Ofcom’s approach to ensuring Next Generation Competitive Broadband Chinyelu Onwurah, Head of Telecoms Technology, Ofcom TRIS Copenhagen 9-10 February

1 Agenda Next generation access – where are we? Wholesale access to enable competition – Ofcom’s approach Is effective competition possible without physical unbundling of local loop? Identifying the competitive drivers of Ethernet active line access. Ethernet ALA – the road to standardisation Appendix 1: ALA standardisation key issues

2 Consumer appetite for broadband continues to grow Growing take-up Household penetration Growing usage Source: Ofcom, The UK Communications Market 2008, -3% -5%295%-7%88% Time spent using communication services

3 … driven by significant infrastructure investment from competitive providers 5,000,000 local loops unbundled UK DSL allows 2Mbps to up to 97% of homes UK LLU operators delivering services up to 24 Mbps Cable rolling out 50M services BT launched nationwide 8Mbps ADSL Max service - 6Mbps to ~60% of homes

4 Next Generation Access is beginning to be deployed around the world… Country TechnologyFTTC/HFTTH/B FTTC FTTH FTTC FFTCFTTCFTTHFTTC Target coverage0.4%2%4% 9%16%17%26%38%40%61%80%90% 100% Target yearn/a Coverage so farn/a0.9%0.6%0.5%n/a8%2%7%n/a21%59%75%n/a84%7% Note: AT&T is present in 35 out of 50 states. Verizon has presence in 28 out of 50 states. Virgin coverage is 50% of the UK. Illiad target coverage extends to 70% of Paris Planned deployments (Jun. 08) 4% 9% 16% 26% 40% 61% 80% 90% 100% 2% 4% 0.4% 0% 20% 40% 60% 80% 100% FT TI AT&T Verizon DT Belgacom Swisscom TDC NTT KPN Telefonica Illiad Neuf 17% Telia Sonera 38% Telia Sonera Target coverage Achieved coverage

5 … and in the UK Communications providers NGA investment of £1.5bn for FTTC overlay and FTTP in new build to reach up to 40% by 2012 Virgin Media has launched its new 50Mbps cable broadband service to 70% of its customer base by end 2008, rising to 95% in 2009 New business models H2O will be deploy fibre through sewers in Bournemouth, Northampton and Dundee. Potential build cost savings may be % versus traditional methods of network build Geo sewers to deliver bespoke fibre networks to carriers and businesses. They have no plans for a residential network, but their approach could support NGA backhaul Sewers and alternative wayleaves New build and municipal We are seeing an increasing number of fibre deployments to new build developments by new entrants and municipalities Examples include:

6 Wholesale access to enable competition Duct access Digging is the major cost in fibre deployment – in France and other countries with food infrastructure duct access can help enable competition Dark fibre Where duct access is difficult or not available, dark fibre is often considered as the next best passive access remedy Sub-loop unbundling (SLU) In countries with FTTC deployments, there is focus on SLU. Wavelength DWDM PON is being deployed in Korea but is thought to be to expensive in Europe – for the moment Bitstream Considered as a remedy where passive access is not available, rather than a preferred remedy

7 In March we will publish our statement on the regulatory environment for superfast broadband Securing timely and efficient investment Promoting competition Allowing pricing freedom for next generation wholesale products Developing a framework for transition Creating room for passive access products in response to demand Supporting industry led development of active access products

8 Passive and active wholesale access Customer Street Cabinet Local Exchange Metro Node Core Network Fibre Passive line access - sub-loop unbundling Active access - bitstream Proposed regulatory products - FTTC Copper Customer Splitter Local Exchange Metro Node Core Network Fibre Active access - bitrstream Proposed regulatory products - FTTH Fibre Passive line access - duct access, fibre or DWDM unbundling

9 Is effective competition possible with active access? In the past effective competition – including innovation and differentiation – has only really been possible with ownership of the local loop We have seen the difference in quality between competition based on bitstream and competition based on LLU For example, competition based on LLU has delivered competitive triple play offerings whilst IP bitstream offers failed Ofcom undertook a qualitative comparison of examples of innovation in passive and active access… … to identify ‘the levers of innovation’ : capabilities which help competitors differentiate their offerings

