Seite 1

1
Wholesale Line Rental -An Austrian Regulatory
Perspective

• Jan Weber
• RTR GmbH, Legal Dept.
• Disclaimer
• All views expressed are those of the author and
  do not in any way engage the Austrian Regulatory
  Authorities for Broadcasting and
  Telecommunications(Telecom-Control-Commission,
  KommAustria, RTR).

2
Contents

• Introduction Definition, Features
• Costing Issues Monthly Rental, Upfront payment,
  Margin Squeeze
• Technical Issues Carrier Preselection, CDRs
• International Comparison DK, D, NOR, UK, IRL, AT
• Conclusions

3
IntroductionDefinitionFeatures
4
Definition of Wholesale Line Rental bundle of
services which an incumbent fixed network
operator offers to his retail subscribers in
connection with access to his voice telephony
network covered by subscribers payment of a
monthly line rental and which is made available
to alternative communication service providers on
a wholesale basis
5

• Standard Situation Subscription with incumbents
  retail arm
• access and calls services provided by
  incumbents wholesale arm to incumbents retail
  arm
• all retail activities supplied by incumbents
  retail arm

6

• Rebilling
• access and calls services provided by incumbent
  to service provider
• all retail activities supplied by service
  provider (e.g. customer care, billing, invoicing,
  debt collection)

7

• Wholesale Line Rental (WLR)
• access line and all ancilliary services are made
  available by incumbent to WLR provider
• calls services are provided by WLR provider via
  CPS

8

• Features
• POTS or ISDN access to voice telephony service
• access to service numbers within incumbents own
  network or alternative networks (e.g. to
  emergency services, to toll-free lines or to
  premium-rate services)
• installation and transfer of access lines
• availability of incoming calls,
• use of the access line telephone number
• fault-repair
• temporary call-barring and release,
• geographical number portability
• additional line features (e.g. call forwarding,
  caller display, call waiting,3-party conference
  call, CLIP calling line identity presentation,
  CLIR calling line identity restriction, call
  waiting with call hold or selective call
  barring).

9

• Ratio
• customers are given a greater choice in voice
  telephony services (more than one access provider
  specially in remote areas, single bill)
• creation of new tariff packages by WLR providers
  e.g. by bundling of services
• former CPS operators get customer ownership
  can create own brands
• more specialised customer care and innovative
  marketing and distribution activities by WLR
  providers
• intensification of cost-effciency at retail
  level
• additional market demand for services in case
  WLR providers manage to offer tailor-made service
  models which are better adapted to customer needs
• decrease of market entry barriers at
  infrastructure level due to long-duration
  contracts for capacity between network operators
  and WLR providers

10
Legal basis Operators may be required inter alia
to provide specified services on a wholesale
basis for resale by third parties (Art. 12 (1) d
Access Directive)
11
Costing IssuesMonthly Line Rental- Costing
Standards- Discount Calculation
12

• Monthly rental
• Its all about calculation of the wholesale
  discount!
• 3 principal questions
• Which costing standard should be applied for
  calculation of the discount ?
• Which retail tariff should be identified as
  starting point for discount deduction ?
• Which amount/percentage should be admissible for
  the discount ?

13

• Monthly Rental Costing Standards
• ECPR (retail minus)
• deduction of avoidable costs (billing, call
  center, objections, debt collection, interest
  risks, bad debts, marketing, administrative
  costs) from retail price
• includes access network inefficiencies
• FL-LRAIC
• forward-looking long run incremental cost of
  infrastructure elements used for a wholesale
  service (IC, LLU)
• Lower wholesale price due to lower risk by
  weighted average cost of capital
• higher margin for infrastructure providers
• Result
• WLR provider incurs lower risk (no sunk cost)
  than infrastructure provider
• ?FL-LRAIC not appropriate (investment
  incentives), retail minus preferable

14

• Monthly Rental Discount Calculation (1)
• Costing rules for incumbents retail tariffs
• no cross-subsidization between access network
  (line rental) and core network (call charges)
• in case incumbent offers different tariff
  options cross-subsidisation admissible within
  different line rental charges and within
  different call charges
• reason price differentiation ? tariff options
  best suited to fit customers communication
  profiles (bundles of access call charges, in
  total cost-oriented)
• arbitrage (e.g. combination of lowest access and
  call charge) should be excluded to ensure
  cost-orientation and to avoid uniform access and
  call charges

15
Monthly Rental Discount Calculation (2)
16

• Monthly Rental Discount Calculation (3)
• WLR scenarios
• bundled resale combination of access and
  calls services for each individual tariff option
  WLR providers largely bound to incumbents tariff
  structure, introduction of innovative tariff
  packages unlikely ?
• WLR for each individual tariff option (access)
  combined with CPS (calls)
• dissolution of access and calls bundle of
  incumbents tariff options ? arbitrage WLR
  provider will always choose tariff option with
  lowest access charge while obtaining calls at
  FL-LRAIC prices
• Result incumbent will no longer be able to
  maintain original tariff structure with range of
  different tariff options ? high probabilitiy for
  inxcumbent to introduce of uniform access and
  call charges ? loss of price differentiation
  ?
• Exit strategy CbC/CPS exclusion for WLR
  providers subscriber

