The market is structurally imbalanced (operators’ situation is asymmetric): high cost difference due to licensing fees along with late entrance (temporal difference in entering) into the market create an important imbalance between first and later entrants. Regulation should not ignore or neglect such asymmetric situation and should correct such imbalanced situation by adopting an asymmetric interconnection (call termination, roaming…) – at least for a transitory period – to compensate the advantages of first movers that are related to temporal difference and – or cost difference of spectrum allocation. Therefore, it will enable all operators to converge towards the efficiency by allowing challengers to lower their retail prices being effectively competitive. The question is, how easy to apply the asymmetric regulation without bringing too much effort in costing methods calculation, accounting and functional separation…? What is the cost target and which cost reference should be used (actual and current cost, long-run – incremental cost, incumbent or dominant operator cost, most efficient cost, etc.)?

1. Mohamed Bouanane
D i r e c t o r – M a n a g e m e n t
C o n s u l t i n g
J u n e 2 0 1 6
The market is structurally imbalanced (operators’ situation
is asymmetric): high cost difference due to licensing fees
along with late entrance (temporal difference in entering)
into the market create an important imbalance between
first and later entrants. Regulation should not ignore or
neglect such asymmetric situation and should correct such
imbalanced situation by adopting an asymmetric
interconnection (call termination, roaming…) – at least for a
transitory period – to compensate the advantages of first
movers that are related to temporal difference and – or
cost difference of spectrum allocation. Therefore, it will
enable all operators to converge towards the efficiency by
allowing challengers to lower their retail prices being
effectively competitive.
The question is, how easy to apply the asymmetric
regulation without bringing too much effort in costing
methods calculation, accounting and functional
separation…? What is the cost target and which cost
reference should be used (actual and current cost, long-run
– incremental cost, incumbent or dominant operator cost,
most efficient cost, etc.)?
Asymmetric
Regulation in
Telecoms: Fairness
and not equal
treatment

2. Asymmetric Regulation in Telecoms
M. Bouanane 2
Imbalanced and highly concentrated market
Despite many years of liberalization and regulation of the telecoms market (more than two decades in
some cases) in general and termination rating in particular, the mobile market is still imbalanced as
shown below through the high concentration in the European countries using symmetrical regulation.

3. Asymmetric Regulation in Telecoms
M. Bouanane 3
*Market share of revenues for Denmark (March 2015)
China – February 2014; UK – Q2-2014; Germany – Q4-2014; Spain – Q1-2012; Italy – Q1-2015; France – Q1-2015;
Switzerland – Q1-2015; Sweden – Q4-2014; Norway – Q2-2015; Countries of Central and Eastern Europe CEE (in the figure
above, excluding China) – Q4-2014; CEE - Average
Asymmetry of interconnection charges to correct the
asymmetry of positions: Fairness and not equal treatment
Indeed, the market is structurally imbalanced (operators’ situation is asymmetric) since the high cost
difference due to licensing fees along with late entrance (temporal difference in entering) into the
market create an important imbalance between first and later entrants. Regulation should not ignore or
neglect such asymmetric situation and should correct such imbalanced situation by adopting an
asymmetric interconnection (call termination, roaming…) – at least for a transitory period – to
compensate the advantages of first movers that are related to temporal difference and – or cost
difference of spectrum allocation. Therefore, it will enable all operators to converge towards the
efficiency by allowing challengers to lower their retail prices being effectively competitive.
However the asymmetrical model should not treat every operator in an absolute manner but relatively
to their current position in the market. The asymmetry should be applied between two operators having
different positions expressed e.g. by market shares (number of subscribers) or revenue shares (or gross
margin). Such condition that requires the adoption of asymmetrical regulation needs to be determined
using the same criterion as per the below formula (a AND b):
a. Market concentration / asymmetry is evaluated using the Herfindahl-Hirschman Index (HHI) as
high (above 1 / Number of operators). The HHI1
is calculated by summing the squares of each
individual operator’s market share (refer to figures below for mobile market concentration
examples). The higher the concentration, the less competition.
b. The difference of market shares between two operators is (for example) equal or higher than
(N*3/2) percentage points (N is the number of operators in the market). Dominant operator is
each operator having a market share higher than the market share of its competitor by (N*3/2)
percentage points.
If conditions a) and b) are verified, it means that the level of competition in the market requires
decisions to limit competitive distortions and it can justify incentives to strengthen the position of small
operators through the adoption of asymmetric regulation, thus helping the challengers to converge
towards higher efficiency and the whole market to become highly competitive while lowering retail
prices.
1
For example, a market consisting of four operators with market shares of thirty percent, thirty percent, twenty percent, and
twenty percent has an HHI of 0.26 (0.30
2
+ 0.30
2
+ 0.20
2
+ 0.20
2
= 0.26) or 2600 (30
2
+ 30
2
+ 20
2
+ 20
2
= 2600). The HHI ranges
from 1 (or 10,000 in case of a pure monopoly) to a number approaching zero (in case of an atomistic market).

4. Asymmetric Regulation in Telecoms
M. Bouanane 4
The question is, how easy to apply the asymmetric regulation without adding too much effort and
complexity in costing methods calculation, accounting and functional separation…? What is the cost
target and which cost reference should be used (actual and current cost, long-run – incremental cost,
incumbent or dominant operator cost, most efficient cost, etc.)?
The algorithm (methodology and cost calculation technique) that we recommend is the most simple –
for cost determination and implementation (without any cost control obligation) – and the most
successful, bringing fairness and leading to efficiency convergence, while promoting competition and
investment in fixed, mobile and roaming segments.
For further information and discussion regarding such methodology, please feel free to contact the
author.
A dedicated professional with over 20 years of consulting experience across
Europe and the Middle East. He has high expertise in the field of strategic
management consulting with an in-depth experience and a particular focus on
TMT, digital and knowledge economy sectors (government and public policy,
telecom operator, regulator, corporate strategy). He is a leader in designing
unified policies and convergent planning across multi-sectors and involving
multiple private and public stakeholders. He brings his strategic thinking and his
balanced management approach with the ability to recommend pragmatic and
innovative policies, viable business cases and action plans that enable the
creation of greater and sustainable value.