The FTTC Project of Deutsche Telekom Regulatory Holidays would boost VDSL Investments and 3play Market Development Ralph-Georg Woehrl Deutsche Telekom, Group Regulatory Strategy Berlin, 6 October 2006
Relevant Questions regarding the FTTC-Project What are the challenges and market problems with regard to the FTTC rollout? What is the rollout plan of Deutsche Telekom? Are FTTC/VDSL services new, so that regulatory holidays are justified? Page 1
The regulatory discussion of new and emerging markets Regulators are not taking a neutral stance on the new market concept, more rational and well-founded reasoning is needed � Liberalisation Liberalisation of teleco f telecommunica mmunication tion m markets in rkets in 1998 was 1998 was assisted by ex ante acce assisted by ex ante access regulation. The o ss regulation. The over all er all Investment problem vs. objective was allocative effici objective was allocative efficien ency of exist cy of existing n networks. tworks. allocation problem � Today existin Today existing acce access n ss networks reach th tworks reach their capaci eir capacity limits. ty limits. Access network operators face a h Access n twork operators face a huge fi ge fibr bre in e investm stment Technical progress problem problem to en to enable an able and en d enter n ter new m markets. rkets. abolishes bottlenecks � Technical prog Technical progre ress has has broug brought many p t many pathwa thways ys to to re reach ach the customers (T the cust ers (TV-cable, po V-cable, power werlin line, fibre, satellite, UMTS, e, fibre, satellite, UMTS, Regulatory failure Wi WiMAX etc.). Network assets MAX etc.). Network assets are no more economically are no more economically and market failure unreplicabl eplicable, so th , so the r e reason ason for for ex ante regulation is gone. ex ante regulation is gone. Regulatory holidays foster � Th The co e commitmen mmitment for regulatory forbearance will give the for regulatory forbearance will give the infrastructure competition righ right incen t incentives for alternativ ives for alternative n e netw twork in ork investm stment. Th . The f e fear ar of ne of new mo w monop nopolie lies is is not we not well-founde ll-founded. . The “hands off”-approach in the US sets the climate for more than 25 billion $ FTTX-Invest. Page 2
T-Home Speed VDSL/FTTC deployment is the most complex and innovative project of the fixed line unit of Deutsche Telekom since digitalisation � € 3 bn bn ca cape pex in FTT n FTTC networ network � Bandwidth of up to 50 Mbps Bandwidth of up to 50 Mbps Network expansion � 18,0 18,000 km of fibre cable 00 km of fibre cable � 74,000 new optical street cabin 74,000 new optical street cabinets ts � Television of th Television of the fu e future (IPTV) ture (IPTV) � Quality e Quality enhance nhancement (H t (HDT DTV) V) New products � Attractive content (Bundesli Attractive content (Bundesliga) ga) � Access to n Access to new costumers, Telcos w costumers, Telcos will develop interactive 3play will develop interactive 3play � e-Le Learning, -He arning, -Health, -G lth, -Government, -Pr nment, -Procure reme ment (I nt (Inf nformatio ormation S Socie ciety) y) New markets � 3- 3-Dime Dimens nsional T ional TV (ne (new de device vices, ne new art of c w art of communications mmunications) � Enablin Enabling of mass customization g of mass customization Page 3
T-Home Speed Extension of the Access Network Infrastructure Second Mile Last Mile Main Distribution Frame (MDF) Street Cabinet (Curb) Copper distribution cable new old OLT MDF Copper cable Copper distribution cable Fibre cable / FTTC � Fibre deployment � Replacement of � Sub loops are still parallel to existing street cabinets copper based and copper cable able to support very high bandwidths Page 4
T-Home Speed VDSL/FTTC Rollout Planning � Phase 1 - Phase 1 - Midyear 2006: idyear 2006: 50% of h 50% of househ eholds in olds in th the Top 10 cit e Top 10 cities es � Phase 2 - Phase 2 - 31.12.2006: 31.12.2006: 90% of h 90% of househ eholds in olds in th the Top 10 cit e Top 10 cities es � Phase 3 - Phase 3 - 31.12.2007: 31.12.2007: 90% of households in 50 cities 90% of households in 50 cities � Furth Further coverage de r coverage depe pends nds on marke on market de deve velop lopment ent Rollout planning is conditional on the regulatory parameters Page 5
