Mobile Regulation & Competition Law Bxls 12-06-08

8/6/2019 Mobile Regulation & Competition Law Bxls 12-06-08

1/21

page 1Mobile Regulation & Competition Law Bruxelles 12/06/08

Experience of a

newcomer inmobile telecoms

and broadcasting

Quirino Brindisi

Senior economist, H3G Italy


2/21


AgendaAgenda

H3G overview

Mobile telecoms

Mobile broadcasting

Conclusions


3/21


H3G, a newcomer but... a different one

H3G is probably the most innovative mobile operator in Europe, having

launched:

The 1st mobile service in Europe based on UMTS technology (March 2003)

the 1st

DVB-H broadcasting service in the world (June 2006)

You can considerH3G as the latest infrastructure-based newcomer in an

ordinary way, or the first mobile video company in Europe...

... but, most of all, H3G is a developer of new technologies & businessmodels


4/21


Organization of the group

H3G is controlled by Hong Kongs Hutchison Whampoa Group (HWL)

through 3 Italia

H3G provides mobile telecoms and broadcasting services to the market,3Lettronica provides digital broadcasting capacity to H3G

Italian law imposed to setup 3lettronica as a separate company, in order

to avoid risk of cross-subsidies between tlc and broadcasting

3 Italia s.p.a.

H3G s.p.a.

3lettronica Industriale

100%

100%

UMTS network

DVB-H network

UMTS & DVB-H services


5/21


Some figures

H3G has achieved so far over8,2 m subscribers, more than 10% of these

enabled to mobile TV services via dual-mode UMTS / DVB-H hs

In Italy H3G has about 9% share on total mobile lines and 9% on

revenues, while keeping the leadership on UMTS with 38% lines

H3G reached 2.1 bn turnover in 2007, and EBITDA breakeven in the 2nd

half of the same year, but it is still far from profitability

H3G has achieved about 88% population coverage with both its UMTS

and DVB-H networks, providing basic mobile services to 99% pop

Hutchison Whampoa has invested in H3G, up to now, almost 9bn. The

single largest greenfield foreign direct investment everin Italy


6/21


7/21


The DVB-H start-up

In November 2005 H3G took over a regional analogue TV operator, called

M.I.T., owning a national digital TV license for DVB-T technology

According to Italian law, M.I.T. - now 3lettronica Industriale (3li) -

committed to cover50% population with digital signal in 6 months time*

On May 2006, according to NRA delibera n. 266/06/CONS, 3li notified its

decision to provide broadcasting services also to mobile devices

On June 2006, La3 TV launched its commercial offer, with a rich set ofpremium contents, including German world football championship

H3G started up its commercial mobile TV offer in a record time,

thanks to a favourable regulatory environment

*After the Ministry converted the local TV license into a nationwide TV license.


8/21


The DVB-H network

3li has completed about 40 local TV sites acquisitions for basic coverage,

all cleared by the Competition Commission and the NRA

Frequencies are now different throughout Italy. Operators will implement

regional Single Frequency Networks (SFNs) after analogue TV switch off

Front Door Coverage:30% 50%

Open Coverage

Front Door Coverage: 0%

30%

In Italy analogue TV switch off is

scheduled for completion by 2012

H3G has also placed, mainly onUMTS sites, a number of gap fillers

to enhance coverage indoor and at

ground level


9/21


The DVB-H offer

H3G as a service provider interfaces with end customers and provides the

conditional access functionality implemented for pay channels

La3 TV provides a rich bouquet of channels, some self-produced (La3 Live,

La3 Sport), other replicating market leaders (RAI, Mediaset, SKY)

Basic pay

TV Package(9 channels

+ soccer)

Premium

channels*

Free to air

channel Basic package and premium

channels are offered via:

long term subscription (Pay-tv)

Pay-per-time (day, week,

month)

H3G has developed a dynamic

channel schedule to optimize

capacity

* Available only through a personal security code.


10/21


DVB-H open issues

Need to maintain current coverage and offers when realizing new

frequency organization plans at the national level (e.g. SFN networks)

Access to contents (both premium and free-to-air) vs. legitimate protection

of copyright, in order to build attractive retail offers (from 4th June RAI

available to all DVB-H terminals)

H3G has is developing new advertising models specific for mobile TV. The

regulation now in place for analogue TV is not well suited

Need for acceleration at EU level on licenses awarding as well as on

Content Protection and Interactive Service standards definition


11/21


AgendaAgenda

H3G overview

Mobile telecoms

Mobile broadcasting

Conclusions


12/21


13/21


The mobile experience: the early years

Italy is probably the most developed and profitable mobile market in

Europe, but also one of the toughest for new entrants (Blu and IPSE exit)

H3G won its UMTS license in 2001 (15 MHz FDD + 5 MHz TDD) for a total

3.2 bn, including 826 m paid for 5 MHz reserved to newcomers

Regulatory asymmetries for newcomers included in the auction were very

attractive:

National roaming for voice, SMS and GPRS for 5 years at cost-oriented prices;

Right to share radio sites an fast MNP at cost-oriented prices (for all players);

No access rights for MVNOs and resellers for up to 8 years after 3G launch.

