Swiss Regulation and Telecom Network Infrastructure by Stefan
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Swiss regulation and telecom network infrastructure The extension of access regulation threatens the excellent market results und the extremely high capital expenditure Stefan Kilchenmann, Head of Public Affairs Swisscom Ltd. 30 January 2018 Regulation vs. investment Time to revise the Telecommunications Act? The 2007 Telecommunications Act is to be revised again. The focus is on the expansion of access regulation 3 The Swiss Telecommunications Since then, the market has The Federal Council therefore now Act (TCA) was last revised in developed dynamically. wants to revise the TCA anew. The 2007. At the time, the Swiss focus this time will be on the 30.1.2018 Parliament deliberately chose expansion of access regulation. But not to regulate newer (esp. not only. optical fibre) networks. Technology-neutral access regulation: High investment Optical fibre and cable networks are now to be regulated Innovative products Consumer concerns: • Unwanted advertising calls Many new providers • Roaming • Youth media protection • Net neutrality Falling prices Shifting responsibility from Parliament to the Federal Council: the Federal Council Lower ranking in now wants the expansion of access Alpine Think Tank on SGI international regulation to be part of its remit. comparisons The current TCA is a success story Having brought state-of-the-art networks, lower prices and an explosion of offers, the current TCA benefits consumers and businesses 4 +150% State-of-the-art networks > Ranked second worldwide in broadband coverage 30.1.2018 Price developments > 99% have at least 30 Mbps over the last 20 years > Exponential growth in bandwidth +56% Prices falling since 2007 > Fixed network: -34% +26% +14% +10% > Mobile: -83% -78% -73% -56% -17% -15% > Mobile and fixed network subscriptions: -56% An explosion of offers > 200+ providers of fixed network, TV, Internet and mobile services > Free offers, e.g. WhatsApp, Zattoo, etc. Alpine Alpine Think Tank on SGI > Ranked first (OECD) in broadband use Source: K-Tipp, 18.10.2017 Statistics show: Switzerland ranks very highly worldwide in broadband infrastructure 5 1stBroadband use: In Switzerland there are 51.4 broadband connections per 100 inhabitants 30.1.2018 – more than in any other OECD country (2010: 3rd) 1stPer capita investment in the telecoms market: No other OECD country invests as much per capita as Switzerland in infrastructure (2007: 5th) 2nd High bandwidth coverage (>10 Mbps): Switzerland ranks second overall worldwide, with an average of more than 10 Mbps (2012: 6th) 3rd ICT development index (IDI): Alpine Alpine Think Tank on SGI Comprises the three sub-indices access, use and education/training (2008: 10th) Sources: OECD broadband portal, February 2017; OECD Digital Economy Outlook, July 2015; Akamai, State of the Internet, March 2017; ITU, November 2017 Investment Switzerland invests more in its telecoms infrastructure than any other country worldwide 6 30.1.2018 Source: OECD Digital Economy Outlook July 2015, table 2.31 Alpine Alpine Think Tank on SGI With per-capita investment of almost $400, Switzerland has further increased its lead worldwide Investment growth especially benefits primarily rural cantons 7 200% +180% 180% 30.1.2018 160% 140% 120% +111% +110% 100% 80% +75% +57% 60% +51% +46% 40% +14% 20% +9% +12% -1% 0% 0% 2011 2012 2013 2014 2015 2016 -20% Rural geprägte Kantone Restliche Kantone Alpine Alpine Think Tank on SGI Annual growth in investment in fibre-optic technology compared to previous year Baseline: 2010 CHF 129.4 million Primarily rural cantons: AI, AR, GL, GR, JU, NE, NW, OW, SZ, TI, UR, VS Broadband penetration: Switzerland is extending its global lead 8 30.1.2018 Source: OECD broadband portal, August 2017 Alpine Alpine Think Tank on SGI In Switzerland there are 51.4 broadband connections per 100 inhabitants. The “runners-up” (DK and NL) are quite far back, with 42.8 and 41.8 connections respectively. Switzerland’s high bandwidth (>30 Mbps) coverage is excellent compared to that of other European countries 9 > Switzerland ranks second overall 30.1.2018 behind Malta > 99% of the population in Switzerland has access to bandwidths of 30 Mbps > This leading position is thanks to lively infrastructure competition and the resultant high investment NGA: Next-generation access coverage includes fixed-line broadband technologies capable of achieving download speeds meeting the Digital Agenda objective of at least 30 Mbps coverage (combination of VDSL, DOCSIS 3.0 and FTTH/P) Alpine Think Tank on SGI Source: European Commission, Broadband Coverage Europe 2016, May 2017 Switzerland’s high bandwidth coverage (>30 Mbps) is also excellent in rural areas 10 > 92.9% of rural areas (<100 30.1.2018 inh./km²) already