Fakultät für Betriebswirtschaft Munich School of Management Markets and Technologies in ICT Industries Lecture Slides 06 Prof. Dr. Nico Grove Institute for Information, Organization and Management Munich, winter term 2012/2013
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Agenda Introduction Technological Background ICT Markets Business Models of ICT Companies Regulation Final Exam 1
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Market regulation Introduction “Sector ¡specific“ ¡Regulation ¡defined The Regulatory Authority ¡„Bundesnetzagentur“ 2
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Many economical activities and business sectors are related to regulatory questions. Actual regulatory concerns Media Telecommunications Energy Youth protection Nationwide availability of Separation of network and … broadband access production Frequency management Capital cost treatment Financial Markets (Digitale Dividende) EEG Unbundling Subsidies for e-cars? Equity rules Open access and access European regulatory position Organization of supervision pricing worldwide? Management bonus limitation Technology neutrality … Landesbanken New EU regulatory framweork Fair-Value-Evaluation …. Basel ¡II, ¡Solvency….. Rating agencies Consumer Protection Health Corporate Governance, liability …. Liberalization of health care industry Gasmarkets Competition between health Transit Railway insurance companies Supplier change ::: Competition … 3
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Infrastructure based network industries is a major challenge for regulation. Network Industries Network industries (railway, gas, energy, post, water ) characterized by High infrastructure investments Low degree of competition Specificity of investments (sunk costs – e.g. gas pipeline can be used for other purposes than gas transport at prohibitively high costs only) High barriers for market exit Stability of natural monpolies (constitution high market entry barriers for new entrants) Market participants with (traditional) Investment in infrastructure secures high market share monopoly position and earnings, as potential Theory of the stability of natural monopolies market entrance is threat by price (contestable markets): competition (P = MC) Market can be entered by competitors, if Market entrance without costs Subadditivity and market irreversibility create Market exit without costs monopolistic structures 4
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Telecommunications law consist fundamental rules for regulating infrastructure based networks. Selected regulatory Instruments Access to networks and components Access and Interconnection Interconnection of networks (also between competitors) Access fees Tarifs Regulation Service fees (B2B and B2C market) ex-ante and ex post regulation Resale of DSL connection Line Sharing Unbundling Unbundled local loop Bitstream Access Equal treatment of all market participants Non-discriminatory Behavior Transparency Separate Accounting for internal and Separate Accounting external infrastructure and services 5
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Market size for electric power supply in Germany was 349 bn. € in 2010, prices are increasing from 2006 onwards. Sector I/V: Electric energy Electric Energy Market Germany Price Development * Companies with more € -cent/kWh than 20 employees 400 28 25,88 26 349 360 23,38 23,18 24 320 21,08 22 19,35 18,89 20 280 18 15,74 240 218 16 205 192 182 200 14 11,89 11,12 12 160 10 120 8 88 6 80 4 40 9 2 6 6,3 0 0 Revenues Investments Workers Private Business Industry (bn. € )* (bn. € )* (th.)* customers customers customers 2000 2006 2010 2006 2009 2011 Source: BNetzA (2012); DeStatis (2012) 6
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Market size for gas supply was 54 bn. € in 2010, fluctuating price level from 2006 on. Sector II/V: Gas Gas Market Germany Price Development * Companies with more € -cent/kWh than 20 employees 8 62 7,11 60 54 6,64 6,35 6,24 50 5,71 5,67 6 4,67 40 4,28 4,26 30 4 30 23 21 20 16 2 10 0,3 0,4 0,4 0 0 Revenues* Investments* Workers* Private Business Industry (bn. € ) (bn. € ) (th.) customers customers customers 2000 2006 2010 2006 2009 2011 Source: BNetzA (2012); DeStatis (2012) 7
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Market size for telecommunication services was 58,5 bn. in 2011. There have been strong decreasing prices from 1997 onwards. Sector III/V: Telecommunications Telecommunications Market Size Germany Price Development € -cent/min 240 35 221,8 30,7 204,6 30 200 176 25 160 20 18,4 120 15 12,3 80 63,9 58,4 10 44,2 40 5 1,5 7,2 7,1 6,0 0,9 0,9 1 0,5 0,6 0 0 Revenues Investments Workers after 21:00 after 18:00 daytime (bn. € ) (bn. € ) (th.) 1998 2007 2011 1.1.1997 1.1.2007 1.1.2008 Source: BNetzA (2012); BMWi (2009); DeStatis (2009) 8
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Market size for letter market (< 1.000g) was 9 bn. € in 2010. Prices slightly decreased. Sector IV/V: Post (Example: Letter market < 1.000 g) Post Market Size Germany Price Development Price Level in % 100 20,0 100 95 95 17,7 18,0 16,4 15 16,0 80 14,0 11,3 12,0 10,4 10,1 60 9,8 9,0 10,0 8,0 40 6,0 4,0 2,0 0,9 20 0,0 Revenues Letter volumes Competitor's 0 (bn.) (bn.) market share (%) Letter price DPAG 1998 2007 2010 1997 2007 2010 Source: BNetzA (2012); DeStatis (2009) 9
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Market size for national mass transport was around 3,7 bn. € in 2011, train-path charges were increasing from 2007. Sector V/V: Railway (Example: Long distance) LD-Railroad Market Size Germany Price Development Price level in % 40,0 120 111 36 35 106 34 35,0 100 100 30,0 80 25,0 20,0 60 15,0 40 10,0 3,7 3,6 3,4 5,0 20 < 1 < 1 < 1 0,0 0 Revenues Traffic Competitor's (bn. € ) (bn. pkm) share (%) train-path charges 2007 2009 2011 2007 2009 2011 Source: BNetzA (2012); DB AG (2011) 10
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Market regulation Introduction “Sector ¡specific“ ¡Regulation ¡defined The Regulatory Authority ¡„Bundesnetzagentur“ Outlook 11
INSTITUTE FOR INFORMATION, ORGANIZATION AND MANAGEMENT MARKETS & TECHNOLOGIES IN ICT INDUSTRIES PROF. DR. DRES. H.C. ARNOLD PICOT Why wand where is regulation required? Regulation Theory Science Governmental interventions concerning the individual The appearance of regulation has freedom of contract beyond rules that are obligatory for been dealt with by scholars from all economic actors (i.e. sector specific intervention) various disciplines Two types of regulation can be distinguished Three approaches have become popular in explaining this 1. Sector-specific regulation regarding public goods in that phenomenon: sector ¡(telecommunications;Ϳ ¡media;Ϳ ¡energy…) Public Interest Theory 2. Regulation aimed at enabling and securing competition Surveillance and control of companies with Capture Theory significant market power Economic Theory of Regulation Surveillance and control of (natural) monopolies Source: Kleindorfer/Pedell 2007 Sp. 1564 12
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