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Ladies and Gentlemen,
Welcome on behalf of ARCEP’s Executive Board. Today, we are presenting the first yearly activity report of the Autorité de régulation des communications électronique et des postes (ARCEP). Indeed, for the first time, ARCEP will report on the postal sector as well as on the electronic communications sector.
Let us begin with the postal sector.
Postal regulation is taking shape
In 2005, a law made ARCEP responsible for regulating postal activities.
Preparatory work enabled to learn about this sector: the establishment of the first statistical observatory of postal activities; a study on consumer expectations; the organization of a symposium on postal regulation in October and meetings with the main players. Work will go on by monitoring the quality of service of the Poste’s universal service mission.
This preparatory work allowed ARCEP to carefully prepare and take its first decisions:
- issuing its first authorizations – to Adrexo to provide services in all Metropolitan France except Corsica, and to IMX and DPAG (the German post office) for international mail. More authorizations will follow.
- definition of a postal tariff price-cap for the period 2006-2008. This decision will allow La Poste to adapt its organisation for the next stage of liberalization by having a pluri-annual visibility of its revenue.
ARCEP will continue its work on the postal sector by making sure that:
- liberalization improves even more quality of service, productivity and innovation of the sector;
- universal service remains of good quality.
I will now cover ARCEP’s work on electronic communications.
Ten years of regulating electronic communications: towards a mature regulation
During the year 2005, the sector’s growth remained strong; the sector’s consolidated sales revenue increased by 2.6 %, passing the 40-billion euro mark. Main trends were:
- a sustained growth in mobile telephony – 9% up – but not reaching the double digit growth rate of the past;
- an erosion of fixed telephony – 5% down;
- a strong increase in high-speed Internet, which grew by 18% in value and a lot more in volume;
- a growth of broadband voice, which represented 8% of the fixed traffic volume in 2005 and 11 % in the fourth quarter.
The resumption of investment, which rose by 15 %, is important because it indicates a break with the past few years. It’s in this positive background that we will report on our activities in 2005.
Created by the law of July 26, 1996, the principle of regulating the sector by an independent administrative authority is now 10 years old and is reaching maturity. After the first period of liberalization, the 2002 Telecom Package, which was transposed into the National Electronic Communications law of July 2004, gave the sector a framework which is both stable and flexible to come along with its evolutions.
A market analysis process almost finished
This new framework has almost completely been implemented in 2005. By completing 16 market analyses out of the 18 market analyses identified by the European Commission, as well as two market analyses that are not classified by the Commission recommendation, France has joined the leading group of European regulators who have made the transition from the old framework to the new one in a reasonable period of time. The quality of these analyses is widely recognized, in particular abroad, which proves the excellent level of ARCEP’s staff.
ARCEP’s intervention mechanisms are now well known by all players, and will become almost routine. Starting in 2007, we will launch the second cycle of market analyses by reexamining the wholesale market for voice call termination on mobile networks, and by beginning to implement the new European Commission recommendation, which is expected to come at the end of 2006.
For now, two market analyses are incomplete.
The first one is about international roaming on mobile networks. ARCEP had organized a public consultation in 2005 on this issue; the Commission has since taken over the initiative. ARCEP, inside the ERG (European Regulators Group), is helping to draft a new European regulation, which should focus on wholesale markets and be simple enough to allow the most harmonized implementation process possible across Europe. However, considering the industry’s propositions of self-regulation, the value of direct regulation for the international retail roaming market is not obvious, and should be examined with caution.
The second one is about the wholesale access and call origination market on mobile networks, which is used by mobile virtual network operators who have recently entered the French market. ARCEP has put this market under surveillance and is carefully monitoring the competition process, which is developing slowly. This market is structured by the contracts between host operators and virtual operators. The analysis of the evolution of these contracts during the year 2006 – they evolve continuously – will be a basic element of the new market analysis that we will complete by the end of the year.
Retooling regulation for the access and interconnection markets
For fixed networks, this first stage of implementation of the new framework has allowed ARCEP to develop new regulatory tools for wholesale markets, including:
- the consolidation of the existing broadband wholesale offers into a new bitstream reference offer ;
- the implementation of a valuation method for the local copper loop and of new tariffs for full unbundling, and soon, of accounting separation obligations;
- the creation of a new wholesale access offer for telephone service, called VGAST, to open the subscription market to competition;
- the creation of a new very high-speed terminal segment offer with an Ethernet interface (CE2O);
- and tomorrow, the creation of new wholesale offers to come along with convergence.
