Regulators Session I Convergence from the Regulators Perspective

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Regulators Session I Convergence from the
Regulators Perspective
Annegret Groebel, BNetzAManaging Director
Istanbul, 11 June 2009
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Convergence is (becoming) a reality
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Growth of Demand and Volume of Traffic
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Until 2002 separate networksand separate
regulatory rules
Voice telephony Fixed Mobile
Telephone/ Handset
Data Fixed PC
Broadcasting Cable Satellite Terrestrial Tele
vision
Service
Network
Terminal
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Which regulatory rules and competences in a
convergent world?
Data Fixed PC
Broadcasting Cable Satellite Terrestrial Tele
vision
Voice telephony Fixed Mobile
Telephone/Handset
Service
NGN
Network
Terminal
Convergence is one of the driving forces to
create the ECNS framework covering all types of
electronic networks and services
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Electronic communications networks and services
- Scope
Content Services - outside scope of new
framework(e.g. broadcast content, e-commerce
services)
Communications services (e.g. telephone, fax,
e-mail)
Communications networks (fixed, mobile,
satellite, cable TV, powerline systems, networks
used for radio and television broadcasting) and
associated facilities (e.g. CAS, APIs, EPGs)
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Regulatory principles and objectives

• Competition as a means to create economic welfare
  and in particular consumer benefit (lower prices,
  better quality and more choice)
• Regulation as a means to promote sustainable
  competition via opening markets in network
  industries and creating a level playing field
• Network industries are characterised by market
  entry barriers resulting from substantial
  economies of scale and scope
• 2002 ECNS Framework based on regulation of the
  relevant market susceptible to ex-ante regulation
  (asymmetric regulation of SMP operators)
• Review of the Framework proposals of Commission
  publ. 13/11/07
• Realize Lisbon strategy goals increase broadband
  penetration with NGA (fibre) investment to become
  a knowledge-based economy increase productivity
  through better linked production sites and
  promote the information society (European Summit
  - March 2000)
• Ensure with a stable and predictable regulatory
  environment that current financial crisis does
  not endanger a competitive NGN/NGA roll-out as
  the industry is at the beginning of an investment
  cycle
• Regulatory framework must be able to deal with
  convergence as one of the key characteristics
  driving market dynamics technological neutrality

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The Convergence Model
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Digital Convergence
Fuente KCC site
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Convergence of networks and integrated devices

• Convergence of networks to multi-service networks
  using packet switching with the IP protocol
  (NGNs)
• This allows a separation of the transport and the
  service layer allowing more players to compete
• Consequently there is room for a lot of different
  business models and it would be a big mistake to
  expect one-size-fits-all structures
• Intelligence likely to move towards the edge,
  more precisely it will be in integrated devices
• Consumers have more choice and can use their
  devices to receive different types of services,
  e.g. watch TV on their PCs, mobile Internet,
  mobile TV and innovative services
• Triple play offers are a chance for telcos to
  compensate for revenue loss in voice services

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Next Generation Network (NGN)

• A next generation network is a packet switched
  network providing multiservices,
  telecommunications services included, which uses
  transport technologies for several bandwidths and
  classes of services and in which service-related
  functions are independent of the underlying
  transport technologies. It gives users
  unrestricted access to different service
  providers. It supports general mobility and
  nomadicity, giving users consistent and
  ubiquitous service provision (always-on
  services)
• Delivering all services across a single network
  gives rise to greater economies of scale and
  scope
• Customers have a more active role to choose
  customized combinations of services and will
  decide on the provision of services along the
  value chain
• Providers will offer more bundles (including
  content), and more flat rate offers can be
  observed as well

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Next Generation Networks
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Convergence of services and markets

• Convergence of voice, data, internet and media
  services is no longer a vision but already
  reality
• The degree of convergence is very different from
  nation to nation and between different consumer
  groups
• The pace of adaptation will vary, and for some
  time markets will be split in many segments
  early adopters, technology freaks and
  frontrunners, smart followers and people who are
  unwilling to change and are only looking for
  cheap voice calls will coexist
• With services converging, markets will slowly be
  converging as well, e.g. a separate fixed
  services and mobile services market will become a
  single market for communications services,
  consumer considering fixed and mobile calls
  substitutable, more and more they will replace
  traditional voice services with VoIP services

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How can the further development of telecom
networks be financed?

• Users demand ever faster networks and more
  capacity but is there a willingness to pay
  premium prices for premium connectivity?
• High capacity connectivity requires expensive
  investments i.e. in FTTH rollouts or new mobile
  networks
• Refinancing such investments may be difficult in
  urban areas, but it may be impossible in rural
  environments (because of the lower
  population/user density)
• It is doubtful, that the infrastructure cost of
  NGN/NGA can be refinanced by access fees only

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New revenue sharing models required?

