Authority for Info-communications Technology Industry of Brunei Darussalam

Transcription

1 Authority for Info-communications Technology Industry of Brunei Darussalam CONSULTATION PAPER ISSUED BY THE AUTHORITY FOR INFO- COMMUNICATIONS TECHNOLOGY INDUSTRY OF BRUNEI DARUSSALAM Tariff Regulation Framework for Telecommunications and Broadcasting Sectors in Brunei Darussalam 30 September 2013 Page 1 of 68

2 Table of Contents 1 Introduction Background of the Tariff Regulation Framework The Tariff Regulation Framework under the Draft Competition Code Approach to the Tariff Regulation Framework Retail Services that may be subject to Ex Ante Regulation Retail Domestic Fixed Line Voice Services Retail Domestic Mobile Voice Services Retail International Voice Services Retail Managed Network Services Retail Domestic Leased Lines Retail Mobile Broadband Retail Fixed Broadband Retail Broadcasting Services Wholesale Services that may be Subject to Ex Ante Regulation Interconnection Wholesale Leased Lines Wholesale Local Loop Unbundled Access Wholesale Access to the FTTH Infrastructure Sharing / Duct / Network Co-location Service Wholesale Broadcast Signal Distribution Summary of ex ante measures Tariff Filing and Review Circumstances for Tariff Filing Information to be Included in Tariff Filing by Market Players Information to be Included in Tariff Filing by a Market Player with SMP Tariff Review Process Invitation to Comment Submissions Consultations Page 2 of 68

3 Appendix A Tariff Regulation Methodologies Appendix B Telecommunication Prices in Brunei Appendix C Broadcasting Services Page 3 of 68

4 Glossary 1 TERM 2 DEFINITION ADSL AITI B-Mobile CPP DST DSTCom DTT Ex ante Ex post FDC FTTH GPS HSBB IDD InTi licenses IPTV LLU Mbps MItA MPLS OECD OTT RPP SeTi licenses SKA SMP SMS STD TelBru TV VoIP VPN VSAT Asymmetric Digital Subscriber Line Authority for Info-communications Technology Industry of Brunei Darussalam B-Mobile Communications Sdn Bhd Calling Party (only) Pays Datastream Technology Sdn Bhd DST Communications Sdn Bhd Digital Terrestrial Television This means before the event. In relation to regulation under the Competition Code (currently in draft stage), this means that any law or regulation imposed to deter or prevent certain conduct from happening. This means after the event. In relation to regulation under the Competition Code (currently in draft stage), this means that any law or regulation imposed after certain conduct has occurred. Fully Distributed Cost Fibre to the Home Global Positioning System High Speed Broadband over fibre optic cable to deliver telephone and broadband services International Direct Dialling An InTi licensee owns and provides infrastructure, systems, networks, facilities and other equipment (excluding customer premises equipment [CPE]) for the purposes of enabling telecommunication services Internet Protocol Television Local Loop Unbundling Megabits per second Model Interconnection Agreement Multiprotocol Label Switching Organisation for Economic Cooperation and Development Over the Top providers Receiving Party Pays (as well) (RPP) A SeTi licensee does not own its own infrastructure outside of its own premises, but uses the infrastructure provided by InTi licensees Sender Keeps All Significant Market Power Short Message Service Subscriber Trunk Dialling Telekom Brunei Bhd Television Voice over Internet Protocol Virtual Private Network Very Small Aperture Terminal Page 4 of 68

5 Consultation on a Tariff Regulation Framework for Telecommunications and Broadcasting Sectors in Brunei Darussalam 1 Introduction The aim of this Consultation Paper is to seek views from the public as well as the telecommunications and broadcasting sectors on the proposed Tariff Regulation Framework to be adopted by the Authority for Info-communications Technology Industry of Brunei Darussalam ( AITI ) for the telecommunications and broadcasting sectors. In line with the objective of ensuring efficient, effective and co-ordinated regulation of a converging communications sector, it is the intention of AITI to adopt a tariff regulation regime that ensures affordable costs to communicate for the Brunei consumer, promotes the competitive provision of info-communications services to the Brunei consumer, provides regulatory certainty and is consistent with the policy of light regulation that is pursued by the AITI. This Consultation Paper provides an opportunity for stakeholders to provide their feedback and partake in the process of Brunei Darussalam s Tariff Regulation Framework for Telecommunications and Broadcasting Sectors. The document structure is as follows: Chapter 2 gives a background to the Tariff Regulation Framework Chapter 3 links tariff regulation to the draft Competition Code which will be the overarching document for the Tariff Regulation Framework. Chapter 4 summarises the overall approach taken towards the development of the Tariff Regulation Framework. Chapters 5 discusses the need for ex ante tariff regulation, the options for ex ante regulation and AITI s proposals with regard to retail services; Chapter 6 does the same with regard to wholesale. Stakeholders are invited to comment according to the questions outlined in this chapter. Chapter 7 summarises the ex ante measures proposed. Chapter 8 covers filing of tariffs and the tariff filing process. Appendix A outlines the methodologies applicable to ex ante and ex post tariff regulation. Appendix B summarises the analysis of telecommunications tariffs in Brunei. Appendix C summarises the analysis of broadcasting service in Brunei. In line with the role of the AITI as the converged regulator for both telecommunications and broadcast services, the development of a Tariff Regulation Framework encompasses broadcasting as well as telecommunications. Page 5 of 68

