Report number

Date

PTS-ER-2009:27 18 September 2009

Strategic Agenda for 2010

Strategic Agenda for 2010

Report number

PTS-ER-2009:27 File reference

09-6393 ISSN

1650-9862 The Swedish Post and Telecom Agency (PTS)

Box 5398 SE-102 49 Stockholm Sweden +46 (0)8-678 55 00 [email protected] www.pts.se

Foreword The Swedish Post and Telecom Agency (PTS) has collective responsibility within the postal and electronic communications sectors, i.e. telecommunications, IT and radio. Our vision is for everyone in Sweden to have access to efficient, affordable and secure communications services. PTS hereby presents its second strategic agenda. In this agenda, we conduct an analysis of trends in the business environment and the current market situation, and also report on the areas that we will prioritise in 2010. The strategic agenda is adjusted annually according to the market situation; for example as a consequence of measures that we have taken and according to the trends that we assess will have a major impact on the market and our operation over the next few years. We are in the midst of a deepening recession, and its impact on the electronic communications and postal sectors is still unclear. At the same time as this could reduce the willingness of operators to invest, many countries, not least Member States of the EU, regard investments in electronic communications as an impetus for growth and a means of creating job opportunities. The Agency's work on the strategic agenda is a way for PTS to increase its transparency in relation to the business environment and is a vital component of our internal corporate governance. For this reason, I am very pleased that market stakeholders are actively participating in the fora for dialogue and consultation that we offer in conjunction with our strategic agenda. A continuous dialogue with market stakeholders is also important for our capacity to translate our public authority responsibility into measures to ensure that we effectively achieve our vision.

Marianne Treschow Director-General

Contents Foreword

3

Sammanfattning

6

Summary

7

1 1.1 1.2 1.2.1 1.2.2 1.2.3 1.3

The Strategic Agenda Why have a strategic agenda? Structure of the agenda Initial values for the strategic agenda PTS's hierarchy of objectives Strategic orientation Higher demands imposed on all public authorities

8 8 8 8 9 9 10

2 2.1 2.2 2.3 2.4

PTS's mission, vision and overall goals Political goals PTS's vision PTS's overall goals External policy

11 11 11 11 12

3 Market developments and results 3.1 Long-term consumer benefit 3.1.1 Increased freedom of choice, stronger consumer protection and good personal integrity 3.1.2 Access to an IT infrastructure that corresponds to consumer demand 3.1.3 The level of service and accessibility of postal and basic payment services 3.2 Long-term sustainable competition 3.2.1 Competition in the postal market 3.3 Efficient utilisation of resources 3.3.1 Models for spectrum management 3.3.2 Release of spectrum and measures for more efficient use 3.3.3 Greater element of market mechanisms and collective use 3.3.4 IPv6 – key issue for the continued expansion of the Internet 3.4 Secure communications 3.4.1 Robust electronic communications 3.4.2 Secure electronic communications 4 4.1 4.2 4.3 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.3.6 4.3.7 4.3.8 4.3.9 4.3.10 4.3.11

13 13 13 16 21 22 28 29 29 30 31 31 32 32 33

The business environment 36 PTS's work relating to the business environment 36 Background 37 Some important trends and uncertainties 39 TREND: Cloud computing 39 TREND: Mobile telephones are being used for more services 40 TREND: Increased need for capacity on the part of end users 41 TREND: Migration from copper to alternative infrastructure 42 TREND: Consolidation within the electronic communications sector 43 TREND: Increased dependence on electronic communications is increasing vulnerability 44 TREND: Security and copyright interests are increasingly set in relation to the protection of personal integrity 44 UNCERTAINTY: New business models 45 UNCERTAINTY: Broadband for all? 46 UNCERTAINTY: More equal treatment in the access network 47 UNCERTAINTY: The impact of European consolidation on the Swedish postal market 49

5 5.1 5.2 5.2.1

PTS's strategic orientation for 2010 50 Orientation goals for 2010 50 Priority areas for 2010 52 AREA 1: Creating opportunities for the rollout of IT infrastructure with high capacity 53 5.2.2 AREA 2: Creating opportunities for improved competition in the broadband sector56 6

PTS's strategic orientation for 2011-2013

59

6.1 6.2

Priority areas for 2011-2013 Need for resources and expertise in 2011-2013

Glossary

59 60 64

Sammanfattning I den strategiska agendan gör PTS en samlad, övergripande bedömning av de stora utmaningarna inom områdena elektronisk kommunikation och post. PTS har identifierat två områden där det finns ett tydligt behov av att öka insatserna under 2010, och där dessa insatser förväntas ge stora positiva effekter. Skapa förutsättningar för utbyggnad av IT-infrastruktur med hög kapacitet

Sverige har i dag en väl fungerande grundläggande IT-infrastruktur, där i stort sett alla är anslutna till eller har grundläggande förutsättningar för att kunna ansluta sig till infrastruktur med bredbandskapacitet. Det politiska målet på bredbandsområdet säger att infrastrukturen i första hand ska tillhandahållas genom marknadens försorg, och att en effektiv konkurrens ska leda till ett bra tjänsteutbud. Den stora utmaningen på bredbandsområdet framöver handlar om att kapacitetskrävande tjänster ställer allt högre krav på näten. Utbyggnad av fiber och en fortsatt utveckling av trådlösa tekniker, så att kapaciteten i mobila bredbandsnät ökar, är avgörande för att infrastrukturen ska klara framtidens krav och för att Sverige på sikt ska kunna behålla sin konkurrenskraft. PTS kan bidra till en positiv utveckling genom att skapa förutsättningar för effektiva investeringar i IT-infrastruktur med hög kapacitet. Detta kan ske genom det konkurrensfrämjande arbetet, genom spektrumförvaltningen och genom andra åtgärder. Skapa förutsättningar för ökad konkurrens på bredbandsområdet

Marknadsutvecklingen visar att det fortfarande finns konkurrensproblem på bredbandsområdet. Vissa problem är förknippade med tillträde till det metallbaserade accessnätet. Den teknikutveckling som nu sker med en migrering från koppar- till fiberinfrastruktur kan innebära nya tillträdesproblem. Samtidigt sker en snabb utveckling av trådlösa bredbandstjänster som på sikt och under vissa förutsättningar kan bidra positivt till konkurrensen på området. De marknadsanalyser som under 2009 genomförs på marknaderna för nätinfrastrukturtillträde och bredbandsinfrastrukturtillträde (bitströmstillträde) förväntas leda till skyldigheter som är bredare i sin omfattning jämfört med tidigare. Till exempel är frågor kring nya typer av tillträdesmöjligheter aktuella, vilket skulle innebära nya utmaningar för tillsynsverksamheten. Här bör särskilt nämnas reglering som syftar till att ge alternativa operatörer tillträde till svart fiber. Arbete relaterat till ett eventuellt beslut om funktionell separation kommer också att genomföras under 2010.

Summary In its strategic agenda, the Swedish Post and Telecom Agency (PTS) has made a comprehensive, overall assessment of major challenges within the sectors of electronic communications and postal services. PTS has identified two areas where there is a clear need to increase the number of initiatives made over the course of 2010 and where these initiatives are expected to have a major positive impact. Creating prerequisites for the rollout of IT infrastructure with high capacity

Sweden currently has basic IT infrastructure that works very well, to which virtually everyone has a connection or has basic prerequisites for connecting to infrastructure with broadband capacity. The political objective for the broadband sector states that infrastructure should in the first instance be provided through the agency of the market and that effective competition is to lead to a satisfactory range of services. In the time ahead, a major challenge for the broadband sector involves services demanding high capacity imposing greater demands on the networks. The rollout of fibre and continued development of wireless technologies, so that the capacity of mobile broadband networks increases, are crucial to infrastructure being able to meet future requirements and Sweden retaining its competitiveness in the future. PTS can contribute to positive developments by laying the groundwork for effective investments in IT infrastructure with high capacity. This can be realised through work to promote competition, by means of spectrum management and through other measures. Creating potential for improved competition in the broadband sector

Market developments demonstrate that there are still competition problems in the broadband sector. Certain problems are associated with access to metallic loops. The technological progress now taking place, with migration from copper to fibre infrastructure, may entail new access problems. At the same time, however, wireless broadband services are developing quickly, which under certain conditions may help drive competition in the sector. The market analyses being conducted in 2009 in the markets for network infrastructure access and broadband infrastructure access (bitstream access) are expected to lead to broader obligations than previously. For example, there are current questions concerning new types of access opportunities, which would represent new challenges for supervisory work. Here in particular, regulation should be mentioned, the aim of which is to give alternative operators access to dark fibre. Work related to a possible future decision concerning functional separation will also be carried out in 2010.

Strategic Agenda for 2010

1

The Strategic Agenda

1.1

Why have a strategic agenda?

In its strategic agenda, PTS makes a comprehensive, overall assessment of the major challenges facing the postal and electronic communications sectors. Here, PTS identifies the Agency's strategic orientation for 2010 and makes strategic assessments for the period 2011-2013. PTS shall produce a strategic agenda annually. PTS publishes a strategic agenda for four main reasons: •

• • •

The agenda shall contribute to PTS's corporate governance by providing the orientation of PTS's operation and ensuring that PTS's work leads toward the operation's goals and objectives and originates from events taking place in the business environment; The agenda shall describe priority areas within which PTS needs to increase its initiatives; The agenda shall make it easier to follow up the measures taken in these priority areas; The agenda shall increase the transparency for and dialogue with staff, market stakeholders and clients by clarifying PTS's strategic orientation.

The strategic agenda is aimed at both internal and external target groups. PTS's assessments are based on continuous internal and external dialogue regarding trends observed in the business environment and the challenges facing PTS. Market stakeholders have a particularly important role in this dialogue. PTS has presented its work on the agenda and has invited discussion with stakeholders from the electronic communications industry about the trends in the business environment observed by PTS. PTS has submitted the proposed strategic agenda to interested parties for comment. 1.2

Structure of the agenda

1.2.1

Initial values for the strategic agenda

PTS's strategic orientation is based on: 1. 2.

The Agency's mission (condensed into a vision and overall goals); The impact of the measures taken by PTS, including current market development;

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Strategic Agenda for 2010

3.

The trends that can be discerned in the business environment over the next few years.

These three initial values are described in Sections 2 to 4. Diagram 1 Initial values for the strategic orientation

Mission

Market utveckling development

PTS PTS’s strategiska strategic inriktning orientation

Business Omvärld environment

PTS's strategic agenda will be reviewed annually to take account of the impact of PTS's measures and revised assessments of future trends in the market. 1.2.2

PTS's hierarchy of objectives

PTS makes use of a hierarchy of objectives to achieve its vision. A more detailed description of the vision and the four overall objectives of the Agency is provided in Section 2. Appendix 1 contains a more detailed explanation of how PTS's hierarchy of objectives is structured. 1.2.3

Strategic orientation

In its strategic agenda, PTS has conducted a balanced assessment of the impact achieved in the market, the developments expected in the business environment and PTS's mission, which serve as the basis for the Agency's strategic orientation. The strategic orientation comprises nine orientation goals, as well as a limited number of priority areas in which there is a clear need for increased initiatives by the Agency and where the initiatives are expected to have a major positive impact. The strategic orientation is described in Section 5.

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Strategic Agenda for 2010

1.3

Higher demands imposed on all public authorities

In addition to the areas prioritised by PTS in this agenda, there are a number of issues and areas that require initiatives by all public authorities, largely as a result of the demands imposed by the Government on these authorities. These are matters that are already high on PTS's agenda, and the Agency will need to commit resources for dealing with them. Important areas of this nature include PTS's work to develop e-administration and simplify regulations for businesses, a continuation of its environmental work and an increased focus on international issues. PTS believes that it has an important role to play in all these areas and that the work will have a positive impact. A well-developed e-administration, for example, will simplify matters for both consumers and businesses, make the Agency's work more efficient and further improve its quality. International issues are an important part of PTS's operation. One example is the EU Regulation on international roaming, where PTS and other regulatory authorities in the EU have participated in the drafting of the proposed Regulation and the ensuing negotiations and, for example, are responsible for monitoring compliance with the Regulation (see also 3.1.1). Most of the areas that the Agency deals with are by nature transnational and require continuous international cooperation. PTS's strategic orientation must therefore be seen as part of a bigger, international picture.