17

• Monthly Rental Discount Calculation (4)
• WLR scenarios (contd)
• WLR for a weighted average value of all retail
  access charges (access) combined with CPS
  (calls)
• calculation of the wholesale discount departs
  from average value of all retail access charges
• , WLR provider procures wholesale access at same
  conditions offered to incumbents retail segment
  and can provide calls via CbC/CPS
• cost-neutral scenario total of access charges
  in all available retail tariff options must cover
  total cost of incumbents access network AND
  average total of proceeds equals average cost ?
  WLR wont lead to access deficit regarding costs
  of the access network
• Option tariffs could thus be maintained WLR
  providers would have an incentive for own
  innovative price differentiation models ?

18

• Monthly Rental Discount Calculation (5)
• provision of access services at wholesale level
  (production) and retail level (distribution) in
  case of WLR, all costs related to retail
  distribution activities will be incurred by WLR
  provider
• retail-minus retail costs ? avoidable costs ?
  to be deducted from incumbents retail price
• BUT voice telephony services are usually
  provided as access and calls bundle ? respective
  distribution costs are common costs of both parts
  of the bundle and have to be allocated according
  to cost-causation
• non-deductible costs include e.g. costs for
  physical network elements, corresponding
  technical support, line card costs, costs for
  accountancy, HR, legal service, purchasing and
  facility management (common costs)
• deductible costs include costs for product
  mgmt., marketing/distribution, customer care,
  retail billing, billing information, debt
  collection, costs for processing orders, costs
  for delivery and postage

19
Costing IssuesImplementation costs- System
Modifications for WLR- Reimbursement Issues
20
Implementation Costs System Modifications for
WLR (1)
21

• Implementation Costs System Modifications for
  WLR (2)
• currently, incumbents network elements and
  switching systems (eg. call control, trunk
  tickets, billing mediation) as well as IT and
  support systems (interfaces for CDR transmission,
  processes and OSS/BSS systems) focus on retail
  customers
• many access functionalities implemented at local
  exchange level ? must be adapted to needs of
  wholesale partners
• ? implementation of a resale criterion at local
  exchange level and in OSS/BSS systems individual
  configuration for specific functionalities
  regarding subscriber/subscriber number within
  ordering, provisioning and billing systems and
  systems which account for digital access line
  features
• ? availability of different sets of access line
  features specified by the individual WLR provider
  will allow product differentiation between
  incumbent and WLR providers and also among
  various WLR providers

22

• Implementation Costs Reimbursement Issues
• incumbents additional costs for WLR
  implementation must be covered
• NRAs might consider whether a substantial part
  of the implementation costs should have to be
  borne by the incumbent due to considerations of
  competition policy (non-discriminatory
  availability of wholesale access service to WLR
  providers like to incumbents own retail arm)
• amount of WLR providers contribution to
  implementation costs shall (somehow) related to
  (forecasted) number of WLR access lines
• implementation cost can be split up in upfront
  payment (e.g. 50) and markup on wholesale
  one-off charge for line transferral

23
Costing IssuesMargin Squeeze
24

• Margin Squeeze Issues (1)
• Wholesale monthly rental may create margin
  squeeze for WLR provider
• due to incumbents option tariffs, margin
  between incumbents most attractive retail line
  rental and WLR providers retail line rental can
  be rather small (specially if WLR provider has a
  focus on residential retail customers)
• might be avoided by cross-subsidization within
  innovative retail tariffs to be created by WLR
  provider

25

• Margin Squeeze Issues (2)
• Implementation costs can create margin squeeze
  for WLR provider
• the contribution to implementation costs and
  respective costs of capital will generally be
  apportioned by a WLR provider per retail
  subscriber
• WLR providers can choose whether to increase the
  amount of the monthly rental or the one-off
  charge for line transferral
• ? higher costs for WLR provider when offering a
  retail service
• however, one-off payments for line transferral
  are considered as customary by consumers when
  changing to a new operator

26
Technical IssuesCall Detail Records
27
Call Detail Records (1)
28

• Call Detail Records (2)
• according to interconnection rules for
  carrier-preselection, calls to premium-rate
  service numbers operated within other telephone
  networks are routed exclusively via the
  incumbents network
• call detail records must be made available by
  the incumbent to the WLR provider in order to
  enable the WLR provider to bill his retail
  customer
• in AT, incumbent will deliver CDRs at a fixed
  charge per CDR to WLR provider
• CDR format WLR providers dont want a proper
  CDR format to be created incumbent wants to
  avoid need for WLR providers to adapt their
  billing routines in case of CDR modifications by
  incumbent ? a proper format is necessary
• provision of CDRs CDRs for invoicing the WLR
  subscriber provided by incumbent according to own
  retail billing cycles (2 months) in addition,
  CDRs will be provided after a fixed period of
  time from generation at the local exchange

