EJTN AD On-line Classroom:

Basic notions about communications networks. Where are electronic communications today?

June 24, 2021

Marco D’Ostuni Cleary Gottlieb Steen & Hamilton

With financial support from the Justice

Programme of the European Union

LEGACY COPPER NETWORK

2

ESSENTIAL FACILITY

Economies of Scale and ScopeVery High Sunk CostsCapillary Network

NATURAL MONOPOLY

Bottleneck: the local loop Competitive Model

• Last mile to connect the customer

• Cannot be duplicated

FIXED-LINE

High capacity, long distance conduits

Widely shared costs

Locally shared

costs

Lower capacity, short distance conduits

LAST MILE

MOBILE NETWORKS

3

• More recent markets, no legacy network, no incumbent. Licensing

regime led to tight oligopolies

• Last mile = cells = antenna coverage using radio-spectrum frequencies

• MNOs (mobile network operators) consolidating

• MVNOs multiplying (V stands for virtual, as they use third-party networks)

• Network sharing: better coverage, reduce costs, especially in remote areas

COMPETITIVE TRENDS

Within the cell,

antennas transmit and

receive radio waves.

Between cells, signal

travels on fixed lines

MOBILE

INTERCONNECTION

Source: Ofcom.4

Core

Network

OPERATOR

A

OPERATOR

B

Access

Network

Core

Network

Access

Network

Customers

Aspects

Customers

Aspects

Interconnection

Aspects

Origination / termination points

Interconnection points

User terminal

equipment

User terminal

equipment

COMMON FEATURES

Termination is a

natural monopoly

Networks must speak

to each other

BROADBAND

5

High-speed data connections using copper/fiber/spectrum

bandwidth to deliver internet/voice/data services

FIXED-LINE AND MOBILE

BROADBAND

WORLD

COPPER NETWORKS

• Fiber in higher layers

• Last copper mile remains a bottleneck. Various technologies enable broadband (and

later to some degree ultra-broadband) use

• Voice traffic moves to VoIP technologies

MOBILE NETWORKS

• Constant technology evolution e.g. 3G → 4G → 5G

• increasing convergence with fixed-line markets

NEW MARKETS

• Wholesale bitstream services (in addition to line rental and local loop unbundling)

• Retail broadband. Fixed-line vs. mobile

• Allows content delivery

PROPORTIONALITY (i.e., based on nature

of competitive problem)

SMP REMEDIES

6

COMPETITIVE ADVANTAGE

(e.g., natural monopoly on local loop or

termination)A

ASYMMETRIC REGULATION only on

SMP operators, to foster competition

SIGNIFICANT MARKET POWER (SMP) = DOMINANT POSITION

B

C

REGULATION

(a) transparency (d) access to, and use of, specific network facilities,

(b) non-discrimination (e) price control and cost-accounting obligations

(c) accounting separation (f) functional separation

SMP REMEDIES TOOLBOX

LADDER OF INVESTMENT

7

• initial entry

assistance for new

players

• rebalance tariffs

once competitors

are consolidated

GOALS

Encourage

operators to

climb the

ladder

Access options

OLO rent local loop connection (LLU) to

develop own networks and infrastructures

upstream

VS

TYPE OF COMPETITION

Service-based Facility-based

Own

Network

Duct

Access

Full LLU

Shared AccessPhysical Access

Bitstream

Rent and resale

Virtual Access

Commercial Access

REGULATION

OLOs (Other Licensed Operators ) buy

upstream services

IMPACT OF TELECOM LIBERALIZATION

8

Declining

incumbent

market shares

Downwards

trend in pricing

REGULATION

DECREASE OVER TIME?

9

1996 2002 2009 2018

Monopoly

COMPETITIVE MARKETS

EMPOWERED CONSUMERS

INTENSITY

OF

REGULATION

Pro-consumer sector-specific and horizontal rules

Competition Law

Pro-competitive

sector-specific regulation

REGULATION

NEXT GENERATION NETWORKS

10

ULTRABROADBAND

DEPLOYING FIBER TO THE LAST MILE

• ultra-broad data connection unlocks new services and

new markets (content delivery, domotics, IoT,

telemedicine, all kinds of services from remote, etc.)

• Investment needed upstream, but value chain moves

further downstream

• Fiber to the home (FTTH), Fiber to the cabinet (FTTC),

fixed wireless access (FWA)

• wholesale-only operators enter the scene

• more operators own last miles to customers

• Variable network geographies, concentrated in densely

populated areas

NEXT GENERATION NETWORKS

11

REGULATION

NEW GOALS FOR ACCESS REGULATION

• access: all gatekeepers must grant access to last

mile on fair and equitable conditions (symmetric

regulation)

• SMPs’ access prices at cost (asymmetric

regulation) must not be too low, to protect

wholesale-only operators profit margins

• ladder of investment: as before but with a new

step, i.e., the last mile

• all utilities must offer access to physical

infrastructure on reasonable terms

• switch off and prices of legacy network services

to favour migration to NGNs

• better investment remuneration

• favor State aid to NGNs in rural or

underdeveloped areas

• Broadband State Aid Guidelines (2009, 2013)

• 2009-2019: 125 decisions on State aid to

broadband and mobile connections (only 1

incompatible)

STATE AID RULES FOR BROADBAND

• public subsidies to the supply-side

(e.g., long-term loans to operators, national

funding programs, tax incentives to operators,

PPPs)

• demand-side policies

(e.g., incentives for residential and business

demand, direct subsidies to consumers for

terminals or service subscriptions)

PUBLIC POLICIES

• do not own license to use radio spectrum;

• resellers of wireless communication services;

• offer reduced rates to their customers as they do not

have to invest in buying radio frequency and spectrum license.