This strengthening of the regulator’s intervention tools in wholesale markets is at the core of the new framework. Acting on the wholesale market allows the creation of conditions for effective and fair competition in retail markets without direct intervention in them, and thus leaves maximum freedom for all players to invest, to innovate and to bring more services to end users in accordance with the general law on competition, and under the vigilant eye of the Competition Council.
I want to emphasize that the creation and the effective implementation of these new wholesale offers would not have been possible without the active participation of France Telecom which I would like to thank today.
Stimulating innovation in retail market to provide greater benefits to consumers
This progress, which created an abundance of wholesale offers, allowed ARCEP to authorize France Telecom to introduce new services in the retail markets, thus proving that innovation and regulation can live together. The French market stands out in Europe thanks to the great number and the great diversity of its new offers, including:
- fixed-mobile convergence services;
- offers combining voice, high-speed Internet and audiovisual content;
- new bandwidth services, in particular with an Ethernet interface that better meet the needs of businesses.
Consumers benefit from the dynamics of innovation.
A deregulation of retail markets that will now accelerate and become more widespread
The repositioning of our tools on the wholesale markets is on the right way, and the time has now come for ARCEP to commit itself entirely to the deregulation of the retail markets.
First, let us remember that ARCEP never regulated the retail broadband access market, and that competition has, even though, strongly developed. It proves that the regulation of a retail market which has a dominant operator is not inevitably necessary.
This deregulation process has already started for bandwidth services since ARCEP, which notified the European Commission of its draft decision, wants to remove any obligation for France Telecom to submit its retail product tariffs for consultation. This puts an end to the system of homologating tariffs after public notice by ARCEP. Before the end of the three-year deadline set for this market analysis, ARCEP will consider removing all regulation of the retail bandwidth service market.
We will extend this approach to fixed telephony by proposing at the end of July an initial softening of obligations concerning the fixed telephony retail market. But the objective is also to remove all competitive regulation between now and the next market analysis cycle in 2008. The only remaining obligations for France Telecom will be those of universal service and accounting obligations, which are still to be set.
The sustained development of voice over broadband offers and the introduction of VGAST, or subscription resale, are the key elements underlying this deregulation. By allowing all operators to be present in the telephone access market, the conditions of an effective and fair competition are thus created. ARCEP will organize a public consultation to determine the stages of the retail market deregulation process. In particular, these steps will enable to check the adequacy of underlying wholesale offers.
ARCEP will nonetheless leave behind a trace of its past action, on one hand by maintaining the accounting information tools developed, and on the other hand by continuing to update cost models to facilitate the efficient application of general competition law.
A dynamic wholesale market regulation
ARCEP favors a regulation through wholesale markets. But this regulation must remain dynamic by always adapting to the reality of markets. This regulation focuses on the bottlenecks in the access networks and can be moved temporarily to network elements of a higher level, which can be duplicated. To this end, we have set for 12 months a softer regulation for the national wholesale ADSL bitstream market. We will launch a public consultation on a proposition to remove this transitory regime.
Likewise, for switched transit, the cost-orientation of the transit to and from the France Telecom network will be replaced, on early 2007, by the banning of excessive and eviction tariffs, which is more flexible. In 2007, we will consider eliminating all price controls for this market segment.
Moreover, we will explore new horizons for regulating access markets to respond to new issues that arise from very high speed networks. The question is not whether ‘to regulate or not to regulate’, but rather what action will be the most conducive to investment, by the largest number of players, in the development of new networks, and in the development of new innovative services for our society.
Naturally, it’s important to pay attention to questions regarding the passive infrastructure inherited from the former state monopoly and built during the initial stages of competition in the sector. The first step began in March, when France Telecom decided to propose an access offer for ducts located in business zones. In this respect, ARCEP will work in the next few months to verify the availability of this infrastructure and to monitor the details of this access offer. The findings will help us to determine whether an action focusing on civil work is sufficient to prevent the risk of recreating a monopoly in the local loop, or if additional steps should be considered.