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Strategic Agenda for 2010

2

PTS's mission, vision and overall goals

2.1

Political goals

PTS receives its mission (mandate) from the Government. The mission is formulated in different contexts and forms, for example, in PTS's instruction and the annual terms of reference. PTS organises its operation to meet the needs and guidelines expressed by the Government. The Government's goal for IT, electronic communications and postal services is formulated as follows: Secure and easily accessible communications supplied primarily through the market, and a broad range of services to make everyday life easier for households and businesses throughout Sweden. 2.2

PTS's vision

A vision expresses a desirable future state and is meant to serve as guidance for the strategic orientation. PTS's vision is: Everyone in Sweden shall have access to efficient, affordable and secure communications services. PTS's view is that the stakeholders in a functioning market provide a large number of communications services that make everyday life easier for households and businesses throughout Sweden. The market for communications services shall be characterised by sustainable competition, the efficient use of resources and secure communications. This leads to long-term consumer benefit. PTS works to create good conditions for a functioning market and intervenes when there are failings. 2.3

PTS's overall goals

PTS's overall goals express the Agency's view on which parameters are important to work with in order to achieve political goals as well as PTS's own vision for the market. PTS's overall goals are: • • • •

Long-term consumer benefit; Long-term sustainable competition; Efficient use of resources; Secure communications.

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Strategic Agenda for 2010

In some situations, goals can conflict with each other. When this happens, PTS will prioritise the alternative that is considered to have the greatest positive impact on long-term consumer benefit. PTS's vision and overall goals are characterised by long-term stability. It is important that market stakeholders and other interested parties are familiar with the overall guidelines of the Agency's operation and that these can hold their own in a changing business environment. 2.4

External policy

In certain areas, there may be reason to formulate principles for the future action 1 of the Agency, in addition to that expressed by the Agency's vision and overall goals. One reason may be to increase the transparency of PTS's action on the behalf of external target groups. In these cases, this involves producing a policy within a given area that aims to render the Agency's mission (i.e. its mandate from the Swedish Government) operational in this area. In this way, the policy runs in parallel with the vision and overall goals. There may also be conflicting goals even at a level that is as comprehensive as this. If it consequently is difficult to formulate a policy that serves its purpose, through creating predictability in the market, there may be reason to make the client aware of this. However, conflicting goals are normally dealt with as part of the ongoing work of the Agency through the strategies and measures produced by PTS. For example, PTS has formulated external policy documents for spectrum management and for access regulation as regards the access network.

A policy may be defined as 'fundamental principles for the actions of an organisation'. The aim of an external policy is to create transparency and provide guidance, both internally and externally.

1

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Strategic Agenda for 2010

3

Market developments and results

Developments in the markets for electronic communications and postal services are important initial values in PTS's strategic management. This section describes both the impact that PTS has contributed to the markets through its measures as well as more general phenomena over a longer period of time. The latter is necessary as many of PTS's measures have an indirect impact on a market and over time, whereas other measures may have a direct impact. In several areas, it is also very difficult to ascertain whether it is only PTS's measures that have had an impact on market developments. In these cases, an assessment must be made of whether the market is developing in a positive or negative direction, and whether PTS should increase or decrease its measures as a consequence of this. This section is structured on the basis of PTS's four overall goal areas. It is worth noting that one of PTS's overall goals may be described as being superior to the other goals, namely 'long-term consumer benefit'. 2 This is because the goals of 'long-term sustainable competition', 'efficient use of resources' and 'secure communications' should individually contribute to longterm consumer benefit, to some extent indirectly. This description of market developments and results explains the phenomena that are more directly aimed at consumers under the heading 'long-term consumer benefit'. 3.1

Long-term consumer benefit

3.1.1

Increased freedom of choice, stronger consumer protection and good personal integrity

Sweden is one of the Member States in the EU that has a relatively large number of operators in the electronic communications market in relation to the size of its population. On the one hand, the presence of a large number of operators means a wider range of services, but at the same time it makes getting a quick overview of the market difficult. For some time now, PTS has offered a price comparison service and has actively sought to provide consumer information to increasingly allow consumers to make informed choices in the market. In 2008, PTS worked on several different aspects of consumer information, in particular by developing Telepriskollen 3 – a web-based tool where consumers can compare forms of subscription for telephony and broadband. In 2008, the The concept 'consumer benefit' includes a benefit for everyone who uses electronic communications and postal services; that is, private individuals, businesses, associations and public authorities. 3 www.telepriskollen.se 2

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Strategic Agenda for 2010

number of visits to Telepriskollen rose by 50% compared with 2007 and the tool currently has approximately 40 000 to 50 000 visitors per month. Over the past year, the number of offers for, for example, mobile telephony and broadband subscriptions has risen sharply 4 , which indicates that consumers' freedom of choice continues to improve. PTS has monitored the changes that have taken place in the rates and tariffs for electronic services. It became clear from PTS's price report for 2008 that consumers to a limited extent had been able to benefit from the lower minute prices for telephony use, while other costs had risen. This was due to an increase in the opening fees for subscriptions and opening charges at the same time as the lock-in and notice periods had changed and the charging intervals had been extended. An indication of this was the price per month for an average user with the least expensive subscription in the market having remained constant over the past year (Diagram 2). The 'hidden costs' mean less transparency for consumers. PTS has succeeded in requiring operators to specify their invoices more clearly and has also increased the information provided via different channels, among these Telepriskollen.

Prisutveckling för telefoni och bredband första halvåret 2008 [Price developments for telephony and broadband for the first half year of 2008], PTS-ER-2008:21

4

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Strategic Agenda for 2010

250

2,50

200

2,00

150

1,50

100

1,00

50

0,50

SEK per item

SEK per customer per month

Diagram 2 Average revenue per text message, MMS and minute, and revenue per customer per month

0

0,00

2004

1h2005

2005

1h2006

2006

1h2007

2007

Avereage revenue per customer per month (including text messages, but excluding MMS and data traffic) Average revenue per text message Average revenue per MMS Average revenue per outgoing minute

The question of an improved roaming regulation for mobile call traffic is also an issue that the Agency is involved in at a European level. This will make it easier for consumers to communicate within the European Union at reasonable prices. The prices for electronic communications services in Sweden are competitive from an international perspective. 5 The price of a broadband connection is low compared with many other countries, particularly for services with a high capacity. Sweden also has among the lowest rates for mobile telephony in the EU, with only Norway and Denmark coming in lower. A contributory factor in this price situation is likely to be that Sweden is leading the way in terms of the regulation of call termination rates at a wholesale level. Increased pressure on prices at a wholesale level creates the 5 Sverige i framkant? En internationell jämförelse på slutkundsmarknaden för elektronisk kommunikation [Sweden at the forefront? An international comparison of the end user markets for electronic communications], PTS-ER-2009:1

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Strategic Agenda for 2010

potential for effective competition, which in its turn means a pressure on prices at a retail level. 6 PTS's long-term vision for interconnection, a priority area in 2009, is the continuing drop in (above all) rates for call termination services in mobile networks. This reduces the transfer of capital currently taking place from fixed to mobile networks and creates increasingly similar preconditions for operators to compete, which in its turn benefits the consumer. PTS has also observed that it has become more and more common for operators to bundle electronic communications services. Bundling services entails both advantages and disadvantages for consumers. The advantages include a total price for customers that may be lower than the cost of buying the corresponding services separately. Communicating with just one provider may also be perceived as an advantage. However, bundled services often have long lock-in periods and it may be difficult to compare prices, which means less transparency and limited potential to make optimal choices according to one's own needs. There is also a risk of long lock-in periods resulting in lock-in effects. It may be difficult for consumers to get out of an agreement if both the lock-in periods and notice periods are long. A related problem has an adverse effect on the growing number of consumers living in apartment blocks, where the property owner has concluded an agreement with an operator who has an exclusive right to supply services to the connected households for a long period of time. PTS is of the view that it may be necessary to have these kinds of agreement to enable investments to be made in the fibre and coaxial-based access networks, as they reduce the commercial risk for the operators faced with the prospect of making decisions about significant investments. In many cases, these agreements also mean that operators subsidize the connection costs. At the same time, however, these agreements make it more difficult or even impossible for other operators to provide services. For this reason, PTS will carry out a study in 2009 regarding potential lock-in effects and agreements between property owners and service providers. Another project initiated by PTS aims to enable consumers to compare bundled offers (such as telephony, broadband and television) on Telepriskollen. 3.1.2

Access to an IT infrastructure that corresponds to consumer demand

In general, Sweden has relatively good access to electronic communications infrastructure. Over 98 per cent of households and businesses have the basic 6

Målbild samtrafik [Vision for interconnection], PTS-ER-2009:1, Section 2.3.1

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Strategic Agenda for 2010

prerequisites for broadband via both wired and wireless access technologies. 7 This accessibility also has a good geographical spread. Today, wireless broadband networks cover virtually all areas of Sweden and just under 90 per cent of households and businesses in rural areas have access to wired broadband infrastructure. Broadband penetration, that is, the extent to which broadband is actually used, shows that Sweden is in a good position, with 32 subscribers per 100 inhabitants 8 , excluding mobile broadband. 9 Compared with other EU Member States, Sweden has a high proportion of broadband users who have fibre access lines (see Diagram 3; fixed broadband users are represented by the columns and mobile broadband users by the dots). Diagram 3 Broadband penetration via various access technologies in a selection of OECD countries, 2008

Subscribers per 100 inhabitants.

Mobile Broadband users per 100 inhabitants

40

25

35 Other

20

Fibre LAN

30

Cable  25

xDSL

15

Mobile Broadband 20 10

15 10

5 5

Turkey

Mexico

Polan

Slovakia

Greece

Hungary

Portugal

Italy

Czech Republic

Spain

Ireland

New Zealand

Japan

Austria

USA

Australia

France

Germany

UK

Belgium

Canada

Finland

Luxembourg

Sweden

South Korea

Iceland

Switzerland

NL

Norway

0 Denmark

0

PTS has also surveyed the access of the population and businesses to various access technologies in order to gain an understanding of whether consumers can be expected to have access to a range of services and capacity that This means that there is broadband infrastructure in areas where people live or run a commercial operation. However, there may be barriers of, for instance, a geographical or cost-related nature which in practice prevent households and businesses from ordering a broadband subscription for their specific address within a short time-frame and without any special costs. Broadband Survey 2008, PTS-ER-2009:08 8 OECD Broadband Statistics, 30 June 2008 9 Figures for mobile broadband were obtained from COCOM, 30 June 2008 7

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Strategic Agenda for 2010

corresponds to their demand. 10 Results from this survey show that almost half of the Swedish population and just under 40 per cent of businesses currently have the basic prerequisites for at least four of the most common access technologies present in the Swedish market 11 (based on at least one wired and one wireless access technology). This is an increase compared with 2007. However, there still appears to be potential for improvement. Despite the high level of accessibility, PTS has observed that only 40 per cent of households with Internet subscriptions state that their form of connection meets their needs. What's more, almost 10 per cent of households state that they cannot get a different form of access than the specific form of access that they currently have. 12 In the same way as freedom of choice between forms of access is important, potential for broadband with high capacity is key, particularly in light of the requirements and need for high transmission capacity continuing to increase. 13 It is important to invest in rolling out fibre and in wireless networks with high capacity so that the IT infrastructure can meet the high demands imposed by both consumers and businesses. PTS can contribute in several ways to lay the groundwork for effective investments in this type of IT infrastructure. This not only primarily involves measures that provide alternative operators with the opportunity to be afforded access to existing infrastructure, but also a spectrum management that meets the increasing demand for radio spectrum in a way that is as efficient as possible. In 2008, PTS observed that around 4 400 households and businesses did not have the basic prerequisites for broadband, and at the same time, the Agency noted a reduced interest in investing in and maintaining the IT infrastructure in rural areas. One example of the latter situation is that a larger number of subscribers may be affected by TeliaSonera's planned dismantling of pole lines. This has given PTS a reason to investigate the access to universal services

10 By being able to choose broadband access technology, there is a greater likelihood of obtaining a range of services and capacity that corresponds to one's own preferences. The supposed benefit for a business or household may therefore be greater. 11 Based on wired access technologies – fibre LAN, return-activated cable television, xDSL – and wireless access technologies – HSPA and CDMA2000 12 Survey of Individuals 2008 – Use of telephony and the Internet by Swedes, PTS-ER-2008:24 13 IPTV is a service that requires high capacity in the fixed broadband networks, where the assessment has been made that the network should be able to cope with at least 10 Mbps. The most common mobile broadband subscriptions currently offer a theoretical maximum rate of between 3.6 and 7.2 Mbps, but the actual rates offered are generally significantly lower, depending on the number of users in the network at the same time and the radio environment in question. However, LTE, which is a new technical standard in mobile networks, promises rates of between 50 and 100 Mbps.