6 2 Background of the Tariff Regulation Framework The Tariff Regulation Framework is one of several regulatory measures being introduced by the AITI to create a converged regulatory framework for Brunei including the development of a competition code: a) The consultation paper Developing a Converged Telecommunications and Media Regulatory Framework on Brunei Darussalam for the Implementation of New Licensing Regime 18 th April 2012 touched on general issues of convergence including the need for an appropriate licensing regime. Reference should be made to this consultation on the AITI website as it deals with sector trends that demand changes in the regulatory approach. b) A parallel consultation process has been taking place with respect to a competition code that addresses the converged environment. The consultation paper Developing a Converged Telecommunications and Broadcasting Regulatory Framework for Brunei Darussalam on the Introduction of a Telecommunications and Broadcasting Competition Code 4 th June 2012 has led to the development of a Competition Code that is being finalised. These developments are being carried in parallel. The draft Competition Code will fundamentally guide the Tariff Regulation Framework in that tariff regulation is essentially seen as being required due to issues of competition, as explained in more detail in the following chapter. The Tariff Regulation Framework is being introduced at a time when there are fundamental changes taking place in telecommunications and broadcasting sector resulting in a very different set of priorities for tariff regulation than would be the case several years ago. a) In terms of retail services, traditional fixed line voice services have been substituted by voice services over mobile networks and these in turn have are being replaced by voice (and messaging services) by so called Over The Top (OTT) providers that are accessed over the internet via application software, these include such services as Skype, WhatsApp and Facetime. In Brunei, the availability of low cost smartphones is allowing even lower income migrant workers to communicate with their home countries through such applications, bypassing not only the main operators but also the Voice over Internet Protocol (VoIP) payphone providers operating under SeTi licences. b) In terms of retail access, the most important service is broadband access allowing high speed internet. The means of providing high speed broadband on a long term sustainable basis is largely via fibre, namely Fibre to the Home (FTTH). The challenge for Brunei is a pricing structure for FTTH that makes the provision economically viable, while being low enough to attract demand. c) In the long term, efficient retail tariffs need to be achieved through competition and the main focus of tariff regulation is not in fact on retail tariffs but on the wholesale tariffs charged by operators to other operators for either interconnecting to their networks or for using their network infrastructure. The powers of the AITI to regulate tariffs and demand information are clearly laid out in the Telecommunications Order 2001 and the AITI Order The Broadcasting Act gives the Page 6 of 68

7 Minister wide ranging powers to regulate broadcasting and these powers will be transferred to the AITI. 3 The Tariff Regulation Framework under the Draft Competition Code The draft Competition Code identifies the regulatory obligations of all market players and the more specific obligations of market players who have Significant Market Power (SMP) in a particular market. The principle of SMP is an important one in regulation and it is based on the idea that where a market player (i.e. operator) dominates a market and is able to influence a market, then he would be defined as having SMP and would be subject to regulatory measures such as tariff regulation. The draft Competition Code will not specify markets but will specify the procedures for market investigation and the criteria under which a market player may be designated as having SMP. It should be noted that a market player may well have SMP in some markets but not necessarily all the telecommunications / broadcasting markets in which it is involved. As noted, the draft Competition Code fundamentally directs the Tariff Regulation Framework and with respect to tariffs there are two fundamental procedures that will be identified in the draft Competition Code: a) The first principle is that all tariffs must to be filed with AITI. If the tariffs that are being filed by a market player are not SMP the AITI has the power to request an amendment but otherwise does not have to formally approve the tariffs and in the absence of any objection from the AITI within the specified timeline the tariffs can be implemented. However, if there is the need to investigate the tariffs for anti-competitive behaviour at a later stage, then AITI may do this. This process is ex post regulation and the approaches to be followed for analysing these tariffs on an ex post basis are described in Appendix A. b) Tariffs for a service where the operator filing the tariffs does have SMP have to be approved by the AITI and the intention is that the whole process is done according to a pre-defined methodology, a process of ex ante regulation. The methodology for the determination of the tariffs, and the procedure to be followed for the filing and approval of such ex ante tariffs will be specified in the Tariff Regulation Framework. 4 Approach to the Tariff Regulation Framework The AITI carried out a comprehensive study on the telecommunications and broadcasting sector in Brunei, objectively analysing the different services and tariffs with the objective of determining whether ex ante tariff regulation would be likely to be required. The two criteria used were: a) Performance Gap: - is there any evidence that the tariffs are out of line with what could be expected. b) Regulatory Gap: - are there gaps in terms of both applicable regulatory control and competition. Page 7 of 68

