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0 Funded by the European Union
Wholesale-only model: regulatory
treatment and opportunities
Dr. Bernd Sörries
Amman, 18.06.2019
1
Funded by the European Union
Agenda
Definition and motivation of wholesale only business model
Regulatory treatment of wholesale-only business model
Wholesale only models in some EU countries
Comparison of wholesale only provider and vertically integrated operator
Some recent developments in mobile markets
Final remarks
2
Funded by the European Union
What are wholesale only business models?
Definition: In a wholesale only model, the network operator deploys an open access
network, and sells wholesale services to other players (such as electronic communication
service providers and enterprises). The network operator does not itself provide retail
services nor is it linked through shared ownership or contractual ties to a specific retail
service provider or group of service providers.
Motivation:
From a commercial perspective, an investor may pursue a wholesale only business
model in order to attract as many customers (e.g. corporate users, service providers)
onto its network as possible.
When public authorities or local communities are involved, another motivation may be
to integrate local economies into digital markets.
Incentive effects: In order to maximize take-up on its infrastructure, wholesale only operators
have a strong incentive to conclude commercial agreements with all access seekers. Unlike
vertically integrated firms, because they do not operate their own retail services or pursue
exclusive ties to a retail provider, there is no incentive to discriminate amongst access
seekers.
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Funded by the European Union
European Electronic Communication Code
(EECC)
Art. 80 EECC:
Undertaking which is absent from any retail markets for electronic
communications services
If the national regulatory authority concludes that the conditions laid
down in para. 1 (no activities at retail level, no exclusive
agreements) are fulfilled, it may impose on that undertaking only
obligations pursuant to Art. 70 and 73 and fair and reasonable
pricing if justified.
Art. 70: non-discrimination obligation; Art. 73: access obligations
The EECC provides for exemptions from access regulation for wholesale
only providers. Limited set of obligations.
Is the special treatment an incentive to establish this model in the
market?
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Funded by the European Union
Early visions: Wholesale only pioneers
Chlo
rop
hylle
– fo
tolia
.co
m
Stokab, established in 1994
was one of the earliest
wholesale only initiatives
Stokab now serves more than
100 operators.
Other pioneers around 2006
included Amsterdam Citynet, a
PPP and Reggefiber in NL
However, these NL initiatives
were acquired by incumbent
KPN in 2014
Source: WIK-Consult
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Funded by the European Union
Wholesale only – an expanding business
model
Chlo
rop
hylle
– fo
tolia
.co
m
Wholesale only
initiatives are
widespread across
Europe
Examples cover
public and private
investment, urban and
rural (with and without
state aid)
Source: WIK-Consult
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Funded by the European Union
How does wholesale only compare with
alternative models?
Chlo
rop
hylle
– fo
tolia
.co
m
Source: WIK-Consult
Characteristics London Hamburg Madrid Paris Stockholm
No. major infrastructure
providers 2 3-4 3-4 3-4 3
Regulated NGA access VULA Bitstream na na Dark fibre
Incumbent business
model Legal sep Integrated Integrated Integrated Legal sep
Fibre challenger business
model na Integrated Integrated Integrated
Wholesale
only
No. service providers
23
(Openreach) 5+ ~6 ~6
>100
(Stokab)
Duopoly
with legal
separation
3+ with
regulated
wholesale
End-to-end
infrastructure
competition
3+ with
wholesale only
challenger
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Funded by the European Union
Description Impact on profitability
Capacity and
penetration of
access lines
Less incentives to duplicate networks
More efficient use of existing capacity
However, this effect is less interesting in less populated
areas, because in those areas duplication is almost
impossible
Wholesale-only
Integrated
operator
Effect
Integrated
operator
ARPU/ARPL
ARPUs of vertical integrated operator higher
However, certain amount of turnover comes from
wholesale business. Granting access to FTTB/H
networks is important for FTTH/B business case
(impact of cable?)
Margin
Wholesale-only provider might be in a position to
achieve higher EBIDA-margin (no retail business which
might be associated with more competition and
therefore less margin).
