REGULATORY BARRIERS FOR VoIP: PAST, PRESENT AND FUTURE A CASE STUDY, TURKEY Dr. Mehmet I. CELEBILER Board Member TELKODER

About TELKODER TURKISH COMPETITIVE TELECOMMUNICATION OPERATORS' ASSOCIATION "TELKODER" WAS FOUNDED IN JUNE 26, 2002 BY TURKISH PRIVATE TELECOMMUNICATION COMPANIES OUR MEMBERS ARE ALL LICENCED TELECOMMUNICATION OPERATORS OFFERİNG TELECOMMUNICATION SERVICES, EXCEPT GSM SERVICES. OUR VISION IS TO SUPPORT AND GUIDE ESTABLISHING FREE COMPETITION AND LIBERAL UNDERSTANDING IN TURKISH TELECOMMUNICATION SECTOR TELKODER IS A MEMBER OF ECTA

VoIP in Pre-Broadband Era (up to 2004)  VoIP call origination was limited  Primary access technology was dial-up  Net2Phone and IM programs such as ICQ and MSN Messenger provided PC-to-PC VoIP services  Lack of bandwidth kept quality of service low  Industry’s perception of VoIP was mainly IP based transmission  Long distance voice transmission over public internet used to be the mainstream use of VoIP  A market for voice traffic from developed countries to the rest of the world emerged. (Band-x, Arbinet...)

VoIP in Pre-Broadband Era (up to 2004) Regulatory Uncertainty  Was VoIP transmission an internet service or a telephony service?  According to private operators, what they did was carrying IP packets, which was definitely within the scope of Internet Service Provider Licence.  Incumbent claimed it was a telephony service. Basing its arguments on legal monopoly rights on telephony service, the national operator went to court against Internet service providers offering VoIP.  Regulatory framework was unclear and left behind by the technological progress. Regulator was indecisive and made conflicting statements.  Large number of court cases started by the incumbent and lack of regulatory support discouraged VoIP operators.

VoIP in Broadband Era ( )  Two major events in 2004  ADSL entered the Turkish market and braodband penetration substantially increased in two years. VoIP applications moved from carrier services to end-user services.  Legal Monopoly in telecommunication services and infrastructure ended in January and Long Distance Telephony Service Licences issued in May. LDTS licence was the first authorisation including the right to provide “telephony service”. Most of the licensees’ were earlier ISP’s and VoIP operators.  Nevertheless, operators still face serious regulatory challenges in broadband and LDTS areas

Regulatory Drawbacks of LDTS Licence  LDTS Licence holders have the right to use VoIP (or any other) technology to carry, originate and terminate long distance telephony traffic. However;  It took a substantial time to reach Interconnection Agreement with the Incumbent.  It is still not possible for VoIP subscribers to recieve incoming calls from other networks, as the licence does not allow the assignment of E.164 numbers. National numbering plan is not adopted to support VoIP services and to promote competition.  Local telephony service is not within the scope of LDTS authorisation. Thus VoIP operators can not create an any-to-any call service that may replace the PSTN.

Regulatory Drawbacks of LDTS Licence  The incumbent operator claiming that LDTS operators do not have the right to access users by means (leased line, dsl, etc) other than the lines obtained from from itself in accordance with interconnect agreement,  Initiated court cases against almost all licenced operators accusing them of providing “illegal telephony services”  Telecommunications law and ordinances, including the one for LDTS include vague statements and not-well defined concepts and thus help the incumbent to create artificial legal quarrels to block entrants  Ironically, global VoIP operators Skype, MSN Messenger and Google Talk are available on the internet for use, without facing any regulatory burden  VoIP service (by licenced operators) is not exempt from taxes applied on telecommunication services. VAT, STT, USF and NRA fees amount to 35%. On the other hand, Skype or its users are not subject to taxes.

