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Australia: Encouraging investment August 31, 2006

Posted by Jasper in broadband, Regulation.
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With the recent announcement of the sale of the Governments remaining shares in Telstra, there is been little focus on the prospects for investment in FTTN. This is understandable given the importance of the sales issue, however, with it now a done deal (it would seem) attention should once again shift to ensuring the Australian broadband future.

One of the major critiques raised by commentators is that current regulations are stifling investment and are in need of a major overhaul. While regulation is never perfect, I personally, do not find the regulations governing the telco sector in Australia to be in a particular bad shape or hostile towards investment. None of the evidence that has been presented to me, other than perhaps the current investment morass with Telstra, indicates that there might be a problem.

There is no doubt that investments in fibre will be made – also within the current regulations. If Telstra fails we must put our faith in the ‘Gang of Nine’ (G9). However, Sol Trujillo does not appear to have turned his back completely on fibre investements. So, is there any way Telstra can be encouraged to invest?

One option, could be to give Telstra an access holiday on their FTTN investment. An access holiday would give Telstra the opportunity to recoup their investment over a pre-defined period of time where competitors would have no right to access to the new infrastructure. In a sense this option acts like a patent – it creates an incentive to invest by allowing the investor a period where it faces no access regulation. Note that it would still open for the access provider to negotiate access terms with potential seekers. However, this approach effectively forecloses competition and promotes monopoly pricing in the holiday period.

Another option could be to allow Telstra to recover an additional premium on top of the Total Service Long Rund Incremental Cost (TSLRIC) of access. Conventional wisdom dictates that TSLRIC sends the “correct” signal to the market about building or buying. When a price is set at TSLRIC entrants will be encouraged to use existing incumbent facilities if, and only if, it is economically desirable to do so. And for the incumbent investment incentives are preserved to upgrade or extend the existing network when new technology is available. However, one of the insights of real option theory is that a regulated price equal to TSLRIC might not be enough to provide firms with efficient investment incentives in case the investment is irreversible, uncertainty is present and the firm has managerial flexibility to postpone the investment. As long as these three assumptions are partly correct a firm will require some premium to cover the lost option value associated with investing today instead of postponing the investment decision. [see Holm (2000) for an excellent introduction to access pricing under uncertainty and from whom I have sourced many of the arguments in the following]

As noted by Ofcom:

If the riskiness of a firm’s investment is modelled using the CAPM and Net Present Value (NPV) analysis, then …. the systematic risk faced by investors is taken into account via an estimate of the firm’s Weighted Average Cost of Capital (WACC). Cash flows should be calculated in such a way as to ensure that the rewards from successful investments within the portfolio are expected to be sufficient to pay for the losses associated with unsuccessful investments. This analysis does not, however, explicitly take into account the extent to which risk can be mitigated by the adoption of certain investment strategies (e.g. investing later in order to “wait and see” how a market develops, or investing early in order to gain a first mover advantage). It may not, therefore effectively mimic the signals given by a competitive market with regard to risky, non reversible investments.

However, regarding existing unconditioned local copper loops, already in place, the investment has already been undertaken. An option premium is therefore unnecessary. In option terms one could say that the value of the option to “wait and see” is zero.

Of course, if we accept the option argument, the entrants’ incentives to invest in alternative infrastructure is reduced compared to a situation where the local copper loop is priced above TSLRIC. However, this bias is appropriate because society does not face any opportunity cost when renting the copper already in place. To add a premium to TSLRIC for existing loops and biasing the decision in favour of investing in alternative infrastructure would imply that society incurred otherwise avoidable opportunity costs, duplicating the existing infrastructure. Therefore a price based on TSLRIC alone is appropriate for existing local copper loops.

With regard to new investments and upgrades along the line that Telstra are proposing, however, the option value argument seems to have merit. If the ACCC is not offering Telstra a premium on top of TSLRIC, real option theory would predict (in line with current behavior) that Telstra would postpone the FTTN investment in fibre until uncertainty about demand, investment costs, technology and regulation has been reduced. To the extent that consumers are willing to pay a price for new services that would be result of a FTTN network that exceeds TSLRIC, a welfare loss would be incurred.

