NEWS | Wednesday, 26 March 2008

Towards convergence

Charlot Zahra takes an in-depth look at the European Commission’s latest report Progress Report on the implementation of the EU’s Single European Electronic Communications Market published last week

In its report on Malta, the 13th one to date, the European Commission (EC) said that “Malta has seen an improvement in the competitive situation across markets in 2007 as operators, seeking to become converged players, have expanded beyond their traditional markets”
The Commission highlighted that “broadband penetration grew at a faster rate this year (to 17%) after some previous slow-down and the market saw decreased prices”, however Malta remained short of the EU average of 20% of broadband subscriptions.
Moreover, the Commission said, “consumers’ choice of mobile operators is set to improve following the allocation of the third 3G licence” in August last year to 3G Telecommunications.
“This may have a positive effect on prices – among the highest in the EU – and penetration, which grew substantially but at 91% remains below the EU average of 112%,” the Commission said in its report.
In its report, the Commission said: “While the fixed incumbent and the main cable operator each remained dominant in their respective markets, 2007 was characterised by a drive to create converged fixed-mobile service operators. Interconnection agreements between all market players were in place.”
In the mobile market, the fixed-to-mobile substitution process continued “with a further increase in the mobile networks’ share of the overall voice traffic. Most subscriptions were pre-paid, SMS was inexpensive and popular.
“Maltese consumers’ available choices seem to be increasing following the allocation of the third 3G licence. 3G as well as HSDPA coverage by active operators was already at 100% of the national territory.”
With regards to mobile number portability, the Commission said that “significant progress was made in mobile number portability, as portings more than tripled in 2007, reaching 20,000,” therefore mobile portability had become well-established in Malta.
However, in its report, the Commission warned that “Malta has not yet completed the analysis of the broadband market, which is causing some uncertainty in the sector.
“In addition, lengthy appeal procedures continued to be one of the major obstacles to the effectiveness of the regulatory framework. It is not yet clear whether the recent reform of the appeal systems has significantly improved the situation,” the Commission said in its report.
Moreover, the Commission warned that the GO, the incumbent in the fixed line incumbent, was “by far strongest player in fixed market. There is certainly room for more competition in the fixed telephony sector, as the incumbent continues to be dominant with a 98% market share.”
The report also highlighted the fact that alternative broadband operators were struggling, losing their market share to the big two (Melita and GO). “While cable broadband is widespread, the incumbent’s ADSL (formerly known as Datastream) still accounts for 55.5% of all retail broadband lines. “The ISP subsidiary of the fixed incumbent (formerly known as MaltaNET) strengthened its position on the retail broadband market for the fourth consecutive year to reach a market share of 41%.
“Alternative internet service providers consolidated in 2007, but their combined market share was quickly shrinking from 21% of all broadband connections (on a resale basis), to only 14% (on the basis of bitstream access), mainly to the benefit of the fixed-line incumbent,” the Commission said in its report.

