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The competition among telecom operators is intensifying in retail markets. This requires telcos to consider other options in wholesale markets. Ahmad Nadeem Syed discusses such avenues in his presentation at IIR forum in Berlin
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Telecoms Wholesale
Ahmad Nadeem Syed
Director Interconnect & Regulatory Economics
Mobilink, Pakistan
Meeting The Threats From Increased Retail
Competition And Embracing New Wholesale
Opportunities IIR’s Conference at Berlin
June 24-28, 2007
2
Site Map
● Market Review
● Wholesale Service Opportunities
● Operator’s Challenges
● Role of the Regulator
3
Deregulation – A Bird’s Eye View
● Benefits
- Increased teledensity
- Multiple operators providing right of choice to consumers
● Aftershocks - Lowering ARPUs
- Increasing Opex
- Declining Profitability
● Combating aftershocks - Finding new avenues
- Optimising cost
4
Market
Potential
5
Demography
Source: ITU World Telecommunication Indicators 2006
4,050
511719
38139
252490
26
4,620
525
943
439
54 246
560
29
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Mil
lio
n
2005 2015
Population
Asia Europe Africa South America Arab Stats Russian and Cent. States USA & North America Australasia
951
206 140100 6 85 168 10
1154
227 190135 9 92
200 12
0
200
400
600
800
1000
1200
Mil
lio
n
2005 2015
Households
Asia Europe Africa South America Arab Stats Russian and Cent. States USA & North America Australasia
Based on 5 Years Growth Rate
(2000-2005)
6
Fixed & Mobile Growth
Source: Actual from ITU World Telecommunication Indicators
2005 2015
Asia
Europe
Africa
South America
Arab Stats
Russian and Cent. States
USA & North America
Australasia13 14
230 251
61 92
7 9
69 101
23 47
242227
613 1,154
Fixed/WLL
Million Subs
2005 2015
Asia
Europe
Africa
South America
Arab Stats
Russian and Cent. States
USA & North America
Australasia24 29
302 532
153 184
25 52
166 329
114 330
484 525
910 2,310
Mobile
Million Subs
7
Traffic Growth
Source: ITU World Telecommunication Indicators 2006
307
699
502520
38
104143
262
74
144
6483
428
630
29 35
0
100
200
300
400
500
600
700
Billio
n M
inu
tes
Asia Europe Africa South America Arab Stats Russian and
Cent. States
USA & North
America
Australasia
2005 2015
Long Distance
32
60
13
6 7
12
32
5
72
62
35
1113
15
47
6
0
10
20
30
40
50
60
70
80
Asia Europe Africa South
America
Arab Stats Russian and
Cent. States
USA & North
America
Australasia
Bill
ion M
inute
s
2005 2015
Incoming International
490140 234 154
5,580
22
4,353
508 385 428 297
8,212
27
1,914
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Asia Europe Africa South
America
Arab Stats USA & North
America
Australasia
Bill
ion M
inute
s
2005 2015
Local Traffic
8
International Market Segmented
Category A
(Matured)
● Europe
● USA & North
America
● Australasia
● Asian Segment (Japan, Korea,
Hongkong, Singapore)
Category B
Upcoming
● Asia (Excl.Japan,
Korea, Hongkong,
Singapore)
● Russia & Central
States
● Southern America
● Arab States
Category C
Following up Fast
● Africa
9
Wholesale
Services Opportunities
10
Wholesale service is not an
explicitly defined term, however, it
is normally referred to as a service
for the purposes of resale being
complementary to retail services
11
Wholesale Service Opportunities
On the Platter
● Call origination
● Call termination
● International Voice (Incoming & Outgoing)
● Bandwidth
● Transit Services
● Leased lines (E1 & STM)
● MVNO
In the Oven
● Transit Services
● Dark Fiber/Wavelength - λ ● Interconnect Exchange
● Bulk SMS
12
Size of the Cake in 2015
Regions λ
Long Distance*
Minutes – Billion
Transit
Service** Traffic
Minutes – Billion
SMS***
Billion
Asia 699 635 693
Europe 520 148 409
Africa 104 73 59
South America 262 87 119
Arab Stats 144 58 37
Russian and Cent. States 83 16 133
USA & North America 630 1,080 383
Australasia 35 10 21
Total 2,477 2,107 1,854
***Source: Worked out based on Mobile Data Association report April 2006 *Projected based on ITU Telecom Indicator Data 2006
** Worked out based on ITU Telecom Indicator Data 2006
13
Demand Potential
Services Category
A
Category
B
Category
C
Transit Services
