existing 2G frequency bands to more advanced and efficient services" and article 68(f) of the Government Policy which requires the TRC to: "Investigate and adopt wherever possible, advanced spectrum management principles, including but not limited to: a technology and service neutral approach to spectrum". It also reneges on the explicit commitment of the Government stated in article 3.7 of the 2003 Program for further Licensing (upon which Umniah was licensed) which guaranteed Umniah technological neutrality and the right to use the frequency using any technology subject to that technology being digital and being based on an international standard and having been deployed commercially elsewhere.

A further distortion (indeed a new discrimination against the existing Public Mobile operators) is put forward by the TRC, in the proposed condition of restricting ownership changes for three years. This would retroactively affect existing operators securing frequency blocks at auction, whilst in the case of new entrants it would only restrict a newly established company.

Risks of harm to the sector (attraction of inefficient investment and reduction of economies of scale) and consequently harming consumer welfare

The timing and structure of this proposed auction is clearly designed to attract some of the excessive liquidity that is momentarily available in the Middle East. This is not suitable since the regional investment market is in an abnormal (distorted) state. It presents a threat to the Jordanian mobile sector which needs economies of scale to provide consumer welfare (lower prices and better quality services).

Allowing this distortion to flow into the already effectively competitive mobile sector in Jordan would cause irreparable harm to the sector, with simultaneous effects on consumer welfare. If (as we would expect given the proposed auction structure), new entrants secure at least one license and associated spectrum, this would raise costs-per-subscriber since efficiency will suffer from the removal of economies of scale (same number of customers divided over existing 4 operators plus one or two new operators, whilst at the same time there is a risk that the number of ‘3G’ operators would be restricted to two if all spectrum is taken up). Increasing the number of infrastructure-based operators to 5 or 6, or reducing the number of viable operators of advanced services to 2 due to inappropriate frequency spectrum assignment would be most likely to result in a rise in prices for consumers in the medium term. Umniah insists that allowing the abnormally excessive (oil price bubble based) liquidity to enter the already competitive Jordanian mobile sector (which depends on economies of scale to reduce prices under an excessive taxation regime) will not in any way be for the benefit of customers or the Treasury or the operators.


Once the market reaches effective competition, as is the case in Jordan, further entry will reduce efficiency by the reduction of economies of scale. This is especially the case for the Public Mobile sector since this high profile sector can easily attract unsound or irrational investments from those without experience in the overall difficulty and complexity of operating such a business. If irrational investments caused by excess liquidity, and resulting duplicative investments, are allowed at these abnormal times to enter into the mobile market in Jordan, irreparable harm could be done to consumer welfare and the income to the State which collects annually 500 million dollars in taxation and fees from the sector.

In this context, Umniah points to the disastrous effect of the last time the liquidity bubble had an impact on the telecom sector in Europe (also the world). The ensuing burst of the dot.com and telecom bubble led to a decade (and perhaps longer as we cannot know the future) of limited new investments. Moreover, the extreme drop in companies’ value led to bankruptcy or near bankruptcy for many and caused some companies to be rescued by the State or being forced to sell their most important assets (including their mobile networks). All in all there was no benefit to the consumer from this value destruction.

In summary, the TRC proposals are not justified, are in direct contradiction with several major aspects of Government Policy and with explicit previous Government commitments and Umniah disagrees with the TRC proposal to use the proposed auction mechanism to assign frequencies to new (previously unlicensed) aspiring Public Mobile operators, on the grounds that it is inappropriate in the present market circumstances (which are clearly effectively competitive) and not based on sound analysis, neither in terms of having conducted a proper analysis of the state of effective competition, nor in terms of the ability of the Jordanian market to sustain an artificial market structure going forward. In addition, the TRC’s proposals are also discriminatory towards existing Public Mobile network operators which already pay very high fees for the right to operate Public Mobile communications networks and related services, and contradictory to the previous commitments of the Government in the 2003 Program for Further Licensing in the Mobile Sub-sector upon which Umniah was licensed and which was issued by the TRC and approved by the Cabinet of Ministers.

Umniah also has shown that such a proposal cannot be justified as being in line with the requirements of the Government’s Policy. Such a proposal, if followed through, has the potential to destroy value and harm investors, both current and new, not to mention reduce consumer welfare through reduction of economies of scale below a threshold (created by the more than 3 operators in the market today) that is expected to foster further decline of unit prices and enable investments in new generations of technology and services.


B. Specific Comments on the TRC Consultation Document

B.1 Comments on the TRC’s Foreword

Firstly

The first paragraph of the foreword reads as follows: “This consultation marks a significant step in introducing further choice and diversity into the Jordanian mobile communications sector and thus in creating the conditions for effective competition in that sector.”

Umniah objects to this statement, as it alleges, without any analysis having been carried out by or on behalf of the TRC, that there would be absence of effective competition in the mobile sub-sector in Jordan.

Chapter 4.1 of the Green paper underscores the validity of this Umniah comment, by making market definition and market analysis a top priority for the TRC, in a timeframe (Q4 2008 until Q1 2010) subsequent to the planned Round 1 auction. Such a timeframe is logically inconsistent with the claim that this item is a priority, and gives Umniah the impression that market definition and analysis might be being delayed to justify the continuation of regulatory intervention although the Public Mobile market has reached effective competition and therefore there is a requirement to withdraw from regulating this sector (which has been chosen until now for heavy handed regulations without economic justification).

