WHOLESALING HIGH SPEED INTERNET ACCESS

Transcription

1 WHOLESALING HIGH SPEED INTERNET ACCESS Lessons from the French Experience CITI, Columbia University New York, 4 March 2002 Prof. Lucien Rapp IEID Telecoms & Satellite Partner, Serra Leavy Cazals Paris - France 2002 Lucien Rapp

2 Contents 1. Summary - Conclusions 2. Context 3. The French Experience 4. Current Situation 5. Wholesaling as an Alternative Solution

3 1. Summary - Conclusions This presentation outlines the French experience with regard to rates for conditions of access to the Internet. Within a legal framework which does not currently allow the development of alternative solutions, the French ART (telecommunications regulatory authority) attempts to deal with the problems arising from the transformation in the economics surrounding Internet access conditions over the telephone network. It opens a new dialing domain and resolves the interconnection conflicts. In so doing, it establishes a new industrial architecture (network operators, access providers, data carriers) which develops under the twofold influence of opportunistic strategies and the decisions made with regard to arbitration and jurisdiction. It aligns itself with the default choice of the switched telephone network, and thereby establishes the monopoly of the traditional operator for the foreseeable future. France Telecom establishes itself on the broadband access market as an operator with a virtual monopoly, which is now even competing with cable operators in the area of content. Given such a context, Wholesaling would appear to be the only alternative model.

4 Contents 1. Summary - Conclusions 2. Context 3. The French Experience 4. Current Situation 5. Wholesaling as an Alternative Solution

5 2.1. The Stakes Involved in Internet Access The opening of the market and the greater penetration of Internet use (however, a relative penetration: 1 household in 5 in France, versus 1 in 4 in Germany and 1 in 2 in the United Kingdom). The digital revolution (notably P2P and streaming ). The modification in the value chains of network operators (access, collection, transport, services). The new management models (from the Pay-TV model to the free Internet model).

6 2.2. Means of Access to the Internet SWITCHED ACCESS Classical. But problems remain technical (unsuitability, congestion, malfunctions). rates (cost of local calls, packages, unlimited packages e.g. OFTEL, ART, TPReg). HIGH-SPEED ACCESS Cable. Satellites. RLL. Metallic pair (XDSL, unpacking). Mobile (UMTS). Note: Each of these procedures Has its own constraints (industrial, technical, regulatory) Provides a different end of network service (cost and capacity), Cannot replace the others.

7 2.3.The Economics of Internet Access SERVICE PROVIDERS Constant IAP: Access service (points of presence, data transport network). Telcos: Local telecommunications network. Telcos/IAP/Cable-Op.: data transport network. USAGES Diversified Step 1: File exchange, message system, discussion forums. Step 2: Online consultation. Step 3: Transmission of voice, music or video recordings (point-to-point transmission, even broadcasts using digital platforms).

8 Contents 1. Summary - Conclusions 2. Context 3. The French Experience 4. Current Situation 5. Wholesaling as an Alternative Solution

9 3.1. The Lessons of the French Experience The French Internet access market. (I) The default choice of the telephone network. (II) The industrial strategies relative to Internet access. (III) The arbitrations of the ART and of the Competition Board. (IV)

10 I The French Internet Access Market How to contain the predominance of the traditional operator?

11 Development of the Market and Predominant Role of FT France Telecom succeeded with the transition to a new competitive setting. France Telecom controls all segments of Internet access. In the vast majority of cases, the network used is the local switched telephone network. Transpac, a France Telecom subsidiary, provides the connection for many ISPs. France Telecom, through its rented connections, is the main supplier for all data transport operators and ISPs. Through FTI, France Telecom offers the Wanadoo service (the leading French access provider), which is accessible from the FTC telephone network and cable networks. France Telecom, through its various specialized subsidiaries, holds an important position in the segment of content editors.