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Strategic Agenda for 2010

(USO 14 ) with respect to telephony and a basic Internet connection. The Agency has pointed out that tangible solutions must be implemented before any dismantling work begins. No subscribers should be left without access to telephony or the capability to make nurse calls, for instance. The Agency has also already identified a number of subscribers who are completely excluded from these universal services. As a consequence, PTS has been working on bringing about a sustainable solution for these households and businesses (through the procurement of services), and has also proposed a model for the long-term financing of access to basic services where the market is unable to offer them. The latter proposal is based on a fund solution for which the government has the main responsibility, but where the operators also contribute to its financing. According to calculations made by Statistics Sweden, there is currently a relatively high level of awareness about the opportunities for electronic communications. However, some groups are in practice finding it particularly difficult to make use of the services offered. For example, around 20 per cent of older people in Sweden (between the ages of 65 and 74) stated that they lack Internet skills. The corresponding level for people with a lower level of education amounts to around 10 per cent and this level is around 5 per cent among people who are unemployed and those of a non-European origin. The demographic trend in the western world, with a larger proportion of older people in the population, also presents new challenges in terms of usability and accessibility. There is consequently a risk that a growing proportion of people in the population will in practice have lower potential to make use of both IT and public services. In pace with the growth in the group of older people, it may become more attractive for commercial stakeholders to design services that are accessible and can be used by everyone. In 2009, PTS is conducting a specific study of older people to look at this issue in more detail. Access to electronic communications services for persons with functional impairment

PTS is working to ensure that everyone can enjoy the benefits of the information society. One example of this kind of work is ensuring that important services within telephony, postal services and the Internet are accessible to persons with functional impairment. In the action plan produced by PTS in 2008 and 2009, two clear perspectives emerged relating to the Agency's future work in the area of functional impairment. The main 14 USO is an abbreviation for 'Universal Service Obligation', the purpose of which is to ensure a reasonable, basic level of services that are considered essential for people's participation in society. These services must also be provided at a fair price.

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Strategic Agenda for 2010

perspective is that technology and services should function for as many people as possible, in line with the vision 'Design for all'. 15 A supplementary perspective is to work on special solutions for specific groups of people with functional impairment. This broader perspective is also reflected by the broader nature of PTS's Government Assignment for 2009. During the special 'year of accessibility 2010' 16 , interest in these areas is expected to increase, as well as the interest in PTS's role. In order to meet these expectations, both internally and externally, PTS may need to invest in more human resources in this area. IT can provide new communication opportunities for persons with functional impairment. Such opportunities are tested in the development projects 17 run by PTS with a view to producing new and smart technical solutions. PTS has observed on an ongoing basis that usability and accessibility are key factors to enable people with functional impairment to utilise the new technology and to improve their potential for full participation in society. Around 15 development projects were conducted in 2008. These projects were aimed at establishing new services. A preliminary qualitative assessment indicates that these services were successful and gave rise to a number of new ideas and innovative solutions. E-Adept is one example of an interesting development project, which involves navigation support for people with visual impairment, an impairment to mobility or a cognitive functional impairment. This development project evaluates their capability to move about independently in unfamiliar surroundings, both indoors and outdoors, using a GPS navigator and access to digital maps. In 2008, PTS also secured access to important services, such as, for instance, video and text telephony. PTS also conducts regular follow-ups and continuous dialogue with both the consumers and providers of the abovementioned services with a view to ensuring that the requirements and wishes of consumers are met as far as possible. In 2005, the Agency conducted an evaluation 18 of the ongoing services as well as a survey of the need for electronic communications on the part of persons with functional impairment. These studies clearly showed that, despite the rapid technological developments, there are significant limitations facing people with functional 15 'Design for all' is a vision that means that everyone participates in society, regardless of functional capacity. 16 The national action plan for the Disability Policy runs up to and including 2010. At an EU level, the i2010 Strategy relates, for instance, to areas concerning information technology and people with functional impairment. This is why 2010 has been identified as a 'year of accessibility'. 17 PTS previously used the 'Call for proposals' (an idea competition) to obtain ideas for new development projects. This model provides good opportunities for promoting accessibility, e-inclusion and Design for All. PTS plans to reuse the 'Call for proposals' concept in 2010. 18 A new evaluation is being conducted in 2009.

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Strategic Agenda for 2010

impairment regarding their opportunities to use electronic services when compared to the population as a whole. 19 3.1.3

The level of service and accessibility of postal and basic payment services

According to its licence conditions, Posten AB is responsible for providing a daily and national postal service. In urban areas, this service is mainly provided using Posten AB's own carriers and a network of service points that are largely subcontracted to representatives, in combination with other business operations. In rural areas, this service is largely provided by the rural delivery service. PTS carries out annual reviews to ensure that Posten AB is meeting its licence conditions and has observed, as regards the situation for 2008 20 , that the level of service corresponds to the requirements. The survey of the use of postal and counter services that is conducted by PTS on an annual basis 21 shows that 90 per cent of customers are satisfied with their deliveries of mail. In 2008, PTS implemented a procurement to safeguard the continuation of the extended rural delivery service for the elderly and persons with functional impairment who live in sparsely populated areas. In the same survey, Posten AB's service network, mainly via representatives, also received good marks. Customers are particularly pleased with its opening hours (89%) and the service provided by staff (86%). PTS has observed that the reorganisation – which took place between 2001 and 2002 when traditional post offices were closed down – has resulted in improved accessibility and service for most customers. Everyone in Sweden should have access to basic payment services at fair prices. According to a survey conducted of the Swedish population's use of postal and counter services, bills are mainly paid via the Internet (64%) or using Giro payments sent by mail (24%). The number of payments made over the counter at a bank or at the Swedish Counter Service have gradually dropped, with only one per cent of people having paid bills over the counter in 2008. As a result of this trend, the Riksdag decided to repeal the Basic Counter Service Act in 2007, which resulted in the operation within the Swedish Counter Service (a subsidiary of Posten AB) closing down in 2008. This also meant that the rural delivery service's provision of services on behalf of the 19 The reason for this is limitations in the access to information and training about products and services in addition to difficulties related to the access to and information about the aids required to use these services. 20 Service och konkurrens 2009 [Service and competition 2009], PTS-ER-2009:14 21 Svenskarnas post- och kassavanor [Use of postal and counter services by Swedes], PTS-ER-2009:05

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Strategic Agenda for 2010

Swedish Counter Service was also discontinued in that same year. In 2008, PTS procured basic payment services at a number of selected communities and areas in Sweden in order to ensure that basic services are available where the market is not capable of providing them. The services that have been procured are less expensive for customers than the cost of corresponding services provided by the Swedish Counter Service. 22 3.2

Long-term sustainable competition

PTS strives to ensure that the markets for electronic communications and postal services clearly move toward a situation of sustainable competition. 'Sustainable competition' means a situation where a market's need for regulatory intervention gradually lessens and where there are functioning buy and sell relationships between stakeholders in the market. In the area of interconnection, PTS has observed a tendency towards a greater number of commercial agreements being concluded. In recent years, PTS has conducted an active dialogue with market stakeholders in conjunction with the threats that arose regarding discontinuation of interconnection. This dialogue has meant that the stakeholders have been able to arrive at solutions without PTS having to intervene and issue orders. As regards the broadband sector, PTS is trying to attain as high a level of infrastructure-based competition as possible. 23 In order to clarify PTS's orientation, it is relevant to set two extremes in relation to each other, namely replication (several competing operators with their own access networks) and service-based competition (where the service provider purchases a broadband service that is to some extent pre-bundled and the provider is responsible for marketing, invoicing and customer services). PTS is attempting to achieve infrastructure-based competition, as competition between operators that, as far as possible, exercise their own control over the infrastructure is more sustainable in the long term than competition that is dependent on several stakeholders being afforded access to a single network. The replication of infrastructure (that is, several stakeholders competing with their own access networks) may be desirable from the perspective of competition, but the prerequisites for this type of development differ depending on the size of the potential customer base in the area in question. 24 Årsredovisning 2008 [Annual report 2008], PTS-ER-2009:3 Policy for access regulation of last mile networks, PTS-ER-2006:26 24 Cave mentions three types of geographical area in relation to competition in the next generation access network: areas that are potentially competitive; areas that are probably monopolistic; and areas that are non-commercial. 'A Note on Possible Regulatory Strategies in Sweden to 2015', November 2008 22 23

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Strategic Agenda for 2010

For example, PTS is of the view that there is basically a lack of commercial potential for the establishment of parallel fibre-based access networks in Sweden. In areas where replication has not been realized, PTS will aim to induce several operators to invest at various levels in, or in connection with, the existing infrastructure. The more investments made by the operators themselves, the higher the level of infrastructure-based competition that is established. For this reason, the regulation of access to existing infrastructure decided by PTS should provide incentives for entrant operators to make their own major investments. In these cases, the regulation must also take account of the fact that the network owner should receive sufficient incentives to maintain and upgrade its network. Any regulation of the price of access should also give the entrant operators the right investment signals. PTS has monitored developments in the broadband sector in Sweden for a number of years now. The Agency has seen a gradual improvement taking place in the range of broadband infrastructure that is available to households and businesses. Different kinds of broadband infrastructure have emerged as real alternatives for households and businesses in Sweden. As mentioned previously, PTS's broadband survey 25 shows that almost half of the Swedish population and just under 40 per cent of businesses in 2008 had the basic prerequisites for at least four of the most common access technologies (based on at least one wired and one wireless access technology) in the Swedish market. 26 This represents an increase compared with 2007. However, it is not certain that access technologies in the Swedish market comprise equivalent alternatives for end users or that they can match the demand of end users in the long term. The issue of substitutability in the broadband market is dealt with within the framework of PTS's 'SMP analyses'. A shift in technology is currently taking place in Sweden, with a migration from the copper network infrastructure to other types of infrastructure solution (mainly fibre technology) in pace with consumers demanding higher bandwidth and increasingly advanced services. The objective of long-term sustainable competition must always be viewed from a forward-looking perspective. The shift in technology, combined with an increased demand for bandwidth, may also affect accessibility in more sparsely populated areas. The Broadband Survey 2008, PTS-ER-2009:8 Based on wired access technologies – fibre LAN, return-activated cable television and xDSL – and wireless access technologies – HSPA and CDMA2000 25 26

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Strategic Agenda for 2010

capability of mobile networks to satisfy the increasing need for capacity in the long term, also in sparsely populated areas, would then become a key issue. PTS's access regulation to promote competition has contributed to encouraging the emergence of broadband providers, above all in terms of broadband via the metallic access network (xDSL). Diagram 4 shows the proportion of end users that may be attributed to the wholesale products provided by TeliaSonera in the broadband market. These percentages are calculated on the basis of the number of Internet access lines via broadband connections 27 as at 30 June 2008. 28 Diagram 4 Distribution of end users attributable to wholesale products and own access networks, Internet access via a broadband connection (households and businesses), end of June 2008

60

50

Share (%)

40 Resale Bitstream

30

LLU Own access network

20

10

0 2005

2008 Year

The larger the percentage found in the 'own access network' and 'LLU' categories, the greater the amount of own infrastructure investments required on the part of the operator providing the connection. As regards resale products and bitstream access, no (or in any event less) infrastructure investments are required by the operator. On the other hand, the operator in these cases becomes more dependent on the dominant operator's network structure, which reduces the potential to differentiate the services being offered to end users. All of the broadband-based Internet access lines present in the

These figures include both households and businesses The Swedish Telecommunications Market first half-year 2008, PTS-ER-2008:23. PTS's policy for access regulation for last mile networks presents corresponding information based on figures from 30 June 2005. The diagram provides information for both 2005 and 2008 so that a comparison can be made.