MVNOs

12

Growing number of smartphone users globally Surge in the demand for network services

MOBILE VIRTUAL NETWORK OPERATORS (“MVNOs”)

MVNOs

MOBILE EVOLUTION

Mobile data

connections

“anytime, anywhere”

FIXED-MOBILE CONVERGENCE

13

MOBILE EVOLUTION

Convergence and

competition

The evolution of convergence

5G

14

MOBILE EVOLUTION

• €213 billion in revenue in Europe by 2025.

• after initial overlap with 4G, 5G networks to become fully standalone

• 5G uses smaller cells to improve coverage, capacity, stability and support new advanced services

• costly investments: incentive to network sharing

THE EU RECOVERY AND RESILIENCE FACILITY

• €672.5 billion in loans and grants available to

support reforms and investments undertaken by

Member States.

• Each recovery and resilience plan will have to include

a minimum of 20% of expenditure to foster the digital

transition.

5G

15

• ENHANCED MOBILE BROADBAND

• M2M AND IOT

• ULTRA-RELIABLE LOW-LATENCY

APPLICATIONS

Demand for 5G networks is

growing faster in the

(post) Covid-19 world 5G benefits

Automotive(€ mn)

Healthcare(€ mn)

Transport(€ mn)

Utilities(€ mn)

Total(€ mn)

42,200 5,530 8,300 6,470 62,500

MOBILE EVOLUTION

Radio Spectrum for 5G

16

Spectrum allocation

• AUCTIONS –design efficient

market mechanisms to assign

scarce resource

• REFARMING – efficient recycling

of spectrum bands currently put to

other uses

EECC SUPPORTS

SPECTRUM POLICY:

i. harmonization in spectrum

assignment and management;

ii. support for co-investment

and risk sharing;

iii.recourse to spectrum

sharing, trading and

leasing.

REGULATION

OTTs

17

ULTRABROADBAND

• OTT deliver contents and services over third party

platforms (increasingly also with own facilities)

• MULTI-SIDED MARKETS:

• some free or cheaper services

• data analytics tools, profiling, customer

contacts

• monetize data through paying services in

ecosystems

BUSINESS MODELS

DIFFERENT REVENUE SOURCES AND BUSINESS

MODELS

▪ Netflix, Microsoft and Apple: selling

services and products to end-users

▪ Google and Facebook: advertisement,

ecosystems

▪ Amazon: hybrid business model, with

major revenues from customers

OTTs

18

REGULATION

• Marked information asymmetry: regulators lagged behind in terms of understanding digital

market dynamics

• General perception that the Internet is a place of individual freedom where no external rules

should interfere.

OLD LIGHT-TOUCH POLICY

• Amended Audiovisual Media Services Directive [2018];

• European Electronic Communications Code [2018];

• Digital Market Act [proposal, 2020]:

• Gatekeepers subject to specific remedies

• Commission may impose fines

NEW EU APPROACH

Progressive inclusion of OTTs into the scope of EU Directives

• arbitrary distinction between digital

and non-digital markets;

• ambiguity of the notion of gatekeeper;

• shift from antitrust enforcement to

regulatory compliance.

Possible

shortcomings

OTTs – OPEN ISSUES

19

OPEN QUESTIONS

Do we need a NEW DEFINITION OF MARKET POWER?

• data aggregation as a potential privacy issue or a competition issue

• competition law should not persecute mere market power

• legal definitions of market power settled by the EU Court of Justice are flexible and broad (“power to

behave to an appreciable extent independently of its competitors, customers and ultimately its

consumers” and the power to “if not to determine, at least to have an appreciable influence on the

conditions under which that competition will develop”).

If platform does not have a large turnover, is DATA AGGREGATION a harm per se

to market competition?

• data as relevant market or input for production

• focus on abusive behavior rather than data aggregation per se

A

B

• MARK-UPS OVER COST and REVENUE-BASED MARKET SHARES mean less when

services are free of charge in exchange for data/other benefits

ASSESSING MARKET POWER IN THE DIGITAL ENVIRONMENT

REGULATION

Questions

• Which NGN operators can be subject to access obligations?

• Only operators with significant market power

• Only operators owning a legacy copper network

• All NGN operators exclusively controlling last mile connections to customers

• How do you call regulation imposed only on SMP operators?

• Symmetric

• Pro-competitive

• Asymmetric

• Can OTTs be considered electronic communications operators?

• No, never

• Yes, always

• Yes, with respect to services who are digital substitutes of traditional electroniccommunications services

20

With financial support from the Justice

Programme of the European Union

THANK YOU!