So is the answer to allow Telstra to recover a real option premium?

If the FTTN investment is 1) irreversible, 2) involves uncertainty over future net revenues and 3) can be postponed; then the answer is yes: the regulated access price would need to include a premium on top of TSLRIC to compensate Telstra for the lost “wait and see” option.

If the FTTN investment is 1) reversible, 2) involve no uncertainty over future net revenues and 3) can not be postponed; then the answer is no: the regulated access price should not include a premium on top of TSLRIC.

For the FTTN investment the real option argument would appear to be strong. There is certainly uncertainty of demand, the investment will be sunk and it can be postponed as we have seen. Case closed – compensate Telstra for the the lost option value. Unfortunately, it is not that easy. There are a number of potential objections could be made to weaken Telstra’s case. For example:

  • In many cases it will not be possible for a firm to enter or compete effectively within a market unless it already has a presence in the market. Investing therefore, confers real options on a firm, rather than (or possibly in addition to) using them up.
  • By undertaking the FTTN investment Telstra may reduce uncertainty, providing it with valuable information about costs as well as demand for its product. So, while uncertainty will increase the value of waiting until further information has arrived, the opposite is true if investment by Telstra provides it with information that reduces uncertainty.
  • Waiting is associated with costs. Cash flows are foregone and other firms like the G9 may enter. These costs of waiting must be balanced against the benefits of waiting for new information, making it less clear that there is a net cost of extinguishing an option to wait.

All in all, the case for an option compensation is not an easy one to make. And not having a robust methodology to derive its value in a regulatory setting certainly doesn’t make matters easier. In this respect the holiday approach may be the preferred option.

Further reading:

For the Australian perspective on real options see the following submission by AAPT here.

Robert Pindyck (2005), Pricing Capital Under Mandatory Unbundling and Facilities Sharing, NBER Working Paper No. 11225. This paper resulted in part from a study commissioned by Verizon. The paper shows how pricing formulas used to set lease rates can be adjusted to account for the transfer of option value from incumbents to entrants, and estimates the average size of the adjustment for fixed local voice telecommunications in the U.S

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Denmark: Home Free August 29, 2006

Posted by Jasper in broadband, Mobile, VoIP.
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According to TeliaSonera they are the first in the world to introduce a voice solution that combines mobile communications and wireless broadband. TeliaSonera’s new voice solution, launched in Denmark yesterday, merges a mobile phone and voice over IP in one and the same telephone.

The new product is called Home Free. It is based on the UMA standard (Unlicensed Mobile Access), which enables a mobile phone to function as an IP phone at home through a wireless network (WiFi). The user can make calls at IP rates when at home and use the phone as a normal mobile phone outside the home.

The telephone has both a normal fixed network number and a mobile phone number, making it possible to reach the user with the fixed network number regardless of location.

A subscription incuding a maximum of 5 users in a family costs DKK 189 per month. For a couple the price is DKK 149 per month. On top of the the fixed monthly subscription fee, users pay for calls and a broadband connection. Calls are free between familiy users and to any fixed network number in Denmark. Currently, the only phone on offer is a Samsung P200 that costs DKK 499 when signing up for the Home Free service.

More on the solution can be found here [in Danish]

Google making life easier August 28, 2006

Posted by Jasper in Uncategorized.
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More than 10 years ago I did some empirical work on telecommunications penetration, investment and GDP growth in developing countries. It was all very simple and not particularly academic. One theme was showing the correlation between telephone density and GDP per capita and hence the potential role of telecommunications for economic growth. The rationale being that investment in telecoms (leading to increased penetration) would generate growth because interaction costs would be reduced, market boundaries expanded, information flows increased and so on.

Now, google are testing a tool that would have made my work back then much easier and more funky. The tool is from Gapminder and below is snapshot of one of the graphs.

You can access the tool here. Note that you can seemlessly scroll between different years.

China: Nearly 800m phone users August 28, 2006

Posted by Jasper in General, Mobile.
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[From Pacific Epoch]: China had over 798 million phone users at the end July 2006, Beijing Morning Post reports quoting statistics by the Ministry of Information Industry (MII). There were 366.5 million fixed-line phone users in China and 431.7 million mobile users at the end of the first half of 2006. China added 38.39 million mobile phone users in the first half of 2006. Mobile users sent 238.5 billion SMS during the first half of 2006, up 44.9 percent year-on-year.