27 28

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Strategic Agenda for 2010

market are included in the figure, except those provided directly to end users by TeliaSonera via this company's xDSL platform. 29 The situation since 2005 has been interesting for several reasons. There has been an increase in the number of households and businesses with access to the Internet and the proportion of these that have a dial-up connection to the Internet has fallen significantly. The vast majority that currently have access to the Internet are connected via broadband. This means that there is less scope to compete for completely new broadband customers. There has been an increase in the proportion of broadband-based Internet access lines provided via forms of access network other than the metallic access network. A contributory factor behind this development is the strong growth in the number of mobile broadband subscriptions. In recent years, it has also become possible to offer increasing numbers of broadband access lines via the upgraded cable television network, although the growth of this access technology has now levelled off. Within the framework of its Broadband Survey 30 , PTS also observed strong growth in the rollout of fibre networks and wireless access technologies. 31 In 2008, the distribution within the 'own access network' category was relatively even between the three main categories: cable television networks (just over 32 per cent), radio-based networks (just over 36 per cent) and fibre LAN networks (just over 30 per cent). From an international perspective, Sweden has a relatively advanced position in terms of the presence of alternative access networks. 32 Figures from June 2007 33 show that South Korea is in a class of its own owing to the extensive spread of both fibre networks and cable television networks. In other countries, only one alternative access technology is commonly used by a significant number of consumers. In Japan, fibre is the main alternative, whereas cable television networks play a corresponding role in, for example, Canada, the United States, the Netherlands and Denmark. Another observation that has been made is that the proportion of access lines based on LLU remains at the same level as in 2005. The latest information in TeliaSonera's share of the total market, when only the company's xDSL-based Internet access lines are included, amounted to 29 per cent in 2008 (calculation based on the figures used in the diagram: 100 - 49 - 18 - 4). However, its actual market share is higher as the company also has its own fibre access lines and wireless access lines. 30 Broadband Survey 2008, PTS-ER-2009:8 31 It should be emphasised that the same stakeholders often have strong positions in the various platforms. For example, TeliaSonera is a substantial stakeholder in terms of both xDSL and mobile broadband. 32 Broadband Growth and Policies in OECD Countries (www.oecd.org) 33 Here it may be noted that the growth in mobile broadband subscriptions had still not taken off in Sweden in June 2007. 29

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Strategic Agenda for 2010

terms of TeliaSonera's sales of copper access lines 34 also shows that sales here have recently dropped slightly in absolute terms. Bearing in mind the fact that it should not be taken for granted that different broadband infrastructures compete in the same market, PTS views this situation with concern, particularly since working bitstream products are still not currently available in Sweden. The beneficial effects of improved competition are not limited to an increased range of basic IT infrastructure and access to the Internet. For example, improved competition and a wider range of IT infrastructure create prerequisites for the development of services, favourable price trends and mobility in the market. The growth of various services in the electronic communications market, which can increasingly be provided via a network and/or a terminal, has been strong. One prime example is the fact that mobile telephones, now and in the future, will be equipped with a growing number of services. The television market is another example. For a very long time, the television watched by Swedes was limited to two channels (SVT1 and SVT2), which were broadcast via the terrestrial network. Today, many Swedes can receive a huge number of television channels via several different transmission platforms. The world of television is definitely converging with the world of telecommunications, which is, for example, demonstrated by the fact that many Swedes can watch television in the traditional way via the metallic access network but can also use interactive services such as Video-on-Demand (VoD) and soon, in all probability, high definition television (HDTV). For quite some time now, PTS has observed that several clear market trends will have an impact on the way in which the Agency deals with its work relating to regulation to promote competition. One such trend is the fact that fixed circuit-switched telephony is being challenged by fixed IP-based telephony; see Diagram 5. This diagram also shows that an increasing proportion of voice traffic is being transmitted via mobile networks. 35 In the past few years, we have also observed virtually explosive growth in the number of mobile broadband subscriptions. It is crucial for PTS to continue to adapt its regulations to the changes taking place in the market structure and which may be expected to have an even stronger impact on the market in the years to come. PTS provides a more detailed description of the challenges being faced See www.teliasonera.se Dial-up access and ISDN are not included in Diagram 2. The data for this diagram was compiled within the framework of 'The Swedish Telecommunications Market first half-year 2008' (PTS-ER2008:23)

34 35

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Strategic Agenda for 2010

by the Agency in its report entitled 'A long-term analysis of the development of the electronic communications sector'. 36 This report presents both shortterm proposals as well as possible measures for the longer term. Diagram 5 Development of fixed circuit-switched telephony, fixed IP-based telephony and mobile telephony

Bundled offers, known as 'multiple play', are becoming increasingly common in the electronic communications market. Discussions 37 have been held at an EU level regarding whether there are grounds to define a separate market for multiple play. PTS does not see any reason to define this particular market in the current situation and does not view bundled offers as such negatively as they do not inhibit competition. However, the Agency is concerned about the signs of reduced mobility in the present market. In the event that an operator with significant power in a wholesale market uses bundled offers to compete for consumers (in a retail market relating to the wholesale market), it is initially relevant for the regulatory authority to apply regulation at the wholesale level. The aim of this kind of regulation is to enable other operators to compete for consumers on equivalent terms. PTS's Survey of Individuals 38 shows that there is less market mobility within both the (fixed and mobile) telephony segment and the Internet segment. When asked why they had not changed Internet service provider, the most A long-term analysis of the development of the electronic communications sector, PTS-ER-2009:2 See, for example, the European Commission's 'Public Consultation on a draft Commission Recommendation on Relevant Product and Service Markets within the electronic communications sector susceptible to ex ante regulation'. This consultation took place between 28 June and 27 October 2006. 38 Survey of Individuals 2008 - Use of telephony and the Internet by Swedes, PTS-ER-2008:24 36 37

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Strategic Agenda for 2010

common reason given (besides being satisfied with their current operator) was that they did not want to change operators, as the household had the same operator for telephony and/or television. Changing operators could possibly mean that the household would no longer have access to the Internet as part of a package with telephony and/or television. Bundling may thus contribute to more significant lock-in effects and reduced mobility in the market and there may also be a link between the existence of bundling and price trends. For several years now, PTS has been able to observe a generally positive trend in the market, with falling prices for telephony and the Internet; however, this trend has levelled off over the past year. 39 It is, of course, difficult to claim that increased bundling means that prices are no longer falling to the extent they did earlier (particularly as end users often pay a lower total cost for bundled offers), but it should be noted that the existence of bundled offers does reduce the potential for end users to make their own price comparisons. To the extent that bundling helps undermine competition and mobility among end users, this may contribute to a higher price level. However, a reversal in the trend for end user prices is not necessarily a sign of a lack of competition, as the operators also compete using their range of services and quality. Such a reversal in the trend could also indicate that operators need to adapt their business models in relation to end users based on an identified need for new investments in networks (see also Sub-section 4.3.8). 3.2.1

Competition in the postal market

Competition in the postal market still remains poorly developed despite the fact that the market was liberalised 15 years ago. Posten AB's pricing will need to meet the requirements of the regulatory framework in order to safeguard the existing competition. Posten AB's prices for consumers must be reasonable, and for this reason PTS has made a comparison of the consumer prices for letters and parcels in the Nordic countries as well as in Germany and the United Kingdom. 40 For domestic mail, Swedish consumers pay slightly less than most other Nordic countries, which is partly due to the Swedish price regulation. On the other hand, it costs a great deal for Swedish consumers to send a domestic parcel.

Prisutveckling för telefoni och bredband första halvåret 2008 [Price trends for telephony and broadband for the first half year of 2008], PTS-ER-2008:21 40 PTS/TNS Gallup, Svenskarnas Post- och kassavanor [Use of postal and counter services by Swedes], PTSER-2009:5 39

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Strategic Agenda for 2010

In 2009, the Swedish company Posten AB will merge with Post Danmark A/S, among other things to strengthen these companies' position in the Nordic postal market. This merger will force PTS to develop new methods and routines to ensure that it can monitor Posten AB's finances in its new Group structure. PTS's financial monitoring could also be strengthened by supplementing the Postal Services Act with principles stating that the operator responsible for the universal postal service is to operate in a way that is open and nondiscriminatory when having special prices and utilising other special terms for certain customers. Furthermore, the Postal Services Act should state that the party providing the universal postal service should send on letters forwarded by another postal operator and whose address is outside the postal operator's own distribution area. This type of forwarding should take place on conditions that are fair, competition-neutral and non-discriminatory. In order to develop fair and functioning competition, it is important to create a joint European market for postal services. In its international cooperation, PTS will continue to have an important mission to complete by working on the basis of our experiences in Sweden and making it easier to liberalise the markets in other EU Member States. 3.3

Efficient utilisation of resources

Radio spectrum and numbers are limited resources that must be used as efficiently as possible. However, the challenges within these areas appear to differ somewhat. 3.3.1

Models for spectrum management

Modern spectrum management is often described as an aggregate of three models: administrative allocation, market mechanisms and collective use (the latter often coincides with exemptions from the licence obligation). Administrative allocation, or in other words PTS granting a licence for the use of radio transmitters (if there is space), is the traditional model for spectrum management. PTS is working to incorporate a greater element of market mechanisms into spectrum management. One aim of liberalised spectrum management, one of PTS's priority areas in 2009, is to lower barriers to entry and facilitate technological and market development by formulating conditions for using and releasing frequencies. The rationale behind liberalising the market is that a more market-oriented management of spectrum will result in more efficient

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Strategic Agenda for 2010

utilisation of resources, as it is then the true market demand that governs the use of spectrum. Other positive effects that may be anticipated are more effective competition and increased accessibility to a greater number of electronic communications services. Is it anticipated that the three models for spectrum management will be applied in parallel over the foreseeable future, but will have a greater element of market mechanisms and collective use. 3.3.2

Release of spectrum and measures for more efficient use

In the spectrum sector, there is a steadily rising demand for spectrum from both commercial and public users and from more types of application. This demand has become particularly pronounced in the frequency bands suitable for mobile communications, particularly in the frequency bands 300-3000 MHz, where basically the entire frequency space has been assigned. The Swedish Armed Forces have a unique position in this sector, as this public authority enjoys the exclusive use of a considerable proportion of spectrum in the most attractive frequency bands. PTS is working to increase access to spectrum for civilian applications by gradually reducing the proportion of frequencies used exclusively by the Swedish Armed Forces. In the frequency space 29.7-4200 MHz, where demand from civilian users is the greatest, PTS has, through a decision made in 2008, ensured that 64.4 per cent of the frequencies can be used exclusively by civilians. This is an increase of 8.9 percentage points compared with the previous allocation that applied. In 2008, PTS developed a new model for charges that will be introduced in 2010. This model is based on licence holders paying a charge based on the size and attractiveness of the frequency space that they have at their disposal. The aim of this change is that it should cost money to hold spectrum rights, which in turn provides incentives to make use of the space assigned. In the current model, licence holders pay a charge per radio transmitter. During the year, PTS has also been working to enable the efficient use of the frequencies previously used for analogue terrestrial television. In various international fora, the Agency has been working to achieve EU-harmonised use of the 800 MHz band, which is being released for new allocation in Sweden. Other countries, such as Finland, France, Switzerland, the United Kingdom and Germany, have announced that they intend to use the 800 MHz band in the same way as Sweden. As assigned by the Government, PTS has also produced a planning solution that enables use of the 800 MHz band and at the same time creates scope for technological development within terrestrial

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Strategic Agenda for 2010

digital television in other parts of the frequency space affected by the analogue switch-off. 3.3.3

Greater element of market mechanisms and collective use

PTS's policy states that licences for the use of radio transmitters must be as technology and service neutral as possible so that they provide users with more flexibility and greater potential for technological development. The restrictions that PTS lays down for this type of licence are mainly technical rules to avoid interference in adjacent frequency bands. PTS is also working to ensure that more spectrum that can be used without a licence ('collective use') is made available where there is little risk of harmful interference. In 2008, 3.183 GHz of spectrum in total was made available on technology and service neutral conditions by means of new allocations and changes made to the existing licence conditions; for example, exempting radio transmitters in certain frequency bands from the licence obligation. Exemptions from the licence obligation represented the largest proportion here. During the year, important new allocations took place in connection with the auction of 190 MHz in the 2.6 GHz band. This auction resulted in a new stakeholder (Intel) being granted a licence for the use of radio transmitters in this frequency band. The existing network-owning mobile operators, Tele2, TeliaSonera, Hi3G and Telenor, were also granted a licence. PTS's regulation stating the types of radio application that are exempt from the licence obligation was updated in 2008. One of the effects of this update was that the equipment for tracking sporting dogs by means of GPS may be used in certain frequency spaces without the need for a licence from PTS. A general auction regulation was also produced, which will result in a faster process in connection with future allocation procedures through auctions. 3.3.4

IPv6 – key issue for the continued expansion of the Internet

All terminals or units that communicate via the Internet need an IP address. Today's version of the IP protocol ('IPv4') contains just over four billion unique IP addresses. Experts assess that there will be a shortage of addresses some time between 2011 and 2012. 41 A new IP protocol ('IPv6') has been developed that offers a virtually unlimited number of IP addresses. The existing protocol will continue to predominate over the next few years, as both protocols must exist in parallel and they do not communicate with each other. PTS is working in various ways to speed up the transition to the new protocol 41 See, for example, the factsheet from ICANN: http://www.icann.org/en/announcements/factsheetipv6-26oct07.pdf

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Strategic Agenda for 2010

for a good reason: developments within mobile services and machine-tomachine communications 42 may be impeded if the shortage of addresses becomes marked. In the long run, all operators, service providers and consumers will need to make the transition to IPv6. Today, all major operators have support for IPv6, but it is the last section to the end users that is missing. There is a lack of clients who have support for IPv6 as there is a lack of services requiring this protocol. In its turn, the impetus to create services for IPv6 is impeded by the lack of clients. This issue is on the EU agenda and a number of countries have set up action groups 43 and drawn up guidelines to promote the implementation of IPv6. PTS is participating in international work relating to IPv6 and sees a need to increase its awareness in the area. 3.4

Secure communications

Operators within electronic communications are responsible for ensuring that networks and services offer good function and technical security. PTS also receives a government grant every year to reduce the risk and consequences of serious disruptions, crises and accidents by means of different types of measure. PTS's role in this area is to supervise the security work of operators, to procure robustness where it is not commercial justified, to provide information to operators and end users and to run cooperation projects and exercises. 3.4.1

Robust electronic communications

It is very difficult to assess and follow up the resistance of electronic communications in the event of serious disruptions. Experiences from weather disruptions over the past few years show that the work conducted by PTS and the operators relating to the physical protection of the backbone network and central exchange points in networks as well as the establishment of redundancy (that is, alternative routes for traffic in the event of an interruption) has been effective. Subscribers dependent on overhead lines and who were located far out in the networks were the main parties affected by the major storms of 2005 and 2006, whereas the central functions of these networks were maintained. The dependence of electronic communications on the power supply and the need for cooperation within the sectors as well as between the power and telecommunications sectors also became very clear. One important factor for 42 'Internet of things', a development in the longer term where an increasing number of units are connected to the Internet, will mean an enormous demand for new IP addresses. 43 The Commission's Action Plan for implementation from May 2008 states, among other things, that "Europe should set itself the objective to widely implement IPv6 by 2010".

