Next Generation Telecoms Regulation

1. Next Generation Telecoms Regulation Gareth Davies 21st Nov 2008

2. Agenda Next Generation Access Next Generation Networks Priorities and next steps 1

3. 2 Next Generation Access

4. 3 Recent NGA publications

5. 4

6. 5 A variety of wired and wireless technologies will be capable of delivering these higher speeds Today applications, services, demand and willingness to pay are still uncertain There is also uncertainty on who will invest where, what the technology mix will be and how far the market will reach Virgin and BT announcements are for less than 50% of households, BSG believes up to two thirds. We do not have a view, but its likely not to be a truly national deployment for a very long time, if ever Our vision is one of private sector-led investment, thought with the possibility of public sector outside-in investment as and when appropriate in those areas that will remain underserved by the market By the way, there needs to be a clear understanding of the public detriment from non-national availability before action is taken. Limited evidence or understanding of this so far. It is for government and not Ofcom to make the final decision on intervention. Conclusion: need a period for experimentation and development by industry, supported by Ofcom and the right regulatory environment. Today applications, services, demand and willingness to pay are still uncertain There is also uncertainty on who will invest where, what the technology mix will be and how far the market will reach Virgin and BT announcements are for less than 50% of households, BSG believes up to two thirds. We do not have a view, but its likely not to be a truly national deployment for a very long time, if ever Our vision is one of private sector-led investment, thought with the possibility of public sector outside-in investment as and when appropriate in those areas that will remain underserved by the market By the way, there needs to be a clear understanding of the public detriment from non-national availability before action is taken. Limited evidence or understanding of this so far. It is for government and not Ofcom to make the final decision on intervention. Conclusion: need a period for experimentation and development by industry, supported by Ofcom and the right regulatory environment.

7. 6 Super-fast broadband will support new and improved applications, but the commercial case remains uncertain�

8. 7 Announced deployments as well as current competition need to be supported by the regulatory environment

9. 8 We aim to strike a balance between promoting investment and ensuring effective competition Our aim remains to both secure investment and promote competition Pricing � pricing freedom is the right approach now because of the competitive environment these investments are being made in: Cable competition to BT, with potentially quite overlapping footprints based on densest areas New and existing services appear to be in the same market so far � NGA cannot do things that faster copper connections cannot More competition from wireless technologies Opportunities to use other regulatory products for example unbundling of cabinets if wholesale products are not good enough Passive remedies are our preferred way to deliver competition from regulation: What do we mean by this � access to physical infrastructure only e.g. duct, sub-loop unbundling, dark fibre etc Passives are good because they allow most product and price innovation and differentiation � just as in LLU with pricing and ADSL2+ Some passive products may face difficult economics, but we are very interested in options to make them more economic, including new deisgns for passive products and new commercial models, including joint investment Active remedies are also important though � these are products that use physical elements and electronics from the supplier As in today�s world, competition based on passives e.g. unbundling will not work everywhere. Therefore you need options to promote competition more widely The next generation of active wholesale products can improve on today�s in terms of options to differentiate products and prices � it does not have to be the same product at the same price for all service providers Industry is already engaging in the development of these new products � we welcome this Transition will become important in the future The commercial case for investing in a new network may eventually hinge on cost savings from closing the old one. This is efficient When it will happen will depend on a number of triggers, like: take-up, potential for cost savings, having new wholesale products for service providers to move to, having a well defined process to move between networks, supporting migration In practice, there may be various phases to any transition in different areas, including: consultation, notice, and migration New build These four are all areas that we are consulting on. But we are undertaking other actions too � today�s we published our statement on the regulatory treatment for new build fibre developments. This is another example of how we are seeking to deliver as much regulatory certainty as possibleOur aim remains to both secure investment and promote competition Pricing � pricing freedom is the right approach now because of the competitive environment these investments are being made in: Cable competition to BT, with potentially quite overlapping footprints based on densest areas New and existing services appear to be in the same market so far � NGA cannot do things that faster copper connections cannot More competition from wireless technologies Opportunities to use other regulatory products for example unbundling of cabinets if wholesale products are not good enough Passive remedies are our preferred way to deliver competition from regulation: What do we mean by this � access to physical infrastructure only e.g. duct, sub-loop unbundling, dark fibre etc Passives are good because they allow most product and price innovation and differentiation � just as in LLU with pricing and ADSL2+ Some passive products may face difficult economics, but we are very interested in options to make them more economic, including new deisgns for passive products and new commercial models, including joint investment Active remedies are also important though � these are products that use physical elements and electronics from the supplier As in today�s world, competition based on passives e.g. unbundling will not work everywhere. Therefore you need options to promote competition more widely The next generation of active wholesale products can improve on today�s in terms of options to differentiate products and prices � it does not have to be the same product at the same price for all service providers Industry is already engaging in the development of these new products � we welcome this Transition will become important in the future The commercial case for investing in a new network may eventually hinge on cost savings from closing the old one. This is efficient When it will happen will depend on a number of triggers, like: take-up, potential for cost savings, having new wholesale products for service providers to move to, having a well defined process to move between networks, supporting migration In practice, there may be various phases to any transition in different areas, including: consultation, notice, and migration New build These four are all areas that we are consulting on. But we are undertaking other actions too � today�s we published our statement on the regulatory treatment for new build fibre developments. This is another example of how we are seeking to deliver as much regulatory certainty as possible