10 The levers of innovation… LeverExample Service Levers: FeaturesBy using ADSL2+ technology LLUOs can offer higher speeds Infrastructure CostsBy managing contention ratios, LLUOs can control backhaul costs. Service LevelsBy having access to their own dark fibre, a CP can choose to offer faster service delivery Business Levers: Investment choicesLLUOs can choose when to upgrade to ADSL2+ CustomisationLLUOs can choose to differentiate between business customers and residential on QoS Billing capabilityBecause they have access to the underlying call records, LLUOs can choose how they bill for voice messaging. Wholesale serviceBy having a differentiated wholesale offer an infrastructure owning CP can acquire scale and share risk Customer InformationBy identifying the geographic location of their customers an infrastructure owning CP can reduce fraud

11 Layer 1 (Physical) Customer Home Layer 2 (Link) Layer 3 (Network) Cabinet Exchange Metro SLU LLU Datastream ‘Vertical’ Access Point ‘Horizontal’ Access Point Datastream IPstream Active Line Access Active Line Access Active Line Access

12 ‘Active line access’ is a form of Ethernet bitstream which Retains as much as possible of the level of innovation supported by passive access Is neutral to higher layers: – IP-VPN, VLAN, PBB, PBT… Is implementation neutral to the underlying media –Ptp fibre, GPON, copper, bonded copper… Is service neutral to the applications: –Video, HDTV, voice, data… Helps overcome technology isolation –One wholesale access for all technologies Benefits from the economics of scale of Ethernet And the economics of distribution and management of bitstream –Customer acquisition does not necessitate truck roll –Interconnect at different points

13 It is for industry not regulators to define Ethernet ALA – and there are significant challenges Wide range of potential standards Needs to be highly scaleable – thousands of CPs with millions of customers and hundreds of services Maximum control of underlying network requires product flexibility Ability to support quality of service is key, however that is achieved Flexibility within consumer premises equipment required Product definition requires significant effort by all industry players Pan industry product specification Industry players need to understand requirements and trade off product features to achieve an optimal definition…

14 Key competitive requirements of Ethernet Active Line Access FunctionalityJustificationTechnical requirements Security enablement Secure delivery of services Authentication of users Separate traffic streams CPs implement own security QoS enablementSatisfactory delivery of voice and video ALA provider offers QoS information ALA user labels traffic Multicast enablement Bandwidth savings in backhaul of one to many services (IPTV) Optional provider or user solution Common interface Static and dynamic support Flexible customer premises equipment To allow CPs to innovate in CPE functionality Common Ethernet interface (initial) Wires- / Fibre-only interface (future) Flexible interconnection There is no universally economical interconnection point Local, regional, national interconnect Common interface Freedom to move

15 Why is Ofcom promoting Ethernet ALA? Like most regulators, we prefer infrastructure access We are also promoting sub-loop unbundling and looking at duct access But these unlikely to be viable everywhere – like LLU So some form of bitstream access is essential And the better it is, the more innovation will follow And the more consumers will benefit Other regulators are also looking at active line access type products What should this mean for communications providers? The availability of a standardised wholesale access product sooner rather than later Giving easy access to fibre communities wherever they may be Supporting wholesale and retail products And allowing for differentiation in pricing, quality of service, security, applications etc

16 Process Regulators Industry Promote effective competition ITUETSI Broadband forum IEEE MEF NICC Product 1 CP 1 CP 2 Product 2 Product 3 CP 3 Specification Regulatory Objectives Competitive Characteristics Technical Requirements Standardisation Product Specification

17 Summary In many countries, consumers are reaping the benefits of a competitive market in current generation broadband As next generation access networks roll-out, we want enable competitive providers to compete Passive access products have many advantages but are unlikely to work everywhere Ethernet Active Line Access has the potential to be a generic wholesale access product which enables providers to compete and differentiate themselves – attracting next generation consumers And its standardisation would help overcome the potential for technology isolation We will actively work with industry and other regulators to bring about the best outcome –Ethernet Active Line Access: Technical Requirements –Ethernet in the Access Study –Delivering super-fast broadband in the UK Updated Technical Requirements to be published early March.