We’ll also have to take into account the risk of new investments and the recent arrival of local authorities in the electronic communications sector. The local authorities are developing new infrastructure and expanding private investment. Work by the CRIP (Comité des réseaux d’initiative publique), an association of local authorities, operators and ARCEP, will provide an essential contribution for identifying the most effective intervention models for the public authorities. The important contribution of new public infrastructure in the extension of the unbundling footprint during these past months has helped to provide important feedback. Projects that give economic players passive infrastructure – duct and dark fiber – appear to be the best suited for technologies that continue to evolve. The risk profile of these projects is more adapted for long-term public investment because it minimizes the risk of obsolescence.
Numbering and Frequencies
ARCEP’s activity is not limited to the regulation of market competition. That’s why I would like to mention the main projects that the Authority carried out or started in 2005.
The updating of the management rules for the numbering plan has enabled to come along with the development of broadband offers by providing players with a new numbering resource – numbers beginning with ‘09’. This work is complemented by ARCEP’s pro-active approach on number portability, which focused on mobile phone numbers and will now focus on fixed number portability. ARCEP is also working to improve the conditions for developing and issuing a universal directory.
Regarding frequencies, the big project of these recent months has been the launch of a frequency allocation procedure for Wireless Local Loop using WiMax technology. ARCEP is currently finishing the selection procedure and will publish the results on July 7.
Concerning UMTS frequencies, 3G mobile communications services continue to develop rapidly. With more than two million customers, France is an important European player in 3G development. Today, Europe has nearly 30 million UMTS Customers.
Although multimedia mobile services are still in their infancy, operators have made a real effort to propose innovative and attractive offers to consumers, who have shown a growing appetite for video and television services. So, the ongoing deployment of HSDPA, which provides an evolutionary path for UMTS, should stimulate the emerging demand and create a more noticeable break between 3G and 2G. It will provide users with even faster bit rates, approaching those offered by wireline technologies. To give consumer information regarding these new services, ARCEP is planning to add UMTS to the service quality surveys conducted annually for GSM mobile services.
Creating nationwide 3G coverage is an important challenge. SFR and Orange France’s UMTS networks cover more than 58 % of the population, according to the verification of the beginning of the this year, which is in accordance with the commitments they made in 2004. In a second roll-out phase, both operators will expand their national coverage to at least 70 % of the population – SFR by year-end 2007 and Orange France by year-end 2008. Soon, ARCEP will also conduct a similar verification of the coverage obligations of Bouygues Telecom, which got a 3G license later than the other operators. Bouygues Telecom’s coverage must indeed reach 20 % of the French population by April 2007.
Deployment efforts shall be pursued to bring 3G services to the greatest number of people in the country. 3G’s reuse of the 900 MHz band, now used by 2G, will first enable to extend coverage. ARCEP will launch a public consultation on this subject in the fall. The consultation will help to determine whether the distribution of the 900 MHz and 1800 MHz bands will have to be redefined in order to guarantee that frequencies are distributed equitably among all 2G and 3G mobile network operators. Thus, the market will be tested once more on its interest in the fourth UMTS license, which is still available. ARCEP will then make the necessary decisions on the future allocation of corresponding frequencies based on the interests expressed.
But using even lower frequencies – below 800 MHz – would allow an efficient nationwide coverage of high-speed and very high-speed wireless access services. On this matter, ARCEP is pleased with the creation this past May of the Digital Strategic Committee (Comité stratégique pour le numérique), headed by Jean-Michel Hubert. This committee will handle the issue of the 'digital dividend', which is, in other words, the issue of the allocation of frequencies that will be freed up when analogue television will be replaced by digital television. Regarding this subject, ARCEP supports the European Commission, which says a harmonized digital dividend represents a political and industrial goal of primary importance on the European level. For this reason, ARCEP will contribute to the work carried out in France by the Strategic Committee so that decision to that end can be prepared in the next few months.
In this context, ARCEP is starting the review process of the regulatory framework with a clear position. In the matter of competition regulation, the current framework demonstrated its strength by allowing European regulators to adapt to national specificities and to new emerging problems. The flexibility of this framework is a guarantee of its success.
The European Commission officially began the review process last Thursday (June 29). I am pleased with the debate launched by Viviane Reding on the objectives of this review, which we fully support:
- reinforcing the harmonization of regulation in Europe;
- stimulating innovative investment by promoting competition;
- better valorizing and managing spectrum.
I thank you for your attention.