Virtual Unbundling A new wholesale product in NGA networks Kurt Reichinger Austrian Regulatory Authority for Telecommunications and Broadcasting The opinions expressed in this presentation are the personal view of the author and do not prejudge decisions of the Austrian regulatory authorities.

Agenda The Austrian Unbundling Market Virtual Unbundling Final Considerations The Regulator’s dilemma: Finding a balance between hard-core SMP and new soft law regulation The old Unbundling market as an example: Closing the gap between safeguarding competition and promoting innovation and taking due account of the European Commission's NGA recommendation From the ladder of investment concept to accepted products on the market: Classical Unbundling, Virtual Unbundling and Bitstream Access Final Considerations 23.02.2011 ECO PT TRIS

The Austrian Unbundling Market 23.02.2011 ECO PT TRIS

Market Analysis Procedure Overview Market Analysis Procedure December 2008 – Market Definition Ordinance (“TKMV08”) issued Market for “Access to physical network infrastructure” defined copper access-lines (LLU, SLU) not included: CATV, FTTH, Mobile (GSM, 3G, LTE, …) not included - but regulated: duct, dark-fibre January 2009 – Start of Market Analysis Procedure (“M 3/09”) > 500 parties involved (due to Administrative Court Decision as of 2008) TKK commissioned RTR with an expert opinion Fall 2009 – RTR expert opinion issued Market Analysis and Obligations for LLU/SLU (copper lines) Further recommendation for “NGA-related” regulation Spring/Summer 2010 – public consultation / coordination September 2010 – final decision by TKK 23.02.2011 ECO PT TRIS

Market Analysis - Indicators analysed Overview Market Analysis - Indicators analysed Indicator Interpretation Market share Incumbent: near 100% Barriers to entry High „sunk cost“ Control over not easily replicable infrastructure A1 Telekom: largest access network, can offer access services nationwide Countervailing buyer power Not existing as incumbent is sole supplier No self-supply for OLOs due to high barriers to entry vertical integration Leveraging from LLU market to neighbour markets (Retail PSTN access, BB market) natural monopoly Duplication of access network not economically feasible 23.02.2011 ECO PT TRIS

Market Analysis – Obligations imposed Overview Market Analysis – Obligations imposed Obligation Content Access (with cost oriented pricing) LLU, SLU, v-ULL (virtual unbundling) Annex-Services Access to Duct & Dark Fibre, Collocation VDSL2@CO VDSL@CO and VDSL@ARU - Deployment permitted NGA Regulation Compensation for frustrated investments, coordination meetings, … Reference Offers General rules, v-ULL, Access to Duct & Dark Fibre Transparency OLO can request relevant information for planning of own FTTC/B-deployments … … 23.02.2011 ECO PT TRIS

Conclusions of the Austrian market analysis Copper access network of A1 Telekom Austria still a „bottleneck“ But: there are also (derived) disadvantages for alternative operators in current and future NGA roll-out scenarios Lack of information Lack of economies of scale …  Sole imposition of „copper-related“ remedies deemed insufficient for NGA deployment scenarios  Additional „NGA-related“ remedies seen as necessary 23.02.2011 ECO PT TRIS

Deployment scenarios Yesterday: Copper only Today: Copper and fibre ADSL2+ / neu: VDSL2 Deployment scenarios Yesterday: Copper only ADSL2+: ~ 16 – 20 MBit/s VDSL@CO: ~ 25 – 30 MBit/s Today: Copper and fibre FTTC: ~ 30 – 40 MBit/s FTTB: ~ 50 – 80 MBit/s Tomorrow: Fibre only FTTH: > 100 MBit/s Glasfaser VDSL2 Glasfaser VDSL2 23.02.2011 ECO PT TRIS Glasfaser 8

EC‘s recommendation on NGA regulation (2010)  Addressing the challenge of managing competing (and sometimes conflicting) drivers in the implementation of broadband Securing investment in infrastructure and roll out, Past and future investment in active and passive infrastructure Both from incumbent and alternative operators Promoting competition both at the infrastructure and service layers, Promotion of competition on both infrastructure and service edge possibly conflicting Relaxing regulation where there are sufficient levels of competition Relaxing regulation on markets fully based on regulation may be dangerous Signals of relaxing regulation important for investment decisions Designing a framework for the transition from copper to fibre. 23.02.2011 ECO PT TRIS

