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1 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Achieving the Single Market: Beyond Connected Continent J. Scott Marcus Slide 2 2 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Beyond Connected Continent Introduction Broadband in the EU -Coverage, adoption, usage -Supply versus demand -Is Europe behind? The Single Market and Connected Continent -Connected Continent objectives -Assessment of individual initiatives Looking forward Slide 3 3 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Introduction How to Build a Ubiquitous EU Digital Society: European electronic communications policy and Single Market issues. Entertainment x.0 to Boost Broadband Deployment: supply and of consumer demand of basic, fast and ultra-fast broadband. Ubiquitous Developments of the Digital Single Market: commercial and e-government applications via Internet. Slide 4 4 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Introduction: Challenges for the EU Slide 5 5 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Objectives of the current Framework Article 8 of the 2002 Framework Directive includes objectives to promote: -Competition -Efficient investment -Consumer protection -Internal market for electronic communications Pan-European services Trans-European networks More support for some than others. Do any action lines, for instance, promote trans-European networks? Slide 6 6 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Potential benefits of the Single Market Service providers should be able to access end-users in all Member States. End-users should be able to use services from any Member State. End-users should be able to use their services when they travel to another Member State. Economic benefits: Enhance efficiency by maximising economies of scale, and eliminating artifical barriers to trade. Slide 7 7 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 What are we seeking to enhance? Regulation of electronic communications harmonised or uniform at European level? Cross-border access to electronic services? Trans-European services? Pan-European networks? -Consolidation between Member States? -Consolidation within Member States? Slide 8 8 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Profitability depressed By various measures, profitability for European ECNP is lower than for global counterparts. Creates exposure. Collateral damage (e.g. from Latin American competitive wars). Source: BCG (forthcoming) for WEF Slide 9 9 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Negative impact on investment Source: BCG (forthcoming) for WEF Slide 10 10 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 How to measure success? NRAs tend to measure their success by: -Continued decline of incumbent market share. -Continued decline in telecoms prices. In 2003, when prices in most Member States were arguably well in excess of cost and embedded inefficiencies arguably high, reducing prices to end users was arguably necessary. Are further reductions welfare-enhancing? -Societal welfare is the sum of consumer welfare and producer welfare. -Welfare transfers do not in and of themselves enhance societal welfare they only shift the benefits around. How low is low enough? Is there a law of diminishing returns? At what point has the process has run its course? Are we increasing static efficiency at the cost of dynamic efficiency? Slide 11 11 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Broadband coverage, adoption, and usage trends Slide 12 12 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Coverage of basic and fast fixed broadband Coverage of basic broadband is good, fast broadband less so. Gaps in rural coverage persist. Source: Point Topic, data as of end of 2012 Slide 13 13 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Adoption of fixed broadband Source: OECD Broadband Portal Coverage and adoption are not the same thing. Europe leads the world in basic broadband adoption. Slide 14 14 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Global Internet traffic trends Source: Cisco VNI (2012), WIK calculations. Full report, page 16. Slide 15 15 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Average busy hour traffic per user Source: Cisco VNI 2011 data, WIK calculations. Full report, page 20. Slide 16 16 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Effective download speeds Based on OECD subscription data (June 2012) merged with Akamais actual speed data (2nd quarter, 2012). Slide 17 17 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Usage correlates weakly with speed Sources: Ookla/Speedtest netindex, Cisco VNI (2013), WIK calculations. Slide 18 18 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Supply versus Demand Slide 19 19 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Impediments to adoption in Europe As Internet access becomes widely available, those who choose not to have Internet access are presumably more likely to have made an active decision to not do so. Among households without an Internet connection, the top reason given for not having one is that all household members are disinterested in accessing the Internet (63%). Cost, as an explanation, has decreased in importance, 7% of respondents with no connection reported that they are not sure exactly what the Internet is. Eurobarometer survey (2013) Slide 20 20 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Demand side measures Source: Parcu et al. (2011) Slide 21 21 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Supply versus demand Source: Parcus et al. (2011) Slide 22 22 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Is the EU behind? Slide 23 23 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Broadband in the EU Overall, Europeans are receiving the service that they need at a price they are willing to pay. The speed of broadband access is an important enabler, but only one of many. Insufficient speed can inhibit usage; however, speed well in excess of demand appears to have only limited effect in promoting usage. Once adoption is sufficient, demand side measures may be more effective than a purely supply side approach (pushing on a rope?). Slide 24 24 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 A Single Market? Slide 25 25 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Connected Continent: Problem Definition Commissions Impact Assessment alleges root causes to challenges to Europe. -Inconsistent national authorisation schemes; -Lack of coordination in spectrum assignments; -Lack of pan-European network access inputs with consistent capabilities; -High prices for roaming and international calls, inconsistent consumer protection. These may be causes, but not root causes. Slide 26 26 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Authorisation Commission alleges inconsistent national practice impedes European market entry. Authorisation per se is a minor issue, if that. -Current Directive already limits what Member States can require, and time frames for action. -WIK 2008 study of Regulation of VoIP for the Commission: authorisation per se not a problem. -Current interviews generally support this. Proposed solution is unwise, needlessly complex, and disproportionate. Slide 27 27 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Authorisation The current Directive is reasonably effective. A standard