The TRC cannot conclude that a market lacks effective competition whilst it has neither defined nor analysed the market (and its possible sub-segments), neither on the supply-side nor on the demand-side.

Secondly

The TRC’s foreword (alongside the Green Paper and the consultant presentations) paints an extremely positive picture of the capabilities of “3G mobile”, to the extent that it reflects the exaggeration and hype that characterised the UMTS auctions in Europe nearly a decade ago. It should be recalled that such characterisation resulted in unreasonably inflating expectations, and eventually led to huge disappointment for the users and for the investors who failed to achieve reasonable returns on their large investments. The consequent depression of the investments by all telecom operators continues to this day.

Thirdly

The Green Paper and TRC consultation do not take into enough consideration the expected outcome from the recent licensing of five wireless Internet operators (WiMAX) which did not substantially start to offer their services as of yet.


B.2 Comments on the TRC’s Executive Summary

Besides being subject to the same comments as with regard to the foreword, Umniah observes that the TRC’s executive summary equates the notion of “3G spectrum” and “3G spectrum licences” with frequency assignment in the 2 GHz band, and indicates that “4G and WiMAX” are in a different category.

The TRC has not put forward a clear basis for taking such an outdated or even exotic approach to frequency assignment, which is inconsistent with the last sentence of articles 55 and 68(f) of the Government Policy, as well as being inconsistent with articles 3.8 and 3.9 of the 2003 Program for further Licensing, and inconsistent with Umniah’s License which was founded on technology neutrality.

The stated approach suggests that the TRC’s main target is to maximise short-term revenues for the State by fragmenting assignment through separate and successive procedures (now and in the future), which have no other goal than raising the auction price with no regard to consequences or previous commitments of the Government.

B.3 Comments on Chapter 3: Spectrum Allocation and Band Configuration

Question 1:

• Do you agree to the proposal of offering spectrum licenses in two configurations; (i.e. Licence A,

composed of 2G (1800 MHz) spectrum plus 3G (2100 MHz) spectrum and Licence B, composed of 3G

spectrum only, as set out above?

• If you agree and you have plans to participate in the competitive process for awarding the spectrum

licences, please indicate the amount of paired and unpaired spectrum you intend to apply for in either

of the two configurations. (Note: this information shall not be binding on the responder to this

consultation, but it will be used by TRC for refining the details of the awarding process. TRC urges

respondents to specify their spectrum requirements carefully and responsibly. TRC considers

individual spectrum requirements to be confidential and as such TRC will not publish this information

when the other comments and input to this consultation are published).

• If you do not agree, please state why and suggest alternative and objectively justified configurations.

Umniah does not agree, and we note that the proposed Licence A, as described by the TRC, focuses on “2G (1800 MHz) spectrum”, plus 3G (2100 MHz) spectrum”, which indicates that the TRC’s real aim is to facilitate the entry of one or more additional infrastructure-based Public Mobile operators, rather than being interested in meeting the spectrum requirements of existing operators, promoting


higher speed data services in the interests of all users, or making available unused or under-utilised 2 GHz frequencies.

We believe that the TRC should, in principle, not differentiate “2G” and “3G” “Services” by equating this with specific frequency bands. Also, the TRC should, in principle, not maintain the outdated restriction on the Public Mobile network operators to utilise their existing frequency assignments only with specific technology and/or for specific services, i.e. no retraction from the Government’s commitment to technology neutrality as stated in Umniah’s license and articles 3.8 and 3.9 of the 2003 Program for further Licensing and no retraction from the service neutrality as laid out in the current Integrated licensing regime.

We reiterate that the TRC is already committed by the statements-of-intent in article 3.6 of the 2003 Program for Further Licensing in the Mobile Sub-Sector to offering the 2 GHz IMT-2000 spectrum to the “then existing Public Mobile Telecom Licensees” upon a showing of need and at a price that is based on internationally accepted method of valuation of frequency (not a valuation of a bundle of frequencies plus a Public Mobile Service License).

Umniah is strongly of the view that the current situation in Jordan, results in a playing field that is uneven today, and may become far more uneven tomorrow, especially if the TRC’s latest proposals would be implemented. Two examples are as follows. Firstly, Umniah has expressed, more than a year ago, in accordance with its licensing conditions, its urgent requirement for additional 1.8 GHz frequencies, in order to meet current market demand, but has still not been able to secure this vital expansion spectrum, whereas other existing operators have been granted expansion spectrum in the past. Secondly, Umniah reminds the TRC that it has previously declared to Umniah (in correspondence dated 4 October 2006 – a copy of which is included in Annex) that assignment of 2 GHz IMT-2000 spectrum was subject to article 3.6 of the 2003 Program. The TRC therefore recognised then the applicability of the 2003 Program for further Licensing in the Public Mobile sub-sector.

