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Future Mobile Regulation

Matt Healy, October 2013

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• Fixed network, NBN centric last 6 years

• “convergence” seen through eyes of carriage/content or video/TV/internet. Not so much “fixed and wireless”

• Trujilo – “done good” with NextG

• 4 years ago 4 operators – “surely that’s infrastructure competition!?”

• Regulatory forbearance on mobiles punctuated by delayed MTAS regulation

• But where have we arrived at?

The context

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Underestimating mobile and the need for mobile regulation

• ACCC decision on VHA in 2009 - estimated 4m mobile broadband users by 2014, yet ABS statistics show 17.4m subscribers with internet access in 2012.

• ACCC estimated 10 TB in annual mobile downloads in 2011-12, yet ABS usage estimates were 13.7 TB in Q4 2012 alone and growing rapidly!

• Mobile represents 50% of industry revenue in 2010-11 and trend has continued strongly.

• Yet current wholesale mobile market is not effectively competitive, with weaker competition threatening consumer interests.

What happened with past regulation?

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Mobile competition in Australia is in trouble

• Telstra is building market share and heading towards dominance. Largest single customer network (15.1 million) and revenue > $ 9 billion.

• MVNOs disappearing fast, e.g. Kogan mobile, Redbull, Crazy John’s, Savvytel.

• Operators like VHA and now Optus saying no more MVNO deals.

What does the Competitive Environment look like?

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Telstra dominant, and getting stronger!

Overview of major MNOs

Carrier Ownership No. of Subs Market share(% of Subs)

Mobile revenue Market share (Mobile Rev %)

Telstra  ASX Listing

 15.1m

 49.3%

 $9.2 Billion (FY

ending June 2013)

 48.2%

SingTel Optus  SingTel

 9.5m

 31.1%

 $5.711 Billion (FY

ending March 2013)

 29.9%

Vodafone Vodafone (50%) and Hutchison Telecom (50%)

 6m

 19.6%

$4.098 Billion (FY ending December

2012)

 21.9%

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Telstra share of ALL revenues (fixed & mobile) 66% versus 23% for Optus and only 11% for Vodafone

Share of total revenue between major carriers

  Telstra SingTel Optus VHA

  2013 2012 2013 2012 2013 2012

Total revenue 

25,678 25,368 8,934 9,368 4,098 4,594

Share of total revenue

66% 65% 23% 23% 11% 12%

EBITDA 

10,629 10,234 2,381 2,357 355 645

EBITDA margin41% 40% 27% 25% 9% 14%

Net profit after tax

3,863 3,424 1,606 1,802 (818) (351)

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Service coverage almost 100 percent with 3G coverage very similar to 2G coverage. Telstra deploying LTE to 85 percent of population by end 2013

Population coverage

Carrier Technology Pop coverage (aggregate)

Telstra • GSM-900/1800 (GPRS, EDGE), LTE• 850/2100 MHz UMTS, HSPA, DC-HSPA+• 1800 MHz LTE

99%

SingTel Optus 

• GSM-900/1800 (GPRS, EDGE)• 900/2100 MHz UMTS, HSDPA• 1800 MHz FD-LTE, 2300 MHz TD-LTE

97%

VHA • GSM-900/1800 (GPRS, EDGE)• 850/900/2100 MHz UMTS, HSDPA, DC-HSPA+• 1800 MHz LTE

94%

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Mobile revenues growing strongly now over 50 % and likely to be 60-70% by 2016/7

Share of Australian telecoms industry revenue

Source: ACMA, 2012

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Was 4G the tipping point?

Quicker – less

buffering,

better sound,

better

streamingLess likely to have cell shrinkage

Works off different

frequency than 3G

Fewer problems with latency: 4G networks capable of delivering speeds25 times faster

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• People want it!

• Rapid transition from fixed lines to mobiles – 48% of Australians identify the mobile phone as their most used communication device (ACMA-commissioned survey, May 2012.)

• Not available everywhere in Australia yet – mainly in metro areas

• Telstra is the dominant supplier of 4G. – Optus and Vodafone have to play catch up.

Today

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• Wireless services are at the heart of delivering communications services to end-users in many areas of the country.

• We need effective regulation of Australia’s wireless networks is essential to ensure that consumer interests are protected.

Need for change - the future of access is wireless

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In addition to issues covered by the ACCC’s MTAS review, Macquarie considers that mobile regulation should include 3 key elements to foster competition, namely:

• Mandated MVNO resale offerings

• Declaration of mobile bitstream

• Equivalence of access

Future Mobile Regulation

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• Current data/wireless broadband carrier offerings are deprecated and DO NOT include 4G LTE except in limited circumstances.

• Foreign precedents in a range of markets including EU, China, Asia support MVNO frameworks to increase competition with consolidation in infrastructure players.

• Such frameworks provide quality exemplars for access, pricing, QoS, numbering.

• Provide a basis for new market entry if desired

Mandated MVNO resale offerings

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• Point to point layer 2 Ethernet connection between end user device and point of aggregation/NNI

• Uses 4G/LTE radio access and mobile backhaul network to provide end to end wireless Ethernet service

• Similar in technology to NBN Co fixed wireless access (NWAS) product with connectivity the same/similar

• Conceptually no difference between a IP packet requested and delivered on a fixed or mobile IP network

What is mobile bitstream?

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Mobile BitstreamLocal Access Bitstream and Proposed Wireless Bitstream Services

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Equivalence of Access

Source: Telecom Italia, 2010

• Important to provide access which permits MVNOs/resellers to provide “carrier grade” voice/multimedia services over IP interconnection.

• Service-oriented interconnection (SOIX) to mobile networks to be provided to MVNOs/resellers rather than inferior connectivity-oriented interconnection (COIX).

• SOIX is interconnection service aware (eg voice etc) while COIX linking is based on simple IP connectivity and is not interconnection service aware

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Equivalence of AccessImportant to provide access which permits MVNOs/resellers to provide"carrier grade" voice and/or multimedia services over IP interconnection

Source: Telecom Italia, 2010

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• Macquarie considers there is need for early review of mobile regulation by ACCC and Government.

• Lack of competitive mobile offerings, especially 4G/LTE, will reduce competition including in fixed market. Impact could occur quickly, unwinding decades of competition policy.

• Regulation should embrace convergence, shift focus from legacy circuit switched fixed network to all IP networks including wireless. Ex ante regulation is required.

• Fixed and wireless data services should be regulated in a broadly similar way. There are no technical impediments.

• Opportunity is now to establish new competitive markets for mobile broadband services in the LTIE.

Summary