©Ofcom

The Future of Regulation

David Clarkson

30th November 2005

Consult21 Broadband Working Group

©Ofcom 2

Disclaimer

• The contents of this presentation do not represent Ofcom’s view about the outcome of the forthcoming Wholesale Broadband Access market review.

©Ofcom 3

Agenda

• Overview of Current Regulatory Structure

• Ofcom’s Strategic Principles

• Current Products – Natural Selection

• LLU and FAS

• Next Generation Bit-stream

• Possible Future Regulatory Structure

• Ofcom’s High Level Goals

©Ofcom 4

Overview of Current Regulatory Structure

LLU

DataStream

IPStream

Geography

ex-post

ex-ante (Retail -)

ex-ante (Cost +)

Margin Rule

RetailCAct Case

Urban

Cost +

Rural

©Ofcom 5

Ofcom’s Strategic Principles

• Avoid reliance on exploiting arbitrage opportunities

• Promote competition at the deepest level of infrastructure where it will be effective and sustainable

– Where appropriate limit regulation to the ‘deepest’ level only, thus allowing the removal of downstream regulation

• Accommodate varying regulatory solutions for different products, and where appropriate, different geographies

– Where a single regulatory solution does not adequately address all geographies it may be appropriate to have different regulatory solutions in different geographies, rather than ‘stacking’ regulatory solutions along the value chain

©Ofcom 6

Current Products – Natural Selection!

Geography

LLUDSIPS LLU

DataStream

IPStream

UrbanRural

©Ofcom 7

LLU and FAS

• LLU is one of Ofcom’s primary regulatory solutions for promoting ‘deep’ infrastructure competition and where it is effective Ofcom is seeking to reduce/remove downstream regulation, but…

• Ofcom recognises that the economics of LLU are such that it is unlikely to be effective in all areas

– Therefore likely to need an additional ‘downstream’ regulatory solution that compliments LLU – Next Generation Bit-stream?

– Ofcom’s preference is for a single additional regulatory solution and this must be effective in all the areas where LLU is not

• FAS (as currently defined) appears to replicate DataStream (albeit using Ethernet instead of ATM)

– It is scale dependent and thus more attractive in urban areas, but this is where LLU is expected to be the preferred regulatory solution

– Unlikely to address all areas where LLU is not effective, in which case additional regulatory solution necessary

©Ofcom 8

Next Generation Bit-stream

• In order to be effective in all the areas where LLU is not, it seems likely that any Next Generation Bit-stream product will need to be sufficiently aggregated

– Multiple providers will need to share common network resources

• However there is normally a trade-off between aggregation and control/flexibility (as per IPStream v DataStream)

– IPStream is seen as an aggregated (fixed price) product but with limited flexibility

– DataStream is seen as a reasonably customisable product but is susceptible to scale economies

• It seems as though industry discussions, thus far, have accepted that aggregated and dedicated bit-stream products within 21CN will have similar cost and technical characteristics to IPStream and DataStream respectively

Ofcom is keen to understand whether this is necessarily the case

©Ofcom 9

De-regulate if LLU is effective

Possible Future Regulatory Structure

LLU

Next Gen Bit-stream

Downstream (w/s & retail) products

GeographyUrbanRural

Regulate if LLU is not effective

EoI

EoI

©Ofcom 10

Ofcom’s High Level Goals

• What we would like to achieve

– Ensure that CPs have ability to innovate and produce differentiated downstream products

– Ensure that the correct incentives exist for CPs to deploy their own infrastructure

• What we would like to avoid

– Regulating multiple margins within a single value chain

• However, Ofcom does not have all the answers and is looking to industry (inc BT) to come up with options/solutions

– What do CPs want? (This is a different question than which of BT’s proposals is best!)

– What are the QoS capabilities of NGNs?

– There are likely to be trade-offs and as such industry may need to see if a suitable compromise can be found

©Ofcom

The Future of Regulation

Thank you

Consult21 Broadband Working Group