ejtn ad on-line classroom: basic notions about
TRANSCRIPT
EJTN AD On-line Classroom:
Basic notions about communications networks. Where are electronic communications today?
June 24, 2021
Marco D’Ostuni Cleary Gottlieb Steen & Hamilton
With financial support from the Justice
Programme of the European Union
LEGACY COPPER NETWORK
2
ESSENTIAL FACILITY
Economies of Scale and ScopeVery High Sunk CostsCapillary Network
NATURAL MONOPOLY
Bottleneck: the local loop Competitive Model
• Last mile to connect the customer
• Cannot be duplicated
FIXED-LINE
High capacity, long distance conduits
Widely shared costs
Locally shared
costs
Lower capacity, short distance conduits
LAST MILE
MOBILE NETWORKS
3
• More recent markets, no legacy network, no incumbent. Licensing
regime led to tight oligopolies
• Last mile = cells = antenna coverage using radio-spectrum frequencies
• MNOs (mobile network operators) consolidating
• MVNOs multiplying (V stands for virtual, as they use third-party networks)
• Network sharing: better coverage, reduce costs, especially in remote areas
COMPETITIVE TRENDS
Within the cell,
antennas transmit and
receive radio waves.
Between cells, signal
travels on fixed lines
MOBILE
INTERCONNECTION
Source: Ofcom.4
Core
Network
OPERATOR
A
OPERATOR
B
Access
Network
Core
Network
Access
Network
Customers
Aspects
Customers
Aspects
Interconnection
Aspects
Origination / termination points
Interconnection points
User terminal
equipment
User terminal
equipment
COMMON FEATURES
Termination is a
natural monopoly
Networks must speak
to each other
BROADBAND
5
High-speed data connections using copper/fiber/spectrum
bandwidth to deliver internet/voice/data services
FIXED-LINE AND MOBILE
BROADBAND
WORLD
COPPER NETWORKS
• Fiber in higher layers
• Last copper mile remains a bottleneck. Various technologies enable broadband (and
later to some degree ultra-broadband) use
• Voice traffic moves to VoIP technologies
MOBILE NETWORKS
• Constant technology evolution e.g. 3G → 4G → 5G
• increasing convergence with fixed-line markets
NEW MARKETS
• Wholesale bitstream services (in addition to line rental and local loop unbundling)
• Retail broadband. Fixed-line vs. mobile
• Allows content delivery
PROPORTIONALITY (i.e., based on nature
of competitive problem)
SMP REMEDIES
6
COMPETITIVE ADVANTAGE
(e.g., natural monopoly on local loop or
termination)A
ASYMMETRIC REGULATION only on
SMP operators, to foster competition
SIGNIFICANT MARKET POWER (SMP) = DOMINANT POSITION
B
C
REGULATION
(a) transparency (d) access to, and use of, specific network facilities,
(b) non-discrimination (e) price control and cost-accounting obligations
(c) accounting separation (f) functional separation
SMP REMEDIES TOOLBOX
LADDER OF INVESTMENT
7
• initial entry
assistance for new
players
• rebalance tariffs
once competitors
are consolidated
GOALS
Encourage
operators to
climb the
ladder
Access options
OLO rent local loop connection (LLU) to
develop own networks and infrastructures
upstream
VS
TYPE OF COMPETITION
Service-based Facility-based
Own
Network
Duct
Access
Full LLU
Shared AccessPhysical Access
Bitstream
Rent and resale
Virtual Access
Commercial Access
REGULATION
OLOs (Other Licensed Operators ) buy
upstream services
IMPACT OF TELECOM LIBERALIZATION
8
Declining
incumbent
market shares
Downwards
trend in pricing
REGULATION
DECREASE OVER TIME?
9
1996 2002 2009 2018
Monopoly
COMPETITIVE MARKETS
EMPOWERED CONSUMERS
INTENSITY
OF
REGULATION
Pro-consumer sector-specific and horizontal rules
Competition Law
Pro-competitive
sector-specific regulation
REGULATION
NEXT GENERATION NETWORKS
10
ULTRABROADBAND
DEPLOYING FIBER TO THE LAST MILE
• ultra-broad data connection unlocks new services and
new markets (content delivery, domotics, IoT,
telemedicine, all kinds of services from remote, etc.)
• Investment needed upstream, but value chain moves
further downstream
• Fiber to the home (FTTH), Fiber to the cabinet (FTTC),
fixed wireless access (FWA)
• wholesale-only operators enter the scene
• more operators own last miles to customers
• Variable network geographies, concentrated in densely
populated areas
NEXT GENERATION NETWORKS
11
REGULATION
NEW GOALS FOR ACCESS REGULATION
• access: all gatekeepers must grant access to last
mile on fair and equitable conditions (symmetric
regulation)
• SMPs’ access prices at cost (asymmetric
regulation) must not be too low, to protect
wholesale-only operators profit margins
• ladder of investment: as before but with a new
step, i.e., the last mile
• all utilities must offer access to physical
infrastructure on reasonable terms
• switch off and prices of legacy network services
to favour migration to NGNs
• better investment remuneration
• favor State aid to NGNs in rural or
underdeveloped areas
• Broadband State Aid Guidelines (2009, 2013)
• 2009-2019: 125 decisions on State aid to
broadband and mobile connections (only 1
incompatible)
STATE AID RULES FOR BROADBAND
• public subsidies to the supply-side
(e.g., long-term loans to operators, national
funding programs, tax incentives to operators,
PPPs)
• demand-side policies
(e.g., incentives for residential and business
demand, direct subsidies to consumers for
terminals or service subscriptions)
PUBLIC POLICIES
• do not own license to use radio spectrum;
• resellers of wireless communication services;
• offer reduced rates to their customers as they do not
have to invest in buying radio frequency and spectrum license.
