Jeronimo gonzalez brussels 2010

TELEFÓNICA S.A.Regulatory Strategy 1

FUTURE OF COMPETITION POLICY

International Institute of CommunicationsTELECOMMUNICATIONS AND MEDIA FORUMBrussels, 29 April 2010


How we see competition…Beyond connectivity: global, convergent, customer-centric & innovative

01 User InterfaceContent Rights1 ConnectivityOnline Services2

Enabling Technology /

Services3

User-Generated Content

• Text/Images/Voice/Video

Media Rights Owners

• Video• Audio• Books• Gaming• Adult Content• Editorial Content

Search

Transactions

Advertising• Online ad agencies• Online ad networks/

exchanges• Third party ad servers• Ratings/Analytics Services

Support Technology• Web-hosting• Web-design/development• Content Management

Applications• Sof tware• Media Players• Internet browsers

Billing & Payments• Online billing and

payment system providers

Devices• PCs• Smart phones• Games consoles• Other Internet access

hardware• Operating systems

Communications

Entertainment

General/Vertical Content

User

Retail Internet Access

Core Network

Interchange

Source: ATKearney. Internet Value Chain – March 2010Source: ATKearney. Internet Value Chain – March 2010


What capital markets are telling us about our prospective growthUneven distribution

Evolution of Market Cap by Value Chain Market (Base 100 in 2004)

0

100

200

300

400

500

2010200920082007200620052004

User Interface5

Connectivity4

Enabling Tech. /Services3

Online Services2

Content Rights1

Notes to Diagram: (1) Average for Disney, NewsCorp, Time Warner ,Warner Music Group, Vivendi & Electronic Arts; (2) Average for Amazon, Google, Yahoo, eBay, Baidu, Expedia & PartyGaming; (3) Average for Akamai, CyberAgent, Google, ValueClick, Verisign & WPP; (4) Average for AT&T, Vodafone, NTT, British Telecom, Deutsche Telecom & France Telecom; (5) Average for Microsoft, Apple, Dell, Acer, Nokia & McAfee

Notes to Diagram: (1) Average for Disney, NewsCorp, Time Warner ,Warner Music Group, Vivendi & Electronic Arts; (2) Average for Amazon, Google, Yahoo, eBay, Baidu, Expedia & PartyGaming; (3) Average for Akamai, CyberAgent, Google, ValueClick, Verisign & WPP; (4) Average for AT&T, Vodafone, NTT, British Telecom, Deutsche Telecom & France Telecom; (5) Average for Microsoft, Apple, Dell, Acer, Nokia & McAfee

02

x 5

x 0,9

x 3


ARPU

Network cost per user

$ /

Users

/

Mon

th

0

10

20

30

40

2006 2008 2010 20122007 2009 2011

Source: Bell Labs Modeling and Network Planning

Increasing pressures over margins

Increasing pressures over margins

Time

Revenues

Voice dominates

Data dominates

Traffic

DecouplingStrong traffic increase

vs revenue stabilisation

Strong traffic increasevs

revenue stabilisation

Increasing investment need in network

capacity

Increasing investment need in network

capacity

Why? The model supporting this success story is now close to exhaustion with uneven consequences for each parties…0

3


As current pricing models based mainly on flat rates paid by final customers incentivizes “uncontrolled” traffic growth with no efficiency incentives

ADSLADSL

2

ADSL 2+

VDSLFiber

Current model is not sustainable in the long term

How to continu

e ?

Flat rates Traffic Growth Capacity problem

03


Some ways forward to deal with the problems…04

CH

ALLEN

GES

FO

R M

AR

KET

PLA

YER

S

Efficient traffic management

Incentivise traffic efficiency across the value chain

Exploit technological choices available

Beyond flat rates

Optimise potential income streams (e.g. based on QoS)

Value-based income distribution

Change Revenue models

Investment new network capacity

Maximise network efficiency

Exploit most efficient technology choices

ExpandNetwork Capacity

ManageTrafficGrowth

Constraints

Access Regulation

Public investments

Access Regulation

Public investments

Competition

Access Regulation

Competition

Access Regulation

Net NeutralityNet Neutrality


What about [Competition & Regulatory] Policy ?