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being able to maintain electronic communications in the event of weather disruptions is reserve power for the base stations of mobile networks. The need for robust communications via mobile networks is also increasing in pace with the shift in technology that is expected to take place in rural and sparsely populated areas, where overhead copper lines are being replaced by wireless technology. PTS's robustness measures in 2008 are assessed to have strengthened the capacity of public authorities and other stakeholders for crisis management as well as the operational capacity of stakeholders with operational responsibility during a serious disruption or crisis affecting the electronic communications sector. Examples of measures within these areas include training and exercises. What's more, improvements have been made to the capacity of the infrastructure to withstand serious disruptions; for example, by investing in redundant connections and reserve power plants. In the assessment of PTS, the crisis management and operational capacity of stakeholders varies. The resistance of the infrastructure also varies between stakeholders. A system for Joint Situation Assessments and the sharing of information between operators is worth mentioning among the special projects initiated by PTS. This project has received EU support and provides opportunities for shortening interruption times in the event of disruptions and crises. 3.4.2

Secure electronic communications

The demands imposed on security are growing in pace with the Internet becoming an ever more important tool in the day-to-day lives of consumers and the work of undertakings, and the services offered via the network becoming increasingly advanced. Basic confidence in electronic communications services is a must so that private individuals and legal entities have the courage to (for example) use the Internet for e-commerce or to contact public authorities. In recent years, there has been an increase (albeit only slight) in the measures taken by consumers to protect their connections. 44 Almost nine out of ten consumers take some kind of measure to protect the computer used most frequently in their household. The most common measures include antivirus programs (67%) and firewalls (57%). One in three updates their computer's operating system and uses the security package offered by their Internet service provider. Only 13% make regular security copies of their computer's hard drive or of their files. PTS has contributed to efforts to make consumers aware of risks and protective measures through its own information activities and within the 44

PTS-ER-2008:24

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Strategic Agenda for 2010

framework of the Surfa Lugnt [surf calmly] information campaign 45 , an initiative taken by undertakings and public authorities. In the autumn of 2008, PTS and five other public authorities and undertakings launched the Säkra affärer [safe business] project 46 , which is directed at small businesses. PTS's regulatory framework imposes basic requirements to ensure that the networks and services of operators offer good function and technical security. The operators are responsible for ensuring that this works and PTS conducts preventive supervision and examines how the operators have dealt with major interruptions. In a supervisory intervention covering the 56 largest providers of electronic communications networks and services, PTS observed that the businesses generally comply with the provisions of LEK as well as follow PTS's general advice on good function and technical security. The stakeholders investigated currently have a greater focus on security work than was previously the case. However, there is room for improvement, mainly in terms of documenting and following up security work. PTS also supports society as regards IT incident management through Sweden's IT Incident Centre (Sitic). Prior to 2008, Sitic enhanced its preparedness by implementing 24-hour services and by introducing new IT support. This made it possible to cut Sitic's response time in the event of incidents to under an hour before remedial or palliative measures could be started. Sitic also focused in particular on support for public authorities during the year and concluded separate cooperation agreements with six public authorities. Sitic also continued to increase its distribution of preventive advice and instant messaging regarding security. In pace with increasing competition in the electronic communications market, there is a risk that the investments made in robustness and security by individual operators, over and above a commercially justified basic level, may be pushed into the background. This means that government initiatives may become more important within the areas of security and robustness in the future. However, from an international context, Sweden is assessed as being at the forefront in terms of work involving security and robustness; for example,

45 46

www.surfalugnt.se www.sakraaffarer.se

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Strategic Agenda for 2010

owing to Sweden's central government support system for robustness measures. 47 Despite the fact that the emergency surcharges received by operators are at a stable level, PTS's total grants for robustness work have reduced in recent years, which in the long run may mean that the capacity within the sector to withstand serious disruptions and crises will not continue to improve. Technological developments, including a transition from traditional circuitswitched networks to IP-based networks, may jeopardise stability and mean that incidents occurring will be more complex. The vulnerabilities found on the Internet may also start to appear in other communications services when they become IP-based. Promoting security in all-IP networks is one of the priority areas identified by PTS for 2009 and to which the Agency will commit resources.

47

PTS-ER-2009:1

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4

The business environment

4.1

PTS's work relating to the business environment

The Agency conducts systematic and continuous competitive intelligence work in order to ensure that PTS's operation is adapted to changes taking place in the business environment. Information about what is happening in the business environment is compiled using many different sources, both primary sources (contacts with operators, Swedish and international organisations, etc.) and secondary sources (media, reports, blogs, etc.). The information compiled focuses both on how the Swedish market is changing and on international developments, as the markets for electronic communications and postal services are highly international in nature. This section describes a number of trends and uncertainties that are deemed to have a major impact on both PTS and the market in the time perspective 2010 to 2013 (the time perspective of the agenda). These trends relate to phenomena whose development orientation is assessed to have a relatively low level of uncertainty, whereas the term uncertainties applies to phenomena assessed to have a major impact but where the future development orientation is considered to be less certain. One important touchstone in this work was a dialogue with market stakeholders that took place on 18 February this year (the invitation was announced on PTS's website). Here the stakeholders expressed their views on the most important changes in the business environment, which gave PTS the opportunity to define the perception of the Agency in terms of the most important trends and uncertainties. These trends and uncertainties have several functions in the strategic agenda: •

to identify new areas where there is a need for measures on the part of the Agency

•

as a parameter when assessing priority areas, together with the result/impact of previous initiatives made in the area and the mission of the Agency

•

as input when rendering the priority areas operational by describing them in suitable goals and activities

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4.2

Background

A number of phenomena are present in the electronic communications market that have formed the way the market functions and develops over a long period of time. In this section, PTS describes these 'well established phenomena'. In light of this, the Agency subsequently emphasises a number of trends and uncertainties that are described in more detail. The development of convergence is well-established in the market. The key significance of convergence in market development is, for example, described by Ofcom in its strategic plan for 2008-09. 48 Convergence is usually divided into network, service and terminal convergence: 49 ƒ

ƒ ƒ

'Network convergence' means that different infrastructures used for the distribution of different types of service can be integrated and relay 'each other's' services. For example, broadband services may be distributed through both the wired and wireless network infrastructure 'Service convergence' means an amalgamation of content services, such as television and websites on the Internet, with communications services, such as telephony, videoconferencing and e-mail 'Terminal convergence' means that the users' terminals become increasingly multifunctional, which means that these terminals can be used for e.g. television, video calls, e-mail and surfing. A subset of terminal convergence includes mobile telephones being used for an increasing number of services; this is described in more detail in Subsection 4.3.2

The figure below illustrates the three dimensions of convergence: 48 49

www.ofcom.org.uk/about/accoun/reports_plans/annual_plan0809/ Definitions and figures from PTS-ER-2009:2

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TV SERVICES

TV

Broadband

Telephony

NETWORKS

TERMINALS

SERVICES

Telephony Broadband

NETWORKS

TERMINALS

One aspect of this convergence is that a gradual transition is taking place to IPbased communication via various transmission media in different infrastructures for fixed and mobile services. The impetus behind this development includes, for example, streamlining gains (lower investment and operational costs), the opportunity to offer new services to end users at lower prices, and an increased demand for mobility, bandwidth and a higher level of interactivity. One consequence of convergence is the increased growth of multiple play subscriptions, as described in Section 3. This development may mean that operators with access to both wireless and wired networks (in particular fibre or cable television networks, or TeliaSonera with its own copper network) become stronger in the market in relation to operators that can only offer fixed or mobile services, or in any case that the latter operators may be forced to seek forms of cooperation so that they can provide their customers with more complete offers. Different types of operators thus compete in the market with the same services. Here, for instance, this involves mobile operators offering services that were previously only offered by fixed network operators or broadcasting operators. Mobile broadband and mobile television are two examples of services that have been made possible by this development. As the function and performance of wireless technologies are continually being improved, the differences in relation to fixed networks and traditional broadcasting networks will gradually reduce.

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The use of mobile broadband has increased sharply in recent years. 50 This has contributed to a sharp increase in the need for spectrum. For this reason, PTS is devoting a great deal of time to increasing the freedom of the spectrum market as well as releasing unused/underused spectrum. Increased freedom in the spectrum market for instance involves making more spectrum neutral in terms of technology and services to, in this way, enable more efficient spectrum use and facilitate the emergence of new wireless technologies. Releasing unused or underused spectrum includes enabling new uses of spectrum that were previously reserved for military applications, radar spectrum, etc. The aim of both of these areas of application is to be able to jointly contribute to meeting the continued increase in demand for spectrum. Based on this background, the rest of this section describes a number of trends and uncertainties that are expected to have an impact on the market. These are described in no particular order other than the trends being presented first and followed by the uncertainties. 4.3

Some important trends and uncertainties

4.3.1

TREND: Cloud computing

One trend where strong growth has taken place in the past year is what the media is increasingly starting to refer to as 'cloud computing'. Software that was previously only found in client-based versions is now offered in web-based versions. In addition to this, the end users store more and more images, music, documents, web browser favourites, etc. on the Internet to enable access to these files from any terminal with an Internet connection. This trend has an impact both on business customers that are introducing more and more webbased IT solutions and among end users who want to personally choose this type of service and act accordingly. Several major stakeholders, such as Microsoft, Google and IBM, are now launching major initiatives in this area. Several small stakeholders have also launched services that have achieved major success and/or a great deal of publicity: the Swedish Spotify company is one example in this category. This trend may be assumed to have a number of consequences in the market and a few of these are described in more detail below. The consequences of this trend may be assumed to be higher demands imposed on access to infrastructure with high transmission capacity as well as increased expectations on being able to access the Internet "anywhere and at See, for example, 'The Swedish Telecommunications Market first half-year 2008', www.pts.se/upload/Rapporter/Tele/2008/2008-23-svensk-telemarknad-forsta-halvaret-2008.pdf, Diagram 6

50

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any time", which further demonstrates the need for clear and ambitious political objectives as regards access to broadband. This trend is also bringing issues concerning security and privacy to the fore. Confidence in their provider and the function of the network become of crucial importance for someone who uploads all of their files onto a 'cloud computing' service, for example as regards security backups of their content and that the service does not crash, 51 and that the supplier does not use or disseminate content in an undesired way. This trend may also have consequences for the development of terminals. Increasing the proportion of programs and storage 'in the cloud' may be assumed to reduce the need for capacity in a terminal and instead benefit the emergence of terminals that are better adapted to Internet access, such as 'netbooks' (small portable personal computers), which have experienced sharp growth in sales. 52 This trend may also have significance from a climate perspective. Centralising storage capacity may provide the potential for more energy-efficient storage, through economies of scale when cooling, etc. The less powerful terminals are also more energy efficient, which may have a positive impact when it comes to the climate too. Furthermore, the issue of network neutrality is also brought to the fore; for parties using suppliers of cloud computing services, it is of course key that the traffic cannot be 'deprioritised' in a manner that undermines the level of quality experienced. On the part of PTS, this trend mainly affects its work relating to security, integrity and robustness issues as well as the issue of access to broadband infrastructure. 4.3.2

