Open regulatory issues and challenges due to next generation networks Ioannis Zacharopoulos, Ph. D. Senior Telecom Engineer Telecommunications Directorate Hellenic Telecommunications & Post Commission (ΕΕΤΤ)

Outline  Facts in Europe regarding NGA  variations & economics of NGA  The European Commission view  The new (draft) recommendation on regulated access to Next Generation Access Networks (NGA)  In case of NGA based on incumbent’s initiative  Regulators’ view  Benchmark on European countries  Regulatory Issues of Next Generation (core) Networks (NGN)  Conclusions

NGA variations Fiber To The Home (FTTH) Point-To-Point (P2P) 1 fiber pair per household up-to aggregation point Fiber To The Home (FTTH) Point-To-Multi-Point (PMP) or Gigabit Passive Optical Network (GPON) 1 fiber pair shared over a number of households Fiber To The Cabinet (FTTCab) or Fiber To The Node (FTTN) 1 fiber pair per neighborhood (partial copper replacement)

Economics of NGA (1)  Vary with technology/mode of deployment but…  … in any case there is high CAPEX per connected customer …  High CAPEX can be reduced by coordinated strategy on reduction of construction costs and…  …in high density (urban) areas…  … and this leads to high total costs and makes NGA infrastructure a really non-replicable asset. (First mover advantage) The Economics of Next Generation Access, Study for the European Competitive Telecommunication Association (ECTA), WIK-Consult

Economics of NGA (2)  NGA “Pareto Law”: The main fraction (>65%) of NGA CAPEX per customer is due to civil works  Of this CAPEX, the intra- cable CAPEX (in case of FTTH deployment) is almost the same weighty as the distribution- network CAPEX  The rest of the CAPEX is due to CPE, CO Opto- electronic equipment, etc. Dr. Kátrin Schweren, EU Affairs Delegate, Swisscom "Swiss Fibre Optics or Fibre Suisse: Multiple Fiber Multiply Innovation" FTTH Europe Conference, Copenhagen, 11-12/02/2009

Commission view: new (draft) recommendation on regulated access to NGAs (1)  The proposal refers to the case that there is NGA deployment after initiative of incumbent  In Greece: announcements for NGA partially funded by the State (Public-Private- Partnership (PPP) form)  How NGA impacts the defined wholesale markets  Wholesale Physical Access (Market #4)  Wholesale Broadband Access (Market #5))  Possible Wholesale products needed for competitors  Some critical details like pricing etc.  The proposal seems to be too prescriptive to be generic enough to cover the various cases/countries throughout Europe

Commission view (2)  Remedies imposed to operators having SMP as a result of market analysis  when planned or ongoing NGA deployment  Geographical market considered  Fibre roll-out probably limited geographic coverage (short & medium term)  Transparency: reference offer for all relevant wholesale products  conditions for access to ducts, other civil engineering works etc.  information regarding duct location, capacity etc.  FTTH case  Duct access: mandatory  Physical access to dark fiber (LLU-fiber): Conditional  If access to ducts, etc. services technically impossible or not economically viable  Intra-building wiring: NRAs facilitate cooperation on roll-out & sharing infrastructure…  enable end-users to have competitive choice  avoid duplication of infrastructure  …but perhaps more and tailored-made initiatives could be envisaged in order to promote it  Fiber sub-loop unbundling: mandatory

Commission view (3)  FTTN/FTTCab case  If partial replacement of existing copper access with fibre: Obligation on determining deadline, appropriate migration path from the current access products to new access products (timing, technical functionalities etc.)  Obligations:  Reference offer for sub-loop unbundling  Access to ducts, street cabinets  Co-location: either at the street cabinet itself or near it  Co-location facilities: power supply etc.  Ex ante price control on all wholesale products: ducts, etc.  Supplementary, appropriate backhaul wholesale products  Pre-determination of details by NRA: size of street cabinets, cost-sharing arrangements, etc.  Access products: flexible enough to facilitate migration from FTTN to FTTH  Wholesale Broadband Access  As in case of existing services (both for FTTH, FTTN)

Commission view (4)  Principle of geographic averaging:  Not necessary use if substantial cost differences among various areas  Pricing of existing assets (including ancillary services):  Cost-orientation: Methodology same as today  Pricing of new assets (including ancillary services) and dark fiber (up to a concentrating point)  Cost-orientation: but with a project-specific risk premium to be included in the costs of capital for the investment risk.  Risk premium calculated by regulator after justified arguments of incumbent about the investment risk incurred by the incumbent  Focus on striking balance between effective competition and encouraging investment towards better evolution of the whole investment

Commission view (5)  Other issues  FTTH-PMP (GPON) seems like cable network (!?)  Gradation of remedies:  If passive remedies not active remedies  Reciprocal regulation (sharing):  NRAs may or not impose if commercial contracts initiatives  NRAs could allow SMP operators to refuse sharing new investments with alternative operators who, do not agree to reciprocal sharing of their assets

