Download - Universal Service Costs
Peter KLUNE, Prague 23rd May 2007 Page 1
Universal Service Costs
Peter KLUNEPrague, 23rd May 2007
Peter KLUNE, Prague 23rd May 2007 Page 2
Agenda
1. Definition and scope of USO– Services covered– Rational behind USO– Some critical issues– Situation in Austria
2. Calculation of USO Costs– Cost calculation scheme– Reasons for deficit
3. How to finance USO?– European Benchmarks
Peter KLUNE, Prague 23rd May 2007 Page 3
Definition and scope of USO
According to the USD, universal service covers the following services:
– Provision of access at a fixed location
– Comprehensive directory
– Directory enquiry services
– Public pay telephones
Peter KLUNE, Prague 23rd May 2007 Page 4
Rational behind USO obligation and designation
• Provision of a minimum set of services to all end-users
• Affordable price• Ensure quality of service level
->compensation is needed if obligation can only be provided at a loss
Peter KLUNE, Prague 23rd May 2007 Page 5
Some critical issues
• USO provision denotes an obligation but no right of exclusiveness
• Why designate a provider in the case of competition?
• How to ensure that a compensation is competitively neutral?
• Problems may accrue if the ordering party (or caller for bids) differs from the paying party
Peter KLUNE, Prague 23rd May 2007 Page 6
Situation in Austria
Telekom Austria is currently designated to provide the following three services:
Directory enquiry servicesDirectory enquiry servicesComprehensive directoryComprehensive directory
EffectiveCompetition
EffectiveCompetition
Yellow & white pagesprinted formatupdate once a yearfinanced by advertising
Yellow & white pagesprinted formatupdate once a yearfinanced by advertising
Access at a fixed locationAccess at a fixed location Public pay telephonesPublic pay telephones
PSTN-access at a fixed location Dial in internet access affordable price
PSTN-access at a fixed location Dial in internet access affordable price
Area wide provisionof sites
affordable price
Area wide provisionof sites
affordable price
Peter KLUNE, Prague 23rd May 2007 Page 7
Agenda
1. Definition and scope of USO– Services covered– Rational behind USO– Some critical issues– Situation in Austria
2. Calculation of USO Costs– Cost calculation scheme– Reasons for deficit
3. How to finance USO?– European Benchmarks
Peter KLUNE, Prague 23rd May 2007 Page 8
Cost calculation scheme (1/2)
Avoidable costs
- foregone revenues
= direct net costs
+ indirect benefits
= overall net costs
Those costs which would not arise if there would be no universal service obligation
Revenues which would not accrue if there would be no universal service obligation
Benefits, including intangible benefits, which relates to the provision of universal service elements
Costs ofuniversal service
Benefits ofuniversal service
Net costs ofuniversal service
Peter KLUNE, Prague 23rd May 2007 Page 9
Cost calculation scheme (2/2)Situation with Universal Service Obligation
-15
5
-10
-20
-15
-10
-5
0
5
10
unprofitableelements
profitableelements
totalresult
Pro
fit
/ Lo
ss
Situation without Universal Service Obligation
0 5 5
-20
-15
-10
-5
0
5
10
unprofitableelements
profitableelements
totalresult
pro
fit
/ lo
ss
Peter KLUNE, Prague 23rd May 2007 Page 10
Avoidable Costs
Costs which relates to uneconomicelements:
– Uneconomic areas
– Uneconomic customers
– Uneconomic sites (e.g. public payphones)
Peter KLUNE, Prague 23rd May 2007 Page 11
Forgone Revenues
Localarea 1
localarea 2
calls to mobile
national calls
intern.incomingtraffic
internationalcalls
active calls
passive calls
Fixed fees RT+WS
margin xDSL
1
2
2
2
3
4
- loss of installation
national calls
calls from mobile
3
3
Peter KLUNE, Prague 23rd May 2007 Page 12
Indirect benefits
Life cycle effects
Non USO services
Ubiquity
Volume discounts
Advertising
Customers may not be profitable now, but may become so in the future
The benefit that accrues of having a USO presence and infrastructure and thereby being able to offer non-USO services at marginal cost
Cost savings e.g. in equipment made as a result of providing the USO
The advantages of having a nationwide presence as a result of being the USP
The benefit of being able to advertise e.g. on payphones and bills
Brand/corporate reputationThe enhancement of the brand and image through leveraging the USO role
Peter KLUNE, Prague 23rd May 2007 Page 13
Reasons for unprofitable areas
• Austria does have a large number of small villages with only a small number of subscribers. About 19 % of the sites does have less than 500 lines. About 45% of the sites does have less than 1.000 connections.