TREND: Mobile telephones are being used for more services

There is no doubt that mobile telephones and other small mobile terminals are being used for more and more services. In addition to telephony and text messaging, it is becoming increasingly self-evident for end users to also use mobile terminals to access e-mail, the Internet (among others, Apple's iPhone terminal, which should have contributed to lowering the threshold for many

51 This is not always the case, as users of the social bookmarking service Ma.gnolia recently experienced; see http://blog.wired.com/business/2009/01/magnolia-suffer.html 52 See, for example, www.idg.se/2.1085/1.205998/inte-ens-netbooks-kan-radda-pc-marknaden-2009

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people as regards using the Internet from a mobile terminal), listening to music, etc. Two likely areas of growth in the future are mobile payments and services linked to the user's position, known as 'location-based services'. Several standards are being developed for mobile payments. The standard that many believe will predominate is NFC (near field communication). 53 Rapid growth is forecast for the area of payments, for example relating to parking charges, travel using public transport, cinema tickets, etc. 54 One international example of an investment in mobile payments is Deutsche Bank, which is offering mobile payments together with Luup, a payment provider. 55 As regards location-based services, this may for instance involve phenomena such as the 'geotagging' of images, reviews of local restaurants, tailored advertising when a consumer passes by, and so on. Other areas of application are also likely to grow – one example is using one's mobile telephone as a car key. 56 On the part of PTS, this development for example means that the demands placed on access to networks will be further accentuated (i.e. when end users also expect access to different kinds of service in connection with mobile use, this places higher demands on coverage and capacity) and possibly means new aspects of consumer protection when using mobile services. 4.3.3

TREND: Increased need for capacity on the part of end users

One ongoing trend in Sweden and internationally, which may be compounded in the future, is that an increased demand for more and better services entails an increased need for capacity on the part of end users. In the past few years, we have observed a transition towards more usergenerated content on the Internet (e.g. YouTube) and the launch of bandwidth-hungry services such as HDTV. Consumer demand is forcing the market to develop services, and the market is endeavouring to generate income by creating demand for services on the part of consumers. However, there are factors that could impede an increase in consumer demand. Examples of this kind of factor include security-related and technical problems.

See, for example., www.cellular-news.com/story/34688.php For a forecast, see www.cellular-news.com/story/34222.php 55 www.banktech.com/channels/showArticle.jhtml?articleID=215900035 56 www.cellular-news.com/story/33783.php 53 54

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This trend means, among other things, that market stakeholders expect regulation to create preconditions for them to meet consumer demand and compete on a level playing field. A long-term, national and political goal is also required that corresponds to the anticipated demand of consumers for bandwidth. There is no doubt that the need for capacity is increasing on the part of end users. On the other hand, there is uncertainty about the pace at which the demand for bandwidth is increasing. This for example depends on the services that will be requested in the future and their extent. On the part of PTS, this has an impact on future regulation. The pace at which consumer demand for bandwidth increases in relation to the rate of technological development is also a parameter underlying the scenarios for the electronic communications market in Sweden in 2015, as produced by PTS in the Government Assignment entitled 'A long-term analysis of the development of the electronic communications sector'. 57 4.3.4

TREND: Migration from copper to alternative infrastructure

As mentioned in Sub-section 3.2, we have observed a gradual transition in the market over to infrastructures other than the copper access network infrastructure increasingly being used for supplying services to end users, and because of this the copper access network gradually reducing in importance over time. This is, among other things, a consequence of alternative infrastructure, such as optical fibre and wireless networks being rolled out and having more capacity to meet consumer demand. However, it is worth noting that consumer demand for services that require higher bandwidth (e.g. rapid broadband connections and HDTV) may be expected to increase in the future and it is not certain whether, for instance, the mobile telecommunications networks and other wireless networks will be able to satisfy this demand. The reduced importance of the copper access network is also due to the owner of this network, TeliaSonera, rolling out optical fibre networks when establishing new access networks. When existing access networks are upgraded, the copper wire is also replaced by optical fibre. Unprofitable parts of the copper-based local loop are also being dismantled, where the wired access network is being removed without being replaced by anything else. The increased demand for mobile services with high transmission capacity also requires the base stations of mobile networks to have connections with high 57

PTS-ER-2009:2

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capacity. This means that optical fibre is important as input goods even when establishing wireless infrastructure. The above-mentioned technology shift has an impact on the structure of the market and the way in which PTS manages the market and competition situation within the framework of the Agency's work relating to regulation promoting competition. However, it should be noted that while the fundamental trend may be viewed as certain, the pace and manifestation of this technology shift are associated with uncertainty. Migration from copper to fibre may take place (for instance, by rolling out fibre to the home – FTTH), but different forms of intermediate step may be realised bearing in mind the fact that rolling out fibre entails a very high initial investment. 58 4.3.5

TREND: Consolidation within the electronic communications sector

The general competitive pressure within the electronic communications sector imposes demands on operators to run an operation that is as efficient as possible. At the same time, there are incentives to attempt to reduce this competitive pressure. Corporate mergers may lead both to improvements in efficiency (e.g. through synergy effects and – important to network industries – economies of scale) and generally reducing the competitive pressure owing to consolidation. Consolidation may mean that a company is integrated vertically (meaning that there are both wholesale- and retail-oriented operations within the same organisation) and horizontally (that is, several operations are run within the same organisation, which may mean supplementing or strengthening the existing operation). Both vertical and horizontal integration can produce synergy effects. Consolidation may be good for customers as they may, for instance, experience an increased range (e.g. multiple play) and lower prices, but may have the opposite effect if things go so far that competition is undermined. The trend for consolidation within the electronic communications sector applies to Sweden and the rest of Europe and has continued for some time. A number of acquisitions and mergers have been implemented in Sweden in recent years, in several cases with other European undertakings. This suggests that the trend is not increasing in strength in the present situation. This is in addition to competition law rules in Sweden and, at an EU level, limiting the 58 For example, in the assessment of PTS, fibre to the cabinet (FTTC), where copper wire is subsequently used for a relatively short stretch up to the home, will be an attractive intermediate stage in certain areas in the short term.

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degree of concentration allowed in a relevant market as a consequence of mergers. However, the recession that is also expected to prevail in 2010 and which may result in weakened undertakings being bought out or merged suggests the continuing significance of this trend. 59 4.3.6

TREND: Increased dependence on electronic communications is increasing vulnerability

The increased dependence on electronic communications in society, where citizens are expected to be able to use the Internet to access public services, for instance, illustrates the current importance of security and robustness. The storms of recent years 60 , together with more stringent requirements imposed on preparedness against terrorist attacks and 'cyber crime' and other strategic or politically motivated actions, have meant higher demands being placed on society's crisis management capacity. Within the European Union, there has been an increasing focus on protecting critical IT infrastructure 61 , at the same time as the continued development of national functions for IT incident management. The organised attacks against Estonia in 2007 serve as an international example of serious consequences owing to increased vulnerability. 62 One parallel development is the risk of increased vulnerability when an increasing number of services become IP-based, which may mean that the vulnerabilities present on the Internet (for example, viruses) also arise in the next generation IT infrastructure and services. One example is the ongoing transition from traditional fixed telephony to telephony via IP-based networks. On the part of PTS, this development has an impact both on its work relating to robustness and security in general as well as on specific initiatives in the form of various crisis management exercises, where the Agency plays an active role. 4.3.7

TREND: Security and copyright interests are increasingly set in relation to the protection of personal integrity

Up until now, the level of protection has been relatively high for the content communicated via electronic communications. In recent years, the interest in access to and regulation of content has increased from two aspects. The Operators may also choose to cooperate without merging; for example by means of a jointly controlled entity for network rollout. A current example of this is the cooperation between Telenor och Tele2 for the rollout of a joint mobile broadband network, a partnership that was presented on 14 April 2009. 60 The Gudrun and Per storms in 2005 and 2006 respectively 61 The EU Programme EPCIP (European Programme for Critical Infrastructure Protection). Work on a Directive is currently being carried out within the EU. 62 http://en.wikipedia.org/wiki/Cyberattacks_on_Estonia_2007 59

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judicial authorities and intelligence service have observed an increased need for easier access to traffic data for electronic communications, for example in the event of criminal investigations, at the same time as holders of rights, especially within film, software and music, are striving to develop tools to limit the file sharing of copyright material. Several acts have been passed in the Riksdag within this area or have been prepared for a decision by the Riksdag. 63 The debate on these acts and proposed legislation has led to the significantly increased publicity of issues relating to personal integrity among users of electronic communications services. Operators generally view themselves as neutral providers of electronic communications services without interests in the content that is being relayed, but they have also taken part in this debate. They are, of course, very important to criminal investigations regarding the file sharing of copyright material as they are the only ones who can link the IP addresses visible on the network to specific users. The operators have also drawn special attention 64 to the fact that the increased demands imposed on the access to and storage of information entail higher costs for these operators. PTS has proposed a supervisory responsibility for the legislation relating to the storage of traffic data, which together with the Agency's specific responsibility to safeguard privacy under LEK suggest that the public debate about privacy may have a significant impact on PTS. 4.3.8

UNCERTAINTY: New business models

The coming years are likely to be characterised by a search for and the development of new business models at both a retail and wholesale level. The development of mobile broadband is one example of the interplay between business models and demand. Fixed price subscriptions that are attractively priced have probably been a contributory factor behind the rapid growth of mobile broadband. However, one of the effects here is that operators increasingly went from one situation with unoccupied capacity in 3G networks to another where they increasingly experienced inadequate capacity. This was largely due to a small group of users who used up a disproportionate 63 Lag (2008:717) om signalspaning i försvarsunderrättelseverksamhet [Radio surveillance in defence intelligence operations act (the FRA Act)]; Directive 2006/24/EC, Directive on the retention of electronic data (the Data Retention Directive); Government Bill 2008/09:67: Civilrättsliga sanktioner på immaterialrättens område [Private law sanctions in the field of intellectual property (the IPRED Act)] 64 Swedish IT and Telecom Industries, Kostnader som belastar telekombranschen [Costs borne by the telecom industry], November 2008

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amount of capacity. 65 Set against this background, the operators were one by one forced to introduce a capacity cap for their fixed price subscriptions. The revenues for mobile broadband still represent a small proportion of total mobile revenues, while the increased use of mobile broadband results in a need to invest to achieve greater capacity. Consequently the current issue is how charges can best be imposed on 'major consumers' without creating uncertainty about what such use will cost. Prices per MB are often difficult for end users to understand. Some alternatives may include having a fixed price per item (for example, per song, film or the like) or financing through advertising, but other alternatives are also likely to emerge in the future. It may also be assumed that the business models for the area of interconnection will also change over the next few years, which may possibly have an impact on how the operators choose to formulate their offers to their end users (see Sub-section 3.1.1). In March 2009, PTS's report Målbild samtrafik [Vision for interconnection] was circulated for consultation so that operators' views about this important area could be obtained. 66 PTS is of the overall view that the development of properly functioning business models is an important area for explaining market development, but it is uncertain how rapidly this development will take place and what the mix of business models will be like. This assessment is also reflected in the scenarios for the electronic communications market in Sweden in 2015 that PTS produced within the framework of the Government Assignment entitled 'A long-term analysis of the development of the electronic communications sector'. 67 There, the level of new business models is one of the key uncertainties described. It is also important to note that the present regulation affords the stakeholders opportunities to experiment with new business models. 4.3.9

UNCERTAINTY: Broadband for all?