H3G obtained favourable roaming rates for voice and SMS, with

NRA intervention. Other provisions largely remained on paper


14/21


The mobile experience: the start-up

After a slow start in 2003, due to limited UMTS handset availability, H3G in

2004 began to gain traction, introducing hs subsidies and lock

Existing operators reacted to H3G entry, leveraging on their market share

advantage:

Launch of very low on-net prices to retain and acquire customers;

Delaying MNP requests and launching large retention campaigns;

Also fostering the unlawful practice of unlocking H3G handset.

Most H3G subscribers decided at least to delay MNP request, so

becoming multi-terminal customers, using at the same time two networks

Multi-terminal customers keep receiving calls on their old line so

leading to an imbalance in outgoing vs. incoming traffic


15/21


Traffic imbalance and MTRsymmetry

The MTR symmetry principle, tough being based on economic efficiency

reasons, is not suitable in competitively unbalanced scenarios

Huge traffic imbalances, in the order of bn of min per year, easily would

lead to transfer hundreds mln from smaller to large operators

The traffic imbalance, driven by multi-terminal issue, is more likely to arise

in markets:

With high penetration rates and low switching costs (e.g. prepaid 90% in Italy)

When newcomers enter the market, especially with a new technology (e.g.

H3G)

Traffic imbalance could be, at least partially, offset by very low off-net retail

prices. This is not applicable when competitors have high MTRsBEFORE introducing MTR symmetry, NRAs have to solve

competitive issues


16/21


Current MTRs regime in Italy

Italian operators enjoyed, over time, high MTRs compared to EU avg. TIM

and Vodafone, as early entrants, had almost 10 years grace period*

H3G has signed interconnection agreements in 2001, asking for a MTR

straight in line with average values set by the regulator (18.76 c/m)

The NRA has taken a tougher stance on MTRs from 2005, leading to cuts

for all operators, including Wind (after a 6.5 year grace period)

Current MTRs regime is based on NRA decisions n. 3/06, ruling a price

cap 2006 - 2009 for TIM/ Vodafone (RPI -13%) and Wind (RPI -16%), and

n.628/07 ruling a -13% cut on H3G

Date of changes From 1/6/03 1/9/05 1/7/06 1/7/07 1/03/08

TIM, Vodafone 14.95 12.10 11.2 9.97 9.97

Wind 18.15 14.35 12.9 11.09 11.09

H3G 18.76 18.76 18.76 18.76 16.26

* Before 1999, TIM and Omnitel had the right to set the whole retail price for incoming calls(!) . After a sentence from NCA, they agreed on voluntuary annual reduct ions of their MTR up to the NRA d


17/21


Proposed MTRs regime in Italy

The Italian NRA adopted on May 21st a draft decision on new MTRs, still to

be published for consultation, for the years 2009 to 2012

8.85 8.85

7.7

6.6

9.51 9.51

8.7

7.2

16.26

13

11

9

7

5.9

Jul-08

Sep-08

No

v-08

Jan-09

Mar

-09

May-0

9

Jul-09

Sep-09

No

v-09

Jan-10

Mar

-10

May-1

0

Jul-10

Sep-10

No

v-10

Jan-11

Mar

-11

May-1

1

Jul-11

c/min

TIM / Vodafone Wind H3G

NRA estimates a

30% cut on avg. rate

(H3G is -57%) toOfcom like rates

H3G would bear

another20% one-off

cut, only 6 monthsafter the 1st one (for

a total -31%)

H3G is going to be damaged by the announced NRA decision

because of an excessive MTR reduction vs. competitors


18/21


19/21


Looking forward

H3G is still committed to invest in innovation, for example completingHSPA coverage and developing DVB-SH (trial to be launched soon)

The competitive outlook is getting tougher also due to factors non

imputable to H3G:

Unfair win-back and retention campaigns performed by its competitors;

MVNO entry on the market, among telcoms specialists (BT, Fastweb etc...);

Sudden regulatory changes, like Bersani law banning prepaid top-up fees.

All this is resulting in a slowdown ofH3G Italy performance, this is leading

many analysts to forecast an imminent exit ofH3G from the market

H3G has the strength and willingness to keep competing on the

Italian market but needs a pro competitive and stable regulatory

framework


20/21


Conclusions

HWL invested in Italy also thanks to a regulatory environment supportiveof new entrants

Now H3G is not asking NRA and EC aid to effectively compete on the

market, but to remove competitive distortion in the Italian market

The main issue arises from high incumbents MTRs enabling on-net

discrimination. H3G has had a high MTR vs. Eu avg. not vs. competitors

H3G MTR grace period has been 5 years, vs. 10 for TIM/Vodafone 6.5 for

Wind.H3G ought to maintain enough asymmetry to compete

The old ONP framework has established competition in EU telecoms at

the advantage of customers. Now consolidation has become the best

option?


21/21


Thank you

Address for comments and/or questions:

Quirino Brindisi

Economic analyses managerRegulatory affairs

H3G S.p.A.

Via Alessandro Severo, 246

00145 Rome

Italy

Tel: +39 0659556586

Fax: +39 0659556928

Mobile: +393931113258

Documents

Mobile Regulation & Competition Law Bxls 12-06-08