Home EuropeEurope I 2007 Convergence and regulation

Convergence and regulation

by david.nunes
Reinaldo Rodriguez IlleraIssue:Europe I 2007
Article no.:6
Topic:Convergence and regulation
Author:Reinaldo Rodriguez Illera
Organisation:Comision del Mercado de las Telecomunicaciones (CMT), Spain
PDF size:352KB

About author

Reinaldo Rodriguez Illera is the President of Spain’s Comision del Mercado de las Telecomunicaciones (CMT), Spain’s telecommunications regulatory agency. Prior to his appointment, Mr Rodriguez Illera was the Area Chief of the National Telecomunications Plan. He has also served as the Executive Adviser for Telecommunications Area in the Ministry Cabinet, as the General Director of Telecommunications and the Government Delegate in Telefónica de España. For most of his career, Mr Rodriguez Illera worked in the government’s Broadcasting and Television Engineering Corps and Information Technologies Engineering Corps. Mr Rodriguez Illera has served on the boards of INTA, Hispasat, Retevision, the General Post Office, Telefónica Internacional and as a Member of the Board of the Comisión del Mercado de las Telecomunicaciones. Reinaldo Rodriguez Illera earned his degree as a Telecommunications Engineer from the Universidad Politécnica de Madrid.

Article abstract

Convergence can bring a wide range of benefits to consumers and service providers alike. Convergence can facilitate competition and benefit consumers or be used to dominate the market and hold back progress. Regulation is needed to protect the interests of the consumer and foster healthy competition among service providers. The EU has developed a regulatory framework that gives regulators the tools they need to give alternative providers, new competitors, the access they need to scarce radio spectrum and network resources.