An important point of departure for Sweden's broadband policy is one's capability of participating in the information society regardless of geographical location. The importance of access to broadband infrastructure has increased in pace with the gradual winding up of physical offices providing public services and information. However, there are a number of factors generating

65 See, for example, http://di.se/Avdelningar/Artikel.aspx?ArticleID=2008\12\10\315201§ionid=ettan 66 See www.pts.se/sv/Nyheter/Telefoni/2009/PTS-presenterar-malbild-for-samtrafiken/ 67 PTS-ER-2009:2

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uncertainty as regards whether everyone in Sweden can gain access to broadband. Whereas several countries, such as Finland, the United Kingdom and South Korea, currently plan to make or have already made major public investments in broadband, 2008 was characterised by a lack of clear objectives and visions on the part of Sweden as a broadband nation. This entails increased uncertainty among market stakeholders about anticipated developments and there is also a risk of Sweden falling behind other nations in terms of the capacity to develop and benefit from electronic infrastructure with high transmission capacity. One important challenge is that the infrastructure needed for the delivery of services dependent on high transmission capacity is costly. This means that there is limited incentive for private stakeholders to invest in sparsely populated areas. Without any clear political objectives, there is high level of uncertainty about the capacity to develop IT infrastructure in all parts of Sweden. Without public commitments, there is an impending risk that the digital gap will widen and that new investments and continual upgrades in rural areas will not take place. In the long run, there is a risk of this type of development undermining the potential to run business operations in sparsely populated areas, for instance. Besides the geographical spread, the design of technology is also an uncertainty affecting the capacity of all user groups to make use of broadband services. This is particularly the case for older people and persons with functional impairment who may benefit most from broadband services, both general services and services developed especially for the needs of a certain group of users. 4.3.10

UNCERTAINTY: More equal treatment in the access network

PTS is working in several ways to promote equal treatment in the access network; the market analyses and ongoing supervisory work concerning predetermined obligations to promote competition constitute important components of these efforts. In June 2007, the Agency also submitted proposed legislation on functional separation. This statutory amendment entered into force on 1 July 2008. The amendment gives the regulatory authority the power to, if necessary, make a decision regarding the functional separation of network and service production on the part of an operator that has a significant influence in the access network market. The move towards different forms of separation is a clear international trend, according to the

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Gartner analysis company. 68 Functional separation is a method that is being discussed or applied in other countries, for example, Italy and the United Kingdom. Poland is another current example. 69 The statutory amendment also provides regulatory authorities with the possibility to accept a voluntary commitment concerning functional separation. TeliaSonera formed a subsidiary company, Skanova Access, whose main task is to supply copper access lines on non-discriminatory terms. According to TeliaSonera, the provision of more refined products should also be dealt with based on the principle of 'non-discrimination'. Even if TeliaSonera's intention with regard to this measure is more equal treatment in the access network, several market stakeholders are of the opinion that equal treatment has not currently been achieved. In light of this, PTS is of the view that 'more equal treatment in the access network' is an uncertainty. The Agency certainly has the power to decide on functional separation, but even with this kind of decision the equal treatment that could then be achieved would be insufficient. This is because equal treatment should be adapted to the competition situation prevailing in the market if it is to have its full impact. Against the background of the technology shift taking place in the market in the form of a migration from the copper network infrastructure to another type of infrastructure, it is conceivable that the Swedish act (which is restricted to the copper network) would be insufficient to achieve the main aim of the Electronic Communications Act (LEK). 70 In this context, it should be noted that the European Commission, within the framework of the European review of the directives governing the electronic communications sector, has proposed options for regulatory authorities to implement technology-neutral functional separation. The amendments to these directives shall be implemented in Swedish law, and a possible amended act concerning functional separation could enter into force in 2010.

68

'Carrier challenges abound as "structural separation" looms large', Cellular News, 15 May 2008

69www.en.uke.gov.pl/ukeen/index.jsp?news_cat_id=73&news_id=737&layout=1&page=text&place=Le

ad01 70 In the Government Bill (Funktionell separation för bättre bredbandskonkurrens [Functional separation for improved competition in the broadband sector] serving as the basis for the statutory amendment (Government Bill 2007/08:73), it is stated that the aim of functional separation should especially be to ensure non-discrimination and transparency. Obligations that aim to ensure non-discrimination and transparency are a tool that the regulatory authority may use to promote effective competition, which should in turn contribute to the political objective concerning the greatest possible range of electronic communications services in terms of selection, price and quality.

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4.3.11

UNCERTAINTY: The impact of European consolidation on the Swedish postal market

The EU's postal market will be liberalised within the next two years. In Sweden, this took place as early as in 1993 in the market for consignments up to 100 grams, when the monopoly of the former postal authority, Postverket, was abolished. Increased competition may lead to large national postal undertakings in Europe, with big domestic markets, actively searching for new markets and using their considerable resources in order to compete. This may take place through establishment in other countries, or through acquisitions or mergers with smaller national postal undertakings. The merger between Post Danmark and Posten AB of Sweden in 2008 is an indication that the consolidation trend, which has begun to leave its mark in Europe, has also had an impact on Sweden. In 2009, PTS earmarked additional resources in order to deal with a complex supervisory situation, as there is potential for cross-subsidisation between the Danish and Swedish companies. Nonetheless, there is considerable uncertainty about the impact that the more general consolidation trend will have on the Swedish market. Greater interest in the Swedish market may mean improved competition in the short term, at the same time as increased competition could possibly mean a risk of smaller existing postal operators being put out of business.

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5

PTS's strategic orientation for 2010

5.1

Orientation goals for 2010

PTS's four overall goals have been broken down into orientation goals. These orientation goals are reviewed each year in conjunction with a strategic agenda being drawn up. This review takes place by considering the existing orientation goals in relation to the impact of the measures taken by PTS and the development of the market. They are also considered in relation to the trends that PTS assesses may have an impact on future developments. In other words, the orientation goals include a certain measure of dynamics, even if the goals may be expected to be relatively similar from one year to the next. PTS has formulated nine orientation goals for 2010: The position of consumers in the market shall be gradually strengthened through more opportunities to make informed choices and stronger consumer protection while safeguarding personal integrity. ORIENTATION GOAL 1:

The operators shall comply with current rules and guidelines to ensure a certain minimum level of protection for all consumers. Easily accessible information should be available about different services so that consumers can make informed choices. Operators and consumers should also receive information about their rights and obligations. The Agency shall strive to make improvements if there are shortcomings in the regulatory framework or its applications. PTS shall create opportunities for the market that enable more people in Sweden to gain access to electronic communications services that meet consumer demand. ORIENTATION GOAL 2:

'Access to electronic communications' refers to the opportunities for individuals and organisations to connect to infrastructure or different technologies (separately or together) providing access to the services of the information society. This goal also includes persons with functional impairment having equivalent access to electronic communications services. ORIENTATION GOAL 3: Access to postal and payment services shall be maintained for everyone in Sweden.

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By international standards, Swedish postal services have offered a high level of service for a long time now. It is PTS's task to ensure that this level will be maintained. In today's society, the need for payment services has largely been met by the market. If the demand for these services is not yet covered by what the market has to offer, it is PTS's task to ensure that accessibility is kept at around the same level as at the present time. The markets for electronic communications and postal services shall be developed in a clear direction towards sustainable competition ORIENTATION GOAL 4:

'Sustainable competition' means competition that gradually moves in the direction of being self-supporting, where the need for regulatory intervention gradually reduces and there are functioning buy and sell relationships between stakeholders in the market. Spectrum and numbers shall be used in a more market-oriented and flexible way ORIENTATION GOAL 5:

Here, a 'market-oriented way' means that spectrum is allocated in a way that is competition neutral and economically efficient through a transparent and clear regulatory framework that gives stakeholders freedom of choice in pace with the needs of the market. For spectrum issues, a 'flexible way' means that technology and service neutrality shall be applied as far as possible in PTS's regulatory framework as well as in the licence conditions issued by PTS. Here, 'market-oriented use of numbers' means that the telephony numbering plan 71 shall be competition neutral, sustainable in the long term and end-user friendly. 'Flexible use of numbers' means that the telephony numbering plan shall be adaptable for new services and that end users shall be able to utilise the full potential of nomadic telephony services. ORIENTATION GOAL 6:

secure and more robust

Electronic communications shall be more

'Robustness' refers to durability and accessibility, even during extraordinary events. In this context, 'accessibility' refers to the possibility of using an electronic communications service to the extent expected and within the expected period of time. Here, 'security' refers to system integrity. 'System integrity' refers to the general capacity of a system to maintain its intended 71 PTS is responsible for the Swedish numbering plan for telephony and allocates the number capacity to operators and service providers in the telecommunications market.

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function and thereby protect itself from unwanted influence, alterations or access. PTS shall be an accessible and efficient public authority for the benefit of citizens, businesses and associations ORIENTATION GOAL 7:

PTS shall be a modern, efficient, competent and active public authority that runs its operation based on the needs of citizens and the interests of the postal and electronic communications sectors. With the support of IT and on the basis of changed methods of working within the framework of the Government's action plan for e-administration, PTS intends to: (1) improve the usability and accessibility of PTS's services; (2) improve efficiency when processing matters; (3) improve the efficiency of internal administration; and (4) provide good operational support to staff. PTS shall be an attractive employer with suitable competence provision ORIENTATION GOAL 8:

Being an 'attractive employer' means that PTS is also able to communicate this fact to the outside world through consistent internal work so that it can attract and recruit the staff it needs. 'Suitable competence provision' is an ongoing process to ensure that the right competence is available to achieve the objectives of the operation and meet its needs in both the short and long term. ORIENTATION GOAL 9:

financial control

PTS shall have sound finances and good

'Sound finances' means that PTS balances costs and revenues in all areas of financing. 'Good financial control' includes conducting regular budget follow-ups, accurate forecasting and ensuring that PTS's financial reporting is of a high quality. 5.2

Priority areas for 2010

Much of PTS's operation is governed by legislation or may be directly attributable to the Agency's assignments. PTS must deal with these tasks in an effective way in order to meet the requirements of the client. For example, PTS receives annual grants that must be used for robustness measures, work involving IT incident management and to procure services for people with functional impairment. Effective work relating to these tasks is of key importance to PTS.

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However, the comprehensive responsibility of a public authority entails the freedom to choose which measures most effectively meet the goals of the Agency within other parts of its operation. Prioritisation is required to be able to deal with new challenges and focus on areas where initiatives are expected to yield the greatest possible impact. PTS has prioritised two areas for 2010 where the Agency considers there to be a clear need to increase its initiatives and in which these initiatives are expected to have a major positive impact. These priority areas are: • •

creating opportunities for the rollout of IT infrastructure with high capacity creating opportunities for improved competition in the broadband sector

Most of the measures that aim to create opportunities for the rollout of IT infrastructure with high capacity also contribute to creating opportunities for better competition. Similarly, many of the measures relating to competition contribute to improving the opportunities for rolling out IT infrastructure with high capacity. These measures are only described in one section below. 5.2.1

AREA 1: Creating opportunities for the rollout of IT infrastructure with high capacity

Description of the area

Sweden currently has basic IT infrastructure that works very well, to which virtually everyone has a connection or has basic prerequisites for connecting to infrastructure with broadband capacity. The political objective for the broadband sector states that infrastructure should in the first instance be provided through the agency of the market and that effective competition shall lead to a satisfactory range of services. In the time ahead, a major challenge for the broadband sector involves capacity-hungry services imposing greater demands on networks. The rollout of fibre and continued development of wireless technologies, so that the capacity of mobile broadband networks increases, are crucial so that infrastructure will be capable of meeting future requirements and so that Sweden can retain its competitiveness in the future. PTS can contribute to positive developments by laying the groundwork for effective investments in IT infrastructure with high capacity. This can be realised through work to promote competition, by means of spectrum management and through other measures. There may also be a need to prioritise initiatives in this area in 2010 depending on whether the

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Government's preparation of the two public inquiries 72 relating to broadband result in tangible proposals for measures. Link to orientation goals

This area is primarily linked to orientation goal 2. However, the results of the work in relation to orientation goals 4 and 5 create crucial opportunities for a positive development in this area. Performance objectives •

In 2010, the proportion of households and businesses that are able to gain access to and use fibre access lines 73 shall increase in areas with a high population density 74 , without competition being undermined

•

Households and businesses in Sweden shall have access to higher transmission capacity for mobile wireless broadband in 2010

Planned measures •

Continue to work to reduce barriers to entry when rolling out IT infrastructure with high transmission capacity (e.g. regarding access to municipal land and ducting) 75

•

Continue to work to ensure that urban networks apply business models promoting a higher level of infrastructure-based competition that is commercially driven

•

Analyse alternatives for the financing of and cooperation regarding initiatives that aim to roll out IT infrastructure with high transmission capacity (for example, 'PPP solutions') 76

•

Analyse the future development of end user demand for transmission capacity as well as the potential for different forms of access to meet this demand

•

Increase the amount of radio spectrum that is available on technology and service neutral conditions; for example, by licensing the 800 MHz

72 Bredband till hela landet [Broadband throughout Sweden], Official Government Report, SOU 2008:40. Effektivare Signaler [More effective signals], Official Government Report, SOU 2008:72 73 This includes Fiber To The Building (FTTB) and Fiber To The Home (FTTH). 74 It is in these areas that PTS assesses that commercially-driven fiber rollout is likely to arise. 75 In the autumn of 2009, PTS has a Government Assignment to investigate the concept of transparency in various links of the electronic communications value chain. The final report on this Assignment is to be presented on 30 November. 76 Public Private Partnership

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band and preparing for the release of additional bands •

Release new frequency bands for radio links so that existing and new base stations have sufficient capacity for extensive use of wireless broadband

•

Release spectrum from the Swedish Armed Forces for new applications

•

Implement the coordination of technology and service-neutral use with neighbouring countries, and work to achieve a harmonised approach between countries so that new joint frequency bands are made available

•

Simplify and clarify opportunities for the secondary trading of assigned spectrum

•

Review the possibilities of releasing new frequency ranges by planning existing use more efficiently

•

Implement charges to hold a licence for the use of radio transmitters (licence holders) based on the spectrum holding instead of the number of radio transmitters. This will stimulate the use of spectrum and reduce the risk of spectrum being hoarded

•

Draw up a straightforward register containing information about licence holders and the conditions for different frequency bands as this may, for instance, create the preconditions for a second-hand market that works more efficiently

•

Produce and publish a time schedule for when different frequency bands will be assigned (a 'roadmap')

•

Develop generic methods for conducting impact analyses in the event of major frequency assignments; that is, methods to describe the advantages and disadvantages of, for instance, coverage requirements, spectrum ceilings and forms of auction

•

Develop the current spectrum policy with the aim of (empirically) justifying how a more liberalised spectrum management contributes to long-term consumer benefit, an efficient use of resources and longterm sustainable competition.