MVNOs
12
Growing number of smartphone users globally Surge in the demand for network services
MOBILE VIRTUAL NETWORK OPERATORS (“MVNOs”)
MVNOs
MOBILE EVOLUTION
Mobile data
connections
“anytime, anywhere”
FIXED-MOBILE CONVERGENCE
13
MOBILE EVOLUTION
Convergence and
competition
The evolution of convergence
5G
14
MOBILE EVOLUTION
• €213 billion in revenue in Europe by 2025.
• after initial overlap with 4G, 5G networks to become fully standalone
• 5G uses smaller cells to improve coverage, capacity, stability and support new advanced services
• costly investments: incentive to network sharing
THE EU RECOVERY AND RESILIENCE FACILITY
• €672.5 billion in loans and grants available to
support reforms and investments undertaken by
Member States.
• Each recovery and resilience plan will have to include
a minimum of 20% of expenditure to foster the digital
transition.
5G
15
• ENHANCED MOBILE BROADBAND
• M2M AND IOT
• ULTRA-RELIABLE LOW-LATENCY
APPLICATIONS
Demand for 5G networks is
growing faster in the
(post) Covid-19 world 5G benefits
Automotive(€ mn)
Healthcare(€ mn)
Transport(€ mn)
Utilities(€ mn)
Total(€ mn)
42,200 5,530 8,300 6,470 62,500
MOBILE EVOLUTION
Radio Spectrum for 5G
16
Spectrum allocation
• AUCTIONS –design efficient
market mechanisms to assign
scarce resource
• REFARMING – efficient recycling
of spectrum bands currently put to
other uses
EECC SUPPORTS
SPECTRUM POLICY:
i. harmonization in spectrum
assignment and management;
ii. support for co-investment
and risk sharing;
iii.recourse to spectrum
sharing, trading and
leasing.
REGULATION
OTTs
17
ULTRABROADBAND
• OTT deliver contents and services over third party
platforms (increasingly also with own facilities)
• MULTI-SIDED MARKETS:
• some free or cheaper services
• data analytics tools, profiling, customer
contacts
• monetize data through paying services in
ecosystems
BUSINESS MODELS
DIFFERENT REVENUE SOURCES AND BUSINESS
MODELS
▪ Netflix, Microsoft and Apple: selling
services and products to end-users
▪ Google and Facebook: advertisement,
ecosystems
▪ Amazon: hybrid business model, with
major revenues from customers
OTTs
18
REGULATION
• Marked information asymmetry: regulators lagged behind in terms of understanding digital
market dynamics
• General perception that the Internet is a place of individual freedom where no external rules
should interfere.
OLD LIGHT-TOUCH POLICY
• Amended Audiovisual Media Services Directive [2018];
• European Electronic Communications Code [2018];
• Digital Market Act [proposal, 2020]:
• Gatekeepers subject to specific remedies
• Commission may impose fines
NEW EU APPROACH
Progressive inclusion of OTTs into the scope of EU Directives
• arbitrary distinction between digital
and non-digital markets;
• ambiguity of the notion of gatekeeper;
• shift from antitrust enforcement to
regulatory compliance.
Possible
shortcomings
OTTs – OPEN ISSUES
19
OPEN QUESTIONS
Do we need a NEW DEFINITION OF MARKET POWER?
• data aggregation as a potential privacy issue or a competition issue
• competition law should not persecute mere market power
• legal definitions of market power settled by the EU Court of Justice are flexible and broad (“power to
behave to an appreciable extent independently of its competitors, customers and ultimately its
consumers” and the power to “if not to determine, at least to have an appreciable influence on the
conditions under which that competition will develop”).
If platform does not have a large turnover, is DATA AGGREGATION a harm per se
to market competition?
• data as relevant market or input for production
• focus on abusive behavior rather than data aggregation per se
A
B
• MARK-UPS OVER COST and REVENUE-BASED MARKET SHARES mean less when
services are free of charge in exchange for data/other benefits
ASSESSING MARKET POWER IN THE DIGITAL ENVIRONMENT
REGULATION
Questions
• Which NGN operators can be subject to access obligations?
• Only operators with significant market power
• Only operators owning a legacy copper network
• All NGN operators exclusively controlling last mile connections to customers
• How do you call regulation imposed only on SMP operators?
• Symmetric
• Pro-competitive
• Asymmetric
• Can OTTs be considered electronic communications operators?
• No, never
• Yes, always
• Yes, with respect to services who are digital substitutes of traditional electroniccommunications services
20
With financial support from the Justice
Programme of the European Union
THANK YOU!