Full Article

After years of expectations, convergence is already here. It is based on new technologies that enable operators to offer bundled and enhanced services to consumers. Consumers benefit from a greater variety of offers at significantly lower prices. Regulators, however, must keep a flexible and prudent but, at the same time, committed approach to this phenomenon. For instance, as consumers increasingly request convergence and bundles, it becomes increasingly important to ensure that the operators that control key and non-replicable resources will not be able to use these to eliminate the possibility of competition and foreclose market entry. This is, especially, the case with mobile services and the use of scarce spectrum resources. The Spanish case is a good example of how these services are increasingly important and how regulators may intervene effectively. Convergence is based on technological developments that make possible the increasing integration of networks, platforms and services. This integration has the benefit of promoting competition. First, it allows greater competition among the different networks and platforms – fixed and mobile, circuit switched and packet switched, broadband and narrowband, etc. – which can now deliver virtually the same services to clients. Today, voice may can be delivered over traditional public switched telephone networks, PSTNs, or through fixed broadband networks. Broadband networks typically use packet switched technologies to provide Voice over Internet Protocol, VoIP. Voice may also be delivered through mobile networks, again by means of circuit or packet switched technologies. The same sort of competition is now seen in other services, such as for broadband, for data connections or TV and video-on-demand transmission. This technological integration also strengthens competition among the many different services, which may now be delivered over a single network platform. This allows any consumer with access to a network to choose from a wide variety of services and decide how to access voice, data, TV or other types of connections. The result is that competition between operators grows, as all those managing these networks and providing those services now compete for the same clients. Voice is still the main application, and the first service initially deployed on new converged networks. Fixed networks are beginning to converge with mobile networks inside of buildings, and the availability of VoIP on broadband networks is providing many with far cheaper voice telephony services. Alternative operators are making use of their option to bypass the traditional network operators by means of wireless technologies. There is increasing competition between mobile services, and new wireless technologies, such as WiFi and WiMAX. WiMAX, Worldwide Interoperability for Microwave Access, is a broadband wireless network standard that will boost convergence and provide mobility in metropolitan and rural areas. This, together with the so-called Next Generation Networks, NGNs, and other technologies such as IMS, Internet Multimedia Subsystem, will also strengthen the convergence process. WiFi, WiMAX and other new technologies present a challenge both to service providers and regulators, but offer final users more, better and cheaper services. A variety of service providers already give consumers the option of utilising a single terminal to satisfy all their different needs. At home or at the office, these terminals serve as fixed-wireless phones with cheap, at times even free, or flat-rate tariffs. Outside, they serve as mobile phones. Converged technology even makes it possible for consumers to start a call on a fixed cordless network and continue it on a mobile one, seamlessly, without disturbance. From the consumer point of view, this gives end users access to virtually any service, anywhere, at any time. Convergence – the integration of all services on a single network – gives consumers a greater variety of offers and services to choose from. Convergence also means that any network operator can now offer a wider range of services and compete with providers of services that formerly required their own separate networks. This increases competition and drives prices down. For the operators, this phenomenon of convergence, and the integration of platforms and services, brings cost reductions and productivity gains thanks to the more efficient technologies they employ and the greater economies of scale they generate – both operationally and commercially. Convergence can take place at the device level, the network level, the service provider level, or at all three levels at once. Clearly, service providers who do not adapt their value chains and strategies to these new circumstances will face difficulties in a converged environment. In addition, it is necessary to take into account the risks, often quite sizeable, that this phenomenon brings about. For instance, an important risk, and quite significant from a regulatory perspective, is that if those owning or controlling the key elements for convergence (infrastructure, spectrum, content, etc.) are able to leverage this ownership or control of one element they can dominate the whole value chain. This would allow those operators to inhibit or even eliminate the ability to compete of those who lack access to this key element and, consequently, prejudice consumers and end users. In the context of a convergent environment, service providers have to transform their business model to fit the shape of a brand new scenario in which they are expected to deliver bundled services and meet the new requirements and needs of consumers. Therefore, the more integrated an operator becomes, the broader the base of services it will be able to provide with its own resources and the better it will be able to face competition from other operators. This is critically important, since convergence lets operators from different sectors compete for each other’s customers in the same access areas. This trend towards structural integration is already seen in the context of fixed and mobile services. Because of the new convergent environment, the principal incumbents in the EU are working to integrate their fixed and mobile subsidiaries to face the competition by offering attractive, lower-cost, fixed /mobile service bundles. Other service providers are seeking alliances, merges and acquisitions, for much the same reasons – to maintain and increase their existing base of clients. As convergence increases, and integration becomes more important for operators, it becomes increasingly important to ensure a level playing field in the market. The risk of operators leveraging the market power they enjoy from the ownership or control of key inputs (infrastructure, spectrum, content) is significant and regulators must seriously take it into account. If the bottlenecks are not addressed appropriately, the benefits of convergence could be compromised or even eliminated. Thus, regulators must pay close attention to reducing entry barriers, avoiding market foreclosure and to the elimination of competition by operators whenever it is not based on greater efficiency, but on mere control over non-replicable resources. This process calls for a flexible framework, which guarantees the reduction and, if possible, elimination of entry barriers while, at the same time, decreasing uncertainty as much as possible. It promotes the proliferation of convergent offers and services and benefits the consumer. For this reason, most regulators, including the Spanish CMT, have conducted public consultations on a variety of issues. In Europe, an existing set of common principles and rules improves legal certainty and harmonization. The CMT, in this sense, bases its decisions on access to networks and other issues using the approach employed by the existing European Union Regulatory Framework. The framework defines the basic legal principles needed to ensure a healthy competitive environment, including definitions of the market, the principles of ‘significant market power’ analysis, and the imposition of remedial measures. To promote competition, CMT has used the EU Regulatory Framework’s tools to, among others, establish appropriate regulation for such questions as local loop access. In this case, providing access to alternative operators is now mandatory; and this is already allowing them to offer convergent services to end users. Regarding mobile services, the CMT recently showed, with constructive support from the European Commission, the non-existence of sufficient competition in the mobile wholesale access market, and the consequent need to require Mobile Network Operators, MNOs, to grant reasonable access on their networks to Mobile Virtual Network Operators, MVNOs. This requirement will let more service providers offer converged services in addition to their basic mobile services. The recent developments in the Spanish market, with MNOs signing agreements with different MVNOs, new and cheaper offers, increasing number of bundled offers, etc., is proving that the decision was the right one and is already benefiting consumers. This case is a good example of how to reduce entry barriers and keep the control of scarce resources, such as radio frequency spectrum licences, and network infrastructures from inhibiting the growth of competition. Using the tools provided by the existing EU Regulatory Framework helps to ensure the efficient use of critical resources and, ultimately, guarantees that consumers will have a wider choice of enhanced services. EU inspired regulations mean there will be more operators competing to offer better prices and quality in a convergent environment.

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