the interaction between technology and regulation in the communications sector

© Cullen International SA 2017

Peter Dunn – Cullen International

The interaction between

technology and regulation

in the communications sector

16-18 May, 2017


sectoral

regulation

influence of

technology

influence of

regulation


Sector-specific regulation

Targeted at one sector

Typically former utilities and/or monopolies

Multiple possible aims, including:

• Liberalise market – introduce competition

• Ensure fair chance for competitors

• Protect consumers

Independent (hopefully!)

?


Benefits of this approach

expertise

independence

• focus

• understanding

• open

• fair


Before liberalisation

Samuelson:

Economies of scale are achieved when the per-unit

cost of production declines with greater production.

Sectors with huge economies of scale may be seen as

natural monopolies

Natural monopoly?

An industry in which multi-firm production

is more costly than production by a

monopoly.

A firm that is a natural monopoly produces

at lower long term average cost than

would be possible with multiple firms.


Telecoms markets

• universal service

• national champions

• employment

high fixed costs and

large scale economies

believed to be

natural monopolies

Government ownership ? • investment?

• innovation?

• political interference?

• lack of choice?

• prices?


but not in the UK …

1979: Margaret Thatcher becomes Prime Minister

1981: Mercury Communications is licensed (duopoly with BT)

1984: British Telecom is privatised

• 2.1m members of the public bought 2/5 of the shares

• privatisation and shareholder culture

1991: Duopoly Review – full competition

Duplication of networks – efficient or inefficient?


Opening the market is not enough

Sustainable competition

Ensure fair competition

Based on access (ex ante)

Protect consumers

Transition to ex post competition law?


Regulation is multi-faceted

Law

PoliticsEconomics

Technology


sectoral

regulation

influence of

technology

influence of

regulation


Regulation mainly follows technology

Consumer protection

Licensing


Licensing used to be by service

www

IP

convergence on one platform


Fixed network - connections


Fixed network – not like this!


Fixed network – uses exchanges


Fixed network – not like this either!


Fixed network – tiers of exchanges


Fixed network – the numbers game


Last mile bottleneck


Last mile bottleneck

not efficient to duplicate


Local loop unbundling

regulatory solution – physical unbundling


Fibre to the home (FTTH) P2P

same topology = same regulatory solution


Fibre to the home (FTTH) PON

different topology – unbundling not possible!


Fibre to the cabinet (FTTC)

different topology – unbundling not economic!


Regulating fibre access

but should we regulate fibre access at all?

same approach possible:

physical unbundling

regulators invent new

remedy: virtual unbundling


Spectrum licensing

• Each mobile is assigned a separate frequency channel for the duration of the call

• Usually, mobile terminals will have one downlink frequency band and one uplink

frequency band

200 khz channels

5 MHz (25 channels)

5 MHz (1 carrier)

5 MHz carrier

uplink / downlink


Spectrum licensing

200 khz channels

5 MHz (25 channels)

5 MHz (1 carrier)

5 MHz carrier

spectrum must be assigned

in 5 MHz blocks

spectrum must be assigned

as paired blocks


sectoral

regulation

influence of

technology

influence of

regulation


Regulation can have an effect also…

new opportunities new problems


Tactical network deployment

allows physical unbundling

do not allow physical unbundling


OTT services rely on access


NN regulation can ensure access

regulation

Bahrain

USA


Exploding demand

Q3 2011 Q3 2016

Source:

Ericsson mobility report (Nov. 2016)

Total monthly traffic

Data traffic grew 50%

between

Q3 2015 and Q3 2016


Spectrum scarcity – technology helps

Carrier aggregation

Germany Ch.59 Germany Ch.53

Spectrum sharing


• Sector–specific regulation: independent and multi-faceted

• In the communications sector, technological change is highly

significant, affecting behaviour, economics and competition

• Regulation mainly follows technology

• to address existing problems

• because regulators move less quickly than industry changes

• But regulation itself also affects technology:

• opening new opportunities

• creating new problems to be solved

• A well–functioning communications market is critical to future

economic success

• Regulation which is flexible and incentivises innovation is key

Summary


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the interaction between technology and regulation in the communications sector

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