Mobile Broadband A Substitute For Fixed?

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Mobile Broadband –

A Substitute For Fixed?

Wolfgang Feiel

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Yes

…

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16.04.2010 25th ANACOM Seminar: Mobile Broadband - A Substitute For Fixed? page 3

1) (Draft) market definition: reliable data necessary

 EC: Market for wholesale broadband access, but no retail market

 RTR: Observation of retail market may give information for situation/competition on wholesale market

 Various sources for data

 Market data from 2009, according to „KEV“

 Market research by reputable institution (IFES): 3000 retail customers, 1000 undertakings (SME); usage of internet access, (potential) substitutions

 ULL-data: quarterly reports by incumbent

 MNOs are investing in higher bandwith: HSPA+, LTE; connection to base-stations

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16.04.2010 25th ANACOM Seminar: Mobile Broadband - A Substitute For Fixed? page 5 Text 0 200.000 400.000 600.000 800.000 1.000.000 1.200.000 1. Q u. 2 002 2. Q u. 2 002 3. Q u. 2 002 4. Q u. 2 002 1. Q u. 2 003 2. Q u. 2 003 3. Q u. 2 003 4. Q u. 2 003 1. Q u. 2 004 2. Q u. 2 004 3. Q u. 2 004 4. Q u. 2 004 1. Q u. 2 005 2. Q u. 2 005 3. Q u. 2 005 4. Q u. 2 005 1. Q u. 2 006 2. Q u. 2 006 3. Q u. 2 006 4. Q u. 2 006 1. Q u. 2 007 2. Q u. 2 007 3. Q u. 2 007 4. Q u. 2 007 1. Q u. 2 008 2. Q u. 2 008 3. Q u. 2 008 4. Q u. 2 008 1. Q u. 2 009

DSL-Anschlüsse TA Bitstream im Netz der TA Entbündelte Leitung Koaxialkabel

Funk Sonstige mobiles Breitband

incumbent ULL Bitstreaming other CATV FWA

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Developments

 Strong growth of mobile BB (contracts with ≥ 250MB/month)  Leads to stagnation/ decline of DSL/CATV

 Only after significant price decrease, fixed connections are

growing again

 Margin for alternative operators became smaller -> decline in bitstream, ULL stagnating 0 200.000 400.000 600.000 800.000 1.000.000 1.200.000 1. Q u. 2 002 2. Q u. 2 002 3. Q u. 2 002 4. Q u. 2 002 1. Q u. 2 003 2. Q u. 2 003 3. Q u. 2 003 4. Q u. 2 003 1. Q u. 2 004 2. Q u. 2 004 3. Q u. 2 004 4. Q u. 2 004 1. Q u. 2 005 2. Q u. 2 005 3. Q u. 2 005 4. Q u. 2 005 1. Q u. 2 006 2. Q u. 2 006 3. Q u. 2 006 4. Q u. 2 006 1. Q u. 2 007 2. Q u. 2 007 3. Q u. 2 007 4. Q u. 2 007 1. Q u. 2 008 2. Q u. 2 008 3. Q u. 2 008 4. Q u. 2 008 1. Q u. 2 009

DSL-Anschlüsse TA Bitstream im Netz der TA Entbündelte Leitung Koaxialkabel

Funk Sonstige mobiles Breitband

CATV ULL mobile Bitstreaming TA other DSL TA FWA

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Coverage of technologies

 Mobile (HSPA) has high (and growing) coverage DSL TA (>95%) 100% Hutchison 3G (>90%) Mobilkom (<90%) T-Mobile (75-80%) Orange (ca. 70%)

ULL (alle Betreiber) (ca. 60-65%)

CATV (alle Betreiber) (ca. 50%)

50%

mobile LLU (all operators)

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Broadband access in Austria by technologies, End of March 2009; residential DSL leading (41%) But mobile already 38%, growing rapidly CATV 20% DSL-Anschlüsse TA 30% DSL-Bitstream im Netz der TA 2% DSL über entbündelte Leitung 9% Koaxialkabel 20% mobiles Breitband 38% Funk 1% Sonstige <1% mobile broadband DSL incumbent 30% Other < 1% FWA CATV 20% DSL-Bitstream 2% DSL – unbundling 9%

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2) Instrument for market definition: HM-test

 According to SMP-guidelines (2002)

 „SSNIP“ - small but significant non transitory increase in price

 Increase of price by 5-10%

 If the higher price may be maintained: no restraints for the hypothetic monopolist

 If the higher price may not be maintained: obviously further products (or services) to restrain the hypothetic monopolist  product (service) is part of the relevant market

 How to operate the HM-Test?

 Reasoned opinion (theory)

 Empiric data for demand side

 Determining the extent of substitutional behaviour of customers by elasticity of demand – change rate of demanded quantity in relation to change of price

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Access residential customers 2006 and 2009 (2009, n=1897) • 75% of mobile connections are used “mobile only” • 25% com-plementary to a fixed connection 4,5% _3,9% 44,8% 29,1% 5,9% 0,9% 24,8% 34,9% _32,6% 27,0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

ADSL CATV mobiles Breitband Analoges

Schmalband-Internet

Andere

2006 2009

mobile

broadband _narrowbandAnalogue

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16.04.2010 25th ANACOM Seminar: Mobile Broadband - A Substitute For Fixed? page 11 HM-test: „Price for ADSL increases by 10%, prices for other access technolo-gies remain. What will you do within one year?“

Ich behalte diesen Internetzugang 52% Kabel-Breitband-Anschluss 6% Mobiles Breitband über Datenkarte oder USB-Modem 8% Anderer 1%