We also note that the TRC assumes that all 1.8 GHz frequencies are at its disposal for auctioning, without considering the priority needs of existing Public Mobile network operators, to satisfy existing market demand (expansion spectrum) irrespective of possible interest in the provision of higher speed data services. Priority should be given to the existing operators in such frequency bands for legitimate and necessary expansions. The TRC proposal is to deprive the existing public mobile operators from the normal expansion (defined, for example, in Umniah’s licensing process as being available on normal administrative terms and subject to the TRC’s Spectrum Tariff Schedule) in favour of satisfying those who would like to buy an “entry ticket” into the market, and thereby discriminating against Umniah, since other public mobile operators were granted expansion spectrum in the past at fees that did not exceed the fees published on the TRC’s Spectrum Tariff Schedule. Umniah therefore considers that auctions are not the suitable mechanism to assign expansion spectrum in the same or adjacent frequency bands (e.g. additional spectrum in the 1.8 GHz


band). Expansion, especially when licence obligations are met, should not be treated on an auction basis, but must, in accordance with the Government’s commitment, be on a showing of need basis and at prices identical to the previous expansion in the 900 MHz band by the other mobile licensee. Umniah considers that these terms are an integral part of the conditions upon which it was licensed, and that any retroactive change can only represent severe prejudice to legal certainty, and would have to be disputed to full exhaustion of all available legal processes

Furthermore, Umniah considers that, as long as the special contributions to the State budget by Public Mobile operators are maintained, and secondary trading is not permitted, as is the case today, frequency spectrum auctioning is not a suitable instrument for the sub-sector of Public Mobile communications as a whole, and combining auctions with AIP (in excess of objective spectrum administration costs) in this sub-sector is totally unacceptable.

Our alternative proposal is for the Government/TRC to offer the spectrum in the 2 GHz band to the now existing Public Mobile operators as committed in the 2003 Program and in parallel (if the Government issues an unequivocal policy requiring the TRC to allow further infrastructure-based market entry) allow one or more new Public Mobile Licensees in an auction for one or more additional Public Mobile Service Licenses – but not the spectrum license. This would, as opposed to the TRC’s current proposals under consultation, be consistent with Government Policy and the 2003 Program for further Licensing in the Mobile Sub-Sector, and can be carried out in parallel with: (i) a period in which the 3.5 GHz licensees and MVNOs are given a chance to develop their activities, followed by an impact assessment, and (ii) properly executed market definition and market analyses, including an assessment of whether there is dominance, or otherwise characterised absence of effective competition, or some other market failure in the mobile market (and/or possible sub-markets) that would truly and objectively justify a change, and that such change could be made in accordance with the terms on which existing operators are licensed.

B.4 Comments on Chapter 4: 3G Standards

Question 2:

• Do you agree that the IMT-2000 (W-CDMA) standard is preferred for adoption of 3G broadband

mobile services in Jordan?

• If not, you are kindly requested to submit arguments regarding the compatibility of your preferred

technology and the TRC preferred W-CDMA technology. Such arguments should focus on ensuring

that the users will have sufficient choice of networks and on measures to mitigate interference.


Umniah believes that the TRC is required, consistent with Government Policy and the 2003 Program for further Licensing in the Mobile Sub-Sector, to honour the Government’s commitments to existing licensees, including technology and service neutrality. Where objectively justified, and in the absence of bilateral or multilateral agreements between networks, the TRC could mandate a Block Edge Mask as an essential component of conditions necessary to ensure coexistence, without precluding less stringent technical parameters if agreed among the operators of such networks.

B.5 Comments on Chapter 5: Policy Considerations

Question 3:

TRC invites comments on:

• The proposed open criteria for identifying eligible applicants for the process of obtaining any of the

offered spectrum Licences.

• The proposal to treat all eligible applicants (incumbents and new entrants) on an equal basis.

Umniah does not agree with these proposals.

Umniah insists that the commitments set out in the 2003 Program for further Licensing cannot be modified retroactively. Umniah holds on to its rights in this regard and warns against trespassing on its established financial and legal positions with regard to access to the 2 GHz (IMT-2000) frequency spectrum. Moreover, for the expansion in the 1800 MHz band (and potentially the remaining 2x5MHz in the 900MHz band) Umniah insists that the conditions of its licensing and the 2003 Program for further Licensing make it unequivocally clear that Umniah has the right to be given priority for expansion over anyone else on terms that do not deviate from the TRC’s published Spectrum Tariff Schedule, and Umniah insists on being treated identically to the other Public Mobile operator which was granted expansion frequency in the 900 MHz band at prices no higher than the published TRC Spectrum Tariff Schedule.

Please allow us also to highlight that the TRC is being particularly selective in quoting the Government Policy in this chapter of the consultation document!

Indeed, under 5.1, the TRC cites article 55 of the Government Policy, but manages to obfuscate the key words indicating that the Government Policy requires the TRC to […] promote the entry of additional mobile providers primarily by taking actions necessary to facilitate and promote the entry of non-facilities based mobile operators. […]. Under 5.2, the TRC chooses to quote the completely general article 47 of the Government Policy about rapid entry of new competitors in the ICT sector, which clearly is not at all aimed at


the Public Mobile sector. This confirms our opinion that the TRC seems to be deliberately seeking to misinterpret and manipulate the Government Policy.

As regards the substance, we refer to our comments under B.3 above, in which we indicate that, under the prevailing circumstances, we do not consider it suitable to adopt an open (auction) procedure (not to mention a sealed bid procedure as is apparently being envisaged on page 14 of the TRC consultation document) for 1.8 GHz spectrum, and in fact for all frequency spectrum for Public Mobile communications. We also confirm our point of view that the TRC proposals amount to depriving the existing Public Mobile network operators from the normal/necessary expansion in favour of satisfying those yet unestablished future potential entrants who would like to buy an “entry ticket” in the Jordanian market irrespective of the consequences or previous commitments, thereby simultaneously aggravating a historic discrimination in favour of operators that were granted expansion spectrum in the past. Please refer to the alternative proposal we put forward in the last paragraph of B.3 above.