Commentary: For every 100 people, that is 28 with a fixed line phone and 33 with a mobile. Not much, but the shear numbers are staggering. Also, adding 38 million mobile phone users in 6 months is an amazing number. It suggests the mobile providers are growing so fast, that China could be looking at half a billion mobile users by early 2007! No doubt China Mobile, the world’s largest mobile network operator (se previous post) will be grabbing most of these users, further entrenching its position on the market.

EU: Communications household survey August 26, 2006

Posted by Jasper in Uncategorized.
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A survey of European households was published Friday. It provides a comprehensive snapshot of the European communications market.

Key findings include:

  • 80% of households in the European Union have at least one mobile phone, compared with 78%  of homes with a fixed telephone line.
  • About 18% rely only on their cell phones, having no fixed line. That figure rises sharply in some EU nations —  48% of Lithuanians and 47%of Finns only have mobiles.
  • Across the EU25, 97% of households have some sort of phone.
  • When polling sensitivity to mobile substitution, one in four EU25 households said it would give up its landline if mobile phone charges
    were at the same level as for fixed telephony.
  • 52% of European homes have at least one computer, although there are wide differences among nations, from 83% in the Netherlands to just 33% in Greece.
  • 23% of EU households have high-speed broadband access, a figure that falls to 2%  in Greece and raises to 63% in the Netherlands. Broadband’s popularity grows with household size – only 12% of single households have it, compared with 34% of those with four members or more.
  • 60% of EU households do not have Internet at home. When interviewed about the reason, 43% reported a lack of interest in the Internet, and 27% said it was because they lacked a PC or any means of connection.
  • The most frequently purchased service package (bundle) is a combination of fixed telephony and Internet access.

An executive summary of the report is available here.

The full report is available here (7MB!)

HK: Hutchison earnings up August 25, 2006

Posted by Jasper in Mobile.
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In a previous post I quoted speculations that Hutchison 3G business might be at a turning point. No luck it would seem. Yesterday Hutchison Whampoa reported a doubling of its first half earnings, but this was lifted by a one-time gain from the sale of a stake in its ports business.

Hutchison said its 3G operations lost HK$11.99 billion in the first half before interest and taxes, down from a HK$20.02 billion loss a year earlier. The company said it does not expect its 3G operations to break even this year on an EBITDA accounting basis, despite an earlier pledge.

In Australia, Hutchison said Wednesday its first half net loss widened after it took a writedown as it switched off its CDMA network. However, revenue rose slightly. Its 3G customer base grew by 390,000 subscribers during the half, including 256,000 customers moved over from its CDMA network. It had a total of 1.044 million customers at the end of the reporting period, of which 88.3% were post-paid subscribers. An improvement in EBITDA is expected in the second half of the year.

In terms of the whole 3G Group Hutchison now expects its to break even during the first half of 2007.

Shares of Hutchison fell 1.9% to HK$72.50 in mid-afternoon Hong Kong trading.

Europe: No rush to roll-out FTTH August 24, 2006

Posted by Jasper in Uncategorized.
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[From telecommagazine]: With Japan sitting on top of the world’s FTTH (Fiber-to-the-Home) connections league, and the North American market beginning to pick up some momentum courtesy of Verizon’s push on IPTV and FTTH, Europe looks set to lag well behind in the coming years.

According to figures supplied by Ovum, Japan had 3.8 million FTTP (Fiber – to – the – Premise) connections for the consumer by the end of 2005. By contrast, Western Europe had 705,000 FTTP connections and North America 543,000. Ovum defines FTTP as including FTTH and FTTB (Fiber-to-the- Building) plus LAN.

By the end of 2009, Ovum calculates that of a total world FTTP subscriber base of 29 million (admittedly not a large number in itself), Japan will have a 32 percent share, North America a 22 percent share, China 16 percent, and Western Europe a meagre eight percent.