8 Below is a list of the services that have been assessed in detail regarding whether or not they should be subject to ex ante regulation A. Retail Services 1. Voice a) Retail Domestic Fixed Voice Services b) Retail Domestic Mobile Voice Services c) International Voice Services 2. Retail Managed Network Services 3. Retail Domestic Leased Lines 4. Retail Broadband a) Retail Mobile Broadband b) Retail High Speed Fixed Broadband 5. Retail Broadcasting Services B. Wholesale Services 1. Interconnection (Voice and SMS) 2. Wholesale Leased Lines 3. Wholesale Local Loop Unbundling (LLU) 4. Fixed Broadband Access (FTTH) 5. Infrastructure Sharing 6. Duct Sharing 7. Co-location Service Table 1: List of services that may or may not be subject to ex ante regulation For each of the above services, the following assessment was made. a) The need for regulation assessing the degree to which ex ante tariff regulation is required (if at all). b) The feasible options for ex ante regulation that have been identified. c) AITI s initial opinion regarding the appropriate ex ante regulation method. All services are in principle subject to ex post regulation including services that are not listed here. Methodologies for ex post tariff regulation are described in the Appendix A. Q1. Refer to Table 1, do you think that there are other services that should also be Page 8 of 68

9 considered as subject to ex ante regulation? If yes, what are the service(s) and why? Page 9 of 68

10 5 Retail Services that may be subject to Ex Ante Regulation In this section AITI assesses all the retail services that may be potentially subject to ex ante regulation. Where ex ante regulation is judged to be required, the feasible options for ex ante regulation are outlined and AITI makes a proposal regarding the appropriate option. 5.1 Retail Domestic Fixed Line Voice Services Need for Regulation For the purposes of analysis, a separate assessment has been made of domestic fixed and mobile voice. The analysis was made comparing Brunei with not only its neighbours but all the member countries of the club of high income countries the Organization for Economic Cooperation and Development (OECD), using the method of baskets to compare like with like. The analysis for fixed voice has indicated that the costs of domestic fixed line telephony are comparatively low for low usage baskets, but become comparatively high for high usage baskets when compared with the OECD basket of services. This is primarily due to the fact that while the fixed rental costs in Brunei are low, the usage costs, especially the tariffs for domestic long distance (i.e STD calls to other districts) are fairly high. The OECD country analysis is appropriate because the OECD member countries have similar levels of income to Brunei and the methodology deployed is rigorous and well tested. This analysis and the methodology is explained in Appendix B Ex Ante Regulatory Options The following options for ex ante regulations have been considered: a. Benchmark based (maximum and minimum determined rates). b. Impose a price cap model on TelBru (if designated as SMP). c. Come to an agreement with TelBru concerning rebalancing. Of these three options, a full price cap model based on productivity is considered as being too heavy, and disproportionate given the fact that the low usage baskets are not high and the first concern for a regulator should be entry level low users AITI Initial Proposal regarding Ex Ante Regulation AITI proposes to come to an agreement with TelBru concerning rebalancing, possibly combined with (a.) a productivity based price cap is considered unnecessary. The ex ante regulation depends on the fixed line domestic voice market being defined as a separate market from the overall domestic voice market. Page 10 of 68

11 Q2. Do you consider that retail fixed voice should be subject to ex ante regulation in the current era where voice is declining and do you consider that the current structure with low fixed costs and high usage costs (especially STD calls to other districts) is a problem? 5.2 Retail Domestic Mobile Voice Services Need for Regulation As noted, for the purposes of analysis, a separate assessment has been made of domestic fixed and mobile voice. An analysis was made comparing Brunei with not only its neighbours but all the member countries of the club of high income countries the Organization for Economic Cooperation and Development (OECD), using the method of baskets to compare like with like as explained above. This analysis and the methodology is explained in Appendix B. The analysis for mobile voice has indicated that the costs of domestic mobile service telephony are reasonably close to average when compared with the OECD basket of services, high usage makes the service comparatively expensive but this is less evident than is the case with the fixed line service. Therefore, from a tariff performance point of view, it is debatable whether retail domestic mobile voice service tariffs need to be regulated. From the regulatory point of view however, there may be an issue of competition because, DSTCom has the overwhelming market share of the mobile voice market and indeed the overall domestic voice market. This gives DSTCom considerable leverage because in the existing tariff framework, on-net calls (within the same operator network) are cheaper than off-net calls (to other operator network). Therefore, since most subscribers are on the DSTCom network, it makes economic sense for people to join the DSTCom network to enjoy the cheapest calls to the majority of other subscribers. There is no suggestion that DSTCom has abused its market power in either setting high rates or engaging in predatory pricing, but it is clearly able to control the market because of its size. The options for ex ante retail tariff regulation are however limited as any regulatory intervention will not necessarily help competition. The only manner in which the market dominance of DSTCom can be mitigated as dominance in terms of tariffs is by imposing the principle that the price for all calls should be the same whether on-net or off-net. This would require the establishment of a proper interconnection regime and to make a proper cost based balance between the fee for incoming calls and the mobile termination rate Ex Ante Regulatory Options AITI does not consider the imposition of a price cap, while this could force prices down, but would obviously not boost competition. Therefore the following options are considered: Page 11 of 68

