Synthesis of “Regulatory Approaches to NGNs: An International Comparison”

CONTEMPORARY ASPECTS OF MEDIA POLICY

“Regulatory Approaches to NGNs:An International Comparison”

J. Scott MARCUS & Dieter ELIXMANN

Francisco Javier Ramírez GuerreroUniversiteit Gent. 2009-2010

REGULATORY APPROACHES TO NGNS AN INTERNATIONAL COMPARISON

Index Introduction........................................................................................ pg. 3

◦ NGN access network and NGN core.......................................... pg. 3

◦ Additional regulatory issues........................................................ pg. 4

Regulatory challenges, regulatory goals........................................... pg. 4

◦ Market Power.............................................................................. pg. 4

◦ Public Goods.............................................................................. pg. 5

Many lands, many proceedings, many results................................. pg. 5

◦ The United Kingdom.................................................................. pg. 5

◦ The Netherlands........................................................................ pg. 5

◦ Germany.................................................................................... pg. 6

◦ The European Commission's Proposals................................... pg. 6

◦ Japan........................................................................................ pg. 6

◦ The United States..................................................................... pg. 7

Similarities and differences.............................................................. pg. 7

◦ The access network.................................................................. pg. 7

◦ The core network...................................................................... pg. 8

Conclusions of the authors.............................................................. pg. 8

Critical review.................................................................................. pg. 9

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IntroductionIn this article, the authors analyze the emergence of the so-called Next Generation Networks

(from now on 'NGNs'). This kind of networks raises important challengues for regulators all over

the world, whom approach diverse problems in different ways depending on the regulatory

milieu and also the nature of the migration to this NGNs envisioned by the major market players.

There are a few questions that the writers try to answer in the analysis, like if the NGNs

would create new forms of competition, if competitive bottlenecks would remain or new forms

bottlenecks would emerge, and so on.

For this duty, Marcus and Elixmann have analyzed the situation in the UK, the

Netherlands, Germany, Japan and the US. In these countries, regulators have been forced to

deal with regulation issues due to nowadays' fast migration to NGNs, every one of them

proposed by their respective incumbent telecommunications operators. So, the authors

compare and contrast the many regulatory proceedings produced by each country's regulatory

authorities.

In this panorama, technological and market forces drive network operators to migrate to

new network architectures. This new architectures are based on the Internet Protocol (IP) and

the resultant networks are the so-called Next Generation Networks, but we also could speak

about convergence as they do in the United States.

The evolution to NGNs implies, however, substantial changes in every aspect of

electronic communications. As we said, different regulators in different countries face these

issues in different ways, of course finding different solutions for the emerging challengues.

- NGN access network and NGN coreBefore starting, we have to distinguish between the NGN access network and the NGN core,

both depending on the Internet Protocol.

Initially, NGN access in the fixed network is the broadband access. However, over time

is being enhanced in many countries using fibre-based technology in order to provide higher

speeds, security and a better service. The most important technologies in this environment are

VDSL, FTTC and FTTB/H.

For VDSL, the Point of Interconnection (PoI) moves to numerous street cabinets, which

are difficult and costly. This makes the option of Local Loop Unboundling a competitive remedy.

For fibre-based deployments, there exists many challengues regarding in-building wiring and

difficulties trying to apply traditional remedies.

In the NGN Core, migration to IP will facilitate triple-play service provision and enable

third party application service providers to compete with the physical network's operator. In the

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core, the regulation revolves around interconnection (the ability of one network operator to

enable its customers to communicate with another network's customer) rather than access.

- Additional regulatory issuesAnother regulation issues have emerged as IP becomes a central component of the network's

architecture. Firstly, regulators have to deal with the degree to which access to emergency

services should follow traditional models, the degree to which lawful intercept should be

supported, data retention issues, and so on.

Each country has been conditioned by their own developments and market evolution, so

the results have been diverse, reflecting differences in the respective markets, philosophy and

style. The authors say that “within the European Union, these differences are likely to gradually

converge over time”, but I would not be so sure about it. We have to take into account that the

EU is growing slowly but steadily – every country in the European Union has its own

geographic, demographic and economical features, and, in my opinion, it will be very difficult to

make a standard in network regulation. However, it is true that is recommandable or even

necessary to make a common regulation law, but I think that in the end every country should

apply this law adaptating it to its own national regulation.