In addition to all above we do not find any justice, fairness or equality in proposing not to impose a roll-out obligation on new entrants, while such a condition was imposed explicitly on the existing operators when they entered the market.

The TRC’s proposals referred to above are in contradiction with article 26 c) of the Telecommunications Law, which stipulates:

Article (26):

In addition to the technical and any other conditions, the following matters shall be observed in the procedures of granting the license: ….c) The components of the proposal shall be based on fair and lawful competition with holders of previous licenses.

B.6 Comments on Chapter 6: Regulatory Considerations

Question 4:

Do you agree that the most appropriate method of awarding a 2G/3G combined licence and 3G only

licences in Jordan is by use of an Auction process?

Umniah does not agree. We also reiterate our criticism formulated under B.3 above that the TRC’s description of the combined licence indicates that the TRC’s real aim is to facilitate, by means of an open auction, the entry of one or more additional infrastructure-based Public Mobile network operators, rather than being interested in meeting the spectrum requirements of existing operators, promoting higher speed


data services in the interests of all users, or making available unused or under-utilised 2 GHz frequencies.

Please refer to our detailed comments in Section A. above and to our comments under B.3 above, which address our overall criticism and the specifics of possibly adopting an auction process.

Please also refer to our response dated 19 June 2008 to the TRC consultation for the Purpose of Establishing a Policy for Frequency Use and Planning (in particular our response to Question 3), in which we extensively explain why the auction process (which might intrinsically be suitable where there is a level playing field), is unsuitable for the sub-sector of public mobile communications in the prevailing Jordanian circumstances (several special taxes on public mobile communications, AIP and excessive TRC fees for annual frequency management contribution, absence of spectrum trading, predilection for adopting reserve pricing, etc.). Please also note our concerns about an auction being tilted in favour of new entrants, as is explained in Section A above.

Most importantly, Umniah objects to the TRC’s disregard of the explicit commitments made in the 2003 Program for Further Licensing in the Mobile Sub-Sector, which formed the basis for Umniah’s licensing. Umniah insists that the Government (not to mention the TRC) cannot retract from its commitments made in that program, and reflected in Umniah’s licensing, to:

a) Make 1800 MHz spectrum available for expansion (the need of which has already been established by Umniah), and on terms that do not deviate from the TRC’s published Spectrum Tariff Schedule.

b) Offer the existing Public Mobile Telecommunication Licensees the 2 GHz IMT-2000 frequency at a showing of need.

c) Technology and service neutrality.

In summary, under the prevailing circumstances, we do not consider it suitable to adopt an auction procedure (not to mention a sealed bid procedure as is apparently being envisaged on page 14 of the TRC’s consultation document) for 1800 MHz spectrum, and for 2 GHz spectrum which are explicitly addressed in the 2003 Program. We insist that the current regime and previous commitments by Government are as such that it would be inconsistent and indeed illegal to auction any of the 900 MHz or 1800 MHz or 2GHz IMT-2000 frequency spectrum that is needed for expansion (and for which requests have been filed) by existing Public Mobile operators.


Question 5

TRC would like to invite comments and views concerning the following factors which TRC believes

must be taken into account in designing the auction for awarding the offered spectrum licences in the

2G (1800 MHz) and the 3G (2100 MHz) bands.

Umniah has clearly expressed its opposition (on grounds that are a matter of Law, of Government Policy, and historic/current legal/regulatory/market situation – including the terms on which Umniah was licensed) to selecting the auction mechanism for making available frequency spectrum for Public Mobile communications under the currently prevailing circumstances. Therefore we do not believe that we should provide detailed comments on specific TRC proposals for auction design.

However, please allow us to comment that the TRC’s proposals in Chapter 6 of the consultation document are genuinely unclear in several respects (even when read in conjunction with the Green Paper and the consultant presentations), and do not meet the standard that we would expect for such a crucial potential development for the telecommunications sector in Jordan.

For example, we have difficulty understanding the exact intentions with regard to the sequence/timing of auctioning (especially going beyond Round 1, Stage 2), the envisaged reserve prices at all stages (confirming our severe concerns about the use of the reserve price mechanism, for which no justification is provided and the sole purpose of which seems to be maximisation of short-term revenues for the State, in explicit contradiction with Government Policy), etc. In addition, it appears that in Round 1, all 2 GHz spectrum that is expected to be/become available could be purchased. This could encourage participants to pursue a strategy to acquire a maximum of spectrum (exceeding their genuine needs) that would lead the Public Mobile market to duopoly in the medium term (given that the TRC also proposes (in contradiction with Government policy) to restrict the provision of ‘3G services’ using the 900 MHz and 1800 MHz bands (see our comments in B.7 below). In any case, it is the Cabinet, not the TRC, which is ultimately responsible for decision-making, and we expect that (in the event an auction mechanism were nevertheless selected, which we oppose) full clarity will be provided before any auction process is effectively initiated and that legal recourse would be available against such a decision. On the basis of the contents of the TRC consultation document and related material, we have difficulty envisaging that Round 1, Stages 1 and 2, could credibly be properly defined and completed in 2008 without being exposed to judicial recourse.

Our comments on change of ownership are contained in Section A. above.