Dark Fiber / Wavelength - λ
Interconnect Exchange
Bulk SMS
14
Transit Service
● Growing demand because of - Increasing number of small LDI and WLL operators
- Increasing traffic because of lower tariffs
- Direct interconnection may not be possible in all cases
● Not defined as relevant market in many countries
● Incumbents (Fixed line) have monopoly in general
● Mobile operators becoming are potential competitors
● Issues: - Terms & conditions in the RIO
- Tripartite billing & settlement
- Quality of Service issues – Fixing the responsibility
15
Dark Fiber/Wavelength - λ
Dark Fiber ● Incumbents may not be interested due to limited No. of
available pairs
● May be an opportunity for new entrants in backbone business
Wavelength - λ ● Advent of DWDM technology has enabled the
incumbents to offer this service on optic fiber
● The mobile operators are the major potential customers
● Easy means of acquiring high capacity for new entrants
● Pricing may be based on opportunity cost
● Dependence on incumbent for Quality of Service as first level control always with the network owner
● Regulatory framework does not exist generally
16
Interconnect Exchange
● Multiplicity of operators demands simple interconnection
solutions
● Direct interconnection may not be feasible for small operators because of:
- Cost involved
- Network Complexities
- Distance from POIs of major players
● Incumbent operator is in perfect position to offer this service
● Pricing could be based on opportunity cost
● Danger of abuse of position by incumbent is there
● Regulatory framework is not present in general
17
Bulk SMS
● Market is growing because of growth in
- Mobile sector
- WLL sector
● SMS based value added services like telemarketing becoming popular
● Small WLL operators & content providers prefer to deal with one aggregator than multiple operators
● Incumbent’s can provide services as aggregator
● Low cost high premium service
● Billing and accuracy could be an issue
● The market is unregulated
18
Challenges
for the
Operators
19
New Entrants - Build vs Buy
● Issues faced by new entrants
- High cost of wholesale services
- Competing the incumbent against its “economies of scale” advantage in retail market
- Build vs Buy decision
● Why should new entrant go for build? - To lower operating cost
- Independence
- Prospective revenue stream
● Challenges of Build Strategy
- High O&M cost in the initial period
- Hitting back by incumbent in case of long buildup period
20
Incumbent’s Strategy
● Recognizing threats of new entrant’s build strategy - Loss of revenue
- Emergence of competition
- Idle capacity
● Capitalize on its position to offer wholesale services
● Optimal utilization of excess capacity
● Take competition an opportunity not a threat
● Keep the new entrant in state of indecision with respect to Build vs Buy
● Keeping new entrants dependent
● Ensure that new entrant does not become competitor in wholesale market
21
Role
of the
Regulator
22
Key Responsibilities of The Regulator
● Watching Consumer’s Interest
● Ensuring Fair Competition
23
Regulatory Framework
● Regulatory Framework (RF) is
dependent upon
- market maturity
- regulator’s competence
● Relatively virgin area w.r.t RF
● The need will soon arise for
Regulator to:
- conduct market study for identification
of relevant markets
- Determining SMP
- Imposing obligations on SMP
● Because:
the larger the demand/dependence,
larger the chance of margin squeeze by
the service provider
Category
A
Category
C
Category
B
24
Challenges for the Regulator
● Wavelength
- Developing framework for cost based pricing for wavelength
- Implementation of Service Level Agreement
- Developing dispute resolution mechanism related to SLA
● Transit Traffic
- Developing dispute resolution mechanism mainly related to billing & settlement
- Ensuring Quality of Service
● Interconnect Exchange
- Mandatory or voluntary connectivity by all operators
- Determining cost of services
- Ensuring non-discrimination
● Bulk SMS
- Protecting consumers interests against spamming
- Protecting terminating operator’s interests
- Identification of relevant market
- Determining cost of termination
25
Thank You !