Broadband Market in Turkey - Overview  Dominant form of broadband access is ADSL  ADSL users by October, 2006  Number of ADSL users grew rapidly within last two years  Parallel to the rest of the world, current and future investment tend to be towards ADSL  Cable Internet is not a viable alternative  Infrastructure based competition exist in countries with historically strong cable industries i.e. Austria, Netherland, UK.  Cable Infrastructure development happened rather late in Turkey. Penetration rate is low and number of cable internet users is just  Controversy over the ownership of the cable network damages Turkish cable industry.  Other Forms of Broadband Access  Wimax and Wireless Local Loop frequencies not granted yet  Satellite and leased line usage is limited to business users  FTTH and PLC not available

Broadband Market in Turkey - ADSL ADSL, the only viable broadband technology in Turkey, is monopolized by the incumbent. Local Loop Unbundling: N/A Although related legislation was published in August 2004, full unbundling and shared access are not available Conditions in the Draft Reference Unbundling Offer, submitted to NRA eleven months ago, are not commercially feasible in terms of pricing of the local loop and collocation services Reference Offer not published and none of the operators signed an agreement yet Bitstream Access: N/A Obvious price-squeeze in broadband tariffs. Incumbent’s cheapest retail product is €15 (1024/256 with download limit), while the bitstream offer for 1024/256 is €48 ISP can not create its own limited retail product with competitive prices

Broadband Market in Turkey - ADSL  Bitstream Access: N/A cont’d  Bitstream offer contains conditions such as; predetermined distribution of the ports between large cities and small towns and prohibition of the use of lines for VoIP  No ISP signed the bitstream agreement so far  Pure Resale: Unreal Competition  Only available form of access for the time being  Inherent drawbacks of the model: ISP buys the end-to-end link from incumbent and markets the product to the end user without being able (neither contractually allowed nor technically capable) to change the product  The offer of the Turkish incumbent contains all the limitations mentioned for bitstream access offer (mandated distribution of ports, prohibition of VoIP)  As a result, only a limited number of ports (23.583) were purchased by ISP’s with simple resale

Broadband Market in Turkey - ADSL  ISP’s requested access to incumbent’s network to provide ADSL service on No action was taken by the NRA to permit such access. The Incumbent,took three years to offer ADSL service in 2004 while the consumers waited for broadband. ISP’s still do not have access to the incumbent’s network as of October  DSL market is monopolized by the incumbent within two years. By August 2006, 98,5% of DSL lines are directly provided by the incumbent itself.  While major European operators bundle their VoIP offers with broadband access (double-play), Turkish alternative operators, without broadband access and ambiguous authorisation for LDTS, are struggling to provide service.

What Kept VoIP from Developing?  Liberalisation of telecommunications market took a late start in Turkey;  Regulatory framework developed in PSTN-only era, could not address some of the current problems;  Licensing regime is outdated. A separate licence is issued for almost every specific service type, with ambiguous scope, extensive obligations and high license fee which deters investment and blocks innovative services from entering the market;  Evolution from monopoly towards competititon is delayed mainly because of the lack of a regulatory vision, strategy and framework.

ERG Common Statement for VoIP Regulation VoIP services are expected to increase competition as they have several compelling advantages; mainly lower infrastructure deployment costs as well as more efficient network utilisation. VoIP services are expected to offer significant benefits to users; mainly benefits related to the creation of new innovative services, price competition and integration of various services. The ERG is dedicated to enabling the development and widespread use of VoIP services in Europe by promoting competition, supporting the development of the internal market and the promotion of interests of citizens for the benefit of service providers and consumers.

ERG Common Statement for VoIP Regulation The ERG is committed to creating a regulatory environment in which VoIP services can flourish. The regulatory approach to VoIP in Europe under the European regulatory framework for the benefit of consumers should enable the greatest possible level of innovation and competitive entry in the market, whilst ensuring that consumers are adequately protected. The NRAs are committed to address barriers to market entry if they arise and in accordance with the European regulatory framework.