“The big question, leaving aside any concerns about regulatory uncertainty, is whether in fact operators in Europe really need FTTH at all,” says Jonathan Coham, an Ovum analyst. “The shorter copper loops [compared with the US] makes intermediary solutions, such as FTTN [Fibre-to-the- Node/Neighborhood] plus ADSL2+ or VDSL, very attractive as they give anything between 25-50 Mbps on the downlink. That should be more than enough for providing triple-play packages over the next five years or so.”

Jean-Pierre Lartigue, vice president of marketing at Alcatel’s access division, concurs that FTTH is not at the top of operators’ agenda in Europe. “We’re in deployment mode in the US but, in Europe, this year will be a time to assess the economic viability of FTTH. I would still expect to see some commercial FTTH rollouts by operators in Europe next year.”

Lartigue wouldn’t be drawn on naming names but his outlook may be optimistic, particularly if the EC continues its tough stance on incumbents by refusing them ‘regulatory holidays’. Deutsche Telekom has already announced that it has stalled its FTTN plus VDSL rollout plans in Germany until it can get regulatory assurances that it won’t have to wholesale access to its high-speed network at prices set by the regulator.

Assuming that incumbents do roll out FTTN plus VDSL, however, the reasons for doing so won’t necessarily be to increase speeds to the subscriber beyond ADSL2+ (a maximum of 24 Mbps). It will rather be to increase coverage of ADSL2+ performance.

According to Lartigue, only 20 percent of copper loops in Western Europe are short enough to get the maximum speeds that ADSL2+ can provide. As such, to gain wider coverage of ADSL2+ type speeds, it will be necessary to push fiber deeper into the network.

Telefónica, Spain’s incumbent telephone operator, fits into this strategic category. It’s the operator’s intention to start commercial rollout of VDSL2 — in combination with Fiber-to-the-Node — in Q3 2006. “We need to increase our high-speed broadband access coverage,” says Fernandez Vega, Telefónica’s access solutions manager. “Not only as a way to try and increase ARPU but as a defensive move against increased competition.”

Vega even suggests that VDSL technology is being over- hyped by suppliers, which makes it unlikely — at least in the short term — that Telefónica would be able to offer speeds higher than ADSL2+ even if it wanted to. “Vendors of VDSL solutions are making promises far in excess of what the equipment can actually deliver,” he says. “Instead of 100 Mbps or 50 Mbps, we’re seeing actual VDSL2 performance [in our trials] going as low as 25 Mbps.”

Of course, if High-Definition TV (HDTV) gains in popularity, then the economics of FTTH might make more sense. But Vega, for one, is cautious. “We can do an HDTV triple-play with ADSL2+, no doubt about it,” he says. “But with the introduction of new [and interactive] services, the need for more bandwidth becomes obvious.”

Ovum’s Coham adds: “The circumstances for FTTH in the US are a lot more favourable than in Europe. There are no local loop unbundling requirements, customers are willing to pay a lot for entertainment services, the loops are longer [making DSL technology less tenable] and there are no regulatory restrictions on aerial delivery of the fiber. This drastically reduces the cost of FTTH compared with digging holes in the ground.”

US: Background on FTTx regulation August 23, 2006

Posted by Jasper in Regulation.
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In a recent post I commented only briefly on the regulatory shift that has occured in the US wrt. the unbundling and mandating access. Below is some background information on that shift.

Regulation in the US is based on the 1996 Telecommunications Act (hereafter ‘the Act’). The aim of the Act is to open up all aspects of telecommunications in the US to competition and to enhance the deployment of advanced telecommunications services. The Act is designed with the long-term aim of gradually replacing industry regulation with market competition.

In August 1996, the Federal Communications Commission (FCC) published the first of three orders to give precise meaning to the Act. The first order – the Interconnect Order – requires the Incumbent Local Exchange Carriers (ILECs) to open their networks to enable competition in local services.

The Order takes as its starting point the philosophy that Competitive Local Exchange Carriers (CLECs) might want to enter the local services market in a variety of ways. For example, they may want to:

  • build their own facilities;
  • rent network elements (such as local loops) from the ILECs; and
  • resell the ILECs’ local services in combination with their own facilities based long-distance services.