• Only 25 local area networks, or about 2%, have more than 10.000 lines
Structure of local area networks
13%
5%2%
19%
13%
12%36%
< 500
501- 750
751- 1000
1001- 2500
2500- 5000
5.000- 10.000
>10.000
subscriber density
Peter KLUNE, Prague 23rd May 2007 Page 14
Reasons for unprofitable areas
poly centric e.g.: Mettmach
dispersed with centree.g.: Sillian in Tyrol
subscriber density/type of area
Peter KLUNE, Prague 23rd May 2007 Page 15
Reasons for unprofitable areas
costs and revenues per type of area
37%
-5%
-19%
11%
29%
36%
11%
16%
3%
7%
-8%
-10%-9%
-12%-10%
-4%-3%
2%
-30%
-20%
-10%
0%
10%
20%
30%
40%sc
atte
red
villa
ge
disp
erse
dto
uristy
con
cent
rate
dm
eado
w /
ste
et v
illag
edi
sper
sed
with
cen
tre
prov
incial
poly
cen
tric
subu
rban
urba
n
cost
/ r
ev
en
ue
de
via
tio
n f
rom
av
era
ge
costs revenue
high costs and low revenue
Peter KLUNE, Prague 23rd May 2007 Page 16
Agenda
1. Definition and scope of USO– Services covered– Rational behind USO– Some critical issues– Situation in Austria
2. Calculation of USO Costs– Cost calculation scheme– Reasons for deficit
3. How to finance USO?– European Benchmarks
Peter KLUNE, Prague 23rd May 2007 Page 17
Financing of universal service obligations
Two possible ways of financing– Public funds– Provider
Who has to contribute?– Fixed + mobile operator + ISP
Principles to respect– Transparency– least market distortion– non-discrimination and proportionality
Member States may choose not to require contributions from undertakings whose national turnover is less than a set limit!
(Sweden)
(Belgium, Czech Republic, Denmark, Estonia, Spain, France,Ireland, Italy, Hungary, Netherlands, Austria, Poland, Slovenia, Slovakia, United Kingdom)
Peter KLUNE, Prague 23rd May 2007 Page 18
European benchmarks
“Unlikely to be an undue financial burden on BT as a result of USO”
„No significant competitive disadvantage for Telefónica“
2002 about 1,1% of wire line revenues (only ES)
2003 about 0,7% of wire line revenues
2002 about 0,1% of revenue (group)
net costs of USO 1999 2000 2001 2002 2003 2004
England Net costs (in Mio. €) -14 bis 18 - - - - -18 bis 22per capita (€/ J ahr) -0,24 bis 0,30 - - - - -0,30 bis 0,37
Spain Net costs (in Mio. €) 180,0 268,0 182,0 110per capita (€/ J ahr) 4,5 6,6 4,5 2,6
France Net costs (in Mio. €) 110,5 119,3 119,6 183,7 53,2 32,0per capita (€/ J ahr) 1,9 2,0 2,0 3,1 0,9 0,5
Italy Net costs (in Mio. €) 62,4 58,9 40,5 38,9 41,0per capita (€/ J ahr) 1,1 1,0 0,7 0,7 0,7
Belgium Net costs (in Mio. €) 48,4per capita (€/ J ahr) 4,7
Austria Net costs (in Mio. €) 0,6 2,7 4,0 4,7 5,0 5,0per capita (€/ J ahr) 0,07 0,33 0,49 0,58 0,61 0,61
Source: Cullen International and own calculations
Only preliminary values
Peter KLUNE, Prague 23rd May 2007 Page 19
Summary
USO cost calculation means:– Huge data gathering effort– Detailed cost and revenue assignment– Dealing with legal uncertainties
Results are:– Highly vague (indirect benefits, unfair burden)
Outcome depends on:– Willingness of the NRA to refund costs
Conclusion -> try it, but manage expectations
Peter KLUNE, Prague 23rd May 2007 Page 20
Thank you for your timeQuestions?
Peter KLUNERegulatory Affairs
TELEKOM AUSTRIA AGLassallestraße 9A-1020 Austria
›E-Mail [email protected] +43 (0)59059 1 16012Fax +43 (0)59059 91 16012Mobile +43 (0)664 629 61 76
Peter KLUNE, Prague 23rd May 2007 Page 21
Appendix: helpful legal documents
• DIRECTIVE 2002/22/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 March 2002 on universal service and users' rights relating to electronic communications networks and services (Universal Service Directive)
• Review of universal service obligation undertaken by OFCOM(http://www.ofcom.org.uk/consult/condocs/uso/statement/)
• COCOM07-08 FINAL Universal service implementation issues (http://circa.europa.eu/Public/irc/infso/cocom1/home)
• COCOM07-08_ANNEX1 FINAL Universal service financing table(http://circa.europa.eu/Public/irc/infso/cocom1/home)