12 Start of Competition and Structuring of the Market Launch of competition: Law of 26 July New players (network operators / access providers virtual operators). Free Internet. Dialing (0860). Interconnection system. 1999/2000/2001 catalogues. ART arbitrations. Structuring of the market: Invoicing: connection time (Telcos), package unlimited package (ISP/Telcos), free (Telcos/ISP). Payment (Telcos/ISP). Supplying of associated services (Telcos/ISP/others). Invoicing for third parties (Telcos-Telcos).

13 Strategy for the Control of All Components COMPONENTS Rate of the telephone call (network usage, data transport and indirectly services of the ISP). Interconnection costs (direct interconnection, indirect interconnection). Subscription (Internet with subscription; Internet without subscription). STRATEGIES Call termination system (the interconnected operators propose call termination offers to FT; the rates include a payment to the ISP in order to allow Internet without subscription). Call gathering system (the interconnected operators define their own offers: services and rates).

14 II The Default Choice of the Telephone Network How to rapidly resolve the problem of the absence of credible alternative solutions?

15 Research for Credible Alternative Solutions HIGH-SPEED SOLUTIONS GSM/WAP/GPRS/UMTS. Satellites. Cable networks. RLL. Alternative networks. Rented connections. LIMITS For some time, the priority of mobile networks could be the providing of low-speed mobility. The satellite networks are running into limitations in the capacity of the return channel. The cable networks can only respond to the demand in their deployment areas. The alternative networks are developing in high-density areas. The market is oriented towards high-speed and high consumption clients who can support the cost.

16 The Market Structure. The supply Conservative strategy of the companies: Development of the services. Adaptation of on-demand technologies. Deployment of the networks. Problem: What about the strategies of local communities? The demand Unpredictable demand: Different consumer expectations. But, demand hard to estimate (consumers willingness to pay, innovative nature of the technologies). High commercial uncertainties for the operators.

17 The Stakes of the Regulation. The objectives Promote competition in the interest of users. Accompany the development of the market for Internet access (services supply / demand / deployment of networks / FT/Telcos balance) throughout the territory (solidarity). Take into account the availability of the short, medium and long-term techniques (risks of network unavailability). The means Switched access: indirect interconnection rate (arbitrations), dialing (0860BPQ), unlimited package (working group, 28 February 2001 orientation document). High-speed access: cable (arbitrations), WLLL (call for bids), unbundling (decree of 12 September 2000).

18 III The Industrial Strategies Relative to Internet Access How to escape the dilemma of being a prisoner?

19 The Strategy of the Historical Operator The rate balancing policy (lowering of the prices for long distance calls, increase in the subscription rate and maintaining of the price of local calls). The catalogue and approval procedure for retail rates. The monopoly of the local loop. The occupation of the market (Primaliste, package ).

20 The Strategy of the Newcomers Abandonment of the traditional Internet access layout (Web surfer - France Telecom local network (0.15 F/min) Data transport network (Transpac) Access service). Interconnection and dialling system. Direct interconnection (Access service France Telecom local network (0.15 F/min - Data transport network (third party operator: interco F/min)). Indirect interconnection (Access service Indirect interconnection Invoicing service for third parties and even for the third parties of third parties). Alliances between newcomers and access providers (e.g. Mageos / 9Telecom Network). Unlimited package (e.g. UK/OFTEL).

21 High-Speed Access over the Telephone Network (ADSL) 1998: France Telecom experiments with this new technology (supplying of a high-speed data transmission service over the telephone line). 1999: France Telecom submits the Netissimo (subscriber) and Turbo IP (access provider) offers for approval. 1999: Application to the Competition Board by Grolier Interactive and 23 June 1999 decision. 1999: 7 July 1999 opinion of the ART. 2000: Competition situation (unpacked offers of the type Club Internet ; grouped offers of the type Easynet ); marginalizing of the role of incoming operators (supply of data transport services); problem of the local access to the local network. 2001: Unbundling (decree of 12 September 2000).