form in standard languages in the Directive would achieve much the same effect. Recommendation Revise the Authorisation and Universal Service Directives to provide a standardised Notification Form, and to eliminate payments for small undertakings. Recommendation Revise the Authorisation and Universal Service Directives to provide a standardised Notification Form, and to eliminate payments for small undertakings. Slide 28 28 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Harmonised access products Virtual Unbundled Local Access (VULA): a local access substitute for copper local loop unbundling. Wholesale broadband Access: an IP-based bitstream product at regional or national level. Terminating segments of leased lines: high quality dedicated links offering symmetric high bandwidths. Assured service quality (ASQ) product. Slide 29 29 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Harmonised access products Proposal is directionally appropriate, but -does not distinguish business from residential; -does not distinguish urgent from non-urgent. There are benefits in harmonising conditions for terminating segments of leased lines. Virtual unbundling (VULA): -may be less urgent (primarily a residential service); -not always appropriate (physical access preferable in some cases). What is assured service quality (ASQ)? What problem does it seek to address? Slide 30 30 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Spectrum management Important to prevent delays in the assignment of a second Digital Dividend in the 700 MHz band after WRC (2015). Proposed solution rather heavy-handed? The Commission should be empowered to establish common timetables for assignment and expiration of individual rights. Recommendation Achieve the key purposes of the Commission's spectrum management proposals by means of a Regulation. Recommendation Achieve the key purposes of the Commission's spectrum management proposals by means of a Regulation. Slide 31 31 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Network neutrality Risk that unwise acts at Member State level might interfere with the provision of services with an enhanced QoS. Could potentially lead to a patchwork quilt of legal and regulatory impediments that could impede quality-of-service-aware offers, thus negatively impacting the Single Market and the broader economy. Implementation is linked to consumer protection rules. Slide 32 32 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls Roaming alliances (Article 4a) -Must eventually cover all Member States -Prices comparable to domestic (?) -Freedom from retail price controls -Freedom from need to implement or support structural solutions Reductions in roaming prices No charge for voice calls received International calls same as domestic for fixed; no more expensive than mobile roaming for mobile. Slide 33 33 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls The Commissions proposed approach to roaming alliances is unlikely to be effective. -High transaction costs. -There is no incentive for mobile network operators to form such alliances. -Cost to implement Structural Solutions sunk. -Competition rendered ineffective anyway. Meanwhile, the proposal substantially undermines the viability of the structural solutions to roaming enacted in 2012. Slide 34 34 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls Source: ARCEP, The Market for International Roaming, February 2006 Slide 35 35 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls Source: ARCEP, The Market for International Roaming, February 2006 Slide 36 36 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls A strength of the current Roaming Regulation is that retail price and wholesale costs are controlled consistently. To achieve the desired price levels, the MTR is probably too large a cost to ignore. For calls received, the MTR received versus that paid to the Visited Network are decisive for profitability of the Home Network. Slide 37 37 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls Source: DAE Scorecard, financial fixed and mobile spreadsheet Slide 38 38 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls Access and Interconnection Directive Recommendation on termination rates Connected Continent Regulation Retail Prices International Calls Roaming Costs Termination Rates Roaming Regulation Slide 39 39 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Roaming and international calls The Commissions proposal delays progress on lowering roaming prices. Diverts Commission, BEREC and NRA attention from useful pursuits. Recommendation Consider an integrated approach to capping retail and wholesale roaming rates, intra-EU call charges, and termination rates. Recommendation Consider an integrated approach to capping retail and wholesale roaming rates, intra-EU call charges, and termination rates. Slide 40 40 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Coherence: current vs new Framework The current framework is neat and hierarchical. The proposed structure would seriously impact simplicity, comprehensibility, and maintainability. Slide 41 41 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Coherence: proposed structure If the package is pared down, this risk is reduced. Slide 42 42 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Overall Assessment Connected Continent Action LinesEffectivenessCoherence Coordinated allocation of spectrum+ 0 Single authorisation0- No extra charges for roaming (alliances)- - No extra charges for international calls+- Harmonised wholesale products (e.g. for business communications) + - Assured Service Quality (ASQ) product- Clarifying network neutrality+0 Overall instrumental structure-- Slide 43 43 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Overall Assessment Radical simplification is needed. Useful elements of the Connected Continent should be enacted, subject to suitable amendments. Recommendation Implement priority measures through Regulation(s). Conduct a review on roaming/calls measures. Address remaining issues through a root and branch review of European policy for electronic communications. Recommendation Implement priority measures through Regulation(s). Conduct a review on roaming/calls measures. Address remaining issues through a root and branch review of European policy for electronic communications. Slide 44 44 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 What role for consolidation? Consolidation is inevitably a part of the discussion of achieving pan-European networks and trans- European services. It is necessary to strike the right balance between static versus dynamic efficiency. This raises difficult questions: -What benefits flow from trans-European networks? -Are policy measures needed to promote trans-European networks, and if so, what are they? -What is the target profitability of network operators? -What are the implications for single Member State mergers? Slide 45 45 A Trendy Investment Target Again? - NMHH, Budapest, 4 December 2013 Looking forward Overall, Europe is doing reasonably well. Nonetheless, substantial further progress is needed in achieving the Single Market for electronic communications. Connected Continent deals with a very limited subset of the true problem, using a limited set of Action Lines. A considerable body of work will need to be addressed by the European institutions subsequent to the next elections.