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5.2.2

AREA 2: Creating opportunities for improved competition in the broadband sector

Description of the area

Market developments demonstrate that there are still competition problems in the broadband sector. Certain problems are associated with access to metallic loops. The technological progress now taking place with migration from copper to fibre infrastructure may entail new access problems. At the same time, however, wireless broadband services are developing quickly, which eventually, and under certain conditions, may help drive competition in the sector. The market analyses being conducted in 2009 in the markets for network infrastructure access and broadband infrastructure access (bitstream access) are expected to lead to broader obligations than previously. For example, there are current questions concerning new types of access opportunities, which would present new challenges to supervisory work; for example, regulation that aims to afford alternative operators access to dark fibre. In parts of Sweden where the commercial viability of comprehensive broadband investments is limited, there is a very clear need for ex ante regulation. The freedom of choice between broadband providers is still limited. PTS's assessment is that a functioning bitstream product is of particular importance for addressing this problem and that it may contribute to more households gaining access to broadband on market terms. Today, other parts of Sweden already have a considerable freedom of choice between broadband providers. However, PTS is of the view that regulation of the access to dark fibre is needed to obstruct a re-monopolisation of the access network when fibre is being rolled out. This kind of regulation must be designed (e.g. considering price regulation) so that it provides opportunities for infrastructure investments as well as a higher level of infrastructure-based competition. Work related to a possible decision concerning functional separation will also be carried out in 2010. The aim of functional separation is to increase the potential of market stakeholders to compete on a level playing field. Link to orientation goals

This area is primarily linked to orientation goal 4, but also affects orientation goals 1 and 2. Performance objectives

PTS has drawn up the following performance objectives for this priority area:

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•

More businesses and households shall have more infrastructure for high quality broadband services to choose between compared with 2009

•

Businesses and households shall have more broadband providers to choose from in areas with limited commercial viability compared with 2009

•

The potential for businesses and households to choose between broadband providers in areas with high commercial viability shall (at least) remain at the same level as in 2009

•

The proportion of businesses and households using broadband based on network infrastructure access (Nätinfrastrukturtillträde – NIT) or via an infrastructure other than the DSL platform shall (at least) remain at the same level as in 2009

•

There shall be a functioning bitstream product available on the market

•

The operators using regulated access products to produce broadband services shall have better potential to compete on a level playing field

Planned measures

In order to achieve the above-mentioned goals, in 2010 PTS will: •

Conduct supervision that is active (and largely on its own initiative) based on SMP decisions that have been made. This includes the implementation of at least one major supervision project for the purpose of improving the potential of operators to compete on a level playing field. The SMP decisions referred to relate to the markets for NIT, broadband infrastructure access (Bredbandsinfrastrukturtillträde – BIT) and leased lines

•

Handle court proceedings actively and efficiently should this be necessary for establishing an effective implementation of the regulation

•

Work so that TeliaSonera implements a functional separation in accordance with PTS's guidelines (probably in the form of a decision if this is required)

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•

Revise the model for cost-orientated pricing (LRIC) in the fixed network

•

Conduct preliminary studies prior to future generations' SMP decisions, carefully monitor market developments and follow up decisions

•

Develop impact analyses in conjunction with major decisions (see also measures under 5.2.1)

•

The measures in area 1 that are most relevant for achieving the performance objectives for this area include measures to increase the amount of spectrum available on technology and service-neutral conditions; for example, the licensing of the 800 MHz band and preparations for releasing further bands. Stimulating secondary trading is another measure that is very relevant when promoting competition.

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6

PTS's strategic orientation for 20112013

6.1

Priority areas for 2011-2013

In the Strategic Agenda for 2009, PTS made a preliminary assessment of the areas that should continue to be prioritised during the period 2010-2012. Here, the Agency worked on the basis of the six areas that were prioritised for 2009 and evaluated them. Each year, a more detailed analysis and assessment of priority areas is conducted in conjunction with work relating to the strategic agenda. In the assessment of PTS, there is now justification to reduce the number of priority areas so that a more focused approach may be launched prior to 2010. This is why there are only two areas in this year's report, as explained in the previous section. There is much to suggest that the broadband sector will continue to require major initiatives from PTS in future years, both its work to achieve long-term sustainable competition and initiatives to lay the groundwork for the continued rollout of broadband with high capacity. The ongoing technology shift from copper networks to fibre and wireless networks may present new challenges in the areas of competition and accessibility, particularly in areas where the parallel rollout of access networks is not commercially or socioeconomically justified. Ongoing work to release attractive spectrum and a transition towards a greater element of market mechanisms in the spectrum sector may result in increased accessibility to broadband and improved broadband competition, depending on how the need for capacity develops and the extent to which wireless technologies are capable of meeting this need (see Sub-section 3.2). The area of interconnection is likely to require increased initiatives during the period 2011-2013, largely depending on market developments and the extent to which the development of IP-based networks leads to new business models among the operators. In the area of security, PTS may need to commit additional resources over the next few years depending on how operators choose to exercise their responsibility for basic security in networks and services. The transition to IPbased networks and services will increase the need for initiatives to promote security. We have seen the integrity debate grow in society in recent years, and the new legislation that is expected to affect PTS may lead to increased demands on the Agency, as PTS is responsible for supervising how operators process stored data about users.

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6.2

Need for resources and expertise in 2011-2013

The rapid developments taking place within PTS's areas of operation require a great deal of advanced knowledge about market and technological developments. These developments increase the demands imposed on PTS's capacity to capture and translate new information into action. Technological progress is fast, new services are being introduced and old ones are being phased out. The market prerequisites are continually changing and regulatory developments mean that PTS's work is becoming more and more internationalised. In pace with the increasingly blurred dividing lines between market segments that once were separate, there is an even greater need now for a public authority with the capacity to see the full picture and have a 'cross-scientific' perspective. These developments will presuppose having more employees and managers with knowledge and expertise extending beyond the area perceived as their immediate area of responsibility. Various flexible and systematic methods should be drawn up with the aim of ensuring a useful exchange of information and experiences with the market as well as with different scientific and other knowledge-based organisations. Examples of these include networks and project concepts that ensure access to expertise from academia and industry for a specific period of time or for a particular assignment. Another way may be to link external expertise to the operation in other recurring forms; for example, scientific councils or other forms of expert group. The anticipated developments described in relation to parts of PTS's operation help compound the perception that the demands imposed on the work of the Agency will increase from various aspects. When it comes to expertise, the Agency will need employees with an understanding of several sectors, perhaps within the traditional worlds of telecommunications and the Internet in particular, but also within the world of the media. This is why PTS needs to continue to build on its level of expertise in the following respects: •

Advanced national economic and business economic expertise within different specialist areas, covering price formation, market analysis and investment estimates, etc.

•

Advanced technical expertise within various specialist areas, including radio and IP-based communications, Internet architecture and security

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issues, etc. •

Advanced legal expertise with an emphasis on competition law, law of contract, IT law, EC law or administrative law and which includes experience of litigation.

The Data Retention Directive and the supervision that PTS is obliged to carry out will mean that some additional resources will be needed. In general, it is assessed that the Agency will manage to complete the tasks imposed on it during the period 2011-2013 at a largely unchanged level of cost.

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Appendix 1 1.

PTS's hierarchy of objectives

PTS employs a hierarchy of objectives to achieve its vision of a desirable future state. This hierarchy of objectives is shown in Diagram 6. The highest level of this hierarchy comprises overall goals. These state PTS's overall orientation and cover the activities of the entire Agency. The overall goals are characterised by long-term stability. The next level of objectives comprises the orientation goals, which are an important part of PTS's strategic orientation. Orientation goals break down the overall goals and are reviewed annually when the agenda is being produced. The lowest level of objectives comprises PTS's performance objectives. These performance objectives break down PTS's overall goals and orientation goals. Unlike overall goals and orientation goals, the performance objectives are to be measurable. Measurable performance objectives are a requirement so that the Agency can systematically follow up its work. The strategic agenda only presents the performance objectives defined for the areas prioritised by PTS for the following year. PTS's detailed operations plan contains all of the Agency's performance objectives. Diagram 6 PTS's hierarchy of objectives

Vision

Everyone in Sweden shall have access to efficient, affordable and secure communications services.

Overall goals (4)

Orientation objectives (9)

Performance objectives (>100)

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1.1.

Priority areas in relation to the hierarchy of objectives

In the strategic agenda, PTS indicates a limited number of priority areas in which there is a clear need for the Agency to increase its initiatives and where the increased initiatives are expected to have a major positive impact. One priority area is linked to all levels of these objectives/goals: overall goals, orientation goals and performance objectives (see Diagram 7 below). Diagram 7 PTS's hierarchy of objectives, including priority areas

Vision

Everyone in Sweden shall have access to efficient, affordable and secure communications services.

Overall goals

Orientation objectives

Priority areas (2)

Performance objectives

However, it should be noted that initiatives in one area often have an impact on efforts to achieve more than one objective or goal. Section 5, which describes PTS's strategic orientation for 2010, describes the Agency's orientation goals and priority areas, and the link between them. The description provided for each priority area also states PTS's performance objectives for the particular area, together with the measures planned for the achievement of these performance objectives. PTS The Swedish Post and Telecom Agency

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Glossary All-IP – network that is completely IP-based Bitstream access – a wholesale product supplied by a network owner, comprising two-way transmission capacity at a high rate between an end user and a network termination point Convergence – a transition from individual kinds of service (television, radio, telephony, etc.) being supplied to dedicated terminals via specific networks to several different kinds of service being supplied to several different kinds of terminal through a common network FTTB – Fiber To The Building FTTC – Fiber To The Cabinet FTTH – Fiber To The Home HDTV – High Definition Television ICT – information and communication technology Interconnection – the physical and logical linking of public communications networks or publicly available electronic communications services IP-based network – a network based on an Internet protocol (packetswitched network) IP-based telephony – telephony that sometimes uses an IP-based network IPTV – transmission of television programmes using an Internet protocol, which can be either via the public Internet (web TV) or via traditional distribution (e.g. a fibre network or xDSL) LEK – Electronic Communications Act (2003:389) LLU (Local Loop Unbundling) – an obligation for network owners to afford other operators access to the metallic access network (conventional subscriber lines)

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LTE (Long Term Evolution) – transition towards mobile broadband with a very high transmission capacity NGN (Next Generation Network) – an important component of this concept is the development of electronic communications networks so that they become completely or partly IP-based and can provide many services, for instance telephony, data and video via different kinds of access network Optical fibre – infrastructure based on fibre. Optical fibre is a thin glass line made from silicon dioxide (glass) that transmits data via light instead of via electronic signals, as is the case in a copper line. May be found in an entire or part of an electronic communications network Sitic – Sweden's IT Incident Centre (part of PTS) SMP (Significant Market Power) – a term describing an operator having significant market influence; that is, the operator has a dominant position in the market. SMP decisions define the rules in the electronic communications market to ensure long-term and sustainable competition in this market Termination (of calls) – the termination and routing of telephone calls to a subscriber with a network termination point and a particular telephone number USO (Universal Service Obligation) – the provision of a connection to a publicly available telephone network and access to telephony services to a fixed termination point constitutes a universal service entailing an obligation to grant functional access to the Internet xDSL (Digital Subscriber Line) – a high-speed connection between a telephone exchange and an end user

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