Regulatory challengues, regulatory goalsThere are a number of specific areas where it is generally accepted that public policy

interventions are required to address needs that the market alound would not, as Hayek

suggests. The migration to NGN implies challengues in all of these three areas:

- Market PowerAlthough there are factors that suggest that market power might decline over time, there are

some aspects that are unlikely to change and risks that new forms of market power might

emerge. So it is very premature to assume that this issue will no longer be a concern. For

example, access to last mile facilities and termination of voice calls are still a problem, being

sometimes prohibitively expensive and cost-effective just for a very limited number of

telecommunications companies.

Some have suggested that the migration to NGN and IP could ameliorate the

termination monopoly. However, this monopoly exists because normally there is only a single

service provider capable of terminating the call, so the migration doesn't really affect on this

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issue. I think that it would be interesting to try a Public Monopoly in the termination monopoly

issue – in other words, maybe public regulators and governments could monitor every

operator's termination tariffs and establish a maximum price for the end-user. Or even create

public companies to do the job that the privates are doing now. Nevertheless, this is a huge

issue impossible to discuss in so few lines.

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- Public GoodsAccess to emergency services is problematic because VoIP (Voice over Internet) services neet

not to be fixed to a single geographic location. This is called nomadity, and it's different from

what we use to say mobility: it denotes the limitation of the end user to change his or her

location between sessions. Moreover, emergency services need to know the caller's location.

The authors think that for “the foreseeable future, access to emergency services (…) is likely to

be subject to failure (…) and inaccuracy”, but in my honest opinion, bearing in mind the ultra-

fast evolution of mobile technologies, this could be not true. For example, nowadays there are

lots of smartphones with GPS capabilities, which in combination with VoIP applications like

Skype could solve this problem or at least be a real alternative to emergency services over

NGNs.

Lawful intercept (wiretapping) is another important issue. The writers explain that in an

IP-based network like NGNs, it will be expensive and complex to capture the right data without

compromising the user's privacy. But this is not necessary true. Encryption applications like

GPG, PGP or even the native encryption of Wi-Fi based networks are just a few examples that it

is not so difficult to protect the end user's privacy.

Many lands, many proceedings, many results- The United KingdomUK's regulatory proceedings were in many respects the first to deal with NGN's issues. This

case is very interesting because the ambitious plan of the powerful British Telecom (BT) needed

an Ofcom's response. In 2004 BT announced its plan to migrate to the new 21CN network,

replacing completely the PSTN operations. Moreover, the regulation in the UK is unique: there

are some agreements between BT and Ofcom to separate the first's wholesale operations from

the retail ones, and also to ensure fair competition. This made BT to make a Chinese Wall

between BT's Openreach access and the rest of BT (functional separation).

About geographic telephone numbers, the UK has been unusually liberal because

they're not tied to a particular geographic location. A part from that, there is negligible demand

for non-geographic numbers for VoIP services.

- The NetherlandsIn the Netherlands, the incumbent (KPN) is trying to migrate completely to FTTC/VDSL with the

revenues by selling MDFs that will no longer be needed, building a new All-IP network. The

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existing copper loop will be replaced by fibre and street cabinets will become Multi-Service

Access Nodes, making most of the MDFs useless.

OPTA, the regulator in the Netherlands, called KPN to produce a solution. Then, KPN

and its competitors bbned, Orange and Tele2 signed a Memoranda of Understanding in which

the first agreed to mantain MDF access for competitors at the more than 150 MDF locations.

Later it was agreed to mantain this services until 2010, when there will be an improved offering

regarding large quality wholesale broadband access.

- GermanyIn Germany, VDSL is a very workable technical proposition because of the short loop length to

the customer. DTAG, the incumbent, has about 7,900 MDFs and 290,000 street cabinets. The

competition has access up to 3,000 MDFs.

