LRAIC on coax and fibre

Transcription

1 LRAIC on coax and fibre Analysys Mason workshop on Regulatory and Policy Challenges of NGA, Cambridge November 16, 2011 Jonas Østrup, Special advisor

2 Agenda Introduction Regulatory challenges Possible solutions Our solution Prices and the Commission s comments

3 Infrastructure TDC controls both the largest Danish copper-, coax- and fibrenetworks The copper network has been rolled out since 1900 and covers the whole country (currently around 2,000K active connections) The coax network has been rolled out since 1970 and covers 1,600K homes (currently around 1,400K active connections) The fibre network has been acquired from DONG energy and covers 130K homes (currently around 14K active connections)

4 TDC s geographic coverage Cable-tv, focus areas Fibre, focus area Copper Copenhagen Odense Aalborg Århus

5 Market decision Prior to the latest market 5 decision, only copper was regulated TDC potentially had stronger incentives to upgrade the (former) unregulated fibre- and coax-networks To balance TDC incentives, the latest market 5 decision states that TDC must open both coax- and fibre-networks to 3rd parties Prices should be set according to the LRAIC method Therefore, a new LRAIC model for coax and fiber has been developed and published in April 2011

6 Regulatory challenges How to set prices, ensuring that: Both TDC and the utility companies have an incentive to roll out fibre? Telenor and Telia (alternative operators) are competitive? A margin squeeze will not occur? Prices reflect actual costs (and causality)? Complying with technology neutral regulation? Are the technologies sufficiently homogeneous to set one price?

7 Network comparison Copper Coax Fiber Switch to end-user Dedicated line Shared capacity Shared PON / dedicated PTP Technology life cycle Mature Mature Infant Network build-out Planning based Opportunistic Opportunistic Coverage Designed for 100% Not all areas / not 100% within areas Not all areas / not 100% within areas Service areas Network ownership Well defined and stable Uniform Not well defined / change over time Mixed Not well defined Uniform

8 Regulatory solutions Fibre as MEA to copper and coax (uniform access price) 3 different access prices Possible impacts Alternative operators are better of (lower access prices) TDC are worse of (lower access prices) Utility companies worse of Technology neutral No cost causality Effects on cost recovery Does not induce efficient investment Cost causality Does induce efficient investment TDC are better of (higher access prices) Utility companies better of Alternative operators are worse of (higher access prices) Not technology neutral

9 MEA considerations Defining MEA from a theoretical and practical perspective Modeling shall prove MEA MEA shall be observed in the marked to some extend MEA shall to some extend offer similar wholesale services We found fibre was not MEA due to both: Fibre is currently not cheaper than copper Actual deployment is currently limited Fibre and coax offer different wholesale services

10 Final regulatory solution Since fibre was not MEA, our only option was to model 3 different access technologies (copper, coax and fibre) Several considerations, especially since the technologies are in different stages of their life cycle: Depreciation methods? WACC? Demand profiles? Pricing schemes with different technologies? Other relevant issues: How to promote bundled products in general (Multicast)?

11 Depreciation method We have chosen to use ED for fibre since ED produces stable prices even when demand is rapidly increasing Stable prices are desirable from a competition view point We have chosen to use TA for copper and coax Since demand is stable and TA and ED will yield similar results TA is less complex than ED

12 WACC/Demand profiles Similar or technology-specific WACCs? How to convert risk factors into a percentage value in the WACC Uncertainty about demand is the most important risk factor Similar WACC, but fibre risk premium through demand profiles We have assumed that Only copper customers will migrate to fibre platform There will be limited migration the first years Not all customers migrate, some might choose LTE or WIMAX Customers start migrating to a future (unknown) technology

13 Fibre migration profiles 80% 70% 60% 50% 40% 30% 20% 10% -% Existing network migration By migration Land A migration Land B migration

14 Pricing schemes Copper / Fibre PTP Coax Shared capacity DSLAM / ODF CMTS Dedicated lines Network costs Pricing scheme Increment Network costs Pricing scheme Small By end-user Capacity Large Shared Large By end-user Line Small By end-user

15 Multicast Hierarchy of the all-ip core Core routers Edge routers Service 1:Core to Core (per Mbit/s perl3 ring) Service 2:Core to Distribution rtr (per Mbit/s per L3 ring) Service 3: Distribution to Edge (per Mbit/s per L3 ring) Aggregation switches DSLAMs/ MSANs End users Service 4:POI2 to PO1 (per Mbit/s per L2 ring) Service 5:POI1 to DSLAM (per Mbit/s per end user) Service 6:DSLAM to end user (per Mbit/s per end user)

16 Model overview CATV + Fibre Access model Access model (copper) ED fibre Co-location model Core model Consolidation model Pure LRIC model Existing models Add-ons

17 Final pricing decision Fibre BSA prices (DONG area, monthly charges) Per customer (fixed): DKK 162,1 ~ 22 Euro Up- or download speed (per Mbit/s): DKK 0,57 ~ 0.08 Euro Coax BSA (monthly charges) Per customer (fixed): DKK 34,00 ~ 4.6 Euro Capacity* (average): DKK 66,00 ~ 8.9 Euro * The capacity charge is a common fee among all end-users and depends on ISP overbooking factor.

18 Commission s comments No comments related to fibre and cable-tv Only one comment related to the obligation to regulate multicast.

19 Thank you