Wholesale-only
Integrated
operator
Wholesale-only
Profitability of wholesale-only und vertically
integrated operators
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Funded by the European Union
Description Impact Profitability
Cost of financing
CAPEX in wholesale-only model can be seen as less
risky
Less exposure to regulation and political pressure
Wholesale only
Integrated
operator
Effect
Cost advantages
of vertically
integrated
operator
Higher transaction costs for wholesale-only provider
because of handling many access seekers.
Wholesale only
Integrated
operator
Profitability of wholesale-only und vertically
integrated operators
9
Funded by the European Union
Current development in Germany
German Mobile market and the lack of nationwide LTE coverage
Area coverage with LTE of approx. 80 per cent; less populated areas are not
covered
Leading political parties in the German parliament are committed to improve
area coverage asap; political parties do not rely on market forces and
coverage obligations imposed by the Federal Network Agency
Establishment of a stated owned organization dealing with white spaces (no
voice telephony and no data)
- Deploy passive infrastructure (e.g. ducts, masts) in co-operation with
local authorities
- Mobile operators will be forced by law to install active network elements
(base station, antenna) at those sites
Co-operation of Deutsche Telekom and regional network operator to set up a
wholesale only operator
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Funded by the European Union
Wholesale only in Mexico: In 2017 Altàn Redes
started to build-up Red Compartida.
Red Compartida has the following
rights according to the PPP and
concession contracts
90MHz of unencumbered,
contiguous spectrum in the
700MHz band at a price of
0,002 US$/MHz/pop, well
below int. benchmark
Non-exclusive rights to lease
existing public infrastructure to
deploy the network, including
one pair of fiber on the public
electricity network
MVNE Factory for full and light
MVNOs
national and intern. voice
SMS and MMS termination
IP Transit
national roaming for MNOs
providing capacity and filling
rural and indoor coverage gaps
LTE broadcasting
RAN sharing
Spectrum sharing
Red Compartida has the main obligation to follow tendered population coverage milestones up to the offered max. population coverage of 91%
Key rights of the operator Key obligations of operator Wholesale Products
~91% of pop.
~18.000 towns
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Funded by the European Union
MNOs might chose the WOAN offer for national
roaming for coverage and cost reasons.
Drivers of MNOs’ demand for National Roaming
Coverage and Capacity issues due to Spectrum
available
Cost Savings
Budgetary constraints due to 4xPlay investments
The actual assignments of spectrum vary across bands and regions in Mexico. Movistar lacks spectrum in the 850 band for coverage in the Southern regions, AT&T in the
Northern regions. Telcel is facing capacity constraints and congestions in urban areas
RC removes the resulting competitive distortions especially for AT&T and Movistar without the need for costly spectrum acquisition through future auctions.
In addition RC will be able to provide better indoor coverage than any MNO in Mexico.
Based on the actual spectrum assignment, MNOs will benefit from around 60% cost savings if they opt for National Roaming instead of investing into further Radio Network
infrastructure for coverage and capacity
Such cost advantages become obvious when analyzing LRIC based service costs for mobile broadband services for RC versus the existing MNOs
Due to growing competition, the existing operators will increasingly move towards integrated 4xPlay offerings
These types of product and service innovation require significant investments either through acquisitions (e.g. AT&T and DirectTV) and/or own deployments.
Using RC will free up CAPEX and OPEX for such investments
1
2
3
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Funded by the European Union
Final remarks
Gigabit society and high investments: new business models, questionmarks
with regard to regulation (short-term goals or long-term goals; static or
dynamic efficiency) more co-operation
Wholesale only carriers and end-to-end infrastructure competition can both
be effective in driving FTTH/B, but with different retail outcomes
Infrastructure competition end-to-end associated with converged
operators (fixed, mobile, content) and bundled managed retail services
Wholesale only dark fibre associated with multiple service providers and
standalone retail services – lowers barriers to OTT, 5G mobile, IoT entry
However, vertically integrated operators are still in favour of deploying own
networks (network as an asset); question whether wholesale only operator
can compete with incumbent
When it comes to less populated areas, wholesaling of capacity is vital for a
solid business case (increase capacity, lower unit costs)
13
Funded by the European Union
Dr. Bernd Sörries
WIK-Consult GmbH
Postfach 2000
53588 Bad Honnef
Deutschland
Tel.:+49 2224-9225-23
Fax: +49 2224-9225-68
eMail: [email protected]
www.wik-consult.com