DTAG announced plans to deploy fibre betwen the MDF and the street cabinet (FTTC)

and to install VDSL solutions, but only if the German government provided what they called a

regulatory holiday, in my opinion something very dangerous and potentially harmful not only for

the competitors but also for the end users. However, the lobbying was successful in Germany

but dead at the European level (this is an example of the differences between countries in the

own EU and the difficulty to make a common regulation).

For geographic numbers, Germany has its own policy: they are only avaliable to whom

has a relationship (residence, business, …) to the geographic area in question.

- European Commission's Proposals (2007)In regard to last mile access, they decided to stay the course, without proposing major changes.

There are recommendations about the importance of technological neutrality1. They also see no

basis for treating fibre-based access as a distinct market, even though they reject the German's

regulatory holiday.

About regulation to prevent discrimination between operators, there are concerns over

potential anticompetitive discrimination, though is unlikely to emerge in the EU as it did in the

US. This is like this for two reasons: firstly, broadband markets' competition is more robust and,

secondly, becuase European regulation is better [I would say different, but the authors prove

that is actually bettter].

The EC also implemented regulatory protections to ensure that consumers must be

informed to the extent that network operators disfavour or block access. This is very important;

1 Here we could talk about the 'Net Neutrality' issue, which is very related and recente but also very complex, needing a deep study.

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one just have to see the panorama in China and realizes that the Net Neutrality issue has to be

focused on the consumer because it is becoming the greatest debate over telecommunications

in years.

- JapanJapan is by far the country with the highest FTTB/H penetration in the world to the point that

ADSL subscribers fell for the first time since its introduction in 2000. This is impressive, knowing

that many countries don't have competitive ADSL providers (Spain is the clearest example) or

even don't have access to this kind of technology. In Japan, apart from the incumbent (NTT),

other carriers and even electric power companies provide FTTB/H access.

Another important aspect in Japan's panorama is that most actual deployment is being

built out by competitors on their own. Also, the “Study Group on a Framework for Competition

Rules to Address the Transition to IP-Based Networks” saw competitive and technological

neutrality as vital to protect users and consumers. Sadly, something too good to be true in

Europe or even in the United States.

Finally, this group also advocated three key principles which in my opinion should be the

philosophy of every service provider:

1. IP-based networks should be accessible to users and easy to use.

2. IP-based networks should be accessible and avaliable to any terminal that meets the

relevant technical standards2.

3. Equality of access to telecommunicationss at a reasonable price.

- The United StatesThe regulatory responses has been completely different in the US. The FCC has withdrawn

nearly all regulatory obligations on network access as regards not only fibre, but also wired

copper broadband access. The only remaining remedy relevant to this issue is Local Loop

Unboundling (LLU). The FCC has also claimed that the wholesale market for DSL and cable

modem Internet access services was effective, and would remain so in the absence of

regulation, but actually the third party access provided by cable operators is negligible.

The country has a huge penetration of cable television who were heavily engaged in

broadband access. This, in conjuntion with the withdrawal of regulation resulted on a series of

non-geographically overlapping duopolies. The results, mixed at best.

Numbering, however, has been a minor issue in the US. This is like this just because

termination rates between every king of numbers are not so much different, as a result of the

2 This is not so easy in every country, especially in developing countries.

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efficent US telephony interconnection arrangements.

Similarities and differences- The access networkEnsuring competition is one of the serious challenges to the regulator. It is recognized that this

kind of regulation may inhibit investment on the part of the incumbents, because some think that

it is useless to encourage investment at the cost of network re-monopolization. A simple

withdrawal of regulation is not the most appropiate answer because it risks restricting consumer

choice and likely inhibits investments.

VDSL is tending to be the choice, especially in those countries where there are short

local loops (like Germany). Access issues have been also a hot topic: deployment of

FTTC/VDSL makes unbundled access potentially much more difficult and costly. Eventually, the

regulatory outcomes are as diverse as the inputs, as each country is different from another.

In the Netherlands, regulation of VDSL is still evolving, remaining access modes

equivalent to loop unbundling at the MDF. In Japan, the FTTB/H deployments are fully subject to

unbundling requirements; however, FTTH is often being rolled by competitors. Germany, as we

explained, has a very unique regulation, but is subject to the European Commission, so they're

trying to find a more delicate balance. The UK address the problem in a different way,

functionally separating the two incumbents and reducing incentives to discriminate competitors.

