ITU-D Workshop for the Arab region on
Interconnection and Next Generation
Networks: Addressing the regulatory
challenges
Manama, Kingdom of Bahrain
Interconnection Charges: Bill & Keep, Peering, Transit
or Calling Party’s Network Pays? And a view of NGN
Access from Europe
3 May 2007
Susan Schorr
Regulatory Officer
ITU BDT Regulatory and Market Environment Division
International
Telecommunication
Union
The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its Membership.
GSR 2007 Discussion Paper
Interconnection of
IP-Based NGNs
J. Scott Marcus
Senior Consultant
Wik Consult
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Interconnection of IP-Based NGNs
ƒ Many operators, especially incumbents, look to
migrate to NGNs.
¾ Enhance economies of scope and scale.
¾ Accelerate time-to-market for new IP-based
services.
ƒ NGN represents a marriage of PSTN and Internet.
¾ Different technology.
¾ Different culture.
¾ Substantially different regulatory traditions.
ƒ What should happen when these disparate worlds
collide?
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Interconnection of IP-Based NGNs
ƒ PSTN – regulated arrangements.
¾ Regulation to address market power.
¾ Termination fees in the absence of regulation will tend to
be very high, for both large and small operators.
¾ Lack of interconnection implies a connectivity breakdown.
ƒ Internet – “Coasian” private arrangements in most cases.
ƒ Peering: two providers exchange traffic only for their
respective customers, often with no explicit charges.
¾ Sharing of facilities costs for interconnection may be
unequal.
¾ In most countries, no regulation of peering.
¾ Lack of interconnection usually does not imply a loss of
connectivity, but may have implications for costs.
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Interconnection of IP-Based NGNs
ƒ The migration to IP-based NGNs breaks the strong historical
linkage between the service and the network, enabling the
emergence of independent service providers.
ƒ Implications for regulation in support of competitive entry:
¾ NGN introduces new forms of competition.
¾ Does not necessarily eliminate traditional market power.
¾ May enable the emergence of new competitive
bottlenecks.
ƒ To the extent that the network and service providers are
different firms, traditional interconnection arrangements can
break down for a variety of technical and practical reasons.
Moreover, the reason for current arrangements is in question.
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Wholesale and retail arrangements
ƒ Wholesale arrangements
¾ Calling Party’s Network Pays (CPNP): termination fee to
the operators that completes the call.
¾ Bill and Keep: private arrangements, no regulatory
obligation to pay a termination fee.
ƒ Retail arrangements
¾ Calling Party Pays (CPP): the recipient pays nothing.
¾ Receiving Party Pays (RPP): rarely used, not interesting.
¾ Flat rate: prevalent in Bill and Keep countries, and
Internet.
ƒ Flat rate retail arrangements are attractive going forward.
¾ Better reflect costs in an industry with high sunk costs.
¾ Consumers greatly prefer flat rate.
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Wholesale and retail arrangements
Revenue per Minute versus Minutes of Use
900
Minutes of Use (Originating and Terminating)
800
USA
700
600
-7.1487x
y = 685.2e
2
R = 0.7873
500
400
Canada
Hong Kong
South Korea
300
Finland
Singapore
Europe
200
Australia
Japan
100
0
USD
India
USD 0.02, 350
USD 0.05
USD 0.10
USD 0.15
USD 0.20
USD 0.25
USD 0.30
Service-Based Revenue per Minute of Use
Source FCC, Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial
Mobile Services, 11th Report, September 2006, Table 12, based on
Interactive Global Wireless Matrix 4Q05, Merrill Lynch, Telecom Services Research
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Wholesale and retail arrangements
ƒ CPNP with high mobile termination rates tends to lead to:
¾ Subsidies for mobile adoption, and thus rapid penetration.
¾ High retail prices.
¾ Exclusion of calls with high termination from flat rate
plans.
¾ Low usage.
ƒ Rapid penetration is beneficial; the other aspects are harmful.
ƒ There is no economic rationale for CPNP in an NGN world.
ƒ What role for the regulator?
¾ Regulators need not regulate retail arrangements except
to the extent necessary to address market power
distortions.
¾ Nonetheless, the implications of wholesale regulation for
retail behavior are entirely relevant to the regulator.