have 30 Mbps coverage. > More than 90% of every Swiss canton has 30 Mbps coverage. > Only in five regions (cantons) is NGA coverage lower than 95%: Valais, Jura, Obwalden, Uri and Grisons Alpine Alpine Think Tank on SGI Source: European Commission, Broadband Coverage Europe 2016, May 2017 Regional (NUTS 3) comparison of high bandwidth coverage (>30 Mbps) in Europe 11 Europe: overall NGA broadband coverage by regions (NUTS 3), 2016 > 92.9% of rural areas (<100 30.1.2018 inh./km²) already have 30 Mbps coverage. This is more than twice the EU average (39.2%). > NGA coverage in rural areas of Switzerland is considerably higher than in neighbouring countries Alpine Alpine Think Tank on SGI Source: European Commission, Broadband Coverage Europe 2016, May 2017 TCA revision: the winners and losers of an extension of access regulation (Art. 11 TCA) to include new types of networks 12 Winners Losers > Providers without their own fixed > Providers who invest in new networks: Can no longer recoup their costs 30.1.2018 telecommunication infrastructure (e.g. Sunrise): on the market Benefit from lower access prices > Rural regions: The first to be affected if investment goes down > Their shareholders: Scoop off more profits at the > Customers: High bandwidth coverage is delayed or even threatened expense of lower investment > Industry: Rapid digitisation – the decisive locational factor in the future > Public authorities: Get responsibilities previously – will be at risk held by Parliament > Parliament: Loses key regulatory responsibilities > Customers and suppliers: A change in wholesale prices as posited by the Tagesanzeiger* will cut the Swiss telecoms industry’s ability to invest by CHF 300-500 million a year * Scenario as suggested in 8.11.2017 issue of Tagesanzeiger newspaper (access: CHF 15) Who’s behind the telecoms companies? 1 Alpine Alpine Think Tank on SGI Salt: 100% privately owned Sunrise: Listed on the stock UPC: 100% owned by Local cable companies: The Quickline: A holding company with 18 by Xavier Niel, France exchange. Main Liberty Global, England majority of them are in the hands shareholders, mainly owned by districts: shareholder: Freenet AG of the public sector (e.g. districts) Energie Belp, Energie Wasser Aarberg, EWS Energie, Energie Seeland, Flims Electric, GA Grenchen, GA ,Germany Region Herzogenbuchsee, etc. Parliament is facing a decision on its future direction: should it follow the EU’s bad example or continue along the successful path Switzerland has taken so far? 13 30.1.2018 The EU currently has an enormous investment deficit. This The alternative: Parliament continues to bet on the is because of a lack of incentives to invest due to tough successful path Switzerland has taken to infrastructure access regulations. competition so far: If Parliament expands its access regulations, > The regulator does not interfere with the functioning > It will reward those providers that do not invest in their market. own networks, but demand cheaper access > This creates incentives for further investment in > Parliament won’t encourage competition, but the expansion, especially in rural regions and in new reselling of existing connections technologies. > Providers will have no incentive to invest in their own > Switzerland maintains its leading position with regard Alpine Alpine Think Tank on SGI networks and or in new technologies, just like in the EU to quality and performance – nationwide! An ex-post system, no technology neutrality and infrastructure competition lead to significantly higher investment and better networks 14 Per capita investment in telecoms infrastructure ($) Switzerland 450 Ex-post (primacy of negotiation) 30.1.2018 400 No technology neutrality Infrastructure competition 350 300 US Ex-post (primacy of negotiation) 250 No technology neutrality 200 Infrastructure competition 150 100 EU Ex-ante (ex officio, intervention by virtue of 50 office rather than the market) 0 Generally technology-neutral 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Strict access and price regulation Switzerland EU MAX (cable + telcos) US EU base (raw data OVUM) Source: Ovum and OECD EU MIN (area correction EU27) Alpine Alpine Think Tank on SGI The EU’s regulatory framework leads to unsatisfactory results. It impedes much-needed investment in broadband networks. Ticino’s cantonal “public funding” initiative Funding through federal funds for regions 15 30.1.2018 Ticino’s cantonal initiative Sensible if regulated at the regional level: The cantonal initiative wants the • Districts can ask the Federal Government for subsidies and pay for only a Federal Government to ensure the proportion of the desired network expansion themselves. entire country has dense high • The advantage: Districts are best placed to determine their actual needs. bandwidth coverage. Supply