Competition policy and telecom regulation should play an enabling role while protecting consumers from abuse

First and Foremost, see the wood for the trees:— Frame the policy challenge in the right

context— Understand what the problems are and what

they are not

Second, be consistent with the challenges we need to face:— Challenge nº1: Expand the market— Challenge nº2: Set win-win relationships

amongst players in the new Internet ecosystem, i.e. solving current conflicts (decoupling, investment incentives, etc).

05

325

62

262

Enabling Technology& Services

User Interface

Connectivity

Online Services

Content Rights

Consumer

732

151

61

242

16

Business

1,195

158

956

19

Total

1,927

309

61

1,198

34

Internet Revenues by Source/Nature(2008 in $bn)

• All Segments and Categories that are part of the Internet economy have been included. These are markets and companies that exist/operate as a direct result of the existence of the Internet

• In addition we have included Categories that have a partial link to the Internet economy. In these cases we have apportioned an appropriate percentage of total market value to the Internet Economy. For example:— For PCs we have apportioned a

percentage of based on the proportion of PC usage that is related to the Internet

— For e-Commerce we have deducted the direct cost of goods sold and fulfilment from transaction revenues

• For the purpose of this analysis Enabling Technology and Services has been included in the B2C Internet Value Chain, as companies in this Component are primarily concerned with providing services to Consumer-focused Online Services

• The remainder of this analysis is focused on the Consumer Internet Value Chain

Approach1

Revenues Generated by the Internet Industry (2008)Revenues Generated by the Internet Industry (2008)

Source: ATKearney. Internet Value Chain – March 2010Source: ATKearney. Internet Value Chain – March 2010

Both challenges are yet unmet !Both challenges are yet unmet !


NGA regulatory framework is a key milestone upon which building a new regulatory culture in Europe – Let’s start with the basic things

FOCUS ON CUSTOMER CHOICE & SERVICESNOT THE INCUMBENT ACCESS PLATFORM

WHEN IT COMES TO INTERNET ACCESSFOCUS ON GENERIC BROADBAND

NOT ON FIBRE

Understand Relevant Markets

Defined on the basis of consumer (use) experience:

Telephony Access to the Internet TV Others…

Smart(De) Regulation

In Practice

Three Criteria Test:

Barriers to entry

Competition behind the barriers

Sufficiency of Competition Law

Regulatory structures need to be prepared to capture all these transformations:focus in the medium term to change relevant market definitions

and analysis with focus on the consumer experience of access to services and use both regarding products/services (no platform distinctions) and geographic scope

05


“The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year.”

John Foster Dulles,

US Secretary of State 1953-1959


And a final thought: Does fragmentation of European telecom industry say anything to us about how proper our regulation is?

Population (Millions)Operators (Number)

Note: includes mobile + fixed operators, excluding MVNOs and B2B operatorsUS: 4 major mobile players accounting for 95% of the market, 3 major fixed and 8 major cable operators included

Operators

~ 17

17

Operators

> 170

Consequences of fragmentation

• Short term price declines to benefit consumers; long term disadvantage due to lag in development of information society infrastructure and services

• Less internal market (development of pan-EU solutions)

A sustainable middle

ground is possible

05


No grand idea was ever born in a conference, but a lot of foolish ideas have died there”

F. Scott Fitzgerald

No grand idea was ever born in a conference, but a lot of foolish ideas have died there”

F. Scott Fitzgerald

Q&A


Many Thanks for your attention !Jerónimo González

E: [email protected]

M: + 34 669856098

Many Thanks for your attention !Jerónimo González

E: [email protected]

M: + 34 669856098

Jeronimo gonzalez brussels 2010

Education

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