INTERCONNECTION ISSUES RELATED TO NEXT GENERATION NETWORKS

1. INTERCONNECTION ISSUES RELATED TO NEXT GENERATION NETWORKS Michel Bruyère, CEO Goulet Telecom International

2. Overview • Introduction – regulation of interconnection • Emergence and dominance of data • Arrival of Next Generation Networks (NGNs) • New interconnection issues • Billing • Settlements • Systems • The future

3. INTRODUCTION – REGULATION OF INTERCONNECTION

4. Introduction – Regulation of Interconnection • Interconnection is a necessary and mandatory requirement in a liberalized telecommunications environment • Regulation aims to create a leveled playing field • Interconnection agreement negotiation: complex task with high stakes • Even more difficult with current migration to IP networks

5. Introduction – Regulation of Interconnection • The need for regulation of interconnection • Competition is generally recognized as key to growth and innovation in telecommunications • Two basic principles for an efficient and competitive telecommunications sector • The possibility for users to call anywhere, i.e. across networks • Protection against abuse of market power • Obligation for all operators to provide fair and equitable interconnection, for all services • Efficient use of rare and expensive resources • Allows all users to communicate with one another

6. EMERGENCE AND DOMINANCE OF DATA

7. Emergence and Dominance of Data • Demand spirals upward • Consumer IP services increasing • Web, email, messaging, voice, multimedia • Business IP data services expanding • Replacement of leased lines with IP VPN • Growth of broadband access and applications • Emails • Business IP voice service, a displacement of traditional PSTN services • VoIP, FoIP, voice messaging

8. Emergence and Dominance of Data Most popular services Web surfing Sending & receiving email

9. Emergence and Dominance of Data Most popular services Internet telephony Internet chat

10. Emergence and Dominance of Data Most popular services Network news (a.k.a. RSS feeds) Web sites

11. Emergence and Dominance of Data Most popular services Content hotels for streaming data • Distribution and retrieval of information • Stock quotes • Breaking news reports • Sport scores • Feeding data-warehoused info to personnel and customers

12. Emergence and Dominance of Data Most popular services Virtual Private Internet (VPIs) • VPIs are extended intranets • Virtual Private Wire service • Virtual Private LAN service • IP LAN-like service

13. Emergence and Dominance of Data Future services Multimedia telephony • Multimedia conferencing = interactive, live sharing of audio, video and desktop applications • Rich media data streams - carry voice, video, and application data for end users, to make conference calls, view live or streamed video, share application data with others, listen to voice mail or view video email, conduct instant messaging with colleagues, etc

14. Emergence and Dominance of Data Future services Unified messaging • Email, voicemail, fax, SMS • All within a unified mailbox and alert system • Single delivery, single repository, single access, single notification

15. ARRIVAL OF NEXT GENERATION NETWORKS (NGNs)

16. Arrival of Next Generation Networks (NGNs) • Internet realities • Internet traffic roughly doubling every year • Voice traffic growing at 5% per annum • VoIP growing 40-80% per annum • However, Internet does not dominate global communications in market size, number of users, traffic • Internet a small fraction of global network infrastructure: telephone, satellite, radio, TV, private networks • Internet revenues growing at 17% per annum, phone at 6%: will take 15 years to surpass phone revenues • ISP revenues < 5% of total communication revenues • Internet users worldwide 800 million+

17. Arrival of Next Generation Networks (NGNs) • Key drivers transforming telecom business to IP networks and services: • Telecommunications business is becoming information-based • Data communications exceeding voice worldwide • Circuit-switching optimal for voice communications • Packet-switching optimal for most data communications • Internet becoming the ‘all’ communications network • IP packet-switching protocol is basis for Internet • Major operators are merging their communication networks into one ubiquitous IP packet-switched network carrying all forms of communications

18. Arrival of Next Generation Networks (NGNs) NGN Flexible, easy to innovate with viable financial model, security and QoS Innovation Internet Flexible and easy to innovate without viable financial model, security, and QoS PSTN Rigid and hard to innovate but with viable financial model, security and QoS Accountability source: Telarix