22 IV The Arbitrations of the ART How to correct the market s asymmetry?

23 The Preparatory Decisions Internet using Cable 10 July 1997 (ART decision dividing the responsibilities between operators). 28 April 1998 (decisions of the Paris appeals court rejecting the France Telecom appeals). 11 June 1998 (ART decision setting a timetable for the commercial opening of the service, quality objectives and the return channel obligation). Internet in Schools 1997: Governmental action programme. 1998: France Telecom offers submitted for the ART s approval, unfavourable opinion issued by the ART. 1998: new ART opinion (favourable) after a new rate proposal from France Telecom.

24 The Decisions Relative to Interconnection The ART s position The ART s February 1999 opinion of the France Telecom Internet rate proposal. France Telecom obliged forthwith to provide newcomers with an indirect interconnection offer for the gathering of Internet access calls toward non-geographical numbers. The FT interconnection offer 1999 catalogue: existing indirect interconnection offer applicable to telephone service extended to include calls to non-geographical numbers catalogue: approval of an offer suitable for the Internet catalogues: indirect interconnection technical offer for fee-based numbers in the 0860 series.

25 The Arbitrations Regarding Non- Geographical Numbers (0860PQMCDU) Decisions 12 July 2000 decision (Siris). 20 September 2000 decision (Bouygues Telecom). 13 March 2001 decision (Liberty Surf). 5 October 2001 decision (Magic-On-Line). 26 May 2000 decision (9 Télécom). 7 November 2001 decision (Freeserve). 21 December 2001 decision (UPC). Solutions FT obliged to comply with reasonable indirect interconnection requests. Amount of the average charges set at centimes/min net of tax Amount for calls from abroad: 1.05 F/min net of tax (2000); 1.26 F/min net of tax (2001). Rate freedom for local calls within the indirect interco. framework.

26 Contents 1. Summary - Conclusions 2. Context 3. The French Experience 4. Current Situation 5. Wholesaling as an Alternative Solution

27 4.1. The ADSL Market Controlled by FT for the Foreseeable Future Open legal framework (Competition Board decision), but nonexistent alternative offers (no access to the local network). Virtual (de facto) monopoly of France Telecom (Netissimo offers) (direct marketing or indirect marketing through ISPs) Competition within the chain of ADSL services: ISPs supplied with a data transport service in IP mode between the departmental ADSL plates defined by France Telecom. Triple Play (grouped offering for voice, high-speed Internet and audiovisual communication services: France Telecom competing with cable operators in terms of content.

28 4.2. The Unpacking is Limited Decree of 12 September 2000: line sharing (access to the copper wires) and total unbundling (access to the permanent virtual network). But: Resistance (Information, rates, co-localisation). Delays (discouragement, abandonment by operators); Risks (D-SLAM in the dispatcher, e.g. USA). Line sharing, proposed as a service apart from unbundling.

29 4.3. The Wireless Local Loop and Internet for Mobile Phones Require the Sharing of Infrastructures W-LLL: Call for bids in 2000 and granting of 54 RLL operator licenses, but: technical uncertainty. fitting out of the territory (resignations and re-attributions). economic hazards (e.g. Fortel). Internet from mobile telephones: Failure of WAP; 2 nd UMTS call for bids being prepared, but: procedure (call for bids and auction, fees). development in the technical architecture of the GSM network (GPRS, EDGE and UMTS). adaptation of the services (WAP). Sharing of infrastructures.

30 Contents 1. Summary - Conclusions 2. Context 3. The French Experience 4. Current Situation 5. Wholesaling as an Alternative Solution

31 5. Wholesaling as an Alternative Solution Wholesaling is taking root as the sole alternative solution to the FT monopoly. It is implicitly contained in the three previous conclusions: the triple play, the sharing of lines and the sharing of infrastructures. Will we see a division of France Telecom into two operators (vertical integration): an infrastructures operator and a services operator? Innovation versus stability (P.Coy, Business Week, 28, January 2002).