The Order does not attempt to favour any one approach; the FCC argues that it is best for the market to decide. At this early stage, the FCC stressed the need for “stepping stones” to competition, i.e. a concept similar to that used in Europe called the “ladder of investment”.

The Order identifies a minimum set of five technically feasible points at which ILECs must offer interconnect. These points are:

  • the line side of a local exchange (for example, the MDF);
  • the network side of a local exchange;
  • the trunk interconnect points of a tandem switch;
  • local exchange cross-connect points; and
  • out-of-band signalling facilities such as signal transfer points.

Given these points of interconnect, it defines six sets of unbundled network elements (UNEs) that the ILECs must offer on a non-discriminatory basis at reasonable prices to CLEC.

However, more recently the US has taken a 180 degree turn. spurred in part by ILECs successfully arguing that they should be treated in a manner similar to cable TV providers (the leading providers of broadband services in the residential sector) who have no obligation to provide UNE from their networks.

As a result of two recent decisions – the Triennial Review Order of 2003 and the review of Section 251 unbundling obligations of 2004 – and findings from a court case on the Triennial Review Order, the FCC now rules that:

  • there is no requirement for an ILEC to supply unbundled elements from its FTTH or fibre to the curb (FTTC) facilities, in particular:
  • New builds. An ILEC is not required to provide non-discriminatory access to a FTTH loop or FTTC loop on an unbundled basis when the ILEC deploys such a loop to an end user’s customer premises that previously has not been served by any loop facility.
  • Overbuilds. An ILEC is not required to provide non-discriminatory access to a FTTH loop or a FTTC loop on an unbundled basis when the incumbent LEC has deployed such a loop parallel to, or in replacement of, an existing copper loop facility.
  • ILECs are no longer obliged to supply UNE platform offerings;
  • ILECS are not required to preserve existing rented local loops or offer rivals substitute products when they replace their copper loop access with fibre; and
  • there is a requirement for ILECs to supply rivals with access to all except the largest office blocks using DS1 or DS3 circuits. However, there is no requirement to offer dark fibre.

These rules are subject to 12-18 months transition periods to give the CLECs time to negotiate commercial terms or make alternative arrangements for supply. During this period, an ILEC is not obliged to supply new UNEs.

In the Triennial Review Order, the FCC emphasises that marketplace realities of robust broadband competition and increasing competition from intermodal sources eliminating unbundling requirements for broadband architectures serving the mass market. The outcome of the Triennial Review Order was therefore the limiting of unbundled access.

More generally, the Commission has endorsed facilities-based competition and only required unbundling where carriers genuinely are impaired without access to particular network elements. According to the FCC, its approach provides the right incentives for both incumbent and competitive LECs to invest rationally in the telecommunications market in the way that best allows for innovation and sustainable competition.

As noted by Commissioner Michael Powell:[8]

Deep fibre networks offer consumers a ‘triple play’ of voice, video and data services and an alternative to cable. By limiting the unbundling obligations of incumbents when they roll out deep fibre networks to residential consumers, we restore the marketplace incentives of carriers to invest in new networks.

However, the move has not been without controversy and there are clear opposing views. For example, Commissioner Michael Copps takes the opposite view:

I don’t believe competitive telecommunications have been faring very well under our watch and this particular proceeding strikes me as yet another in a series of prescriptions this Commission is willing to write to end competitive access to last mile facilities…

The loop represents the prized last mile of communications. Putting it beyond the reach of competitors can only entrench incumbents who already hold sway. Monopoly control of the last mile created all kinds of problems for basic telephone service in the last century, and now we seem bent on replicating that sad story for advanced services in the digital age….

It doesn’t take a compass to see what direction this is heading. With fewer and fewer loops available to competitors, more and more control will be wrestled away from consumers and placed with the entrenched owner of the last mile facility. By shutting off the last mile to competitors, the Commission is not ushering in a new era of broadband. It is returning to the failed and non-competitive policies of the past.

Germany: EC endorses access to DT VDSL network August 23, 2006

Posted by Jasper in broadband, NGN, Regulation.
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Not unsurprisingly the EC has in a letter sent (21 August) to the German telecom regulator Bundesnetzagentur (“BNetzA”), required Deutsche Telekom to provide access to its broadband infrastructure through bitstream access “without further delay.” However, the German cabinet has still approved a new telecommunications bill that, in principle, would protect VDSL from regulation. The bill is expected to pass parliament either later this year or early next. The EC, however, has clearly indicated that it will challenge the legislation. The following is an edited version of EC press release.