19. Arrival of Next Generation Networks (NGNs) • Next Generation Network – ITU definition • 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 • Enables unfettered access for users to networks and to competing service providers and/or services of their choice • Supports generalized mobility which will allow consistent and ubiquitous provision of services to users

20. Arrival of Next Generation Networks (NGNs) • Operators are investing in NGNs to compete with Internet • NGNs are being deployed • Convergence is happening • NGN interconnection settlement model cannot follow traditional PSTN or Internet models

21. NEW INTERCONNECTION ISSUES

22. New Interconnection Issues • General issues • The interconnection between legacy circuit-switched networks and new IP packet switching networks - every conversion between the Time Division Multiplexing (TDM) and IP domains introduces delay and distortion, which result in poorer voice quality • Additional levels of interconnection required between the basic backbone IP packet network and many more new competitive players • The push to open interconnection standards at all points and levels of technical interconnection • The increasing regulatory liberalization for interconnection

23. Interconnection model in PSTN: Calling Party’s Network Pays (CPNP) New Interconnection Issues Wholesale $ Retail $ Originating Network Terminating Network source: Telarix

24. Peering Carry traffic to each other No obligation to carry traffic to third party Transit Carry traffic on behalf of another party Carry traffic to a third party New Interconnection Issues • Interconnection model on Internet Backbone Provider Backbone Provider Wholesale $ Wholesale $ ISP ISP source: Telarix Retail $ Retail $

25. New Interconnection Issues • Inter-operator settlement issues • Content-based pricing • How to price actual content, not usage or transport? • Tele-management • Continue to bill on the basis of duration or volume? • Inter-operator billing systems • How to handle the increasing number of partners and complexity of business transactions? • Reconciliation and reporting • How to deal with increased traffic from IP data?

26. New Interconnection Issues • Inter-operator settlement issues • Call analysis • How to analyze these new IP events coming from a variety of data network services? • Automated reconciliation • What units to use? • What file formats to use? • Inter-operator settlement agreements • How to handle arrangements between more than two providers involved in a given transaction? • Clearing houses (iNOW, OSP)

27. New Interconnection Issues • International settlements • Traditional ITU method • Long delays • Based on traffic declaration • Full invoicing • Shorter delays in getting paid • Road blocks: • Management of traditional transit • Local taxes could be applicable • Costs of change • Staff • Systems

28. New Interconnection Issues • International settlements • Market evolution: • New services and technologies (i.e. NGNs) will probably be built assuming “invoicing model” will apply • New market entrants do not want to invest in billing systems that cope with a complex model (ITU) and its financial implications • Increased market volatility and risk argues for faster payment

29. THE FUTURE

30. The Future • A separation of service provision and connectivity • NGNs that support new services and third party services over network boundaries • Easy provision of new and third party services - the deployment of NGNs provides an excellent opportunity to agree on improved interfaces to enable service providers to interconnect and cooperate in the delivery of services

31. The Future • A variety of charging schemes: transport- or usage-based, content-based, hybrid, etc • The adoption of hybrid and different settlement methods: peering (sender keeps all) between providers of the same service, invoicing to third party service providers, etc • Class-based rather than service-based measures to improve quality • New regulatory policies that recognize the freedoms inherent in NGN architectures

32. The Future • Interconnection between operators that allows the provision not only of today’s and tomorrow's voice, data and multimedia services, but also of an unlimited range of new applications and services limited only by human imagination

33. Thank You! • About Goulet Telecom International: • Canadian company assisting telecommunications organizations worldwide to face the specific challenges of the global competitive environment by providing a wide array of business solutions, consulting expertise and training services • Areas of expertise: • Strategy & Management • Marketing & Sales • Engineering & Operations • Finance • Human Resources • Policies & Regulations • www.goulet-telecom.com

34. Contact Information Michel Bruyère Chief Executive Officer Goulet Telecom International Inc. 666 Sherbrooke West, Suite 1000 Montreal, Quebec H3A 1E7 Canada Tel.: +1 514 281 1211 Fax: +1 514 281 2005 mbruyere@goulet-telecom.com