Keine Angabe, weiß nicht

10% Ich gebe diesen

Internetzugang auf 3%

Keine Angabe, weiß nicht

9%

Hole Angebote ein, bin mir nicht sicher

11% Ich wechsle zu einem anderen Internetzugang 25% I keep that internet-access 52%

No answer; I do not know

I am not sure; looking for different offers

I am changing type of access 25% I am terminatig this access Cable broadband 6% Other 1% No answer, I do not know 10% Mobile Broadband 8%

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„Is mobile broadband a good substitute for the former used fixed access?“ (residential customers) 70,6 8,5 3,5 3,8 13,5 0 10 20 30 40 50 60 70 80 ja in , ic h p la n e ie d e r e in e n fe s te n rn e ta n s c h lu s s n z u s c h a ff e n in , ic h p la n e s ä tz li c h e in e n fe s te n rn e ta n s c h lu s s n z u s c h a ff e n n e in , a b e r c h s e l is t n ic h t m ö g li c h n ic h t, K e in e A n g a b e % yes _{I do not} know; no answer No, I am going to use fixed access again No, I am going to use fixed access in addition No, but I can not change

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16.04.2010 25th ANACOM Seminar: Mobile Broadband - A Substitute For Fixed? page 13 Regular use of broadband access, residential customers, at least once a week, n=1797 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% E -M a ils S u rf e n D o w n lo a d s O n lin e G a m e s In te rn e tt e le fo n ie O n lin e S h o p p in g O n lin e B a n k in g O n lin e C o m m u n it ie s T e le w o rk in g

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Mobile/CATV/DSL: substitution (residential customers)

 Based on stated preferences (“What would you do if the price for DSL-connections increased by 10% …?”)

 High own-price elasticity of DSL (-1.8 to -2.8; critical elasticity: -1.1 to -1.4)

 Best substitute: mobile, but CATV better in areas with CATV-availability

Include CATV

 Repeat test for DSL and CATV -> Elasticity still high (-1.5 to -2.5), mobile best substitute

Include mobile

 Also past switching behaviour shows that many consumers switched from DSL/CATV/narrowband to mobile

 >70% of users which switched from fixed to mobile broadband are satisfied with their connection.

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3) Market definition retail: focus on DSL

 Incumbent offers mainly DSL-access (retail)

 Incumbent has to offer DSL-wholesale access (bitstreaming)

 RTR is to find out: “Are all DSL-Products part of the same market?”

 Bandwith, Overbooking, symmetric/asymmetric

 Business customers/retail customers

 Experience, reputation, bundled services (VNP, voice, mobile, leased lines), repair & maintenance

 Products for business customers have special features: static IP-addresses, bigger webspace, enhanced virus-protection, QoS, less overbooking  higher difference in price to retail products

 Even one-person-companies spend 60-90% more money for internet-access than retail customers

 Only 13% of businesses have a residential product

 Conclusion: Different retail markets for business customers and residential customers (no sufficient demand side substitution)

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4) Wholesale market for business customers only

 DSL only

 Mobile broadband, CATV: no substitution

 Nationwide

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Three criteria test for wholesale market

 Entry barriers

 High entry barriers due to economies of scale, sunk costs and reputation effects

First criterion fulfilled

 No tendency towards effective competition

 Market share of Telekom Austria: ~75%, slightly decreasing

 external provision decreases stronger than internal provision increases

 LLU (60-65% coverage) as only parallel infrastructure

Second criterion fulfilled

 No sufficiency of competition law

 Access regulation likely to be necessary -> extensive compliance requirements, frequent and/or timely intervention likely

Third criterion fulfilled

The wholesale broadband access market for business customers is a relevant market in the sense of the Recommendation

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5) Commission had „serious doubts“

 Market definition at retail level:

 „RTR should have analysed for instance whether all three types of broadband connections can be used for applications such as the

download of music or films and whether they provide sufficiently secure connections allowing customers to use any of the connections for internet banking and other applications requiring a protected connection …“

 „Also, RTR does not make reference to the role that double, triple or quadruple play offers already have in the retail market for residential customers.“

 Market definition at wholesale level:

 „Exclusion of self-supplied bitstream for the subsequent use of residential customers from the relevant wholesale market“

 „Inclusion of externally provided bitstream for the subsequent use of residential customers in the relevant wholesale market“

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6) The way to convince the Commission: IRG Expert Group

 Opinion of the IRG Expert Group (Nov. 2009): Retail market

 Market situation in Austria makes the particular case of mobile broadband in Austria particularly interesting

 Significant amount of Austrian households view mobile and fixed

broadband as substitutes as opposed to the more normally accepted complementary use seen in other Member States.

 RTR has sufficiently shown that

 Austrian consumers use mobile broadband connections in an almost identical manner that they use fixed ones;

 broadband connections are secure and are used for internet banking;

 contract terms and the ability of consumers to move their connections with them from address to address would not change this picture;

 bundling is not a particular feature of the Austrian market that would inhibit switching.

 However, situation should be monitored: a move towards more bundled offers may change the analysis.

 the Expert Group is “happy” with the extra evidence brought forward by performed SSNIP test since it supports the trends observed in actual market outcomes

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The way to convince the Commission (II)

 Providing additional data on short hand

 Telephone conferences

 Commission has withdrawn its serious doubts

 „Fixed and mobile broadband are normally not part of the same market“

 But the situation in Austria is specific

 Remarks by the Commission

 Close observation of the markets necessary

 Considering FTTH

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