B.7 Comments on Chapter 7: Numbering Requirements & Addressing (etc…)

This chapter contains a section 7.3 entitled “3G Services in the 2G Spectrum”, which is unrelated to numbering requirements and addressing, but puts forward an absolutely crucial proposed (unduly restrictive) regulatory decision, but the TRC asks no formal questions about it. The proposed regulatory decision is stated as follows:

“Having considered the relevance of the above principles to the present case in Jordan, TRC intends at this point in time, not to permit any of the existing four Public Mobile Operators to provide 3G services using a spectrum they have previously been assigned in parts of the 800, 900 and 1800 MHz bands”

This is indicative of the severe immaturity of the entire “3G Licensing” approach being pursued by the TRC, which seems to be an ill-considered rush on the part of the TRC to be able to show to the Government that it can, in the very short term, help to “cash-in” on external investors that are (due to the oil price bubble) awash with money, without serious consideration of: (i) user interest in higher-speed mobile data and how those user interests can most efficiently be satisfied; (ii) the actual state of effective competition on the Jordanian mobile market (which was NOT studied by the TRC); (iii) meeting the legitimate spectrum requirements of existing operators to satisfy existing users’ needs, in accordance with the licensing conditions (iv) the prevailing circumstances of the Public Mobile sub-sector (which Umniah has spectacularly helped to transform from lethargic to vibrantly competitive in the interest of all users and the Jordanian economy) including the extremely high special tax burden, and (v) making available unused or under-utilised 1.8 GHz and 2 GHz frequencies to the existing Public Mobile Licensees in line with the commitments in the 2003 Program for Further Licensing in the Mobile Sub-Sector.

As section 7.3 clearly shows, the auction process proposed by the TRC is not for specific frequency blocks, but for an “entry ticket” on the Public Mobile market. The TRC proposals are deliberately designed to attract high up-front fees from one or more new applicants, and simultaneously to extract even more money from the existing Public Mobile network operators. This results in discriminatory treatment of the existing Public Mobile network operators, and the TRC proposes to maintain and introduce unacceptable further distortions.

As is discussed above, Umniah considers that this proposed restriction stands in direct contradiction with article 55 of the Government Policy, which states that the TRC should give consideration to: "Promoting the utilization of existing 2G frequency bands to more advanced and efficient services" and article 68(f) of the Government Policy which requires the TRC to: "Investigate and adopt wherever possible, advanced spectrum management principles, including but not limited to: a technology and service neutral approach to spectrum".


Moreover, the proposed restriction is inconsistent with the Government’s commitments to Umniah and others in the 2003 Program for Further Licensing in the Mobile sub-sector in which articles 3.8 and 3.9 state:

3.8 Technology Neutrality: The new licensee has the flexibility to select the technology to be deployed as no explicit standard will be imposed as a license condition. The licensee will be allowed to use any technology feasible for the provision of state of the art mobile telecommunications service as long as the technology is digital, is approved by an international standards body, deployed commercially and permits the provision of advanced services. In order to provide parity where feasible and give the Incumbents the same flexibility, the TRC will remove the license conditions relating to technology imposed on the Incumbents as defined in Section 4 – Amendments to Existing Licenses.

3.9 State of the Art Technology: Consistent with Section 2.1 paragraph 27 of the Government’s above mentioned Policy Statement which specifically requires that “Jordan gains a mobile communications environment that is technologically advanced and at least comparable, and preferably superior, to those of its peer states”, the TRC encourages the deployment of advanced communication services. Based on the foregoing, the Public Mobile Telecommunications license will explicitly include a provision authorizing the mobile licensee to implement technology to ensure the deployment of advanced mobile telecommunications services, including high data rate services and to enable the availability of a variety of advanced services such as high speed internet access, video-telephony, location based applications, e-payment services/solutions, etc.

The statements above where executed through drafting Umniah’s identified Services in the following manner (which can be fully understood when read in conjunction with the articles 3.8 and 3.9 above):

Umniah’s Identified Services in article A) of appendix 1/C of the license is as follows:

“Public Mobile Wireless Services that allows free mobility of customer terminal equipment using digital technology that is approved by an international standards body, is deployed commercially and that permits the provision of advanced telecommunications services and being operated, managed and provided only in the manner described in the License application or as specifically authorized by TRC”


C. Umniah’s Comments on the ‘Financial Model’

C.1 Section of Green Paper on the ‘Potential of the Mobile Market’

The TRC states in Chapter 5 of its Green Paper that: “in order to fulfil Government’s policy objectives TRC has formulated an appropriate strategy to identify areas of intervention where the adoption of specific measures is anticipated to produce solid results in the near future and create the conditions for effective competition in the telecommunications sector”. For purposes of identification of areas of intervention in the Public Mobile sub-sector, the TRC commissioned a “comprehensive modelling study of the mobile services sector in Jordan”.

The study/model (in which Umniah has not been granted detailed insight) concluded that “there is capacity (in terms of an acceptable level of lower profitability) in the mobile sector for further facilities-based competition”, the extent of which, however, is to be solely left to market forces.

Umniah objects to the study/model and its conclusions since the study/model was conducted/developed in isolation of any analysis of whether there already is effective competition in the Jordanian Public Mobile market or not. Therefore, it has no value as a tool to determine and identify areas of regulatory intervention, as it does not apply correct analytical tools to determine the state of competition (presence or absence of effective competition). Thus, any decision of whether further Public Mobile Services Licenses should be made available (i.e. further regulation) to existing and new entrants cannot rely on the conclusions of the study. The study should therefore be disregarded as it is irrelevant.