The EC endorses, with comments, the regulatory measure proposed by BNetzA that will give competitors access to Deutsche Telekom’s broadband infrastructure. The remedy proposed will allow competitors to purchase a high speed access link to the customer premises from Deutsche Telekom with transmission capacity for broadband data in both direction, thus enabling entrants to offer their own, value-added services to end users. The price for such bitstream access needs to be approved in advance by BNetzA. Bitstream access will also be required of Deutsche Telekom to its new VDSL infrastructure. In its letter the EC makes clear that this access obligation should apply when this new infrastructure is in place. The EC notes that at present, there is no indication of a lack of substitution between VDSL-based access and other bistream products, and recalls that a mere upgrade of an existing service (such as an offering with a higher bandwidth) is not considered in itself to lead to new products or services. In any event, a finding of non-substitutability of a particular product or service by BNetzA and consequently an exclusion of a certain product from the remedies imposed would require an amendment of the market analysis and the remedy in force and thus would need to be notified again to the Commission.

The EC also asks the German regulator to ensure that the remedy is applied without further delay, in line with EU law, and that final clarifications are made in the interest of legal certainty on the German broadband market.

The text of the letter sentby the EC the German regulator will be published on 25 August here

Denmark: Ready to drop fixed line phones August 22, 2006

Posted by Jasper in General, Mobile.
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A new poll from TNS Gallup for Sonofon shows that Danes are increasingly willing to completely drop their fixed line telephones in favour of mobiles. Fifty six percent responded that they would be willing to switch their fixed line service for mobiles if they knew that was cheaper or just as cheap as using a fixed line telephone. This represents an increase of almost 25% compared to the first opinion poll in June 2005. Willingness to change is even greater amongst the young. As many as 67% of 15-30 year-olds are ready to switch to mobiles instead of their fixed line telephones.

Note the important condtion: the 56% figure is based on mobile calling and usage being as cheap or cheaper than using a landline phone to do the same things. Would be interesting if the survey also considered interactions with broadband demand.

See Sonfon Media release here.

Gemany: Deutsche Telekom urged to seek deal on access to VDSL network August 18, 2006

Posted by Jasper in NGN, Regulation.
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[From Global Insight] Germany telecoms regulator Bundesnetzagentur has raised the stakes in the ongoing saga over Deutsche Telekom’s new VDSL network, urging the telco to seek an amicable deal with rivals in order to avoid intervention from regulators. In an interview with Financial Times Deutschland, Bundesnetzagentur president Matthias Kurth said that Deutsche Telekom cannot prove that the products on offer on the VDSL network constitute a new market—an argument that could have exempted the network from regulation. The regulator is torn between the threat of legal action from the European Union (EU) and the need to give Deutsche Telekom room to recoup the 3 billion euro (US$3.9 billion) that it is investing in the network.

Commentary: This move is similar to that of the French regulator earlier this week (see earlier post). In both cases it would appear that the EC has the upper hand.

This battle between incumbents, regualtors and entrants (which also is being played out in Australia, see another recent post), is classic.

On the one hand we have those that will argue the the pro-regulation view. That is, all loops that exibit bottleneck characteristics and are non-replicable, whether copper, fibre, or hybrids should be regulated as such. Most entrants will argue this view. Regulators will also favour this view, but may be reluctant to regulate if they can be convinced that the market (both infrastructure and services) is emerging or new (this is what Matthias Kurth is saying DT cannot prove).

Then there is the anti-regulation view: imposing regulation on the fibre loop will significantly increase investment risks and reduce and delay that investment. The incumbent will argue this view.

Prima facie, neither viewpoint is convincing. The anti-regulation viewpoint does not deal with the problem of foreclosure of competition, while the pro-regulation viewpoint does not explicitly address the issue of investment incentives. The attempt to bring all the parties together would appear to be an attempt to close the gap and solve the deadlock.

