January 26, 2005
Westminster eForum Session 1 Notes
Today I’m at the Westminster eForum just round the corner from the Houses of Parliament in London.
It’s a public policy forum to liaise between government and industry. About 98% of the attendees are in suits, and I’m in full blogger uniform. You’d be proud. I’m also the only person of well over 100 with a laptop! This isn’t an audience at the cutting edge of technology, I sense. It’s also the traditional non-interactive conference format with panels and keynotes. Apparently all the wisdom is in the speakers and we’re only here to absorb it. Oh how I wish for a backchannel screen to write rude comments and talk about Skype while the BT CEO is talking later on!
What you wouldn’t be proud of is the Wi-Fi access, which costs GBP5 for an hour using a scratch-off card. The cost is almost of secondary issue to me than the inconvenience of not being connected all day. Just let me pay, man!
These notes don’t capture everything, as they plan to issue a transcript. Just enough to capture the essence and give some context to my comments and ideas.
Alex Blowers - Head of Policy Development, OFCOM
Shape of 21st century telecoms regulation
For US readers, he is the equivalent of Robert Pepper at the FCC.
OFCOM - criticised for being starry-eyed on technology, but remain enthusiastic. Massive increase in consumer choice and expectation
Looked at a range of technology scenarios, selected the likely ones. Aimed for a “Regulatory Settlement”. Re-focus regulation on core problems of enduring economic bottlenecks. Regulate a few things effectively rather than many things badly. Create more clarity and incentive to invest.
Demand side needs to function, not just supply side. Telecom is a complex market, difficult to understand. Consumer info may not be transparent and comparable.
“May be weak demand for the services may be offered on next-generation broadband access networks.” [Hey, Paradox of the Best Network, man. The network owner won’t be the one offering the services or price discriminating._]
Should we have BB universal service obligation? Too early to say.
Matthias Kurth, President RegTP (German federal regulator)
Different inter-modal competition scenarios in different countries. Have to avoid being technology-specific, as too hard to predict technology outcomes.
Have a telco competition imbalance. Lots of backbone competition — too much! Bridging the last mile and incumbents unsolved. [POTBN! Price discrimination is at the retail edge.]
LLU in 1998, slow start, now 2m lines. Fair pricing model, cleared abusive technology practices. Unbundling works, particularly in cities. Others have failed because [they screwed it up, reading between lines]. Rural/urban issue created.
Structural separation, can divide in the wrong place. Example of US local and LD separation. Cleaved the technology in the wrong place, although mismanagement too.
Price regulation can still have a role. Dumping cases, false pricing. Some ex post control also needed.
Regulation should be predictable. Evolution of regulatory strategies, not revolution.
Clive Ansell, Group Strategy Director, BT
BT has an issue in addressing strategic review. Afraid to write something down in case it gets “trousered” — becomes fixed. Want an open debate. [This is all a bit cryptic. He’s having an indirect dig at OFCOM, I think].
Phase 2 regulation proposal from OFCOM. A paradox. UK has satisfied customers, choice, low prices. But the future is so dire we need to look at structural change to BT! OFCOM wants more large competitors to BT, own networks and services, less BT resale. Obstacle is lack of confidence that BT will supply right form of wholesale access at right form and right price.
Want to move from service-specific networks to one IP network (NGN), alias 21st Century Network for BT. A proliferation of innovation. 21CN will be expensive to implement, as will competitors’ networks. Confidence is an obstacle to BT. OFCOM can provide stability. Controlled and phased implementation, clear and verifiable conditions all can understand.
“Cost of Copper Study” and “Cost of Capital Study”. Somewhat abstruse. Confidence can be undermined unintentionally. OFCOM believes cost of capital should fall because risk is falling. Disagree. Not seen in context of strategic review. How can we afford to invest if returns won’t be hoovered away by some future change to cost of capital?
[WTF has this got to do with cost of legacy network? Shouldn’t 21CN have a stand-alone business case? How can the public be sure BT will not to a Verizon, and will follow through on the investment funded by price rises?]
We say BT Retail doesn’t have preferential access, others disagree. Need to transparently need to demonstrate. Plan to clear the air on future portfolio, plans and pricing.
AT&T broken up because had perfect lawyers and compliance. Everyone instructed what to do. Then an unthinking executive wrote in minutes “screw the bastards!”. So people believed they didn’t really mean it and wouldn’t be fair. BT commitment to not just superficial compliance. [Stop giggling down the back, please. BT is warm and cuddly, really.]
