The Conditions Of Competitive Convergence

1. The Conditions Of Competitive Convergence Richard LALANDE, chairman, AFORS-Telecom 22nd November 2005

2. What Is Convergence? • Technical convergence: moving towards an all-IP world including, voice over IP substitutable to standard telephony, TV over IP, etc. • Service convergence: « multiple play » offers encompassing telecommunications (fixed, mobile, broadband), video, music, games, etc. • Commercial convergence: one customer relation for several services. • Provider convergence: mergers, vertical and horizontal integration of some players.

3. Convergence Should Not Kill Choice • Customer needs are more and more diverse and, for a given need, customers want choice. • All customers do not need or cannot afford all services. Competition must be possible on basic services (e.g. telephony), as well as on high-end services. • Innovation, investment and affordable prices come ONLY from competition between a diversity of operators.

4. The Remedies / 1: Technological Neutrality • Regulation should be technology neutral: it must be based on a market analysis taking into account the substitutability of services. • For instance, voice over IP should be regulated the same way as standard telephony, when services are equivalent for the customer (same market, same obligations upon dominant operators). • In such cases, the notion of “emerging” services is irrelevant to competition analysis. Innovation in networks (i.e. NGN) or services (i.e. convergence) can’t be a pretext for a step backwards in competition, even less for a regulation “moratorium”

5. The Remedies / 2: Market Relevance • Regulation should be based on actual markets, not only on pre-defined markets. • For instance, Blue Phone service falls within the mobile telephony market when you are in the street, and within the fixed telephony market when you are at home. • Which market analysis will be used to check if ex ante obligations are necessary to ensure fair competition for such services? Regulation must be flexible enough to move forwards with market evolution.

6. The Remedies / 3:Transparency • For the sake of innovation and of the customers, competition must be made possible at each rung of the value chain and investment ladder: it should not be restricted to fully integrated operators. • Regulation does need transparency, both vertical (networks / services) and horizontal (between product lines, e.g. fixed / mobile). • To ensure non discrimination by dominant operators, strong transparency measures must be implemented: cf. BT undertakings in the UK (creation of an Access Service Division, etc.).

7. The Review Of The EU Regulation Must Address Convergence / 1 • The existing system of relevant markets prevents the regulator to ensure the replicability of converging / cross market services. Retail services using de facto a wholesale product of the incumbent should not be allowed as long as they are not replicable by competitors. • The regulators must be allowed to react more quickly and with greater flexibility, to ensure “ex ante” fair competition in the case of cross-market offers.

8. The Review Of The EU Regulation Must Address Convergence / 2 • The regulators must be allowed to address “bottlenecks”, analysed not in terms of lack of any alternative, but in terms of dominance (e.g. today copper twisted pair; soon : optical fiber local loop ). • The “functional” separation of the local loop access network should be included in the list of obligations. Accounting separation is not enough to secure true input equivalence i.e. equal terms in financial and operational conditions. • Nevertheless, the price and conditions of unbundling a bottleneck must create an incentive to invest, for the operator of a bottleneck (e.g. optic fiber local loop).

9. IN SHORT • Be flexible in market definition and analysis. • Insure transparency and replicability, including the convergent services of SMP operators, mainly if they are fully integrated. • Secure equal terms in access to existing or new bottlenecks as fiber local loop