Open regulatory issues and challenges due to next generation networks

1
Open regulatory issues and challenges due to next
generation networks

• Ioannis Zacharopoulos, Ph. D.
• Senior Telecom Engineer
• Telecommunications Directorate
• Hellenic Telecommunications Post Commission
  (????)

2
Outline

• Facts in Europe regarding NGA
• variations economics of NGA
• The European Commission view
• The new (draft) recommendation on regulated
  access to Next Generation Access Networks (NGA)
• In case of NGA based on incumbents initiative
• Regulators view
• Benchmark on European countries
• Regulatory Issues of Next Generation (core)
  Networks (NGN)
• Conclusions

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NGA variations
Fiber To The Home (FTTH) Point-To-Multi-Point
(PMP) or Gigabit Passive Optical Network (GPON) 1
fiber pair shared over a number of households
Fiber To The Home (FTTH) Point-To-Point (P2P) 1
fiber pair per household up-to aggregation point
Fiber To The Cabinet (FTTCab) or Fiber To The
Node (FTTN) 1 fiber pair per neighborhood
(partial copper replacement)
4
Economics of NGA (1)

• Vary with technology/mode of deployment but
• in any case there is high CAPEX per connected
  customer
• High CAPEX can be reduced by coordinated strategy
  on reduction of construction costs and
• in high density (urban) areas
• and this leads to high total costs and makes
  NGA infrastructure a really non-replicable asset.
  (First mover advantage)

The Economics of Next Generation Access, Study
for the European Competitive Telecommunication
Association (ECTA), WIK-Consult
5
Economics of NGA (2)

• NGA Pareto Law The main fraction (gt65) of NGA
  CAPEX per customer is due to civil works
• Of this CAPEX, the intra-cable CAPEX (in case of
  FTTH deployment) is almost the same weighty as
  the distribution-network CAPEX
• The rest of the CAPEX is due to CPE, CO
  Opto-electronic equipment, etc.

Dr. Kátrin Schweren, EU Affairs Delegate,
Swisscom "Swiss Fibre Optics or Fibre Suisse
Multiple Fiber Multiply Innovation" FTTH Europe
Conference, Copenhagen, 11-12/02/2009
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Commission view new (draft) recommendation on
regulated access to NGAs (1)

• The proposal refers to the case that there is NGA
  deployment after initiative of incumbent
• In Greece announcements for NGA partially funded
  by the State (Public-Private-Partnership (PPP)
  form)
• How NGA impacts the defined wholesale markets
• Wholesale Physical Access (Market 4)
• Wholesale Broadband Access (Market 5))
• Possible Wholesale products needed for
  competitors
• Some critical details like pricing etc.
• The proposal seems to be too prescriptive to be
  generic enough to cover the various
  cases/countries throughout Europe

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Commission view (2)

• Remedies imposed to operators having SMP as a
  result of market analysis
• when planned or ongoing NGA deployment
• Geographical market considered
• Fibre roll-out probably limited geographic
  coverage (short medium term)
• Transparency reference offer for all relevant
  wholesale products
• conditions for access to ducts, other civil
  engineering works etc.
• information regarding duct location, capacity
  etc.
• FTTH case
• Duct access mandatory
• Physical access to dark fiber (LLU-fiber)
  Conditional
• If access to ducts, etc. services technically
  impossible or not economically viable
• Intra-building wiring NRAs facilitate
  cooperation on roll-out sharing infrastructure
  
• enable end-users to have competitive choice
• avoid duplication of infrastructure
• but perhaps more and tailored-made initiatives
  could be envisaged in order to promote it
• Fiber sub-loop unbundling mandatory

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Commission view (3)

• FTTN/FTTCab case
• If partial replacement of existing copper access
  with fibre Obligation on determining deadline,
  appropriate migration path from the current
  access products to new access products (timing,
  technical functionalities etc.)
• Obligations
• Reference offer for sub-loop unbundling
• Access to ducts, street cabinets
• Co-location either at the street cabinet itself
  or near it
• Co-location facilities power supply etc.
• Ex ante price control on all wholesale products
  ducts, etc.
• Supplementary, appropriate backhaul wholesale
  products
• Pre-determination of details by NRA size of
  street cabinets, cost-sharing arrangements, etc.
• Access products flexible enough to facilitate
  migration from FTTN to FTTH
• Wholesale Broadband Access
• As in case of existing services (both for FTTH,
  FTTN)

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Commission view (4)

• Principle of geographic averaging
• Not necessary use if substantial cost differences
  among various areas
• Pricing of existing assets (including ancillary
  services)
• Cost-orientation Methodology same as today
• Pricing of new assets (including ancillary
  services) and dark fiber (up to a concentrating
  point)
• Cost-orientation but with a project-specific
  risk premium to be included in the costs of
  capital for the investment risk.
• Risk premium calculated by regulator after
  justified arguments of incumbent about the
  investment risk incurred by the incumbent
• Focus on striking balance between effective
  competition and encouraging investment towards
  better evolution of the whole investment

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Commission view (5)

• Other issues
• FTTH-PMP (GPON) seems like cable network (!?)
• Gradation of remedies
• If passive remedies not active remedies
• Reciprocal regulation (sharing)
• NRAs may or not impose if commercial contracts
  initiatives
• NRAs could allow SMP operators to refuse sharing
  new investments with alternative operators who,
  do not agree to reciprocal sharing of their assets

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Regulators view (1)