12 a. Benchmark based (maximum and minimum determined rates). b. Dictate that calls should be the same price whether on-net or off-net. Option (b.) depends on the interconnection regime and it is therefore suggested that a cost model for interconnection is imposed before any retail tariff regulation takes place. Q3. The AITI finding is that retail mobile tariffs although higher than the neighbouring countries are not excessive in view of Brunei s particular circumstances (E.g. small market size or no economy of scale). Do you agree that the appropriate approach is to foster competition rather than directly manage retail tariffs? AITI Initial Proposal regarding Ex Ante Regulation AITI is open to suggestion as to which of the 2 options would be appropriate. 5.3 Retail International Voice Services Need for Regulation Retail international voice services are treated as a distinct market because there is a higher level of effective competition. The analysis found that while the IDD service tariffs that are applied to all operators are relatively high, there is competition in the international voice market from the following: a. The VoIP services provided by the three main operators. b. Services offered by Public Phone and VoIP operators. c. So called OTT services such as those offered by Skype and Viber. Consequently there is no need for any specific regulatory measures regarding international tariffs Ex Ante Regulatory Options In view of this, the following ex ante regulatory options can be considered: a. No ex ante regulation at all. b. The operators should continue to submit the IDD tariffs for approval on a joint basis as required and this is assessed against regional benchmarks. 1 In fact the situation in Brunei can be regarded as satisfactory as there is a clear choice in quality level that is transparent to the buyer and this is evidenced by the fact that half the calls still use the high quality IDD service. Page 12 of 68

13 c. As an option the operators may be allowed to have their own individual IDD tariffs which can be assessed against benchmarks. d. International tariffs being included in a price cap model for all the tariffs offered by a SMP operator AITI Initial Proposal regarding Ex Ante Regulation AITI would initially consider (c), but invites comments. Q4. Do you agree with the suggestions regarding international voice service? 5.4 Retail Managed Network Services Need for Regulation These include IP MPLS and VPN services. The provision of these services to corporate and government clients is based on commercial negotiations; ex ante regulation of tariffs is not appropriate AITI Initial Proposal regarding Ex Ante Regulation AITI is of the opinion that ex ante regulation of this retail service is not appropriate. However, the providers of such a service may require to obtain wholesale leased lines from another operator and this is where the regulatory attention should be paid. 5.5 Retail Domestic Leased Lines Need for Regulation Retail leased lines were typically regulated where there is only one provider, but regulation of retail leased lines is now rare as the emphasis is on wholesale leased lines to ensure that there is a competitive market that makes regulating leased lines unnecessary. Both DST and TelBru are providing retail leased lines. An analysis was carried out comparing Brunei leased line tariffs with those for OECD countries. This analysis and the methodology is explained in Appendix B. The analysis indicates that lower capacity leased line tariffs below the OECD average for the 2 Mbps line and above average for the 34 Mbps Ex Ante Regulatory Options There are two alternative options for ex ante regulation: a. None emphasis should be on regulating wholesale leased lines. b. Require that leased lines tariffs fall between a floor and a ceiling price defined via benchmarks. Page 13 of 68

14 It is not at all clear whether there is a dominant market player for retail leased lines. In this case a prerequisite for ex ante regulation is that a market analysis takes place in order to determine whether there is a dominant market player who would then be declared to have SMP AITI Initial Proposal regarding Ex Ante Regulation AITI s initial proposal is not to regulate retail leased lines on an ex ante basis at this stage. If a market analysis indicates an operator has SMP in this market then the position may be reassessed in order to determine whether ex ante tariff regulation is a necessary measure. Q5. Do you agree that there is competition in the provision of domestic retail leased lines and that tariff regulation is not necessary? 5.6 Retail Mobile Broadband Need for Regulation Retail mobile broadband is provided by both existing mobile operators (DSTCom and B- Mobile). Although DSTCom has the largest market share, this does not equate necessarily to market dominance in the provision of purely broadband services. The reason for this is that a subscriber who is using a network for internet access is not necessarily affected by how many other subscribers there are on the same network (unlike voice for the reasons outlined above). However, if it is apparent that mobile broadband users are using devices with which they also make calls, then the effect of dominance in mobile voice service would also extend to mobile broadband AITI Initial Proposal regarding Ex Ante Regulation AITI s initial proposal is not to regulate retail mobile broadband on an ex ante basis at this stage. If a market analysis indicates an operator has SMP in this market then the position may be reassessed in order to determine whether ex ante tariff regulation is a necessary measure. Q6. Do you agree that there is competition in the provision of retail mobile broadband and should be subject to ex ante regulation? 5.7 Retail Fixed Broadband Need for Regulation There are basically two fixed broadband services offered: a. Broadband services over ADSL (Asymmetric digital subscriber line) branded as espeed and offered by TelBru. Page 14 of 68