C.2 Purpose: Viability of Entry ‘Given Acceptable Levels of Profitability’

The purpose of the study/model, namely to identify areas of intervention (according to policy in the widest sense) is completely decoupled from what the model actually shows (i.e. ‘profitability’). Decisions to proceed to regulatory intervention must be based on identified absence of effective competition, whereas the model only tries to show by how much each operator will have to forego profits to accommodate further infrastructure-based entry (in comparison to a profitability base case). Moreover, the effects on customer welfare are not examined, given that no ‘competitive base case’ is defined and given that the conclusions have not been related to any specified desired competitive state. The study produces a hypothetical profitability measure over a long-duration period, the IRR, which is defined as the discount rate that results in the NPV of cash flows being zero.


C.3 Relevance of Section: ‘Creating Conditions for Effective Competition’

As set out above, due to the fact that the purpose of the model and outcome are unrelated, the model cannot be regarded as relevant to the creation of conditions for effective competition. Whilst a lower profitability level may be sustainable in the short-term for some operators, it is likely that capex and opex variables and underlying assumptions will change in the long-run (in particular within a time-span of 13 years and given the fast-changing nature of technology underlying the telecommunications industry). Indeed, it can, already today, be considered highly likely that at least two major technology changes will occur within half of the 13-year period.

Judging from experiences in smaller European and Asian countries (in particular Hong Kong, the Netherlands, Greece, and Austria, where there were 5 or more operators), consolidation has been the normal course of market development due to unprofitability of sustaining more than 3 (NL and Greece) and more than 4 (HK and Austria) operators (the 4th operator is currently under severe pressure in both cases). A market such as Jordan, which is already characterised by decreasing margins and exhibiting one of the lowest price levels world-wide (for details, please refer to Section A3, 3- above), is unlikely to be able to support further sustainable infrastructure-based entry. The study has not modelled the aspects of consolidation or exit, that of intermodal competition, and capex and opex estimates are likely to be inaccurate, as technological developments over the next 13 years are unknown.

In terms of market review, whilst the TRC recognises in the Green Paper that a market review needs to be based on properly defined economic markets that set the boundaries within which substitutable products compete, the TRC chooses to isolate the introduction of further frequency spectrum from such a market review. The release of further frequency spectrum (and indeed the combination of frequency spectrum with additional Public Mobile Services Licenses), in the wide and narrow sense, is a regulatory measure. It is crucial that this is recognised by the TRC. Any proposal or decision in this respect should therefore be based on a proper market analysis and defined as a remedy to a market failure (to be explicitly identified and justified using a recognised methodology). Whether further frequency spectrum is introduced as a remedy to an identified market failure (that of “absence of competition” with indicators such as limited customer choice, high sustained price levels etc…) or whether it is introduced to increase customer welfare by enabling existing operators to offer 3G services is of utmost importance based on market signals it sets and corresponding market effects and changing competitive dynamics.

C.4 Observations Regarding the Robustness of the ‘Financial Model’

The model that forms the main body of the TRC’s study consists of two models, one purely based on macroeconomic data (Long-run-demand-model or “LRDM”), which provides input into the Multi-Player-Model (“MPM”) that takes into account microeconomic variables. Neither model takes into consideration competitive interactions


and dynamics or intermodal competition. The aggregate model predicts market outcomes over a period of 13 years and is based on far-reaching assumptions that may not hold true and that are, in part, in contradiction with the consultation document, and certainly not in accordance with Umniah’s view on the current and foreseeable market circumstances in Jordan.

Umniah’s comments on the model can only be limited due to the fact that the TRC neither made available detailed input data nor did it make available any of the detailed assumptions. Thus, Umniah would make the following observations based on: (i) the description provided in the Green Paper, and (ii) three meetings at the TRC with Eurostrategies Consultants, who presented the model only at a high level.

The key assumptions made in the study/model were as follows:

• All demand for services is met.

• All operators will obtain a 3G license (which is not at all an evident outcome from the TRC’s proposals, quite the contrary in fact).

• An implicit assumption that all customers become customers of ‘3G Networks/Services’ in 2015.

• Market share equalization due to churn and marketing innovation.

• Change in structure of demand: data growing relative to voice and SMS.

• Voice charges relatively low, so any new operator would be likely to focus on service innovation and generating new demand rather than initiating a price war (which is not at all evident based on international experience).

• Data services estimated to hold greatest potential: growth of ADSL services in Jordan low; devices such as Blackberries and iPhones and other wireless PDAs are becoming increasingly popular.

The assumptions as set out above are very far reaching and are subject to great uncertainty.

• The model is based on the assumption that all existing licensees will be able to obtain a ‘3G license/3G spectrum’ and provide ‘3G services’ in the 2 GHz band (the first one providing services in 2008, with all others following in 2009). Firstly, this is in contradiction with the mechanism put forward in the TRC’s consultation paper; secondly, modeled demand for ‘3G services’ must be substantial given the investment decisions that need to be taken by operators to develop and build national coverage in the 2 GHz band and to achieve sufficient revenue to cover costs of roll-out and maintenance of 2 GHz networks. Judging from international experience (and with reference to the 2008 3G Cellular Services in the Arab World Report3), where 3 operators are present on average

3 3G Cellular Services in the Arab World; Arab Advisors Group Strategic Research Service, July 2008.


only 2 provide ‘3G services’ in the 2 GHz band, also the up-take of ‘3G services’ has been slow and is limited. In countries without handset subsidies, the majority of handsets in use are not yet equipped with 3G capability, which will have further bearing on 3G uptake. Moreover, competition coming from WiMax has not been thoroughly taken into consideration.