The operators’ view
Asked by Business Today for its reaction to the fact that in its report, the EC called for more competition in the fixed telephony sector in view of the fact that the GO continued to be dominant with 98% market share, a spokesperson for GO said yesterday: “GO is a very heavily regulated operator. All aspects of its voice services have been under regulation by the MCA for years now.
“As in any other market, GO has lost some market share to the new operators in the field of fixed voice, however it is a fact that GO’s network offers a higher quality service than that of the competition,” the GO spokesperson said.
He said GO’s main focus remained to provide “the best quality services at affordable prices” to its customers. “GO has been operating in a competitive environment since 1995 in various aspects, and has no problem with this,” he told Business Today.
The GO spokesperson said that GO had been the first undertaking in Malta to offer quadruple play services, and it has done so at considerable investment, including the latest investment in a second submarine cable, a 3.5G/ HSDPA mobile infrastructure, the new improved digital TV infrastructure, and the nationwide upgrade of the fixed network.
“The reaction of some competitors that have not made timely investments was to try to stop GO through regulation from offering converged services until such time as they caught up with their own plans.
“One hopes that the consumer and competition are respected more in future: this is done not by trying to stifle innovation through regulatory complaints but by investing and striving to meet the competition in the field, the GO spokesperson told Business Today.
On his part, asked for his reaction to the EC’s call for more competition in the fixed line sector in Malta, Melita Cable plc Chief Executive Officer Philip Micallef disputed the percentage attributed to GO by the EC report.
Speaking to Business Today, Micallef said that since the launch of Melita’s fixed line telephony Hello service on 23 November 2006, Melita has to date over 36,000 Hello customers.
“This in our opinion represents about 15% market share and official statistics confirm that unlike in most EU countries number of fixed telephony lines have increased in Malta.
“Melita’s success in fixed line telephony has been due to value-for-money service and the fact that unlike other new entrants Melita’s service does not run on the incumbent’s network but on an independent modern network,” Micallef said.
On his part, a spokesperson for Vodafone said: “We agree that Fixed telephony is still dominated by GO and this is evident with their 98% market share. Vodafone has launched its own fixed voice service with its Vodafone @home internet and voice packages.”
With regard to the EC’s call for more competition in the cable television sector, where Melita Cable still had a dominant position, a spokesperson for GO complained that the MCA adopted a different regulatory approach for the two incumbents.
“It is clear that although Melita have a strong incumbent position in the pay TV market, coming from a long monopoly as well as access to various exclusive content, the regulatory framework adopted in their regards is not the same as that adopted to GO on fixed voice.
“This creates a clear uneven playing field, especially in a developing market where customers are looking for triple and quad play bundles,” the GO spokesperson told Business Today.
He said GO was promoting “real competition in the pay TV business” offering a high value digital service at affordable pricing. “The take up of the service over the last months shows that consumers are reacting to this.”
Moreover, the GO spokesperson said that the telecoms company had invested significantly over the past year to launch its own television transmission service, which provides “compelling content at rates that are better than those of Melita Cable”.
Moreover, “GO would like to see more spectrum freed for it to continue enhancing its TV offering to the market” as it was currently limited to one set of seven frequencies.
GO said it was also concerned that “certain must carry regulatory proposals will give Melita Cable an unfair advantage” over the competition in this market.
Asked for his reaction, the Melita Cable CEO explained that competition in the pay TV sector started in 2005 with the granting of digital terrestrial television licences in 2005.
“One thing that unfortunately competition has brought about in this sector is the rising prices of television content as the rights holders are now asking for higher prices knowing fully well that the companies are competing against each other to offer the best content to their customers.
“Since the advent of competition Melita has managed to increase its customer base and continues doing so. Competition here is being promoted by offering customers the best possible programming and the widest of choices to suit all pockets,” Micallef told Business Today.
On his part, a Vodafone spokesperson said: “Since Melita has around 86% of the broadcast market and that over the years the TV offering has hardly developed, Melita may be deemed monopolistic.
“Moreover, in 2010 Malta will stop providing analogue TV transmissions meaning no more free to air services, ‘forcing’ users to acquire their TV service at a price.”
Asked for their reaction to the fact that at 17%, broadband penetration was still slightly at a lower level when compared to the average in other EU Member States, the three major telecoms operators had different outlooks about the situation.
The GO spokesperson was upbeat in his assessment of the broadband market in Malta. He quoted from the EC report, which said that “Member States with growth higher than EU average include Romania, Greece, Latvia, Malta, Hungary, the United Kingdom, the Czech Republic and Luxembourg.”
“It is important to note also that Malta has one of the highest broadband penetration per capita of the new Member States,” the GO spokesperson said.
“The broadband take-up in Malta is growing. Given the size of the island and economies of scale, we are doing well. We are one of the few countries in the world where practically all households can be reached by two fixed broadband infrastructures and at least one wireless broadband infrastructure.
“GO will continue to offer, as it has done in the past, higher speed services at affordable pricing, and backed by a strong 24x7 support team. GO will also continue to support Government with any initiates to stimulate take-up, as it has done recently with the Blueskies campaign,” he insisted.
On his part, the Melita Cable CEO explained that the price of international bandwidth, which were still relatively high, played a big part in the cost structure of broadband services.
