Net Neutrality A debate where nobody is wrong (or right) Mario Girasole Regulatory, Institutional and Press Relations.

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1 Net Neutrality A debate where nobody is wrong (or right) Mario Girasole Regulatory, Institutional and Press Relations June10th, 2015

2 Social Inclusion: a moving target Economic Digital Infrastructure Cost of Service Cost of Devices Digital Literacy Content Solutions

3 Mobile industry removing barriers + Available Spectrum Fiber HetNets Coverage + Competitive HHI Index as of 4Q14 Source: Bank of America / Merrill Lynch + Affordable Share of Smartphones in Devices Sales +33 pp Feb/2015

4 Mobile Market Revenues Evolution (% of Revenue in Mobile Service Revenue Mix) A great transformation in progress 2018/2020E % 4% Internet SMS 57% Outgoing Voice 27% Incoming Voice

5 Paradigms shift From TLC Regulation... The rise and fall of Regulation to Digital Public Policies New Rules of engagement in the digital business value chain New Relation between State and Market

6 Back to basics TLC is a Paid Service TLC is not an Utility Same Service, Same Rules Digital Transparency Perspective

7 Back to basics TLC is a Paid Service TLC is not an Utility Same Service, Same Rules Digital Transparency Perspective

8 Back to basics TLC is a Paid Service TLC is not an Utility Paid Service: two-sided market governance Same Service, Same Rules Digital Transparency Perspective

9 Paid Service: two-sided market governance Operators (ltx) TLC Voice Users (Price) CADE, P.A. n.º , Cons. Ana Frazão: (...) não veracidade da premissa de que o VU-M deve corresponder ao custo de uso da rede em casos de interconexão, já que o próprio regulador reconhece que o VU-M tem a finalidade de cobrir custos fixos e variáveis das operadoras móveis e ainda possibilitar a expansão da telefonia móvel e o cumprimento de metas e objetivos da política regulatória específica. EBITDA Margin (4Q14) (41 st of 47 countries) Source: BofAML Global Wireless Matrix, 30.Apr.2015, 4Q industry snapshot

10 Paid Service: two-sided market governance Contents / Applications (OTT)? TLC Data Users (Price) NETFLIX Contribution to Anatel Public Consultation 08/2015: Revenues (...)o regulador deveria assegurar, não só o direito de acesso (já protegido pelo Artigo 61 da LGT), mas também garantir que esse acesso seja gratuito. Price x User Base (ex. Zero Rating)

11 Traffic technical discrimination Behind ZRT 1 ZRT 2 Beyond Zero Rating Yes No Dominant position Vertical integration Exclusivity agreement Yes Yes Long term No No Short term Art. 9º O responsável pela transmissão, comutação ou roteamento tem o dever de tratar de forma isonômica quaisquer pacotes de dados, sem distinção por conteúdo, origem e destino, serviço, terminal ou aplicação. 2º Na hipótese de discriminação ou degradação do tráfego prevista no 1o, o responsável mencionado no caput deve: Antitrust What s the problem? IV - oferecer serviços em condições comerciais não discriminatórias e abster-se de praticar condutas anticoncorrenciais. (Marco Civil, art. 9º)

12 The Netherlands X Brazil: a not-neutral dispute Zero Rating ban 4Q14 Regulatory measures cannot be one-size-fits-all ARPU (US$) GDP/capita (US$) Population (MM) 200 Source: BofAML Global Wireless Matrix, 30.Apr.2015, 4Q industry snapshot MTR (US$) 0.103

13 Paid Service: two-sided market governance Contents / Applications (OTT)? TLC Data Users (Price) NETFLIX Contribution to Anatel Public Consultation 08/2015: Revenues Price x User Base (...)o regulador deveria assegurar, não só o direito de acesso (já protegido pelo Artigo 61 da LGT), mas também garantir que esse acesso seja gratuito. (ex. Zero Rating) Q14 ARPU (US$) 7.91 Fast Lane Partnerships? Specialized Services? Specialized Networks? State Aid? GDP/capita (US$) Population (MM) MTR (US$) Source: BofAML Global Wireless Matrix, 30.Apr.2015, 4Q industry snapshot

14 Back to basics TLC is a Paid Service TLC is not an Utility So... what about neutrality? Same Service, Same Rules Digital Transparency Perspective

15 Net Neutrality Frameworks Pragmatic NN Business flexibility that makes the networks work properly for consumer benefits, in a fair competition. Incentive to investments Formulate digital public policies Rules for market failures Regulatory Framework Private Investments Innovation Competition Partnerships State Institutional Framework Public funding Free lunch Back to bureaucracy Free riding Low margins/investments Concentration ( prices) Market Dogmatic NN Everything is forbidden, except the dumb pipe.

16 Conclusion TLC is a Paid Service TLC is not an Utility Beyond the Neutrality Trap... Same Service, Same Rules Digital Transparency Perspective

17 from a debate where nobody is wrong (or right) Anticompetitive behaviour Privacy Innovation Network Neutrality Consumer awareness Freedom of expression

18 to a Customer-centric policy debate Competition/ Investments (OTT vs. TLC) Privacy/Security (ex. the encryption issue) Customer Digital Transparency (Regulation 3.0) Digital Public Policies (Education, Health, Smart Cities, etc.) Traffic Management ( best effort vs. specialized services )

19 Thank You! Mario Girasole Regulatory, Institutional and Press Relations