• The model is built on the assumption that prices are stable. Umniah considers

this assumption as being severely unrealistic, given current declining price trends. The new operator will be forced to undercut existing operators’ prices to enter the market and it is likely that existing operators may follow suit or anticipate. Umniah considers it unlikely that the share of Jordanian consumers’ wallet spent on mobile services would increase substantially, whatever the services provided.

• Assumptions regarding subscriber numbers are overly optimistic in terms of depicting a positive growth trend throughout the period under consideration. It is likely that subscriber numbers not grow much further or will even decline: (i) due to customers’ decisions to keep only one line (reduction in dual SIM ownership) including as a result of the possible introduction of number portability, (ii) churn rates are high and would increase following the market entry of MVNOs and further infrastructure-based operators, and (iii) intermodal competition was not taken into thorough consideration (i.e. competition from WiMax, fixed, nomadic and, in the future, mobile).

• Assumptions regarding capex in particular were not disclosed. Such assumptions

are crucial.

• Also, assumptions regarding opex are crucial when marketing spend may increase due to increased intensity of retention strategies etc.

• No real survey has been conducted in terms of projected up-take of ‘3G services’ by customers; these assumptions solely rely on benchmarks.

• Average (unweighted) ARPUs have been assumed at an unusually high level between JD 11 (2007) - JD 9 (2012), given that price levels in Jordan are already among the lowest in the world for a relatively small population with relatively limited economies of scale, and given that the ARPU of the latest entrant on the Public Mobile market in Jordan is already at JD 8 which is expected to further decline over time. The assumption of an ARPU level above the current ARPU level for latest entrant may be based on the unreasonable assumption that 3G services can be sold at a substantial mark-up as well as assuming a substantial take-up. In fact, our experience, as shared with the TRC, is that ARPUs do not generally rise and generally drop in value over time especially in competitive


markets such as the Jordanian market. Also, the consumers’ ability to spend more on mobile services of any description is objectively limited.

• The total Jordanian Public Mobile market - currently - is 5.2 million SIM cards, and is expected to reach 5.5 million by year-end 2008, which leaves limited room for additional subscribers. The model assumes lower numbers for 2008, and therefore provides for a larger addressable market than what Umniah foresees.

On the basis of the comments formulated above, the ‘financial model’ does not appear to be robust enough to make adequate and accurate predictions on which to base any decision on. The outputs of the model outside any benchmark context (i.e. a sustainability overview of 4th and 5th operators in other countries) are open to interpretation and any smallest change in assumptions will grossly change the output. Furthermore, the IRR is based on a target rate of return – the ‘appropriate’ or ‘reasonable’ return to investment is subjective. Therefore enforcing or setting an industry profit level/ceiling by determining that the market can accommodate another two infrastructure-based operators based on reduced profitability is very deterministic and is not based on any international best practice.

In conclusion, the usefulness and appropriateness of such a ‘financial model’ to justify further regulatory intervention is at best questionable, if not completely inappropriate, (i) as it does not link back the model to any competitive base case that is clearly identified as ‘the absence of effective competition’ (and therefore high sustained price levels); (ii) the model itself does not pick up on all important market factors and makes very optimistic unrealistic assumptions that can easily be challenged and lead to very different outcomes; and (iii) the ‘appropriate level of profitability’ is subjective.

The rationale for the TRC to commission such a model it is not obvious, as it is completely useless in justifying any further regulatory intervention. Whilst it is true that a rational investor will only invest into a market where there is a profitable opportunity (which suggests that market forces would decide), giving out a combined 2G and 3G license in the manner as suggested in the consultation document is dangerous in this region due to a temporary and abnormal abundance of cash, which sets wrong signals that are not reflective of underlying market conditions, thereby attracting wrong and unsustainable investments. Hence, it would be prudent if the TRC were to conduct a proper market assessment that is linked to a competitive benchmark. It is most likely that the TRC would find that the market is already effectively competitive.


D. The Green Paper’s Reliance on a Superseded IRG Recommendation

D.1 Green Paper Depends on a Definition that was Superseded in 2002

The definition of ‘effective competition’ used in the Study which informed the TRC’s Green Paper was taken from a recommendation issued in the year 2001 by the Independent Regulators Group (IRG), an informal club of European national regulatory authorities. The IRG recommendation was developed in a preliminary stage of the evolution of the EU regulatory framework, was never applied in practice, and was superseded by the adoption of the package of EC Directives in 2002, which resulted in a more transparent understanding of the notion of ‘effective competition’, which remains applicable today. The EC Directives characterise a state of ‘effective competition’ as the absence of Significant Market Power on a defined market.Article 14.2 of EC Directive 2002/21/EC defines the concept of Significant Market Power (SMP) as follows:

“An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers.”

The definition of the markets to be examined, as well as the finding of presence or absence of significant market power, is a responsibility of the National Regulatory Authorities (NRAs) of the EU Member States, but the EU regulatory framework provides for a European Commission Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation4 and for SMP Guidelines5 to assist the NRAs in defining and analysing markets. The European Commission has veto power over the market definition and the SMP assessment but not over the regulatory obligations (‘remedies’) to be imposed. In addition, the ERG has issued a Working Paper on SMP6 to further assist its NRA members in carrying out their duties.