Regulators’ view (1)  Agreeing with the general context and goals but … ..seems to be over-prescriptive on implementation of remedies and pricing remedies.  Passive remedies and especially duct access do not necessarily suffice, neither are the “ultimate” treatment  Pricing  Vague methodology for risk premium calculation  Not geographical averaging approach:  unrealistic  variant from the current Commission approach (used for existing assets, well accepted, applied regulatory practice)  Opinion that “GPON seems like cable” might give incentive to incumbents to deploy GPON expecting regulatory holiday  There is no “one-size-fits-all”: Every country should be in position to select remedies according to its market status

Regulators’ view (2)  Active remedies might be a good alternative especially in case of FTTN/FTTCab scenario and at least for the first period  Advanced-enhanced WBA might keep service competition in case of FTTN scenario  Quality parameters (for example low jitter for high video quality)  Ethernet backhauling  Different levels of IP hierarchy/nodes (e.g. Main Distribution Frame, MDF)  Support of multicasting (for high video quality)

Benchmark on European countries  Most operators are in early announcements, trials etc.  In general, incumbents prefer FTTN (FTTCab/VDSL) or GPON or Hybrid-Fiber-Coaxial (if they have access to cable)  Except France where FT applies FTTH as well  In general, alternatives/utilities prefer FTTH (P2P or GPON)

Issues regarding Next Generation (Core) Networks (NGN)  NGN: single packet switched network transporting multiple services (audio, video, data, both fixed & mobile)  Decouples the service and transport provision.  (Potential) innovation opportunities at both service, infrastructure level.  (Potential) increased economies of scope and thus cost savings  Impact market structure, interconnection regimes, interoperability and regulation  ERG opinion: separation between transport and service layer will in practice be blurred by the implementation of services by means of a centralised platform. This impacts the ability of independent services providers to integrate their services into the NGN platform.

Regulatory issues of NGNs (2)  Points of interconnection (POIs)  Due to centralisation of the control function, POIs for transport and for service will likely be different.  Transport interconnection could take place at a greater number of locations than service interconnection (e.g. transport interconnection at any network node, but service interconnection only at centralised platform location).  Quality of Service (QoS)  New dimension of interconnection agreements,  It could be exploited by SMPs for new forms of discrimination (SMP arm, competitors)  NRAs should have the possibility to impose minimum QoS levels.  Costing/pricing  Single network to deliver multiple services (economies of scope)  In other words: costs will be mainly fixed and common; incremental costs for each service will be relatively low.  Change of cost standard?  Bill & Keep (B&K) wholesale billing regime

Conclusions – Open issues  Cost sharing and procedures’ facilitation makes NGA deployment easier  Duct access do not necessarily suffice, neither is the “ultimate” treatment  FTTN/FTTCab mode  Collocation at street cabinets is expensive for OLOs and might multiply today’s procedures thus delaying roll-out  Incumbents (except for France) in Europe definitely prefer FTTN/FTTCab mode  WBA might be more important for OLOs, especially if enhanced  FTTH-P2P mode  Main barrier: Intra-building wiring (Costs and roll-out complexities)  NGN might impact to a number of critical regulatory issues (POIs, QOS, wholesale interconnection billing scheme)  In Greece: depending on evolution of the State subsidized plan, there are additional issues that are expected to handle by the Regulator

Supplementary slides

Commission view (6)  Risk premium  estimated by regulatory precedent/benchmark or  direct statistical, financial comparator methods like equity beta with benchmarks from other sectors but providing comparable services (e.g. media).  Include project-specific capital employed, labour costs, building costs, efficiency gains, assets’ terminal value (rec. 20 Access Dir.)  Risk premium not applied for fibre backhaul from the street cabinets to the MDF  Principle of equivalence: avoid discrimination in favor of SMP’s retail arm  Equivalence on asset information  Infra availability (location of ducts, street cabinets, manholes, availability, etc.)  Access points: network topography, location of concentration points and list of connected buildings.  Equivalence on provisioning times: through platform/tool  Equivalence on service management & SLA  QOS indicators & pre-defined target service levels (time limits for replying to requests for information, etc. )  Regular reporting

Regulatory issues of NGNs (3)  Bill & Keep (B&K) wholesale billing regime  Each network bears the costs of terminating traffic coming from other carriers  Not receive payments at the wholesale level for termination.  Recovers its costs (termination and any payments for upstream connectivity) in other ways, e.g. by billing them to its end customers.  B&K can be considered by NRAs  Where B&K applies, it is unlikely to have SMP in the termination market.  “Silent requirement”: sufficient competition at the retail level  Concept of termination charge will not disappear at all. Traffic from outside the B&K area needs to be treated in such a way as to prevent extensive arbitrage (tromboning, call-back etc.).  Billing migration to B&K  Not full migration to all-IP: keep existing regime  Requirements: clear distinction between different services & use of services measurable  Possibility for price differentiation based on QoS classes  migration to B&K is easier:  the lower the absolute level of interconnection rates;  the smaller the relative difference between interconnection rates of different networks  the higher the proportion of flat rate tariff packages at the retail level.