Bandwidth demand Full HD Interactive TV, Videophony and 3D applications will be the drivers for access link speeds – multimedia services require VDSL Bandwidth driver Example scenario Family with two kids: � 2 TV channel HDTV* viewed 16 Mbps Full HD-IPTV requires 8 - Full HD-IPTV requ ires 8 - 17 Mbps 7 Mbps � 1 TV channel recorded (DVD) 2,5 Mbps � WWW 2,0 Mbps � Video telephony 2,5 Mbps � Intelligent Home 1,0 Mbps Videophony Videophony requires 2 - requires 2 - 5 Mbps Mbps Voiceon PSTN (symme (s mmetric) tric) Music Laptop / Desktop LAN TV Voiceover IP Gateway LAN 3D-Videos 3D-Videostreaming reaming requires 20 - equires 20 - 25 Mbps 25 Mbps LAN LAN Mobile/PDA Video Phone Gameconsole Seamless LAN channel switching needs 1,3 x normal bandwidth! Page 6
What is a new and/or an emerging service? New services must satisfy additional needs, emerging services are potentially new services The introduction of the mobile phone created a new market. What makes it new? Telephony - no Mobility - yes FTTC/VDSL services will also create new markets. What makes it new? Telephony - no Internet - no TV - no Interactivity - yes Bidirectional TV - yes integrated terminal for 3play - yes enhanced TV quality Page 7
Backup Page 8
New Market Concept of the EU-Framework Exemption from the regulation of new networks and new markets is already part of the current European Regulatory Framework EU-Framework � Framework directive (Art. 8 Ab Framework directive (Art. 8 Abs. 2 lit. c): s. 2 lit. c): Objective encouraging efficient investment in infrastructure, and promoting innovation � Market recommendation (Reci Market recommendation (Recital 15) : al 15) : Market new and emerging markets, in which market power may be found to exist definition because of “firstmover”advantages, should not in principle be subject to ex-ante regulation � Fram amework dir ework directiv ctive ( e (Recital 27 ecital 27): ): Intention guidelines will also address the issue of newly emerging markets, where de facto the market leader is likely to have a substantial market share but should not be subjected to inappropriate obligations � Guidelines on market analysis Guidelines on market analysis (no. 32) (no. 32): premature imposition of ex-ante regulation may unduly influence the competitive conditions taking shape within a new and emerging market. � Guidelines on market Guidelines on market analysis analysis (footnote 92): (footnote 92): Article 14(3) of the framework Directive is not intended to apply in relation to market power leveraged from a ‘regulated’ market into an emerging, ‘non-regulated’ market. In such cases, any abusive conduct in the ‘emerging’ market would normally be dealt with under Article 82 of the EC Treaty. Page 9
New Market Concept of the EU-Framework DIW-Operationalization: To ensure optimal incentives to innovate and invest in new networks NRAs must credibly be committed not to regulate new infrastructure and services for a fixed period of time! No regu No regulation of n lation of newly wly No regulation of n No regu lation of new markets w markets SMP-Regulation if SMP-Regulation if emerging markets emerging markets necessary necessary (new services) (new services) (new infr (new in frastr astruc uctu tures) s) t 3 t 1 t 2 This concept reduces the barriers to innovate and therefore it creates economic incentives to invest in competing new infrastructures – not only for the incumbent but for the competitors as well! Competition in Competition inten tensity th ity throu rough altern h alternative in ative infr frastructu astructures res Sources: Baake, Kamecke, Wey (2005) „New Markets under the new Framework“, published as DIW Policy Consultancy compact No. 6 P.Baake, U.Kamecke (2006), New Networks, Competition and Regulation, DIW Discussion Paper 568, http://www.diw.de/deutsch/produkte/publikationen/diskussionspapiere/aktuell/index.jsp Page 10
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