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Implications for developed countries
ƒ If deployment of mobile and fixed services are substantially
complete, there is no advantage in continuing to promote CPNP.
¾ Stimulating adoption when penetration approaches or
exceeds 100% provides no genuine benefit to consumers.
¾ CPNP tends to lead to high retail charges, and to low use.
¾ Cross-subsidies from fixed to mobile distort the development
of the market, and may inhibit the evolution of the fixed
network.
ƒ The migration time from PSTN to NGN represents an
opportunity to consider migration from CPNP to Bill and Keep.
¾ Conventional CPNP is probably unsustainable anyway.
¾ Bill and Keep is sustainable and economically rational.
¾ If a change is needed anyway, probably best to migrate
directly to the preferred end state.
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Implications for developing countries
ƒ For most developing countries, migration to NGN is
ƒ
ƒ
ƒ
ƒ
ƒ
years in the future.
CPNP fosters faster penetration of mobile services,
which is generally a positive development.
Internationally, settlement arrangements generate net
subsidies in favor of developing countries.
Immediate abandonment of CPNP arrangements might
be premature.
Maintaining CPNP, but with substantially lower
termination rates (ideally less than 0.02 USD) may
provide an appropriate balance between stimulating
mobile penetration and encouraging use of services.
Low termination rates pave the way to later migration
to Bill and Keep.
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A view to NGN Access
Regulation from Europe
ƒ European Commission and European
ƒ
ƒ
ƒ
ƒ
Regulators Group: “No regulatory holidays”
When Europeans talk about NGN Access, they
are focusing on FTTH, FTTcab and FTTB
Incumbents DON’T expect to reach all homes
with fibre
Some homes to be reached by ADSL or WiMax
ERG issuing its recommendations on NGN
Access soon
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KPN Plans
ƒ KPN to phase out leased lines, both analog
ƒ
ƒ
ƒ
ƒ
ƒ
and digital when it starts its NGN
KPN plans to dismantle its exchanges (MDFs)
and switch off old network.
Sale of buildings where old exchanges housed
to net EUR 1 billion which can finance NGN
deployment
KPN suggests BWA could be a solution where
it doesn’t provide sub-loop unbundling
Can BWA offer same functionality as fibre?
KPN will have a reference sub-loop unbundling
offer
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European Regulators Group
ƒ Concerned about some EC market
definitions. Would “metallic loop”
market definition include fibre?
ƒ Unbundling fibre depends . . .
¾ Point to point – unbundling easy
¾ Point to multipoint – more challenging
¾ Length of loops
ƒ Collocation at street cabinet could be
imposed
ƒ Backhaul from street cabinet to
operator’s network could be required
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Infrastructure sharing to
promote fibre buildout
ƒ Civil engineering costs expensive and
bulk of deployment
ƒ In house wiring also a bottleneck
ƒ It may not make economic sense to
deploy multiple fibre networks
¾ France, e.g., estimates several tens of
billions of euros to deploy fibre nationwide
ƒ Passive infrastructure sharing – shared
civil engineering and wiring costs –
necessary to remove entry barriers
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Infrastructure sharing
solutions in France
ƒ Duct sharing could be imposed – new
networks should be designed to provide ducts
for competitors
ƒ ARCEP (French regulator) questions whether
PON can be unbundled
ƒ ARCEP will issue guidelines to define
reasonable access to passive local loop
ƒ ARCEP is not arguing for active infrastructure
sharing but is considering a model of local
government providers on an open access basis
– local governments could sell passive
capacity without becoming operators
themselves
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Implications for Developing
Countries
ƒ Perspective is needed: Even developed countries can’t
ƒ
ƒ
ƒ
ƒ
ƒ
afford nation wide FTTx coverage!
A pro-competitive passive infrastructure sharing
regulatory framework may make sense
More information is needed on PON for countries
planning to deploy national fibre backbones – is it
compatible with open access?
ERG guidelines may offer guidance
TRAI (Indian regulator) recommendation on passive,
active and backhaul networks for mobile networks is
also an excellent resource
Reference sub-loop offer may be needed
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Thank you!
susan.schorr@itu.int
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