August 3-14, 2009
Mobile Termination and Rate Regulation August 11, 2009 Breakout Session 4
ENSURING TELECOMMUNICATIONS SUCCESS AROUND THE WORLD
Kosovo Telecommunications Regulatory Authority Training Program
Contents • • • • • •
What are mobile termination rates (MTRs)? Reasons for regulating Cost models MTRs in “Enlargement” Countries Other MTR issues MTRs & usage
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Mobile Termination Rates (MTRs) • Wholesale price to terminate a call from another mobile or fixed network in a mobile network • Mainly relevant with “Calling Party Pays” where the termination charge is established by the network being called and paid by the network making the call • In general, charged on a per minute basis
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Reasons for regulating MTRs • Reduce anti-competitive behavior and other market distortions • Legal justification – Mobile termination is a monopoly – Trade agreements
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European Union Ex-ante MTR regulation justification • Applies 3 criteria: – Significant entry barriers – Markets whose structure will not lead to effective competition within relevant time frame – Application of competition laws are not enough to solve market failures • One retail market and six wholesale markets have ex-ante regulation including market #7: Termination of voice calls on individual mobile networks
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World Trade Organization (WTO): Reference Document • Interconnection based on costs that are transparent and reasonable • Public availability of interconnection negotiation proceedings • Transparency of interconnection agreements • Major providers to make publicly available interconnect agreements or a reference interconnect offer
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Current costs (LRIC)
Current costs (LRIC+)
Current costs (FAC-CCA)
Historical costs (FAC-HCA)
Tariff cap
Negotiation
Level of model evolution
Evolution of cost models
Increase in competition Source: TMG, University of Chile.
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Latest recommendation European Union
• •
Efficient operator Implies symmetric MTRs Current costs, “bottom-up” using LRIC Efficient technology: NGN & 2G/3G Only costs that would be avoided if voice termination for others was not provided
COMMISSION RECOMMENDATION of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU (2009/396/EC) Adapted from COMMISSION STAFF WORKING DOCUMENT accompanying the recommendation
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US cents per minute
• • •
Average MTR in EU
10
9.96 Baseline
8
7.05
7.32
6 4 2 0
Recommended
3.33
Converted to $ using May 9, 2009 exchange rate
2009 2010 2011 2012
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MTR Characteristics in Enlargement Countries Country Croatia
Symmetric
Origination independent
X
X
FYROM
X
Turkey
X
Albania
X
Other
Setup charge
Bosnia & Herzegovina Montenegro
X
X
Serbia
X
X
Kosovo
*
Different peak, off-peak
Note: * Fixed to mobile. Source: TMG adapted from Cullen International. August 11, 2009
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Trends in EU & Enlargement Countries Euro cents per minute 15 10
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12.7
11.0
9.7
8.6
2007
2008
5 0 2005
2006
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UNK 3.2 F2M
TUR 4.5
SRB 5.9
ERG MKD 6.5
UNK 7.9 M2M* UNK 6.6M2M**
HRV 9.1
ALB 9.9
Enlargement
MNE 10.0
10 8 6 4 2 0
BIH 15.4
MTRs have been falling approximately 1 Euro cent per minute over last few years in Europe
European Union
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Kosovo mobile market
• Lowest penetration among enlargement candidates • New competitor entered market in December 2007
Ipko 35% Vala 65%
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Kosovo mobile market share 2008
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Termination rates in Kosovo Euro cents per minute (peak/off-peak), 2009 6.80/6.00
Vala
Ipko 7.48/6.60
4.0/2.4
4.0/2.4
Fixed Source: TMG Adapted from Cullen International. August 11, 2009
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Retail prices & MTR Euro cents per minute Mobile
IPKO
VALA
MTR Peak
7.48
6.8
MTR Off-peak
6.6
On-net Peak
Fixed
IPKO
VALA
MTR Peak
4.0
4.0
6.0
MTR Off-peak
2.4
2.4
10.0
9.0
Fixed Peak
15.0
19.0
On-net Off-peak
5.0
4.0
Fixed Off-Peak
15.0
19.0
On-net Extra Off-peak
NA
2.0
Off-net Peak
15.0
28.0
Off-net Off-peak
15.0
28.0
Adapted from IPKO & VALA websites and Cullen International. August 11, 2009
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Other issues • • • •
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Timetable MTR price adjustments International termination Pass-thru to retail tariffs
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Time table • Glide path • Scheduled changes • Periodic changes
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UK - Glide path example 3/2008
3/2009
3/2010
3/2011
Vodafone & O2
5.40
5.09
4.71
4.31*
T-Mobile & Orange
5.90
5.39
4.84
4.31*
H3G
9.10
7.29
5.83
4.61*
Retail Price Index (RPI)
4.0%
0.9%
?