• Demand for video over internet in all its
  varieties is growing fast
• Specific services need specific QoS levels (VoIP,
  Streaming, Gaming, Downloads, P2P)
• As video is bandwidth intensive, users will
  demand more of it without wanting to pay more and
  while sticking to flat rate tariffs
• The revenue for paid video is likely to go to the
  content suppliers while the delivery costs will
  stick with the network providers
• Dumb networks (utilities) and intelligent
  services might not get a fair share in the new
  environment
• New relationship for revenue sharing between the
  traditional telco model and the Internet/web
  model?
• Network neutrality debate

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Challenges

• NGNs are speeding up the process of convergence
• Investing in new technologies beginning of the
  investment cycle in high speed bb networks,
  financing needs to be ensured, NRA can
  incentivise investment in enhanced infrastr.
• NGNs will require adjusting the interconnection
  regime from the current narrowband to IP-IC and
  ensuring migration
• Convergence of fixed and mobile services with
  potentially changing market boundaries
• Convergence of communications and broadcasting
  services with bundled offers (partly regulated,
  partly not)
• Protect consumers to allow them to benefit from
  convergence
• New services, new players and a higher market
  dynamic
• To keep markets open and guarantee a level
  playing field by applying the principle of
  technological neutrality
• Chances and risks for competition

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Chances

• Thus convergence drives changes from both the
  supply side (technological change, new business
  models) and the demand side (consumers choosing
  more bundles such as triple play offers as well
  as more flat rate offers)
• This will impact on the market definition as well
  as on the market structure, convergence is a key
  driver of market dynamics
• There are chances (more market players offering
  more choice for consumers) and risks (leveraging
  of market power) for competition
• Regulators need to keep markets open (prevent
  walled gardens) and ensure interoperability
• Consumers must have transparency to make informed
  choices and get value for money when subscribing
  to an offer
• Realize the potential of convergence

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State
Citizen/Consumer
Business
eGovernment, eEnergy, eHealth, Security
new services and business-models
Digital-Lifestyle, Communities
Open Platform for Networks
Secure Broadband- Infrastructure
Internet Of Services
Service-/Consumer- Friendly-IT
Service-oriented Applications
Multimedia Content
Internet of Things
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Consumer protection

• Facilitate switching for customers, e.g. by
  making number portability available, in the
  future likely between mobile and fixed
  geographical numbers
• VoIP services allowing nomadism for geographical
  numbers (cf. ERG CP on VoIP, ERG (07) 56rev2)
• Unduly long contractual periods can be stopped
  (to prevent the lock-in effect)
• Ensure choice adding-up rule if customer buys
  services separately, the total sum of all prices
  should not be higher than the price of the bundle
• Ensure terminals are reachable as now (no
  propriety standards)
• Ensure a balanced and competitive neutral stance
  towards different business model integrated
  operators as well as specialists

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IP-IC/NGN REGULATORY PRINCIPLES

• ERG published its IP-IC/NGN Core Common Statement
  (ERG (08) 26) in October 2008
• Content of the Common Statement
• separation between transport and service
  important for the development of innovative
  services
• maximum efficient number of PoI offered in NGNs
  for lowest interconnection rate
• power to set minimum quality of service
  requirements should be entrusted directly upon
  NRAs
• standardisation, interoperability, reference
  offer
• NGNs core will lead to a lower overall cost level
  
• Look at adequacy of charging mechanism
• Bill Keep has promising properties for a future
  interconnection regime, but needs further study
  work plan elaborated, taken over in WP
  2009

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Risks Danger of market dominance under new
market structures?

• Single-supplier bundle products (Phone, Internet,
  TV and others) can be consumer-friendly and in
  line with the market
• Sectoral providers must be able to emulate
  bundled-products access-rights may not be
  undermined
• Consumers must be protected adequately and keep
  the right to choose, whether they purchase
  bundled- or single-products from one or more
  suppliers, flat rates or usage-based tariffs
• Innovation in niche-markets are not to be
  hindered through the creation of walled gardens
• Advantages of the extended individual
  communication (Web 2.0) need to be supported
  through network- and market-structures
• Regulation has to guarantee open market
  structures for innovation and cooperation as well
  as a level playing field, i.e. prevent the
  leveraging of market power foreclosure

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Environment how to handle convergence?
Phenomenon of convergence
Bundling
Replicability
Margin squeeze
Data
TV
Voice
Access to content
Bottlenecks?
Access to networks
(Wholesale)
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Convergence Reports