10. 9 Passive and active access methods create a trade-off between depth and breadth of competition

11. 10 Creating room for passive access products in response to industry demand

12. Fibre to the Cabinet Economics of sub-loop unbundling look very challenging if each CP has to build its own cabinet One-off opportunity for cabinet sharing when BT upgrades its own cabinets One or two CPs appear to be interested in shared investment options � to give greater control over service features and reduce incremental cost of adding customers 11

13. Duct access EC�s favoured remedy, already mandated in some EU countries e.g. France, Spain Ofcom currently carrying out survey of BT ducts � early indications are that scope for duct sharing may be more limited than elsewhere 12

14. 13 Supporting industry led development of active access products

15. 14 Allowing wholesale pricing freedom for active next generation wholesale products

16. How to ensure equivalence in NGA provision? Option 1: Multiple EOI points 15

17. Approach to competition in New Build areas Clear expectation that New Build developers and network operators will plan in a way which will support retail competition: Anticipate duct sharing Make available wholesale products e.g. Active Line Access If this proves ineffective, Ofcom will carry out market reviews and impose regulatory obligations where appropriate BT generally treated in the same way as other new build operators 16

18. NGA � Key questions Is there real demand for passive products? Will BT�s GEA product, as currently defined, provide a basis for effective competition? Should we proceed with the hands-off approach to GEA pricing? Should we favour a model of parallel equivalence? 17

19. Next Generation Networks 18

20. 19 What is an NGN? Multi-service packet-based network Requires Quality of Service management to meet differing needs of individual services Separation of conveyance and service control (Network Intelligence) functions Further separation between network intelligence and applications Applications: Applications:

21. Key characteristics of NGNs

22. How much intelligence should be in the Network Intelligence layer?

23. 22 What are operators actually doing?

24. 23

25. 24

26. NGNs � Regulatory Issues Infrastructure competition Reduced scope, to some extent in Core, particularly in Backhaul Some further industry consolidation likely Service Competition Increased scope, more focus on software based features and content Should we be concerned about open network access? �The good news is that these standard interfaces open a great many new avenues for competition in regard to services offered to end-users. The bad news is that service providers who have market power (either in the classic sense or as a function of network externalities) presumably will not want to open their networks to competition at the service level, and therefore are likely to limit the use of these capabilities.� (recent Agcom presentation) Possible Ofcom role in promoting development of standard network interfaces (APIs) Net neutrality and 2-sided markets Interconnection Transition to IP interconnect for voice Convergence of fixed and mobile call termination rates? Possible move to an internet-style interconnect regime, based on peering and transit arrangements, and service Service agnostic interconnection, linked to move to Phase III? 25

27. 26 Priorities and Next Steps

28. Priorities and next steps (1) � Near term NGA Active v Passive remedies Stance towards price regulation Defining NGA equivalence model NGN Consultation planned for early 2009, designed to: Review equivalence model for BT�s 21CN products Invite views on consumer issues raised by NGNs Stimulate debate on longer term implications Related Ofcom initiatives Fixed Narrowband Market Review and Network Charge Control Mobile Sector Assessment Future of Termination Rates 27

29. Priorities and next steps (2) � Longer term For the longer term, a key aim will be to consider the sort of competition models likely to best further consumer interests, and the potential role of regulation in fostering their development 28

30. Thank you Gareth.Davies@ofcom.org.uk 29