29
International Comparison
30

• Denmark
• Spring 2000 NITA Decision to oblige TeleDanmark
  to provide resale of landline services based on
  non-discrimination
• Nov. 2000 TeleDanmark Standard Offer on Resale
  of Landline Services
• Discount 21
• CDRs made available by incumbent Überlassung von
  CDRs gg. Entgelt
• Obligation to be reviewed following market
  analyses

31

• Germany
• March 2001 RegTP decision to oblige DTAG to
  submit resale offer based on non-discrimination,
  confirmed by High Administrative District Court
  and Federal District Court
• June 2002 DTAG submits bundled resale offer
• July 2003 further RegTP decision to oblige DTAG
  to submit unbundled resale offer based on
  non-discrimination
• June 2004 entry-into-force of New Telecom Act
  bundled resale admissible prior to June 30, 2008
  (sect. 150 para 5)

32

• Norway
• Oct. 2001 NPT decision to oblige Telenor to
  offer resale of subscription to CPS operators due
  to non-discrimination (later repealed by Ministry
  due to lack of legal basis)
• discount 21
• resale of subscription now voluntarily offered
  by Telenor based on a commercially negotiated
  offer

33

• United Kingdom
• June 2002 OFTEL concludes its consultation
  Protecting consumers by promoting competition
  by stating that BT should offer WLR on a
  non-discriminatory basis and announces removal of
  retail price-caps within 5 months from
  availability of a commercially viable WLR
  product establishment of joint working groups
• Sept. 2002 BT launches WLR product
• Nov. 2002 OFTEL consultation on WLR
  implementation details
• March 2003 OFTEL statement requiring changes in
  BTs WLR product specification
• mid 2003 following market reviews, OFTEL/OFCOM
  decides to impose an obligation on BT to provide
  WLR products for analogue, ISDN-2 and ISDN-30
  lines

34

• Ireland
• July 2002 ODTR (now ComReg) consultation on
  CPS in Ireland Eircom mandated to submit
  proposal on WLR and single billing until Sept.
  2002 and to technically implement SB-WLR until
  Jan. 2003
• Feb. 20, 2004 after further discussions within
  a respective industry working group, further
  ComReg decision notice which directs Eircom to
  launch SB-WLR by Apr. 1, 2004
• Discount (retail minus) 10, to be applied
  until Sept. 30, 2005

35

• Austria
• May 2002 proceedings before Telecom Control
  Commission to oblige Telekom Austria to submit
  WLR proposal due to non-discrimination
• Oct. 2002 submission of first WLR proposal
• May 2003 new proceedings before Telecom Control
  Commission to oblige Telekom Austria to submit
  WLR proposal with non-discriminatory conditions
• Dec. 2003 submission of revised WLR proposal,
  then withdrawal
• May 2004 re-submission of revised WLR proposal
• since then proceedings ongoing, proposal not
  yet accepted by a WLR provider

36

• Conclusions (1)
• WLR introduction can significantly contribute to
  increase local competition by enabling consumers
  in remote areas to choose another access network
  provider.
• WLR providers will be able to create innovative
  access and calls bundles and can thus better
  compete with bundles offered by incumbent
  operators.
• A retail-minus calculation of the wholesale
  discount on the line rental should depart from
  incumbents average retail access charge and
  deduct avoidable costs attributable to retail
  services which are no longer provided to retail
  customers. NRAs will have to take into account
  sufficient incentives for infrastructure
  investment.

37

• Conclusions (2)
• Costs for modifications in incumbents switching
  and IT support systems to be incurred for WLR
  implementation will have to be reimbursed by WLR
  providers. NRAs might consider whether to
  allocate those costs to all operators who are
  using the wholesale service in a real or
  fictitious way (including the incumbent).
• In general, an obligation to provide CPS should
  be reserved to providers with SMP on a market for
  access to voice telephony services at a fixed
  location (see Art. 19 UD). However, a CbC or CPS
  availability to WLR subscribers might also depend
  on the basis used for calculating the wholesale
  discount in order to maintain price
  differentiation within incumbents retail
  tariffs. Network modifications in order to ensure
  an exclusion of CbC/CPS availability to WLR
  subscribers may lead to a further increase in
  implementation costs.

38

• Conclusions (3)
• In case further market reviews show evidence of
  increased competition in voice telephony access
  markets due to the availability of WLR, a removal
  of retail price controls currently imposed in
  most EC Member States on incumbent voice
  telephony network operators might be considered.

39
Thanks for your attention ! Any questions
? jan.weber_at_rtr.at