• Agreeing with the general context and goals but
• ..seems to be over-prescriptive on implementation
  of remedies and pricing remedies.
• Passive remedies and especially duct access do
  not necessarily suffice, neither are the
  ultimate treatment
• Pricing
• Vague methodology for risk premium calculation
• Not geographical averaging approach
• unrealistic
• variant from the current Commission approach
  (used for existing assets, well accepted, applied
  regulatory practice)
• Opinion that GPON seems like cable might give
  incentive to incumbents to deploy GPON expecting
  regulatory holiday
• There is no one-size-fits-all Every country
  should be in position to select remedies
  according to its market status

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Regulators view (2)

• Active remedies might be a good alternative
  especially in case of FTTN/FTTCab scenario and at
  least for the first period
• Advanced-enhanced WBA might keep service
  competition in case of FTTN scenario
• Quality parameters (for example low jitter for
  high video quality)
• Ethernet backhauling
• Different levels of IP hierarchy/nodes (e.g. Main
  Distribution Frame, MDF)
• Support of multicasting (for high video quality)

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Benchmark on European countries

• Most operators are in early announcements, trials
  etc.
• In general, incumbents prefer FTTN (FTTCab/VDSL)
  or GPON or Hybrid-Fiber-Coaxial (if they have
  access to cable)
• Except France where FT applies FTTH as well
• In general, alternatives/utilities prefer FTTH
  (P2P or GPON)

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Issues regarding Next Generation (Core) Networks
(NGN)

• NGN single packet switched network transporting
  multiple services (audio, video, data, both fixed
  mobile)
• Decouples the service and transport provision.
• (Potential) innovation opportunities at both
  service, infrastructure level.
• (Potential) increased economies of scope and thus
  cost savings
• Impact market structure, interconnection regimes,
  interoperability and regulation
• ERG opinion separation between transport and
  service layer will in practice be blurred by the
  implementation of services by means of a
  centralised platform. This impacts the ability of
  independent services providers to integrate their
  services into the NGN platform.

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Regulatory issues of NGNs (2)

• Points of interconnection (POIs)
• Due to centralisation of the control function,
  POIs for transport and for service will likely be
  different.
• Transport interconnection could take place at a
  greater number of locations than service
  interconnection (e.g. transport interconnection
  at any network node, but service interconnection
  only at centralised platform location).
• Quality of Service (QoS)
• New dimension of interconnection agreements,
• It could be exploited by SMPs for new forms of
  discrimination (SMP arm, competitors)
• NRAs should have the possibility to impose
  minimum QoS levels.
• Costing/pricing
• Single network to deliver multiple services
  (economies of scope)
• In other words costs will be mainly fixed and
  common incremental costs for each service will
  be relatively low.
• Change of cost standard?
• Bill Keep (BK) wholesale billing regime

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Conclusions Open issues

• Cost sharing and procedures facilitation makes
  NGA deployment easier
• Duct access do not necessarily suffice, neither
  is the ultimate treatment
• FTTN/FTTCab mode
• Collocation at street cabinets is expensive for
  OLOs and might multiply todays procedures thus
  delaying roll-out
• Incumbents (except for France) in Europe
  definitely prefer FTTN/FTTCab mode
• WBA might be more important for OLOs, especially
  if enhanced
• FTTH-P2P mode
• Main barrier Intra-building wiring (Costs and
  roll-out complexities)
• NGN might impact to a number of critical
  regulatory issues (POIs, QOS, wholesale
  interconnection billing scheme)
• In Greece depending on evolution of the State
  subsidized plan, there are additional issues that
  are expected to handle by the Regulator

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www.eett.gr www.broadband.gr
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Supplementary slides
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Commission view (6)

• Risk premium
• estimated by regulatory precedent/benchmark or
• direct statistical, financial comparator methods
  like equity beta with benchmarks from other
  sectors but providing comparable services (e.g.
  media).
• Include project-specific capital employed, labour
  costs, building costs, efficiency gains, assets
  terminal value (rec. 20 Access Dir.)
• Risk premium not applied for fibre backhaul from
  the street cabinets to the MDF
• Principle of equivalence avoid discrimination in
  favor of SMPs retail arm
• Equivalence on asset information
• Infra availability (location of ducts, street
  cabinets, manholes, availability, etc.)
• Access points network topography, location of
  concentration points and list of connected
  buildings.
• Equivalence on provisioning times through
  platform/tool
• Equivalence on service management SLA
• QOS indicators pre-defined target service
  levels (time limits for replying to requests for
  information, etc. )
• Regular reporting

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Regulatory issues of NGNs (3)

• Bill Keep (BK) wholesale billing regime
• Each network bears the costs of terminating
  traffic coming from other carriers
• Not receive payments at the wholesale level for
  termination.
• Recovers its costs (termination and any payments
  for upstream connectivity) in other ways, e.g. by
  billing them to its end customers.
• BK can be considered by NRAs
• Where BK applies, it is unlikely to have SMP in
  the termination market.
• Silent requirement sufficient competition at
  the retail level
• Concept of termination charge will not disappear
  at all. Traffic from outside the BK area needs
  to be treated in such a way as to prevent
  extensive arbitrage (tromboning, call-back etc.).
• Billing migration to BK
• Not full migration to all-IP keep existing
  regime
• Requirements clear distinction between different
  services use of services measurable
• Possibility for price differentiation based on
  QoS classes
• migration to BK is easier
• the lower the absolute level of interconnection
  rates
• the smaller the relative difference between
  interconnection rates of different networks
• the higher the proportion of flat rate tariff
  packages at the retail level.