US: Court Backs FCC Ruling on FTTx Access August 17, 2006

Posted by Jasper in broadband, Regulation.
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[From Global Insight] The Court of Appeals for the District of Columbia Circuit has rejected a legal attempt by Earthlink to overturn Federal Communication Commission (FCC) rules that allow regional incumbent local exchange carriers (ILECs) to deploy FTTx without being required to share them with competitors. The court said that it was “permissible” for the FCC to free Baby Bells from the need to unbundle greenfield FTTx.

Commentary: The decsion is not surprising given the changes to regulations governing access rules in the US, where access to ILEC’s access networks now is through commercial negotiations rather than at mandated rates. So at least for the time being the ILEC argument, that applying unbundling regulations to FTTx would delay investment in this technology, has prevailed.

China: China Mobile is King August 17, 2006

Posted by Jasper in Mobile.
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[From Telecomweb] China Mobile Communications Corporation (China Mobile) has become the world’s biggest mobile carrier in terms of market capitalization, overtaking Vodafone by a healthy margin.

China Mobile’s market cap stood at $132.8 billion as of 15 August. At the same moment, Vodafone’s market cap was just $110.7 billion. Actually, China Mobile surpassed Vodafone on June 29, when its market cap hit $112.12 billion compared with $111.72 for Vodafone. For about a week, the two see-sawed between leadership, then China Mobile took off, leaving Vodafone’s value in the dust.

Read the full article here

Commentary: Amazingly, China Mobile has only been arround for half-dozen years and already has a subscriber base of 200 million (compared to 186 million for Vodafone). Seems to be yet another testiment to the unsurpassed growth China has been experiencing for the past fifteen years.

France: Consensus approach to fibre upgrade August 16, 2006

Posted by Jasper in broadband, Regulation.
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[From Global Insight] The French telecoms regulator ARCEP has given its strongest indication yet of how new investments in fibre-optic networks should be handled, in a report to the French Ministry of Finance, La Tribune newspaper reports. Prompted by the ministry, ARCEP suggested in the report that it was difficult to appreciate the long-term return on investment for a nationwide fibre-optic network that could require investments of tens of billions of euro over more than ten years. Specifically, the regulator said it was necessary for everyone to get involved, particularly with helping out on civil engineering works. To achieve its aim, ARCEP wants France Telecom to grant access to all operators on its existing fibre network, at a price that would enable it to amass enough resources to fund investment into a new fibre network.

Commentary: The French authorities appear to favour a consensus based approach to ensure the benefits of fibre investments can go ahead and be realised as quickly as possible. This may be wise move given the recent controversy between the German government and the EC over Deutsche Telecom’s new VDSL network and experiences from Australia where Telstra are unwilling to invest (see previous post).

HK: Share outlook for Hutchison August 15, 2006

Posted by Jasper in Mobile, NGN.
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[From cellular-news.com] Analysts are speculating whether this will be the year Hong Kong conglomerate Hutchison Whampoa finally gets a payoff on its $25 billion bet on 3G mobile-phone technology. Based on the scant value the markets assign Hutchison’s loss-making 3G operation, investors aren’t counting on it. But maybe there is some good news nevertheless.

Shares of Hutchison, which has ports, energy, property and retail interests, in addition to its telecom units, have fallen 2% this year to HK$72.35 (US$9.31) last Thursday. That means the stock (also trades as an ADR in New York under symbol HUWHY) is selling at a big discount to its net asset value, which Merrill Lynch estimates could be as high as HK$114.80. The discount is mainly due to the perceived drag on the company’s performance from 3G.

Merrill isn’t alone in seeing value. Mark Simpson, an analyst with Macquarie Securities (Asia), pegs Hutchison’s net asset value at HK$93 a share, which includes just HK$6 per share for its 3G operations in Britain, Italy and several smaller markets like Denmark. That’s in line with the low valuation skeptical fund managers gave Hutchison’s 3 Italia unit early this year; that was enough to force the parent to cancel the public offering of its Italian operator’s shares.

Hutchison is due to report first-half earnings on Aug. 24, and cash flows at the 3G businesses should look better now that networks have been built and costs to build 3G handsets have fallen, says Simpson.

Read the full article here