15 b. Broadband services over FTTH branded as HSBB (High Speed BroadBand) and offered by TelBru. The gap analysis showed that the retail broadband prices are very high. The espeed service is regarded as being no more than comparable to the current 3G and 3.5G mobile broadband services and it is subject to effective competition as a result. Therefore it is recommended that the ADSL based espeed service is not subject to retail tariff regulation 2 but that the emphasis should shift to the HSBB. The FTTH based HSBB will effectively be delivered by TelBru who will most probably control at least the passive network elements. In these circumstances, the provision of the FTTH service will require regulatory oversight both with respect to the retail (HSBB) and the wholesale service. The HSBB service will be used to provide a full set of converged services including telephony (IP), high speed internet access and IPTV (television over internet protocol). Eventually, the HSBB may well be the only fixed service, with the traditional copper based telephone service taken out of service and voice telephony just one of a range of bundled products available over broadband Ex Ante Regulatory Options The options regarding retail fixed broadband tariff regulation are: a. Benchmark based (maximum and minimum determined rates). b. Impose a price cap for the future development of prices. c. Impose a top down cost model AITI Initial Proposal regarding Ex Ante Regulation AITI considers that imposing a rigorous model at this stage of development of FTTH is not appropriate. It is recommended to impose a price cap to start off with and only consider a top down cost model if the regulatory framework for both retail and wholesale is not working within a 3-5 year time frame. It is further recommended that a soft price cap would be appropriate rather than a full productivity based price cap. In the event of a top down cost model, it is proposed that this should be based on Fully Distributed Costs (FDC). Q7. Do you agree with the approach regarding retail fixed broadband? 2 Any shortcomings in operational performance by the operator should be addressed through wholesale access to the local loop regulation. Page 15 of 68

16 5.8 Retail Broadcasting Services Need for Regulation Generally speaking, retail regulatory measures are not applied to broadcasting and in the case of Brunei, the national channels are all free to air over the DTT (Digital Terrestrial Television) network and by definition no price regulation is required. The subscription television services via satellite provided by Kristal Astro Sdn Bhd were found in general to be not excessively expensive when compared with Malaysia and Singapore (although perceived to be more expensive than Malaysia) and therefore there is no need to impose ex ante tariff regulation. The only appropriate mechanism for establishing competitive pricing in broadcasting is competition which will most probably be provided via IPTV and DTT. Q8. Do you agree that tariffs for retail broadcasting services are not subject to ex ante regulation? 6 Wholesale Services that may be Subject to Ex Ante Regulation In this section AITI assesses all the wholesale services that may be subject to ex ante regulation and where ex ante regulation is required, outlines any feasible options for ex ante regulation and makes a proposal. 6.1 Interconnection Need for Regulation The interconnection services that are relevant in the case of Brunei tariff regulation are those for termination of calls / SMS / on a fixed or mobile network. As can be seen from the benchmark, many countries have imposed interconnection price controls at some stage and this is often applied to all operators because all fixed and mobile services have a monopoly in the call termination service on their own network. In Brunei, the situation as it has developed with respect to interconnection and call termination is as such:- a. For calls that either originate or terminate in the fixed network of TelBru, a sender keeps all regime is maintained and there are no interconnection charges. b. For calls or SMS s between the mobile networks an interconnection termination charge is applied. Page 16 of 68

17 c. For all incoming calls on mobile networks except on-net post-paid calls, an incoming call charge is levied. There is no incoming call charge on the fixed network. Although the incoming call charge is not an interconnection charge per se, it is in principle covering costs associated with the termination of a call 3. d. There does not appear to be a special interconnection charge for call origination on either the fixed and mobile network. In practice, the VoIP providers who may need their customers to originate calls on the (usually) the fixed network either require their customers to pay the standard local call charge or they themselves pay the 1800 toll free service charge. However, these VoIP services are almost invariably for international calls and this area of business is rapidly being eclipsed by calls made using smartphone applications. Because the system is mixed with both termination charges and incoming call charges (Receiving Party Pays), the cost basis for interconnection is not clear. Another issue with regards to interconnection exists with regard to independent VoIP providers whose calls originate as a switched call on the fixed (usually) or mobile networks. There do not appear to be proper wholesale arrangements in place here and industry feedback is welcome on this point. Q9. AITI invites VoIP providers whether the main operators should have a standard and fair Interconnect Arrangement made readily available? Proposed Consultation on Process It is recommended that a consultation be made with the industry to determine the frame for future regulation, options could include: a. A pure SKA regime (with an incoming call charge (RPP) for mobile 4 ). b. A standard interconnection regime where (in most cases) the operator network on which the call is terminating receives a interconnection payment from the originating operator and does not charge the receiving subscriber a incoming call charge. c. Maintaining the present mixed system. 3 There has been a long debate about the relative merits of the Calling Party (only) Pays (CPP) versus the Receiving Party Pays (as well) (RPP), especially as the latter can be associated with a Sender Keeps All (SKA) principle. An RPP with SKA approach has the benefits of simplicity and is feasible in Brunei because end users are already used to it, however it puts the onus on the call recipient as much as the caller initiator to control the length of a call. 4 Fixed is omitted because in principle the customer pays for his own access through the monthly rental and because it will not be possible to impose a RPP on fixed customers when none has existed in the past. Page 17 of 68