Finally, the US has been progressive with procompetitive regulation, collapsing third party

competitors and leaving the sense that the net impact on overall welfare has been negative and

substantial.

- The core networkAt the top of the regulatory agenda have been issues of interconnection, probably the most

difficult and hard to solve problem. Voice services, however, will have lots of competition from

third party VoIP service providers. Still today current interconnection fees are much too high,

and still today operators inflate retail prices without fear.

At this point, I couldn't agree more with the authors when they say: “The migration to IP

has the potential to force changes to inefficient European arrangements, but fixed and mobile

operators appear to be both willing and able to slow the natural network evolution. We see

these trends as troubling”. Nice way to shell down the current panorama and a realistic vision of

the near future.

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Talking about numbering, the issue will continue to be critical. Arrangements across

Europe permit IP-based telephony service providers to use geographic, non-geopgraphic or

both kind of numbers.

Conclusions of the authors“The deployment of NGN technology is increasingly becoming a market reality throughout the

world”. This is how Marcus and Elixmann start their conclusions on the topic, and how the NGN

revolution actually is starting to grow up. There are going to be a lots of changes, which will

introduce new possibilities for competition, which could mitigate the need of regulation. But at

the same time migration to NGNs raises new regulatory challenges which will be different for the

access and the core network.

In the access network, it will be appropiate a regulatory response to last mile wired

market power. Some combination of access to street cabinets, rights of way, ducts and building

wiring might be enough to maintain the effectiveness of loop unbundling and sharing access. In

the core network, bearing in mind that the interconnection monopoly will persist, the authors

think that some degree of continued regulation will be necessary. I agree with that, totally.

Migration to NGNs will (hopefully) make more obvious the distortions that are already inherent in

interconnection arrangements.

As a conclusion, Marcus and Elixmann point that the migration to NGNs will be carried

out gradually. I would add that it has to be carried out gradually. And the regulators have a very

special character on this story: they have the crucial task of setting appropiate incentives and

avoiding distortions during the migration period.

Critical ReviewReading this article has been interesting and enriching at the same time. I have to confess that,

even though I love new technologies and I am more or less up-to-date on what happens in the

panorama, I did not expect the complexity of the Next Generation Networks issue. Technology is

growing fast, and so do telecommunications. So, it is necessary some kind of regulation to

provide protection to the end user and empower competition, which eventually is good not only

for the users but also for the service providers.

Thanks to the work by Marcus and Elixmann I could notice the differences between the

US, Japan and Europe (even in European countries themselves) when we are talking about

NGNs. It is very interesting how the issue evolved in its own way depending on the country,

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including historial traditions, pre-established markets and, I would also add, mentality.

Even though the study is not so long and not so deep, it is useful to have a wide view of

the current situation on the global networks. They are surely the future of telecommunications.

In a world where technology is day-by-day more important, useful and (sadly) necessary, it is

our duty (not only as journalists but also as users) to prevent the problems exposed in the text

to get worse. There is no easy solution, but a lot of effort must be put on the issue.

Nevertheless, I really would like more the text if they did an in-depth analysis of the Net

Neutrality issue, because I think it is very related (if not a consequence of the NGN migration)

and it will be a topic of debate for decades. Net Neutrality not only approaches the NGN

migration issue but also extends it to the social layer. And this is very, very important because at

the end we are all human beings, with our rights and our duties, whatever kind of

communication we use to stay in touch, work or exchange all kinds of information.

In conclusion, I have enjoyed reading the text and I have learnt things that I completely

did not know, which is, as I said, very enriching. However, in my opinion an issue like this would

need even more countries to compare and a very up-to-date database to check what's

happening day-by-day, minute-by-minute. This is like this because the NGN migration process

is slow, but the rapid growth and evolution of technology (and also the increasing acceptance of

these new technologies in huge percentages of the population all around the world) is not. And

we surely have to face it (and fight it) in a very near future.

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Synthesis of “Regulatory Approaches to NGNs: An International Comparison”

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Transcript of Synthesis of “Regulatory Approaches to NGNs: An International Comparison”