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 (ΕΕΤΤ)

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 incumbent’s initiative • Regulators’ view • Benchmark on European countries • Regulatory Issues of Next Generation (core) Networks (NGN) • Conclusions

3. 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 NextGeneration Access, Study for theEuropean Competitive Telecommunication Association (ECTA), WIK-Consult

5. Economics of NGA (2) • NGA “Pareto Law”: The main fraction (>65%) 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

6. 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

7. 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 foraccess 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

8. 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, streetcabinets • Co-location: either at the street cabinetitself or near it • Co-location facilities: power supply etc. • Ex ante price control on all wholesale products: ducts, etc. • Supplementary, appropriatebackhaul wholesale products • Pre-determination of details by NRA: size of street cabinets, cost-sharing arrangements, etc. • Access products: flexible enough to facilitate migration from FTTNto FTTH • Wholesale Broadband Access • As in case of existing services (both for FTTH, FTTN)

9. Commission view (4) • Principle of geographic averaging: • Not necessary use if substantialcost 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 thecosts 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

10. 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 • NRAscould allow SMP operators to refuse sharing new investments withalternative operators who, do not agree to reciprocal sharing of their assets

11. 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

12. 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)

13. 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)

14. 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.

15. 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 (B&K) wholesale billing regime

16. 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 today’s 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

17. www.eett.gr www.broadband.gr

18. Supplementary slides

19. 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 tothe MDF • Principle of equivalence: avoid discrimination in favor of SMP’s 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

20. Regulatory issues of NGNs (3) • Bill & Keep (B&K) 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. • B&K can be considered by NRAs • Where B&K 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 B&K area needs to be treated in such a way as to prevent extensive arbitrage (tromboning, call-back etc.). • Billing migration to B&K • 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 B&K 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.