• The ERG adopted in Berlin on 27 February 09 2
  reports on convergence
• Report on Fixed-Mobile-Convergence (ERG (09) 06)
• Report on the discussion of the application of
  margin squeeze tests to bundles (ERG (09) 07)
• Both dealing with questions related to the change
  of market situations and competitive dynamics due
  to convergence

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Fixed-Mobile-Convergence

• This report presents a preliminary guidance on
  the different implications of fixed to mobile
  convergent products.
• The report describes currently available
  convergent products and provides an overview on
  the current regulatory situation in the European
  countries.
• The paper goes one step ahead into the study of
  the commercial and regulatory consequences of
  convergence, that represents a critical
  phenomenon because of the key implications it has
  in the telecom sector.
• The following aspects are addressed
• FMC products description
• Overview of the competition framework
• Competition issues identified regarding MVNOs and
  mobile VoIP

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Application of margin squeeze tests to bundles

• Bundling is challenging current regulatory
  practices - in particular where ex ante margin
  squeeze (MS) obligations exist on some retail
  market.
• Convergence will make the analysis of MS on
  bundles more relevant.
• MS at wholesale-retail level, not between
  wholesale services.
• Ex ante MS tests. Ex post practice is expressly
  excluded of the scope of the report.
• MS applied to bundles. Practice on individual
  services as a starting point for analysis.
• Anticompetitive horizontal effects of bundling is
  only considered with reference to MS tests.

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Content of the ERG Margin Squeeze Report

• Provides information on current practices of
  European NRAs, describing their methodologies to
  assess MS in an ex ante framework.
• Describes the current regulatory framework in
  relation to MS.
• Identifies when MS is more likely and when an ex
  ante MS assessment is needed.
• Discusses the pros and cons of MS assessment
  methodologies in relation to bundling
• Discussion will continue and be developed further

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Conclusions

• As NGNs are not disruptive, there should also be
  continuity in the European regulatory environment
  
• Given the tendency towards more convergence that
  well see with NGNs being rolled-out, it is
  important to maintain the principle of
  technological neutrality as a basic principle of
  the regulatory framework
• In order to ensure that telcos have the
  opportunity to create sufficient revenue streams
  when upgrading their networks and investing in
  new technologies, new marketing and payment
  models must be thought of which might imply
  rethinking the interface between content and
  transport regulation
• Convergence might imply new market definitions
  taking into account joint marketing of content
  and access
• In order to realize the advantages of
  convergence, leverage of market power and
  foreclosure of markets must be prevented by
  keeping markets open and creating a competitive
  environment among others through regulation

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Back-up
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Regulatory objectives and priorities

• Regulatory objectives
• Promote effective competition for the benefit of
  European consumers
• Promote efficient investment through
  predictability
• Promote the internal market through a consistent
  application of the regulatory framework
• Regulatory priorities - maintain level of
  competition (avoid re-monopolization) and
  incentivise efficient investment in NGA and NGN
  core- maintain balance of service and
  infrastructure competition - maintain the
  institutional balance in Europe
• Ensure that financial crisis does not endanger a
  competitive NGN/NGA roll-out

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Growth in fixed and mobile convergence (telephone
channels in million)
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Next Generation Networks (NGN)

• A packet-based network able to provide
  telecommunication services and able to make use
  of multiple broadband, QoS-enabled transport
  technologies and in which service-related
  functions are independent from underlying
  transport-related technologies. It enables
  unfettered access for users to networks and to
  competing service providers and/or services of
  their choice. It supports generalized mobility
  which will allow consistent and ubiquitous
  provision of services to users. (ITU Y.2004
  (04), 31)
• Customers can be be connected via different
  access technologies

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Infrastructure Competition
Cable
New technologies
UMTS
Mobile BB
Alternative wired infrastructure
BB wirelessWiMax
Intermodal competition
NGN/NGA
NGN/NGA
Intramodal competition
PSTN incumbent
New entrants
DSL technology
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Broadband penetration rate and its growth in
Europe
Source 14th Implementation Report, publ. March
2009
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Broadband InfrastructuresSense and Sensibility

• In the Media and even more so in advertising, the
  potential of future mobile broadband solutions is
  often exaggerated
• The user-perceived performance of an
  infrastructure may differ from expectations
• One reason for this is the misconception that the
  theoretical performance of networks over the air
  interface is attainable under real world
  conditions
• Several technological and historical restrictions
  are to blame for that situation

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Broadband InfrastructuresNo level playing field
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Zukunftsthema Konvergenz
Video on Demand, Podcasts
Inhalte-Konvergenz Digitale Inhalte für
Telekommunikation und Rundfunk
Kooperationen
Settop-Boxen für IPTV, DSL/Kabel
Anschluss-Konvergenz Ein Anschluss kann sowohl
für Telekommunikation als auch für
Rundfunkinhalte genutzt werden