18 With (a) an interconnection model would not be required. Q10. What is your opinion concerning a SKA only model, standard interconnection model or retaining the present mixed model and could it apply equally to mobile, standard fixed and VoIP calls? Ex Ante Regulatory Options The options regarding interconnection are dependent on the outcome of the consultation on the fundamental model AITI Initial Proposal regarding Ex Ante Regulation If a SKA approach with RPP is decided on, then no ex ante regulation of interconnection termination rates is required. If interconnection rates continue to be applied, then AITI considers that the only feasible means of determining interconnection rates on an ex ante basis is by the imposition of a cost model because this is the only means of identifying the costs involved. The proposed model is a top down cost model at this stage using the operators own data and carried out on the basis of Fully Distributed Costs (FDC). Note that the interconnection tariffs will be part of the MItA. 6.2 Wholesale Leased Lines Need for Regulation Wholesale leased lines are normally the means by which new market players can enter the telecommunications market. In the case of Brunei, the evidence suggests that DST is already self-providing the infrastructure for its own retail services in which case there is potential competition to provide leased lines. As noted, the retail tariffs for 2 Mbps lines are in line with international benchmarks, while those for higher speeds (notably 34 Mbps) are rather high. It is unclear as to whether there is a demand for higher speeds on a wholesale basis Ex Ante Regulatory Options The options regarding wholesale leased lines are: a. Retail minus AITI Initial Proposal regarding Ex Ante Regulation AITI proposes that the appropriate mechanism for wholesale leased line regulation is: a. Retail minus meaning that the operator must offer unbundled leased line elements at a price that excludes elements of the retail service that are not needed by the wholesale customer. Page 18 of 68

19 Retail minus is the most straightforward approach to wholesale leased line regulation because it means that the costs of retail and wholesale leased lines are equitable. Q11. Do you consider that ex ante tariff regulation is necessary for wholesale leased lines and if so, do you agree that retail minus is the appropriate option? 6.3 Wholesale Local Loop Unbundled Access Need for Regulation By the local loop is meant the copper based access network. Currently there is no mechanism for unbundled access to the local loop and there is no clear demand for this, partly because there is no second licensed operator and partly because the technical characteristics of the secondary network are not ideal for higher broadband speeds. Consequently, unless there is a demand for unbundled access to the local loop and the complete regulatory mechanism for Local Loop Unbundling is put in place, there is no requirement for tariff regulation at this stage AITI Initial Proposal regarding Ex Ante Regulation It is not proposed to introduce ex ante regulation at this stage. If it is decided that there should be ex ante regulation, the most appropriate mechanism would be a top down cost model with fully distributed costs (FDC). However it should be emphasised that this needs to be just part of a process for developing a reference access offer for LLU. Q12. Do you agree that tariff regulation of local loop unbundling is not necessary? 6.4 Wholesale Access to the FTTH Need for Regulation The FTTH network roll out is of key strategic importance as it will enable high internet access speeds and the means for the provision of IPTV, providing the most likely means of competition in the broadcast sphere. It is of utmost importance to ensure that there is access for other providers to the FTTH access for the following reasons: a. Competition in general leads to greater efficiencies and lower retail prices. b. Having a choice of provider is generally found to boost demand. c. Different providers are going to be offering alternative TV packages, generating further competition in the broadcast sector without the need for any further regulatory stimulus. Page 19 of 68

20 This access will have to be regulated and one of the requirements will be a regulated MItA Ex Ante Regulatory Options The options regarding wholesale access to the FTTH are: a. Retail minus. b. Top down cost model AITI Initial Proposal regarding Ex Ante Regulation Because the HSBB programme is going to be subject to government financial support in order to achieve an affordable retail price by TelBru, the only practical mechanism for determining the wholesale price in the short term is: a. Retail minus meaning that the operator must offer unbundled leased line elements at a price that excludes elements of the retail service that are not needed by the wholesale customer. If the retail minus approach is not proving effective, AITI proposes to consider: b. Imposing a top down cost model (using FDC) within a one to two year time frame. A one to two year time frame is in any case required for the top down model to be developed and implemented. Q13. Do you consider that ex ante tariff regulation is necessary for wholesale access to the FTTH and that the retail minus approach would facilitate competition? 6.5 Infrastructure Sharing / Duct / Network Co-location Service Need for Regulation Infrastructure sharing includes such elements as the provision of space on towers and may extend to sharing equipment as has been listed in the interconnection handbook 5. Physical co-location refers to the provision of space at operator s premises 6 to enable the wholesale customer to install and maintain equipment 7. 5 The services offered for physical access include power, environmental services (such as heat, light, ventilation and airconditioning), security, site maintenance and access for the personnel of the access seeker. 6 Network premises at which co-location is to be provided includes switching sites, submarine cable landing centres, earth stations, exchange buildings, other customer access modules (including roadside cabinets) and such other network facilities locations associated with the provision of a facility or service on the access list and includes co-location provided at any location where main distribution frame is housed. Page 20 of 68

