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Copyright © 2018 The Brattle Group, Inc.
Universal Service Provisions
and changing technology
THE CASE OF
TELECOMMUNICATIONS
PRESENTED TO
ACCC & AER Regulatory Conference
PRESENTED BY
Eliana Garcés
26-27 July 2018
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Agenda
Universal service in Telecommunications
– Legacy universal service obligations
– Technology trends and challenges
Policy choices for Universal Coverage
– What to finance?
– How to finance?
– Prices
Take away points
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Universal Service in
Telecommunications
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Universal Service in Telecommunication
Legacy situation
Most universal service obligations have covered voice service over a fixed line and little more
Some have included access to electronic communications (EU)
Fewer have included broadband (Spain, Australia by 2020)• US Telecommunication Act
• EU Universal Service Obligation Directive 2002, Citizen’s Rights Directive 2009, SGEI Decision 2011
• Australia Telecommunication Act 1997
Consumer Protection and Service Standards Act 1999
Competition and Consumer Act 2010
Generally no universal service obligation for what would be considered today good quality broadband services
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Universal Service in Telecommunication
Technological trends
Technology convergence has prompted rethink of USOFlexibility as an alternative for mandated service
Acknowledgement that voice communication can be delivered by many technologies in a comparable way
Different technologies might be optimal solution for different regions
Less reliance on cross subsidization of services (higher competition)
Financed by general budget
Services on the network are gaining relative value with respect to the network itself
• Access to services will determine adequate quality of connectivity over time
Mandating USO requires flexibility It is not obvious what exactly to mandate
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Universal Service in Telecommunication
Ambitious policy objectives
Awareness that fast connectivity is an important productivity factor in the economy
Many authorities have ambitious electronic communication coverage goals
– Australia: universal access to broadband by 2020
– EU: 100% coverage of 30 Mbps broadband and 50% coverage of 100Mbps by 2020 (100% by 2025) – 5G objectives
– US no specific target for population coverage (advanced telecommunication capabilities to be deployed in reasonable and timely fashion – FCC to monitor progress)
The deployment of upgraded infrastructure sometimes takes precedence over affordable universal access of basic services
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Universal Service in Telecommunication
Investment and access
EU example (Telecommunication Code Proposal)
Policies to promote investment in infrastructure
– Involvement of private sector desired
– Publicly supported Investment funds (Connecting Europe, ESIF)
– Grants (State Aid)
– Co-investment as instead of access rules
Policies to support affordability
– Public subsidies from general budget
– Commitments on affordability in case of monopoly situation for basic services
– Reliance on competition but also less regulation for competition
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Policy Choices for Universal
Coverage
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Policy Choices for Universal Coverage
What to finance?
It is better to finance projects than carriers
– Set objective to achieve
– Examine necessity of support: no commercially viable private investment
– Identify least market distortive way to achieve it
infrastructure over service, wholesale over retail
– Respect technological neutrality and flexibility
Not to prejudge appropriate technology
Best practices followed:Australian NBN is a mix of fiber, wireless and satellite and provides wholesale services onlyEU public support for infrastructure is allowed when there is no foreseeable private investment for the service delivery in three years
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Policy Choices for Universal Coverage
How to finance?
Select private operator(s)
– Use competitive tender for selection of beneficiary
– Avoid overcompensation: should finance net cost of service accounting for reasonable profit
– If private operator becomes a de-facto monopolist service provider, consider either FRAND infrastructure access obligations or regulating (capping) retail prices.
Government owned entity (ex Australia NBN) for very ambitious, commercially risky projects?
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Policy Choices for Universal Coverage
Pricing
Retail price subsidy granted only to those who need it
– Appropriate population targeting
• Targeting to guarantee affordability. Income test might be more appropriate than group specification (ex: retirees)
• Targeting to incentivize usage. Ex: schools, public spaces
– Appropriate structure of support
• Connection cost vs cost of usage
• Tariff benefit may decrease with usage so that only initial (basic) use is subsidized
Should be able to demonstrate there is an issue with affordability
– Due to target group low income / high cost
– Due to market power and lack of competition (excessive P)
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Take Away Points
There seems to be increased emphasis given to access to upgraded networks
rather than to affordability
There is increased reliance on competition to achieve affordability, in particular on competition across technologies (which should be checked for facts)
Support for private operators increasingly designed to be as little damaging to competition as possible with focus on infrastructure investment and access by service providers
Still some best practices must be followed to reduce distortions
Relevant access issues will be increasingly determined in terms of access to digital services
brattle.com | 13Privileged and ConfidentialPrepared at the Request of Counsel
PRESENTED BY
Eliana Garcés
Principal, Washington [email protected]
Dr. Eliana Garcés is a Principal at The Brattle Group with broad experience in antitrust enforcement and regulatory design.
Dr. Garcés has held positions in both government and the private sector, including previous economic consulting experience in the United States. She was in the cabinet of Vice President Joaquín Almunia, the European Commissioner responsible for competition policy in 2010-2014. In that position she supervised antitrust and merger investigations in information technology, telecommunications, financial services, and energy market. She holds a Ph.D. in economics from University of California and a Licenciaura in Economics from Universidad Autónoma (Madrid).
The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc. or its clients.
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