Traditional (copper-related) remedies Full unbundling of copper line - LLU Sub-loop unbundling of parts of copper line - SLU Co-location (incl. compensation payment when MDF is closed down) Cost orientation Non-discrimination Separated accounts ADSL2+ / neu: VDSL2 Unbundling 23.02.2011 ECO PT TRIS

Additional „NGA-related“ remedies Promote alternative operator‘s investments in VDSL@CO Allow for investments of A1 Telekom Austria in FTTC/B Promote alternative operator‘s investments in FTTC/B Keeping alternative operators competitive  Virtual unbundling FTTC FTTB 23.02.2011 ECO PT TRIS

Promote alternative operator‘s investments in VDSL@CO VDSL2 from the „Central Office“ (VDSL@CO) allowed nationwide as a first step Compensation payments for frustrated investment (Modem and DSLAM) in case of subsequent FTTC/B roll-out 23.02.2011 ECO PT TRIS

Allow for investments of A1 Telekom Austria in FTTC/B No obligatory PSD-shaping under specific conditions Transparency regarding planned NGA-deployment Coordination meetings Compensation payment for frustrated investments (Modem, DSLAM) Cost-free migration to virtual unbundling Prioritising more advanced technologies VDSL@CO < FTTC < FTTB < FTTH Possible risk premium for new infrastructure 23.02.2011 ECO PT TRIS

Promote alternative operator‘s investments in FTTC/B No obligatory „spectrum shaping“ under same conditions as for A1 Telekom More comprehensive data delivery for FTTC/B-Planning  transparency A1 Telekom has to negotiate in the case of OLOs requesting the installation of new cabinets Access to ducts – for backhauling Cost savings – civil works Attractive access conditions – better than general rule acc to Telecoms Act Nationwide offer – not only in NGA areas Fees – similar to general rule Access to dark fibre – for backhauling Same as for duct-access BUT: only available in case of ducts not available or not economically viable 23.02.2011 ECO PT TRIS

Keeping alternative operators competitive Introducing a new substitute wholesale product for physical unbundling In addition to traditional remedies on unbundling market Introducing an active (layer 2 bitstream) product on the passive wholesale market for access to physical infrastructure  Reference Offer for „Virtual unbundling“ - VULL 23.02.2011 ECO PT TRIS

Virtual Unbundling 23.02.2011 ECO PT TRIS

Virtual unbundling – 8 cornerstones Possibility for a grade of innovation comparable with passive access Highest possible transparency for higher layers Possibility for multicast services Technological neutrality Flexibility for choosing CPE (white list) Service hand-over at MDF (or similar PoP in the NGA) Third-party service hand-over Configuration access for all relevant connection parameters or non-overbooked bandwidth between customer and PoI To be offered in NGA areas only 23.02.2011 ECO PT TRIS

Technical Concept of VULL Reference Offer Overview Technical Concept of VULL Reference Offer CPE Bandwidth DSLAM POI CPE Bandwidth Bandbreite Bandbreite CPE Bandwidth Bandbreite Bandbreite Bandwidth (HP/LP) Network OLO Netz ANB CPE Bandwidth Bandbreite 23.02.2011 ECO PT TRIS

Reference Offer by A1 Telekom Austria Under consultation Reference Offer by A1 Telekom Austria Modular layer 2 bitstream product based on Ethernet technology Access part: VDSL2 on copper loop with 3 bandwidths to choose from (8/20/30 MBit/s) Ordered per customer Backhaul part: Ethernet with 16 bandwidths to choose from (2 … 800 MBit/s) allowing OLOs to choose degree of overbooking – even allowing non-overbooked services Ordered per DSLAM Quality of Service: Service priorisation of Ethernet Frames using p-Bit p=5: Voice / p=4: Video / p=1: Business Internet / p=0: Residential Internet 50% of Link: high priority quality guaranteed / Remainder: low priority quality 23.02.2011 ECO PT TRIS