21 The obligations exist in principle for all market players, but have never been actively regulated. The general principle is that the pricing should be negotiated on commercial basis first; if these negotiations do not work then AITI can intervene and impose a cost based price. As with other wholesale services, regulation of tariffs is just one part of a regulated package of services usually included within a MItA Ex Ante Regulatory Options Ex ante regulation is imposed when commercial negotiation between the market players has broken down. Where this is the case, it is proposed that the appropriate tariff regulation mechanism is: a. Cost calculation provided by operators on a project basis AITI Initial Proposal regarding Ex Ante Regulation a. Cost calculation provided by operators on a project basis. 6.6 Wholesale Broadcast Signal Distribution Need for Regulation In many countries, the distribution of the TV (and in some cases radio) signals from the studios to the transmitters is carried out by a separate company. The need for a separate signal distributer is often greater with DTT because of the multiplexing of channels. In Brunei there are no plans currently to have other broadcasting providers on the DTT network and hence there is no requirement for tariff regulation Ex Ante Regulatory Options If the necessity arose and it is determined that tariff regulation is required, then a relevant market of Wholesale Broadcast Transmission service would be defined and tariffs calculated via a top down cost model. Q14. Do you agree that Wholesale Broadcast Signal Distribution is not subject to ex ante regulation? 7 Co-Location includes physical space, power, environmental services (such as heat, light, ventilation and air-conditioning), security, site maintenance and access for personnel. 8 Project basis means that the market player providing the service must demonstrate all the costs associated with providing an infrastructure and these costs are calculated by treating the investment in infrastructure like a project. Page 21 of 68

22 7 Summary of ex ante measures Service Priority Ex ante Measures Retail minus upon implementation of Tariff Wholesale access to the FTTH 1 Regulation Framework giving 1 to 2 years time frame to conduct a top down cost model (FDC) Retail Fixed Broadband 2 Soft price cap initially, if price cap fails a top down cost model (FDC) is to be applied Interconnection 3 Top down interconnection cost model Wholesale Leased Lines 4 Retail minus Retail Domestic Fixed Line Voice Services 5 Agreement with TelBru concerning rebalancing Retail International Voice Services 6 Operators allowed to have their own IDD tariffs Top down cost model, needs to be deferred until a Wholesale Broadcast Signal 7 policy and process for access to the DTT network is Distribution defined Infrastructure Sharing 8 Cost calculation provided by operators on a project basis (when negotiation fails) Duct Sharing 8 Cost calculation provided by operators on a project basis (when negotiation fails) Network Co-location Service 8 Cost calculation provided by operators on a project basis (when negotiation fails) Retail Domestic Leased Lines 9 Market dominance needs to be established before any action is carried out Retail Broadcast Services 10 None at the moment Retail Domestic Mobile Voice Services No NONE but consider that calls should be the same price whether on-net or off-net Table 2: Summary of ex ante measures proposed Page 22 of 68

23 8 Tariff Filing and Review 8.1 Circumstances for Tariff Filing A Market Player will file tariffs with the AITI in accordance with the draft Competition Code when: a. The Market Player is proposing new tariffs for Infrastructure, Services or Applications. b. The Market Player is instructed by the AITI to file new (including modified) tariffs based on a methodology specified in the Tariff Regulation Framework for Infrastructure, Services or Applications in which it has Significant Market Power. This applies to the tariffs described as subject to ex ante regulation in the Tariff regulation Framework. 8.2 Information to be Included in Tariff Filing by Market Players These provisions apply to all tariffs. Any proposed tariff filed by a Market Player must: a. Fully and clearly describe the Infrastructure, Services or Applications to be offered; b. Contain a clear statement of the prices, terms and conditions (including any eligibility requirements) on which the Market Player offers to provide the Infrastructure, Services or Applications; c. List any discounts or special considerations that the Market Player will offer and the requirements that must be satisfied (such as minimum volume or term requirements) to obtain those discounts; d. List the minimum period of time during which the Infrastructure, Services or Applications will be available and the minimum period of time, if any, during which the Market Player will not increase the filed rates; e. Be self-contained and must include charges for any Infrastructure, Services or Applications not generally subject to tariff regulation when offered as part of a package. 8.3 Information to be Included in Tariff Filing by a Market Player with SMP These provisions apply to market players with Significant Market Power. In addition to the information specified in sub-section 8.2 of the Tariff Regulation Framework, a market player with Significant Market Power must also: a. Comply with the requirements of any methodology specified pursuant to this Tariff Regulation Framework by the AITI with respect to tariffs for Infrastructure, Services or Applications offered in markets for which the market player has Significant Market Power. b. Clearly demonstrate in the filing that any requirements have been met. Page 23 of 68

