Damir Cibic Broadband State And Future

Damir Cibic: 

Damir Cibic Present state and thoughts about future developments of the broadband communications in Slovenia Ljubljana April 5th 2006

 Present state and thoughts about future developments of the broadband communications in Slovenia(Table of content): 

Present state and thoughts about future developments of the broadband communications in Slovenia (Table of content) Lessons from the past (regulatory failures) - fixed voice telephony - mobile telephony Narrowband internet in Slovenia Broadband internet in Slovenia Facilities based competition in Slovenia: broadband Cable networks as providers of broadband – case of Maribor Future of broadband and regulation in Slovenia

Old World: 

Old World Old model of regulation: Natural monoply with economies of scale Separation of network and services Competition of services within unique infrastructure Regulator to monitor the conditions of access (termination charges) to the unique infrastructure Universal Service obligation for Voice Efficient regulation Cost of lease < cost of ownership Inefficient regulation Cost of lease > cost of ownership

The end of a fairy tale: 

The end of a fairy tale Inefficient regulation Monopolistic practices Cost of lease > cost of ownership Old model is passing away Regulatory inefficiency is setting the pace of transformation

Lessons from the past – regulatory failures in fixed voice telephony (1): 

Lessons from the past – regulatory failures in fixed voice telephony (1) Fixed voice telephony Slovenia: 90% of households with fixed phone The monopoly over fixed voice telephony was formally abolished at the beginning of 2001 Further, an independent regulator was established as late as in the second half of 2001 Telekom Slovenije still in monopolistic position national calls 100% international calls 91% (measured in terms of retail revenues in December 2004, 11th Report)

Lessons from the past – regulatory failures in fixed voice telephony (2): 

Lessons from the past – regulatory failures in fixed voice telephony (2) Fixed voice telephony in August 2003 the interconnection prices were set at the EU average The average EU level which was imposed as a standard in Slovenia is certainly not cost-based Slovenia has the lowest local and national call charges in EU, at 32% and 61% of EU average respectively Margin squeeze preventing efficient entry

Lessons from the past – regulatory failures in mobile sector (1): 

Lessons from the past – regulatory failures in mobile sector (1) Mobile telephony Slovenia: 87% households with a mobile phone 88% penetration NMT only 1 licence awarded GSM 3 licenses awarded 2nd license awarded 2 years after the 1st (1999) UMTS only 1 license awarded

Lessons from the past – regulatory failures in mobile sector (2): 

Lessons from the past – regulatory failures in mobile sector (2) Mobile telephony GSM 2nd license awarded 2 years after the 1st Incumbent’s market share 74% Alternative provider’s market share 20% On-net/Off net differential

Lessons from the past – regulatory failures in mobile sector (3): 

Lessons from the past – regulatory failures in mobile sector (3) Regulation: Delay in awarding the 2nd GSM License Business strategy of incumbent: Maximization of market share Competitive pricing GSM penetration rise from 1998 to 1999: SI: from 10% to 33% EU: from 18% to 31%

Slide10: 

Source: Stergar, 2004, EC (2004a), Mobitel (2001).

Lessons from the past – regulatory failures and successes in internet access: 

Lessons from the past – regulatory failures and successes in internet access Internet Slovenia: 61% households with computer 48% households with internet access Narrowband Proper regulation and quick start Broadband Ill timed regulation and time lag

Narrowband – excellent start (1): 

Narrowband – excellent start (1) The lowest phone rates in EU No regulation (at start) Early entry of new Internet Service Providers Competition from the very beginning 22 providers (strong competition) Incumbent’s market share 30% alternative provider’s share 36%

Narrowband – excellent start (2): 

Narrowband – excellent start (2) Household internet access penetration in 2003 Slovenia 38% Slovenia exceeded EU-15 average by 3 percentage points

Narrowband – excellent start (3): 

Narrowband – excellent start (3) Regulation: No regulation necessary (low phone charges) Business strategy of alternative ISP: Maximization of market share Competitive pricing

Broadband – Regulatory failures and successes (1): 

Broadband – Regulatory failures and successes (1) Regulatory inefficiency ISDN/ADSL bundling till 2005 Regulatory failures in 2003 - 2004 Three Bitstream models (not viable) – margin squeeze again Regulatory success in 2005 Regulation of LLU prices imposed only in the middle of 2005 - ADSL2 - VDSL

Broadband – Regulatory failures and successes (2): 

Broadband – Regulatory failures and successes (2) Regulation: Inappropriate Ill timed Business strategy of incumbent - Monopolistic practice: Maximization of profit Delay of investment

Broadband – Slovenia is lagging behind: 

Broadband – Slovenia is lagging behind With 8,56 broadband connections per 100 residents, Slovenia lags behind the EU-15 by 4.44 percentage points (34%) and behind the EU-25 by 2.9 percentage points (25%) (11th report) The fast broadband growth can be observed more recently since the number of users rose from 115,069 in January 2005 to 196,650 in January 2006, i.e. 71 % growth

Broadband – Alternative networks: 

Broadband – Alternative networks Cable networks 96% households with a TV 68% households passed by cable (est.) 54% households with a cable TV connection 20% cabled households with internet connection FTTH ? % passed by FTTH WiMax

Broadband – Cable networks: 