Objective of OFCOM should be an outcome. 10s of thousands of service providers meet millions of customers over multiple service platforms. [What’s a service platform? Windows? Why can’t we talk about connectivity separately from service?]
Paul Franklin, Group VP Regulatory Affairs, Orange
Mobile in good shape. One newspaper said mobile phone market ignored in OFCOM Phase 2 review. Wasn’t ignored — just noted 5 competing operators and 7 MVNOs. Competition exists, and is a success. [True, but only framed within an enclosure of the commons model of spectrum.] Prices falling fast. Everyone who needs one can have a mobile phone. 3G is here. Offers fast access to email, entertainment, and video.
Review should focus on aspects of market where bottleneck has not been fixed — infrastructure competition cannot or does not exist. Ultimate goal is withdrawal from regulation. But OFCOM doesn’t go far enough. Doesn’t have complete faith in market forces, and keeps powers in reserve. People want certainty, and the one thing certain about the mobile market is competition. [Oh boy, just wait until people want open spectrum or underlays for meshes, and see how they scream for regulatory interference!]
Consumers coming to expect BB everywhere. [Blah blah.]
Questions
Q: PPL, Music industry: Need investment, last mile. Difference between mobile and fixed; music has similar investment issues. Downloads still a tiny revenue stream. Consumers think everything is free on fixed, pay on mobile. Comments?
A: OFCOM: OFCOM interested in business models for content, not to interfere and justify existence. How content creation happens across platforms, issues and barriers to new business models emerging. Need more work and analysis. Looking at merging business models on various digital media platforms as a learning exercise. Just research to move forward body of human knowledge. Don’t want to take a premature view [i.e. you’re f*ck*d mate, and we can’t help you].
A: Orange: Mobile by its nature covers an area, fixed goes to a single point. Fixed — more services over same infrastructure, displace other access structures already paid for. Mobile they are being built out together. Fundamentally different economic models. [Still the POTBN to face, though.]
Q: Wanadoo: 21CN, BT CEO said the more it facilitates competition the bigger the risk to BT, thus the higher the permitted returns. What’s German view? Is it a legitimate position?
A: RegTP: Keep hearing that incumbents will only invest if regulation looser, prices higher. Michael Powell argued this. Have cable investment, different technology platform. Doesn’t work everywhere — Wyoming, some of UK. Black spots where intermodal is not feasible. [Community nets and meshes don’t exist, folks. You’re imagining things.] Have to avoid re-monopolisation. Playing with fire to follow these arguments. What is a fair risk? Should you have a premium? Would instead argue for LRIC cost model. Interest rate with own capital higher than bonds, a premium. Look to electricity and gas, different risk factors. Is possible to solve. Incumbent does then have confidence.
A: MP: Should BB be an inalienable right? Not yet at the level of gas and electric. Moving that way.
Keynote - Peter Rodford, European Commission
Sit in regulatory directorate for e-communications. [Describes org structure.]
Lisbon Agenda — heads of govt set out plan to increase European competitiveness. Telco part of this. EUR800bn for ICT, growth of sector about 4.5%. Overall economy about 2.2%. Relative growth. Fixed growth 11.5%, mobile 7%.
[Seriously dry presentation, lots of stats and charts.] Fast penetration growth. Correlated with infrastructure competition.
Technology-neutral regulation. Keep regulation done by national regulators. Aim to eliminate regulation and eventually move to just competition law. 4 member states have failed to adopt primary legislation, 8 still need secondary regulation. Infringement proceedings in the offing.
“UK transposition substantially completed”. Overall positive impression of Ofcom. Create approach. Checking UK law is in conformity with EU law.
Where state has a shareholding have conflict of interest, need to separate interest of shareholding and regulation. Calls into question full independence of national regulator. Sometimes legislation doesn’t provide full powers that it should. Lack of appeals mechanisms.
12 member states haven’t even started their market reviews; 13 have.
Specifically mandated that national regulators do not regulate market participants without market power. Emerging services should not be regulated.
Structural separation: what happens if wholesale side decides to offer retail services?
EU framework tries to think in terms of services, not networks. [Uh, oh – are they assuming smart price-discriminating application-layer services tied to networks? The term “services” is too ambiguous. The incumbents can get away with things because the regulation isn’t horizontally layered, doesn’t even have the language to talk about it.]
Universal service issues. Want to minimise distortion.
Not currently reviewing spectrum. [Isn’t this the biggest burning issue – your freedom to connect is massively impaired if the one user-built network option is foreclosed!]
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