24 8.4 Tariff Review Process a. For tariffs filed by market players for Infrastructure, Services or Applications in markets where the market player does not have significant market power, AITI may review the tariffs and consequently request amendments. These tariffs may also be subject to investigation at a later date whether or not the AITI has given approval. The principle here is that AITI will check the tariffs to establish whether there are any obvious problems such as misleading information and may request changes accordingly. However, AITI will not be checking these non-smp tariffs in detail for anti-competitive behaviour. b. Tariffs filed by market players for Infrastructure, Services or Applications in markets where the market player has Significant Market Power will be reviewed to ensure that the tariffs have been determined in line with the methodology specified by the AITI pursuant to the Tariff Regulation Framework. c. Once AITI allows a tariff to go into effect, AITI will presume that the prices, terms and conditions are reasonable, competitive and non-discriminatory. AITI may review the effective tariff periodically in accordance with the Tariff Regulation Framework to determine whether the prices, terms and conditions remain reasonable, competitive and non-discriminatory, and may direct a Market Player with Significant Market Power to make appropriate modifications. In addition, any person that believes that the prices, terms and conditions on which a Market Player is providing Infrastructure, Services or Applications pursuant to an effective tariff are unreasonable or discriminatory may petition AITI to review those provisions. The petitioner must provide the basis for its belief by providing such objective information, documentation and data as evidence. AITI may also take enforcement action if it concludes that an effective tariff, or the Market Player s implementation of an effective tariff, contravenes any provision of the draft Competition Code. Page 24 of 68

25 9 Invitation to Comment In order for AITI to have a better understanding of the various requirements of the relevant stakeholders, AITI hereby invites views and comments from the industry and members of the public on AITI s findings and initial proposals regarding the Tariff Regulation Framework for Telecommunications and Broadcasting Sectors in Brunei Darussalam. Respondents are also invited to present views and comments on any other issues not covered in this Consultation Paper but which respondents consider are relevant to the proposed Tariff Regulation Framework. AITI is aware that the Tariff Regulation Framework is dependent on the finalisation of other elements of regulation including the draft Competition Code and stakeholders are therefore not required to comment on this. 10 Submissions Hard copy submission to be addressed by mail or facsimile to: The Chief Executive Authority for Info-communications Technology Industry of Brunei Darussalam Block B14, Simpang 32-5, Kampung Anggerek Desa, Jalan Berakas BB3713 Brunei Darussalam Fax (673) Soft copy submissions are to be sent by to tithymirda.nikman@aiti.gov.bn & nuruljannah.zamari@aiti.gov.bn. AITI assumes that all submissions to this Consultation Paper are not made in confidence unless otherwise specified. AITI reserves the right to reproduce and publish the submissions in whole or in part in any form (including disclosing the identity of the respondent) and to use, adapt, or develop any proposals put forward without seeking permission or providing acknowledgement of the party making the proposal. Any part of the submission, which is considered by a respondent to be commercially sensitive or confidential should be clearly marked and set out in a separate annexure, which AITI will take into account when disclosing the submission. The closing date for this public consultation is 1530 hours, 11 October Consultations Stakeholders are invited to a public consultation at 0845 hours, 03 October 2013 at Dewan Seri Kerna, AITI. Page 25 of 68

26 Appendix A Tariff Regulation Methodologies FOR INFORMATION PURPOSE ONLY Page 26 of 68

27 TARIFF REGULATION METHODOLOGIES A.1 Ex Ante Tariff Regulation Ex ante regulation is a type of regulatory approach that enforces terms and conditions as a preventive measure against an expected outcome from occurring (in the case that no regulations are placed) i.e. explicit market intervention by the regulator. This type of regulatory approach is commonly enforced in markets where there is dominance i.e. unequal level of competition e.g. interconnection markets, unbundling/infrastructure sharing markets, and for price regulations. The price cap, cost modelling, rate of return, cost plus, retail minus, and benchmarking are the six types of ex ante tariff regulations that will be described. A.1.1 Rate of Return Rate of return is a cost-based form of price regulation designed to balance an operator s total revenues against its total costs. It allows the operators to reasonably price services to recover their costs. Although this may give investors the confidence to invest, it lacks the incentives for operators to operate efficiently. Rate of Return Regulation Formula As the rate of return gives operators the opportunity to recover their costs, it is essential to first determine the revenue requirement. This indicates the amount of revenue needed to recover prudent investment and reasonable costs as well as to earn a fair profit. It is basically the sum of expenses and return on investment which can be elaborated in a formula as follows: RR B(r) +E + d +T where: RR is the revenue requirement of the operator in offering the regulated services. B is the rate base. Basically, it is the amount of capital or assets dedicated to providing the regulated services. To determine rate base, it is necessary to first identify the method and the time period the rate base is measured. r is the allowed rate of return. In other words, it is the costs incurred to finance its rate base which includes both debt and equity. E is operating expenses which are the costs of items such as supplies, labour and items for resale that are consumed by the business in a short period of time, defined as less than one year. D stands for annual depreciation expense which is the annual accounting charge for wear, tear and obsolescence of assets. T means all of taxes that are not counted as operating expenses and are not directly charged to customers such as income tax. Thus, it is necessary to include these expenses in the calculation of the revenue requirement. Page 27 of 68