% Reduction Vodafone & O2
9.7%
8.4%
8.4%
% Reduction T-Mobile & Orange
12.6%
11.1%
11.1%
% Reduction H3G
23.9%
20.9%
20.9%
Source: Adapted from Ofcom.
£ pence per minute
* Assuming no inflation in 2010/11
All operators except 3G-only (H3G) required to achieve symmetric rate of UK 4.0 pence per minute (in constant prices) by 2011. H3G required to achieve rate of UK 4.3 pence (constant prices) by 2011. The figures are adjusted by inflation (RPI) and the annual reduction required to reach the targeted rate by 2011. August 11, 2009
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Taxes & other adjustments Chile, MTR, Peak rate (Ch$ / second) 2.5 2.0 1.5 1.0 0.5 0.0
Brazil, price of mobile off-net call (Sao Paulo, Vivo->Oi), US$, 2009 $0.60 $0.50
Current prices Constant prices 2005
2006
2007
August 11, 2009
$0.40
2008
Colombia, MTR in current pesos 126 124 122 120 118 116 Dec-07
Taxes
$0.30
Mark-up
$0.20 $0.10 Jun-08
Dec-08
MTR
$0.00
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International termination • In general, mobile termination is higher than historical fixed line international termination rates (accounting rates) • Increasingly two different rates when making overseas call (one to fixed and one to mobile) • Asymmetric rates can distort international incoming call termination and create arbitrage and grey market opportunities
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Uganda numbering dispute • Incumbent operator in Uganda (UTL) made deal for Gemtel, a mobile operator in Southern Sudan to use Uganda’s international dialing code (+256) • MTN, a mobile operator in Uganda, has claimed damages from UTL for non-payment of international settlement charges for calls from Gemtel routed via UTL to MTN • UTL argues that these calls should be treated as local
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Pass-thru to retail tariffs • No guarantee that MTR reductions will be passed on to consumers. – “Countries with high termination rates can have low retail rates, like Denmark and the Netherlands, and countries with low termination rates, like the US, can have some of the highest prices on record.”—Vodafone New Zealand
• New Zealand uses a legally binding “Deed of Undertaking” signed by mobile operators to ensure 100% of any savings earned through reductions in MTRs are passed on directly to customers. • According to Vodafone New Zealand, in the first 21 months of the Deed, customers saved NZ$21 million and over the five year period of the Deed, the amount will be about NZ$90 million.
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Different termination options • • •
• • •
Deregulation – removal of all termination regulation from mobile operators. Long Run Incremental Cost + (LRIC+) – charge control set broadly on the basis of the same cost standard as it is today. Long Run Marginal Cost (LRMC) – revised charge control methodology with no allowance for recovery of common costs, broadly the approach recommended by the EC. Capacity Based Charges (CBC) – a different approach to setting the structure of termination charges based on the capacity required for termination. Mandated Reciprocity – set mobile changes to match the rates set for fixed operators. Mandated “bill and keep” (B&K) – termination charges effectively set at zero. Ofcom. Wholesale mobile voice call termination: Preliminary consultation on future regulation. May 20, 2009.
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USA Canada India China Hong Kong Singapore Israel Korea Thailand Malaysia Russia France UK Sweden Taiwan Mexico Egypt Hungary Spain Colombia Chile Germany Japan Venezuela Italy Turkey Switzerland S. Africa Peru Brazil Argentina 0 August 11, 2009
367 311 308 220 216 198 195 191 189 163 162 158 156 154 143 142 138 129 125 119 114 102 96 93 76
100
200
447
496 492
589
697
356
Receiving Party Pays
Calling Party Pays
Mobile minutes of use per month per subscriber, 2008
300
400
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600 ©
700 22
MTRs, competition & usage 7000 6000
Low MTR High HHI
163 154
5000
165
96
3000
195
hcsri H-l ha dni f r e H
1000
102
114
119 138 311 198 137 158 308 189 84 220 170 176156 216 356 142 125
4000
2000
High MTR High HHI
496
211
143 124129 112
Minute s of use per month
Low MTR Low HHI
0 $0.00
93
High MTR Low HHI $0.15 MTR, 2008, US$
$0.30 ©
Mr. Michael Minges Senior Market Analyst minges@tmgtelecom.com Telecommunications Management Group, Inc. 1600 Wilson Boulevard, Suite 710 Arlington, VA 22209 USA Tel: + 1.703.224.1501 Fax: + 1.703.224.1511 www.tmgtelecom.com
ENSURING TELECOMMUNICATIONS SUCCESS AROUND THE WORLD
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