18 Safeguarding investment in NGANs Not ‘investment vs competition’ but ‘investment and competition’. Ensuring a competitive environment stimulates investment, it does not deter it. At EU level it’s important to avoid premature attempts to harmonise the detail of regulation on the one hand, and attempts to hard-wire regulatory holidays or other forms of anti-competitive discrimination on the other into the Framework, therefore: –It is important that the Commission avoids too much of a focus on passives and too much prescription of detail in its NGAN recommendation and set out the key principles instead; –We remain wary of some of the previously proposed amendments on risk-sharing; –But we believe that regulated prices should be adjusted to reflect uncertain future demand for retail products and hence increased project investment risk; –Consequently, we seek text to clarify what would be legitimate spreading of investment risk as opposed to disguised erection of new barriers to entry (for instance, where an incumbent proposes that altnets can only gain access if they commit to upfront capital expenditure)

19 Functional separation and the impact on investment: The Undertakings have provided BT with regulatory certainty and BT continues with a £10bn (€11.3bn) investment in NGN core network

20 Questions?

ALA Standardisation Key Issues Appendix 1

22 Key Issues - Security Area of RequirementKey Issues The transport streams shall identify both the ALA-user and the customer Which scheme should be used to mark traffic? How should the customer and ALA-user information be encoded? Ethernet ALA should be transparent to security protocols Which existing standards could be used? Are there any security protocols that may cause issues with transparency? Ethernet ALA should allow the necessary intercept and tracking functionality Is there any way that Ethernet ALA would preclude this? Is it necessary to engage with the security community?

23 Key Issues - QoS Area of RequirementKey Issues Traffic capacity should include a committed information rate as a minimum Is it necessary to define the size of these committed rate ‘pipes’? Are there any network challenges in providing this functionality? ALA-users must have sufficient information to deliver their services What (real-time) information is required, and how does this vary by technology? Is this a technical requirement or product definition? QoS should be managed using existing standards Which standards should be used? How should available QoS labels be assigned to applications and ALA-users? How far should we go in defining the QoS labels? Good network design practice should ensure acceptable delay and jitter performance, as well as traffic policing What new challenges does Ethernet ALA bring to designing a fit-for-purpose network? Is this a technical requirement or general best practise?

24 Key Issues - Multicast Area of RequirementKey Issues Provider Multicast should be standardised and optional as part of Ethernet ALA, but ALA-users should be able to implement their own solution What challenges would be presented by an ALA- user implementing their own solution? Ethernet ALA should support multiple ALA-user multicast How far has multiple-operator multicast been standardised? What are the challenges of implementing multiple- operator multicast? Ethernet ALA should include static and dynamic multicast Are both static and dynamic required? How should this be implemented and managed?

25 Key Issues – Flexible CPE Area of RequirementKey Issues The interface at the customer premises should be common across all infrastructures Is this technically possible? There must be the option to move back to wires- or fibre-only What will signify that the market is ready to move from a common interface? What are the challenges for each technology? The CPE interface should be the same Ethernet scheme as the rest of the network Should the Ethernet scheme be the same at the customer interface as at the interconnect interface? The CPE should be easy to install and report connectivity Are there any significant changes needed to existing practices? Standards should be identified for the complete management of CPE Is CPE management important? How can existing standards be used?

26 Key Issues – Flexible Interconnection Area of RequirementKey Issues ALA-users should be able to interconnect to aggregated traffic at any point Should interconnection be allowed and/or required anywhere in the network (e.g. at the cabinet) How can backhaul products ensure the requirement is met? Interconnection should be via a standard sized interface, with a common Ethernet scheme What are the appropriate standard interconnect sizes? Should the interconnect scheme be common across all infrastructures? ALA-users should have freedom to change interconnection points Are there any additional challenges associated with changing interconnection over time? Standards should be defined for equipment compatibility What existing standards can be used and how flexible should compatibility standards be?