Reference Offer by A1 Telekom Austria Under consultation Reference Offer by A1 Telekom Austria Customer Premises Equipment (VDSL2 Modem/Router) No modem included – to be chosen by OLO Minimum modem requirements defined Modem whitelist with modems tested, being qualified as properly working and guaranteeing defined service performance parameters Service hand-over for several DSLAMS at MDF location in NGA roll-out areas  1 GbE and 10 GbE Service hand-over to third party provider possible Transparency for multicast services Pricing issues Margin squeeze free 23.02.2011 ECO PT TRIS

VLAN Concept (1/2) VULL services are aggregated for every MDF area connected MDF area (MPoP) comprising several VDSL2 DSLAMs VULL services are mapped into double-tagged VLAN (S-Tag and C-Tag) allowing to adress customers via Layer 2 Ethernet S-Tag defines specific DSLAM VLAN-ID 10 … 2009 (i.e. 2000 DSLAMs per handover point) C-Tag defines specific customer VLAN-ID 100 … 300 (i.e. 200 customers per DSLAM) p-Bit marking defines QoS VULL services are handed over to VULL partner on defined PoIs Hand-over is at today‘s MDF locations (i.e. locations with existing collocation and backhaul facilities) 23.02.2011 ECO PT TRIS

VLAN Concept (2/2) 23.02.2011 ECO PT TRIS

Prioritisation with p-Bit Marking (1/2) VULL partner defines associated quality of data frames within bandwidth ordered for a single DSLAM using priority bit marking p-Bit = 5 … high priority p-Bit < 5 … low priority 23.02.2011 ECO PT TRIS

Prioritisation with p-Bit Marking (2/2) 50% of bandwidth ordered for DSLAM area available for high priority (HP) traffic according to defined service and service-class parameters Up to 100% of bandwidth ordered for DSLAM area available for low priority (LP) quality as long as bandwidth is not used for HP traffic Traffic exceeding 50% limit available for HP is discarded (p = 4 discarded before p = 5) In LP class p = 0 discarded before p = 1 Re-marking of p = 2, 3, 6, 7 to p = 0 23.02.2011 ECO PT TRIS

Defined Service Parameters for VULL 23.02.2011 ECO PT TRIS

Maximum Transfer Unit (MTU) Size Limited by equipment currently used by A1TA Maximum frame size 1522 Byte (customer edge) 1526 Byte (VULL hand-over) Frame size limit to be adapted as soon as new equipment is available 23.02.2011 ECO PT TRIS

Pricing issues Pricing according to FL-LRAIC methodology taking into account the full range of products offered, i.e. NGA and non-NGA products Risk premium applicable for NGA products No margin squeeze in relation to A1TA retail offerings Non-NGA Non-NGA Non-NGA Non-NGA 8.192 / 768 8.192 / 768 8.192 / 768 8.192 / 768 NGA NGA NGA 20.480 / 4.096 20.480 / 4.096 20.480 / 4.096 20.480 / 4.096 NGA NGA 30.720 / 4.096 30.720 / 4.096 30.720 / 4.096 30.720 / 4.096 23.02.2011 ECO PT TRIS

CPE – DSLAM: bandwidth and monthly fees 23.02.2011 ECO PT TRIS

DSLAM – PoI: Bandwidth profiles and monthly fees Price comparison: Full LLU: € 5,87 per month 23.02.2011 ECO PT TRIS

Next steps Public consultation until mid march 2011 Evaluation of consultation responses Possible adaption request from TKK … Introduction of VULL on the market 23.02.2011 ECO PT TRIS

Final Considerations 23.02.2011 ECO PT TRIS

Final considerations The telecoms landscape is changing – so are regulatory interventions Some of yesterday‘s remedies may not be appropriate any longer Such remedies may have to be phased out with new remedies being carefully introduced in order to support today’s regulatory intentions Virtual Unbundling is such a new remedy that could even replace several of today’s remedies in a medium to long term perspective, e.g. Classical Unbundling Classical Bitstreaming Terminating Segments … 23.02.2011 ECO PT TRIS

Virtual Unbundling A new remedy in NGA networks Kurt Reichinger Austrian Regulatory Authority for Telecommunications and Broadcasting The opinions expressed in this presentation are the personal view of the author and do not prejudge decisions of the Austrian regulatory authorities. 23.02.2011 ECO PT TRIS 33