4 The first edition of the Recommendation (11 February 2003) is available at: http://ec.europa.eu/information_society/policy/ecomm/doc/library/recomm_guidelines/relevant_markets/i_11420030508en00450049.pdf

The second edition of the Recommendation (17 December 2007) is available at: http://eur-lex.europa.eu/LexUriServ/site/en/oj/2007/l_344/l_34420071228en00650069.pdf

5 Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services, available at:http://ec.europa.eu/information_society/policy/ecomm/doc/library/recomm_guidelines/significant_market_power/c_16520020711en00060031.pdf

6 Revised ERG Working paper on the SMP concept for the new regulatory framework (September 2005):http://erg.eu.int/doc/publications/public_hearing_concept_smp/erg_03_09rev3_smp_common_concept.pdf


Among these documents, only the European Commission Recommendation on Relevant Markets (and in particular its accompanying explanatory note) is specific in addressing the mobile market. Two editions of the Recommendation have been issued. The first edition (February 2003) indicated clearly that the mobile retail market in its entirety (e.g. extent of competition, inter alia as a result of the number of operators active on the market, etc.) is not susceptible to ex-ante regulation, but included three mobile-related wholesale markets that were susceptible to ex-ante regulation. The second edition (December 2007) again indicates clearly that the mobile retail market in its entirety is not susceptible to ex-ante regulation, and includes one mobile-related wholesale market that is susceptible to ex-ante regulation, namely the “wholesale market for voice call termination on individual mobile networks” (market 7).

National Regulatory Authorities in the EU Member States have proceeded to analyse the markets listed in the first and second edition of the Recommendation, and other markets that they considered necessary to define and analyse. Analyses of the wholesale markets have taken into account the retail market situation. It is important to underline that none of the 27 NRAs have chosen to define the retail mobile market as being susceptible to ex-ante regulation, and, in the context of there wholesale-level analyses which took into account the retail market situation, none of the 27 NRAs have found the retail market (or the mobile market in its entirety) to be susceptible to ex-ante regulation, i.e. none have decided that regulatory intervention was necessary, notably given the absence of market power.

The Jordanian market is characterised by very similar numbers of operators resulting in similar competitive dynamics, and therefore any analysis on the basis of all the EU criteria would be most likely to yield the same or very similar conclusions.

D.2 Poor Application of the Superseded 2001 IRG Recommendation

Assuming hypothetically that the 2001 IRG definition and recommendation (which was the main foundation of the TRC’s The Green Paper) had not been superseded, and assuming for argument's sake that it was not wrong to base the Green Paper analysis on such a short lived and superseded recommendation, we find another problem in the Green Paper analysis of effective competition.

The 2001 IRG recommendation had listed that the most important indicator for deciding whether effective competition is present or not, is the general satisfaction of the users regarding the diversity of services and prices in reference to comparative markets.

In Jordan, the users benefit from: (i) prices that are much lower than European markets (please refer to Section A.3 3- above for details), (ii) a wide diversity of services and offers, (iii) high mobile penetration (85%) in a market where GDP is relatively low ($4000 PPP), (iv) continuous reduction in prices thanks to competition even under inflationary pressures that have raised the cost of every other product and the production costs of Public Mobile operators, and (v) high revenue to the State’s treasury that is


approximately USD 500 million annually (7% of the annual state budget available for the various Governmental services and initiatives).

Compared to the surrounding countries, and the European countries, Jordanian users are generally very satisfied regarding the diversity of offers and quality they receive.

Accordingly, any objective analysis of the Jordanian Public Mobile market situation would have satisfied the effective competition test contained in the IRG recommendation of 2001.

Our additional objection here is that the Green Paper’s assumption that competition was not necessarily effective was used as if it was a conclusion that competition was not effective. This was done although the analysis was not built on direct studies or data for measuring users' satisfaction with mobile services in Jordan. Accordingly, it should not be claimed that the Green Paper was correctly based on the superseded 2001 IRG recommendation. The correct application of that recommendation would have required measurement of users' satisfaction and, if there was proof of dissatisfaction, the evaluation of effective competition could proceed. Proof of dissatisfaction regarding the diversity of services/offers and the level of decrease in prices compared to in the situation in comparable countries is a prerequisite when one is interested in the correct application of the principles of the 2001 IRG recommendation, and indeed that would be in line with economic theory.

We emphasise that in reference to comparable markets, the mobile users in Jordan are satisfied regarding prices of mobile telecom services, diversity of services/offers, and the strong competition among the current Public Mobile operators. Therefore, even if the superseded 2001 IRG recommendation were correctly applied, Jordan should find its mobile market to be effectively competitive.

Furthermore, please allow us also to highlight a detail contained in the 2001 IRG recommendation. The recommendation requires the removal of any subsidy or abnormal tax burden before comparison of the level of satisfaction by users in "country A" with comparable countries. The removal of the effect of particular external distortions or anomalies that a certain country's market faces (such as subsidies or heavy taxation) is necessary to reach correct conclusions on whether effective competition exists in a market under study.

Accordingly, the level of sales tax in Jordan related to mobile telecom services (21%), and the revenue share level (10% of Gross Revenue) and the income tax level (27% of profits), all of which are high in reference to the comparative markets should be taken into account in any analysis. In Europe, as an example, value added tax (VAT) that is applicable to mobile services, and corporate taxation, are generally (with very few small exceptions) identical to taxation on other companies.

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Should you require any clarifications or further information on the positions set out in this response, please contact:

Umniah Khaled Hudhud Director of Government Relations [email protected]

Encl. Annex


Annex. 2006 Exchange of Correspondence between Umniah and the TRC


umniah’s response to the trc public consultation regarding ...§ستشارات/استشارات...

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