Two years ago I presented a paper to this conference on Convergence, NGN's and the Challenges of an All IP World.
The key messages from that presentation were:
Convergence was not a choice but an evolution of the market
This required a transition from the legacy PSTN world to an all IP NGN world
The main challenges that I said would arise relate to:
- bottlenecks remaining in the passive layers of the access networks
- Interconnection and interoperability issues
- Access to content and services may become the bottleneck
- Transition from the legacy to the all IP world
Evolution and transition are two words you will hear often in this presentation
Slide - Overview
In this presentation I will:
- set the context of the shift to an all IP world
- assess the competition and regulatory issues that arise
- discuss the Open Access model for NGN networks, and
As I did two years ago, set out the current and future challenges which will need to be addressed
Slide 3 - Spaghetti to Lasagne
The transition to NGN involves a shift from a world of many separate and purpose built networks to one where multiple services can be delivered over a single unified network
It involves a shift from vertically integrated networks and services (ie, the owner of the network provides the services delivered by the network) to a network of horizontal layers where transport and applications are separated.
It is a move from stacks to layers, from spaghetti to lasagne.
It is a shift that facilitates the full convergence of fixed and mobile networks, voice and data services and video services.
Slide 4
The process is incremental and evolutionary. Existing networks are being upgraded and new networks are being built. Initially the focus was on providing Ethernet in the core network. Upgrades of the access networks followed. The speed of change in the last two years in New Zealand has been dramatic.
In the fixed access network, Telecom is undertaking an aggressive FTTN rollout as it delivers on its undertaking to provide 10Mbs to 80% of the population by 2012. By 3 May this year 1800 of a proposed 3600 cabinets had been installed, and Chorus advised 60% of households had availability of an average speed of 13 Mbps using ADSL2+.
VDSL2 technology potentially allows for speeds up to 50Mbps. Telstra Clear is already offering its first VDSL based services and Telecom has announced that it will launch a VDSL based bitstream service in August, with speeds up to 40Mbps, with a minimum guaranteed download of 15Mbps and upload of 5Mbps.
The Ultra Fast Broadband (UFB) initiative is a step change in the evolution to the second generation NGN, providing $1.5b of Government funding to deliver speeds of 100Mbps down and 50 Mbps up to 75% of New Zealanders by 2020, delivered via FTTH.
For wireless we have seen the evolution from analogue to digital, and the upgrade to 3G, with theoretical speeds of up to 50Mbps download and 20Mbps upload. 4G networks are on the horizon, when spectrum comes available with the switchover to digital television by 2015.
The speed of evolution is accelerating. We are further along the transition path than we were when I spoke two years ago, and as a consequence the issues I raised then are now coming into sharper focus.
Slide 5
This transition from PSTN to IP based networks brings about a paradigm shift in market structure and dynamics.
The value chain is altered, revenue sources are changing, and businesses models are adapting.
As the revenue focus shifts so too will the bottlenecks.
The greatest level of investment is required at the network layer to increase broadband speed, but speed is regarded by consumers as a commodity, and revenue is not matching investment. Consumers' perceived value increases the higher the layer (or in this slide the contents and applications on the left side) The most valued services are provided by suppliers who are not currently network operators.
Slide 6 - Potential Competition Effects
This evolution can have both positive and adverse effects on competition.
As we transition to the next generation, new bottlenecks need to be addressed before they become entrenched. We have the opportunity to address them before investment decisions are made, and networks are built.
At the same time, it is essential that regulatory oversight of the existing bottlenecks is maintained, and the transition is managed with foresight and care, so that the competitive gains achieved over the last four years are not lost.
Importantly, investment in new technologies should not be impeded.
The fundamental principle which underpins NGNs internationally is the separation of the layers so that vertical integration issues that gave rise to problems in the legacy world are avoided in the future. This approach is termed Open Access. The terms of access are set in advance, providing certainty for investors, and reducing the likelihood of subsequent regulatory intervention.
Slide 7 - Open Access Definition
This definition of Open Access, adopted by the ITU, captures the essential elements of the concept. Competition at all layers, any to any connectivity at all layers, technology neutrality, transparency and fair trading (non-discrimination and /or equivalent treatment) between the layers.
This is achieved through three mechanisms:
- Structure ( structural or functional (operational) separation between the layers)
- Access and transparency obligations to ensure equivalent and non-discriminatory service provision to internal and external customers (in this area the devil is in the detail)
- Technical and commercial agreement on inter-operability and interconnection to facilitate any to any connectivity.
Open Access involves a combination of all three elements.
Slide 8 - Singapore Structure
This slide outlines the Singapore separation model, which is the most 'robust' in the OECD.
OpenNet is a structurally separated provider of duct, dark fibre and wireless layer 1 services, at a price set by a commercial tender process (which resulted in a wholesale access price lower than the prevailing copper access price). Singtel is a 30% shareholder in OpenNet as is Axia.
Nucleus Connect is a separate legal entity. It is operationally separated from its parent (it is a subsidiary of StarHub) and must provide its layer 2 and 3 services on an EOI basis.
New Zealand and Australia have both adopted models which involve layer 1 and 2 services being provided by a structurally separated entity (LFC in New Zealand, NGN Co in Australia). New Zealand also requires structural separation of retail from the activities of any LFC participant.
Obligations relating to non discrimination, equivalence and transparency are incorporated into the New Zealand and Australian models; in New Zealand they will be incorporated into enforceable undertakings by the LFC partner, in Australian in an access undertaking to be provided by NGN Co to the ACCC.
