1. NGN Interworking Workshop TRIS – TISPAN: 18th January 2006

2. Agenda Review of ECC Model for interconnection of IP based networks
Examples of market-based approaches to interworking
International MMS interworking
International premium services interworking
Summary

3. Review of ECC Model for interconnection of IP based networks
IP based interworking arrangements are developing: regulators should not pre-empt these by attempting to favour particular commercial models in advance of the market.
There are strong incentives among firms to secure effective interworking in order to benefit from the resulting network effects – notably increasing service value to customers.
Multiple retail and wholesale charging models will exist and interworking arrangements will be required to support a variety of different retail service models.
Vodafone seeks to charge in units that make sense to our customers: per minute, per message, per ring-tone, per track, per game etc.. Charges are not generally capacity based.
Instead service-based charging is designed to meet customers’ needs for transparency and allow discrimination between services supporting affordable price levels.
We see this approach as both desirable and sustainable faced with substantial investment to provide 3G data services on mobile.

4. International MMS interworking

5. SMS and MMS interworking
Nationally
SMS services typically directly interconnected
Bulk offers also available to third parties through aggregators or directly
MMS services have followed same models
=> National SMS and MMS interworking available in a range of forms
Internationally
SMS services typically directly interconnected based on pre-existing roaming relationships
Question was should MMS follow the same route?
If so substantial cost and complexity in terms of making service available.
May make “thin” routes unviable
=> International SMS widely available, but MMS international access stalled

6. MMS hubs work on a concatenated basis with a hub provider connecting to multiple operators
Hub Model
Bilateral Model
Potentially 100s of connections to be set-up, tested and managed
Single connection and contract with hub
Vodafone Operator
Non-Vodafone Operator
Hub provider

7. So what are incentives on Vodafone to use MMS hubs?
Bilateral Model
Hub Model
Advantages
Familiar from national interworking (and an acceptable solution for high volume national routes)
Disadvantages
Need to set-up, test and manage many connections
Highly resource intensive (MMS is inherently more complex than SMS)
Technically acceptable, but not cost effective for international routes
Slow to deploy
Advantages
Simplicity of single connection and contract
Quick to deploy
Low resource requirement
Isolated from variations in MMSCs and their configurations
Continues effective spam control
Disadvantages
Risks associated with the hub being a new system

8. International premium service interworking

9. Starting point: typical PRS voice market structure
Content Provider
Content Provider. Typically many in a national market.
Terminating operators linked to transit provider. Typically 30-50
TO1
TO2
TO3
TOx
Transit provided by fixed incumbent. Typically 1.
Transit provider
Originating Network Operators: Fixed incumbent, Cable Cos, MNOs. Typically 6-8 (main) ones.
ONO1
ONO2
ONOy  
Retail customers

10. In contrast: typical premium SMS market structure
Content Provider
Content Provider. Typically many in a national market.
Aggregators linked to all MNOs. Typically 5-10.
AGG1
AGG2
AGG3
AGGm
Mobile Network Operators. Typically 3-5.
MNO1
MNO2
MNOn      
Mobile Customers
NB: Ignores vertical integration and FNO entry which are also present.

11. Moving forward: content is delivered by differentiated operator brand, 3rd party brand and content gallery routes
Content Provider
Content Provider. Typically many in a national market.
3rd party portal
VF Live!
Content
gallery
Portals and galleries provide heterogeneous and overlapping routes to market for content providers.
Mobile Network Operators. Typically 3-5. VF
MNO2
MNOn      
Mobile Customers
NB: See also dominance of branded portals in the internet space

12. How is value chain tension (mainly) resolved in models?
Traditional premium rate voice
Motives of content providers vary
Rigid roles of ONO, transit and TO
ONOs driven by total end customer profitability (to which PRS is a minor contributor <5%) and high costs to acquire
End customer satisfaction (& so retention) vital to profitability
Transit provider reluctant seller – many would exit this business if they could
TO profitability driven by content provider business volumes
Some proportion TOs marginal
=> Tension endemic in model and must be resolved through economic regulation
Premium rate SMS / new content
Motives of content providers vary
Roles of players more fluid with opportunities to adopt different roles
ONOs still driven by total customer profitability and high costs to acquire
End customer satisfaction (& so retention) vital to profitability
Aggregators provide link between ONOs & content providers. Contract mechanisms (incentives and penalties) align values
ONO and 3rd party branded portals face parallel pressures to ONOs so also align
=> Tension resolved through market structure development and / or commercial contract

13. International PRS – voice based model
Content Provider
Content Providers active internationally: up to n x many (?)
Country A
Country B
Terminating operators linked to far end transit provider.
TO1
TOx
TO1
TOt
1 near end, 1 far end and 2-3 (?) international transit providers.
Transit provider1
Transit provider2
Transit provider3
Originating Network Operators: n x 6-8 (main) ones.
ONO1
ONOy
ONO1
ONOV 
Retail customers
=> Like national PRS, but worse!

14. International PRS – aggregator / hub based model
Country A
Country B
Content Provider
Content Providers active internationally: up to n x many (?)
Aggregators active internationally (as at present) but subject to national consumer protection / PRS regulation in each country where they offer services.
AGG1
AGGt
AGG1
AGGt
ONO1
ONOy
ONO1
ONOy
Originating Network Operators.  
Retail customers
=> Sustain national commercial & regulatory environment

15. Comparing these approaches
International PRS voice model
More participants in the value chain and very many more potential PRS call “routes” create much greater complexity
Consumer protection and fraud prevention issues greater than national PRS
Operators’ and regulators’ ability to deal with international fraud and customer protection will be challenged
Cost of regulation spread over industry and consumers
Model can only be brought into existence and sustained by regulation indifferent to conflict between players and of additional risk to customers
=> Extending national voice models will not provide a sustainable basis for international premium services
International aggregator model
Content can be created and distributed from anywhere within EU
But it must be sold subject to the national consumer protection / PRS / content regulation in country where services offered.
Cost of regulation and enforcement of international PRS service will be internalized in aggregator business models
No formal roles for players, but a more fluid entrepreneurial model with opportunities to adopt different roles
Aggregators provide link between ONOs & content providers. Contract mechanisms (incentives and penalties) align values
=> Tension resolved through commercial contracts and/or application of national consumer / PRS regulation

16. So, in summary
Rather than attempt to assemble a single interworking model we expect different (and overlapping) models will emerge.
In the near term the range of retail and wholesale commercial models will become more heterogeneous.
Success or otherwise of different approaches will be tested in the market and market- based solutions will emerge. This is an iterative process and it remains to be seen which models will prove most compelling for customers.
This may include the approach set out in the ECC paper or other approaches.
But regulated models should not pre-empt market decisions – as they may be inferior.
Commercial success will depend on a range of factors such as:
customer response;
ability to successfully monetize investments;
level of cost / complexity of service operation compared to functionality offered;
overall service environment.
Expect [economic] regulation to diminish as customer choice grows.