Broadband – Cable networks Cable networks provide the basis for efficient infrastructural competition which could have already resulted in much higher broadband penetration rates Data for Slovenia in January 2006 show that DSL technology with a 66% market share is dominant, while other technologies account for 34% In the EU-25 the market share of alternative technologies is even lower and represents 20% (11th report) In the broadband cable access market 51 operators are present. UPC Telemach and Triera (KRS Rotovž and KRS Tabor in Maribor) have the largest number of broadband cable connections

Broadband - cable subscribers: 

Broadband - cable subscribers Total 66.861 (34%) UPC Telemach 18.387 Triera (Tabor, Rotovž, Selnica) 12.496 ARNES 14.796

Cable operators’ offer of Broadband – case of Maribor: 

Cable operators’ offer of Broadband – case of Maribor Cable internet launched before ADSL Penetration of cable internet over 40% Market share of cable 75%, ADSL share 25% Cable internet monthly fee for 1 Mb/s from 16 EUR to 28 EUR

Broadband – ADSL: 

Broadband – ADSL In the last two years ADSL connections have been growing much faster than broadband cable connections. This is partly explainable by the fragmentation of cable industry and financial difficulties and other obstacles in upgrading cable networks. However, the high share of DSL technologies in the Slovenian market raises concern since the ADSL market is, as we will see below, still very concentrated.

Broadband – ADSL subscribers: 

Broadband – ADSL subscribers The ADSL market structure is in sharp contrast to that of the cable market By the end of 2004 only three providers were present In 2004 SiOL (incumbent’s subsidary) had a 98% market share in terms of the number of lines and 92% in terms of the number of users In 2005 market share of SiOL (in terms of users) slightly fell for only 0,6 percentage points to 91,4%, and in terms of lines SiOL market share fell for 2 percentage points by October 2005

Broadband – DSL monthly rates: 

Broadband – DSL monthly rates 1 Mb/s Lowest: 14eur Highest: 32 eur Incumbent: 29 eur Monthly fee, VAT inluded

From monopoly to monopoly: 

From monopoly to monopoly Fixed Voice Telephony Incumbent Telekom Slovenije over 90% Mobile telephony Incumbent Mobitel over 70% ADSL Incumbent SiOL over 90%

Reaction to Regulatory failures – faclities based competiton (1): 

Reaction to Regulatory failures – faclities based competiton (1) Inappropriate regulation and/or delayed intervention Adequate (monopolistic) behavior of the incumbent Cost of lease > cost of ownership New technologies are enabling new competition in offering broadband Build up of new networks becomes profitable!

Reaction to Regulatory failures – facilities based competiton (2): 

Reaction to Regulatory failures – facilities based competiton (2) Quick deployment of next generation networks (wired and wireless) Cable networks From hybrid fibre-coax to FTTH New networks WiMax FTTH

Future of regulation – regulation of equal level field: 

Future of regulation – regulation of equal level field Old world Regulating the access to the unique network New world Regulating the conditions to set up new networks (rights of way, frequency spectrum) The conditions determine the profitability: cost of rights of way cost of allocated spectrum (1,6 mio EUR for WiMax) number of licences awarded (2-3 for Wimax) New (old) mistakes and failures

Future of regulation – Universal Broadband Obligation?: 

Future of regulation – Universal Broadband Obligation? New world The conditions determine the profitability: Rural areas not profitable Universal Broadband Obligation to ensure Broadband for all - incumbent’s network - cable networks - FTTH - Wimax Techological neutrality

Future of Broadband in Slovenia: 

Future of Broadband in Slovenia Slovenia will catch up (71% growth in 2005) Regulatory successes scenario Appropriate level of LLU charges Competition in ADSL (one infrastructure) Regulatory failures scenario Relatively high LLU charges Build up of new networks (several infrastructures) Cherry pickung

Bibliography: 

Bibliography Cibic Damir: Konkurenčnost telekomunikacijskega trga v Sloveniji. Portorož: 1. Poslovna konferenca javnega sektorja, 2003. 38 str. Cibic Damir: Ali bomo imeli v telekomunikacijah konkurenco infrastruktur? Portorož: 2. Poslovna konferenca javnega sektorja, 2004. 22 str. Cibic Damir: Cene telekomunikacijskih storitev in cene medomrežnega povezovanja. Ljubljana: Ekonomska fakulteta, 2002. Gradivo za predmet Ekonomika javnih podjetij. 41 str. Hrovatin Nevenka et al: Spremljanje učinkov regulacije v telekomunikacijah. Ljubljana: Ekonomska fakulteta, 2003. 61 str., 50 tbl. Hrovatin Nevenka et al: The Developement of Broadband in Slovenia: Why Is It Lagging Behind?, Porto: International Telecommunications Society, 2005. 17 str., 2 tbl. Hrovatin Nevenka, Cibic Damir, Švigelj Matej: Liberalisation and (De)regulation of Slovenian Telecommunication Markets. Communications & Strategies, no.45, 1 st quarter, 2002, str. 151-177. Hrovatin Nevenka, Cibic Damir, Švigelj Matej: Mobil Telephony Market: The Case of Slovenia. Sixth International Conference on »Enterprice in Transition«, 2005. 14 str., 3 tbl. Hrovatin Nevenka, Cibic Damir, Švigelj Matej: Slovenski telekomunikacijski trg: razvoj, stanje in problemi. Uprava (administration), letnik II, št. 1, 2004, str. 84-106.

Comments: 

Comments Damir.cibic@ef.uni-lj.si