Slide 9 - ensuring unfettered technical access
The technical mechanisms for open access are designed to facilitate any to any connectivity.
Some of these issues have been directly addressed in the interoperability requirements of the UFB ITP. The UFB industry working parties are addressing Layer 1 and Layer 2 service descriptions, co-location and backhaul. Layer 1 papers have been provided to CFH; the Layer 2 papers will shortly be released for public consultation.
Slide 10 - ensuring commercial access
Commercial arrangements are also an important component of interoperability and interconnection. Industry are to address these issues in the future as part of the work on IP interconnection. What we are seeing is a lot of effort by industry to set the framework before the new network is built and importantly before participants have a vested interest in the outcome.
Slide 11 - Challenges
There are both demand side and supply side challenges still to be addressed, but they are interrelated.
On the supply side, continuing heavy investment and development of advanced capabilities is not matched by increased revenues, as the services to be delivered over the network have not developed at the same pace.
This leads on the demand side to low levels of uptake, and reluctance to pay. Consumers do not pay for infrastructure; they pay for services which are delivered over that infrastructure. Those services that can be delivered only over a FTTH network to a large degree do not yet exist.
For example, Japan has 90% FTTH coverage but only 30% uptake; its Government is considering the structural separation of the incumbent to address this issue.
In Singapore, uptake of free connection as premises were passed was originally only 30%. An intensive campaign had to be launched to sell the benefits of the new network, and IDA has set up an exhibition centre in one of the MTR stations to demonstrate the services that will be available in the future. Even so, more than 40% of households are turning down the free connection offer.
Network operators are desperately looking for new sources of revenue, leading to the issue that has been termed 'net neutrality'.
Slide 12 - Net Neutrality
The debate is actually between service providers at different layers of the network. It involves network operators at the bottom of the stack endeavouring to extract some of the value being generated by applications providers at the top of the stack. (In this diagram from Ofcom's consultation paper on Traffic Management and Net Neutrality, the access network is on the left, and applications on the right.) Their argument is that applications providers should have to pay the network for the transport of their content over the network's pipes.
It is reported the European Commission has been asked to "facilitate bilateral agreements between telecoms operators and online content providers like Google. - the so called 'Googletax'. The president of Vodafone Spain said that "search engine companies must be made to pay for their use of the network based on the amount of traffic they generate across it".
Slide 13 - Net Neutrality
While networks have a legitimate to manage traffic and congestion, some have slowed or blocked certain types of traffic, or applied other discriminatory treatment, in breach of the open access principle of competitive neutrality between the layers.
Essentially where there is effective last mile competition in the market, the net neutrality debate is less likely to be an issue. In the States where the debate arose, it is largely a proxy for the deeper stalled debate about competition in the telecommunications sector.
It does highlight however the increasingly struggle by network builders to find a value proposition and business case to support the level of investment which the transition to NGN networks entails.
Open Access removes the vertical integration problems which dogged the legacy copper network. The result has been a shift in the bottleneck to the top and bottom of the stack.
Slide 14 - The Shifting Bottleneck
Consumers value services. In the consumer market, the uptake of fast broadband (and a willingness to pay more) has been driven by HDTV services, which in turn has been dependent on access to premium content. As has been said many times, content is king, and increasingly it is recognised that opening up the network to competition requires open access at all levels. As Ofcom has noted "The ability to provide high value video on demand is one of the commercial justification for investing in new super-fast networks" [1]
This new bottleneck issue has been most recently recognised in Singapore which, as we have seen, has adopted the most robust structural separation model in the OECD. The consequence of its open access policy was to move the bottleneck to content exclusivity, the set top box, and the Electronic Programme Guide (EPG). It concluded that this also needed to be addressed to ensure a competitive outcome.
In March 2010, the Media Development Authority of Singapore (MDA) revised its Media Market Conduct Code to incorporate a Public Interest Obligation to mandate cross-carriage of exclusive content in the pay TV market. The MDA concluded that exclusive content arrangements led to market failure, and remedied the market failure by requiring pay TV operators to cross carry each others exclusive content.
Slide 15 - Singapore Pay TV Quote
In 2009 I ended my presentation with a comment from David Currie, the Chairman of Ofcom. I think it's an appropriate place to also finish this presentation.
After a three year competition investigation, in March 2010 Ofcom imposed on Sky Sports Channels 1 and 2 a retail minus wholesale must-offer obligation. BSkyB must offer these channels to cable, terrestrial and IPTV firms. BSkyB has challenged the ruling for being an "unprecedented and unwarranted intervention" and VirginMedia has appealed on the basis that additional sports channels should also have been included.
In a separate consultation, Ofcom is considering referring core premium movie channels to the Competition Commission for market investigation as concern has been expressed over 'warehousing' rights and contractual 'hold backs' of content, to the detriment of consumers and competition.
Ofcom's view is that "subscription services offering recent movies on demand seem to present a more compelling long-term proposition and a stronger proposition for securing competition, particularly as IPTV and video on demand services over the open internet come of age".[2]
When a network is truly open, when interconnection and inter-operability has been achieved, the bottleneck shifts, as one commentator has remarked, from the 'last mile' to the 'last ten inches'.
Supply side issues are currently being addressed but it is becoming clearer that a greater focus is required on demand side inhibitors to the take up of high speed broadband. These issues need to be addressed at the same time as the networks are being built to ensure uptake matches availability.
[1] Para 1.10 Competition Issues in premium pay TV movies. Ofcom consultation paper, 21 March 2010.
[2] Para 1.9 Competition issues in premium pay TV movies. Ofcom, 31 March 2010 Consultation paper