“With the recent announcement of companies investing in increasing capacity to mainland Europe the situation should in the medium to long term improve as international bandwidth prices start aligning themselves with those of mainland Europe and not as they are at the present,” Micallef told said.
“However, Malta is catching up in broadband penetration and the recent Government initiative “Blueskies” will certainly help in improving Malta’s broadband penetration.
“Melita has always been a leader in this broadband area and continues promoting competition by offering a wide range of speeds to suit the requirements of customers.
“Melita’s latest speed is a 10MBps connection which has just been announced recently and is creating a great interest,” Micallef said.
On his part, a Vodafone spokesperson said the company was “very supportive of initiatives to increase broadband penetration in our country. “We strongly believe that, as stated in the implementation report itself, the key issue is tackling the access bottlenecks such as a review of Unbundled Local Loop access through a fair and coherent regime.
“Moreover Vodafone offers a number of products through different technologies that address the fixed home internet market, as well as mobile high-speed connectivity anywhere,” the Vodafone spokesperson told Business Today.
Asked for his reaction to the fact that in the mobile telephony sector, the EC report highlighted the fact that prices in Malta are “still among the highest in the EU” and whether the market this sector became stagnant with a duopoly situation for eight years now, a GO spokesperson said that despite everything, mobile penetration in Malta continued to grow.
“In a market as small as ours, it is not easy for multiple operators to make a business case, especially when one considers the investments that had to be made in the upgrading of networks to 3G and 3.5G, as is GO Mobile’s network.
“GO will continue to evaluate the situation and ensure it is offering the best value packages to its customers,” the GO spokesperson told Business Today.
On his part, a Vodafone spokesperson said that “despite the significant regulatory costs and taxation regimes incurred, we have reduced prices by 14% last year.
“While voice prices are still higher than the average European price, we have the cheapest SMS prices in Europe and one of the best offerings for mobile data.
“Unfortunately Malta does not have the economies of scale of other countries; however the level of investment that has been maintained in the network is second to none in Europe,” the Vodafone spokesperson complained with Business Today.
On his part, Melita CEO Philip Micallef said that the company obtained a mobile license in August 2007 and was working hard to enter into this sector “which it feels can do with more competition.”
“The prices of mobile are higher than in most EU countries and the average usage is still lower than in mainland Europe.
“Melita has thus taken the decision to enter this mobile sector and become the third serious player in this area offering value-for money innovative services. Melita’s entry will definitely boost competition,” Micallef told said.
Asked whether they agreed or not with the EC’s report that the lack of implementation of the market analysis of the broadband market was “causing some uncertainty in the sector”, all three major telecoms operators in Malta called on the MCA to speed up the issue of this analysis, although for differing reasons.
A GO spokesperson told Business Today that the MCA had in fact completed this analysis “ages ago, and found Melita dominant in this market, as has been obvious for many years.
“However the Commission did not subscribe to this point of view, because it was afraid that this may have an impact on other markets and effectively sent back the analysis.
“This continues to create an uneven playing field, with GO honouring its wholesale obligations since 2000, whilst Melita refuses to comply.
“Aside from being a breach of Maltese law, this has given Melita Cable an unfair advantage to maintain its dominance in the retail broadband market.
“We understand that the MCA is going to publish its new analysis for consultation very shortly and that it will propose that the field will be levelled between GO and Melita Cable.
“GO is eagerly waiting for the MCA to re-issue its consultation on the re-analysis of this market,” the GO spokesperson insisted.
On his part, the spokesperson for Vodafone concurred with GO’s position that the completion of this analysis “is long overdue”.
“Moreover, despite reduction in retail prices due to increase in competition, the opportunity for non-incumbent operators to deliver the service competitively is lacking possibly due to access bottlenecks.
“For example Vodafone is still the only one of the three BWA license awardees that has lived up to its license commitments and actually rolled out a service.
“It is hard to understand how MCA only fined the other two non-compliant BWA licensees a paltry amount that would at worse reach a few tens of thousand euros.
“Review of the broadband market and then review of the unbundled local loop market for broadband IP services would be our preferred direction for the MCA,” the Vodafone spokesperson told Business Today.
On his part, the Melita Cable CEO was more generic in his response about the issue.
“Although resources to carry out such analysis in Malta can at times be a real challenge to the MCA, the telecom players need to know where they stand not only on this subject but also in others.
“In today’s fast moving telecom sector the authorities need to try and speed up the processes and procedures to enable the players to take business decisions in the smoothest fastest possible manner.”
Asked whether they agreed the EC report’s assessment that the “lengthy appeal procedures continued to be one of the major obstacles to the effectiveness of the regulatory framework” and what effective action should the MCA take in this respect, the GO spokesperson explained that “the MCA does not have control over appeal procedures as it is a litigant party in such procedures. Such procedures are regulated by law”. However, he called for the appeals mechanism to be “fine-tuned to ensure effective operations in a timely manner”.
On his part, Micallef was more explicit in his criticism of the appeals procedure.
“Again here, the authorities need to re-engineer their processes and procedures including the appeal procedures which are too lengthy,” he told Business Today.
On his part, a Vodafone spokesperson said the company agreed with the EC’s assessment in this respect.

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