1. ===!"§ Deutsche Telekom The Technology Neutrality Concept Used to Perpetuate Regulation into NGN ITU NGN-Workshop Geneva, 23-24 March 2006 Hasan Alkas Deutsche Telekom AG

2. Page 1 ===!"§ Deutsche Telekom Agenda Brief Notes on Deutsche Telekom Industry and Technology Dynamics NGN Migration Perspectives Approaches to NGN-Interconnection The Technology Neutrality Concept Legacy versus New Infrastructure Incentives for Infrastructure Investment Potential Regulatory Issues of NGN

3. Page 2 ===!"§ Deutsche Telekom An integrated company Top positions in important markets Broadband/Fixed Network, Business Customers and Mobile Communications: these are the three essential growth areas of the international telecommunications markets. As an integrated TC company, Deutsche Telekom focuses on these three strategic business areas, thus enhancing its previous four-pillar strategy. These three business areas will be maintained by five business units in the future: T-Com, T-Online, T-Systems Business Services, T-Systems Enterprise Services and T- Mobile

4. Page 3 ===!"§ Deutsche Telekom Realignment to three business areas The future course is set T - Com T - Online T - Systems Business Services T - Systems Enterprise Services T - Mobile Broadband/ Fixed Network Business Customers Deutsche Telekom ==========!"§ Mobile Communications

5. Page 4 ===!"§ Deutsche Telekom Massive growth of data traffic New service opportunities Flat growth of voice traffic New competitive environment Maturity of IP technology New network architecture DriverOutcome Industry and Technology Dynamics Beside regulatory and industrial policy conditions market and technological drivers influences the industry structure and speed towards NGN Architectural change from a circuit-switched, network optimized for voice to a packet-switched network for various traffic types (voice, data, video and multimedia) over broadband access Central Functions Transport Control Services Transport Control Services Transport Control Services Central Functions Application Plane Control Plane Transport Plane Open standards and architectures Access competition New flexibility and operations BroadbandNarrowband Network transformation Changing regulatory environment Industrial Policy setting New access possibilities interdependent layers

6. Page 5 ===!"§ Deutsche Telekom NGN Migration Perspectives Based on different starting points a variety of approaches (overlay or replacement) are attractive, here the overlay is explained in detail Packet Switched Domain IP Circuit Switched Network IMS VASVAS Local Exchanges Other PSTN / PLMN Router Broadband Access Server Digital Transport Transit Exchanges Approach I. Overlay Consumer From operation and maintenance point of view no need to phase out circuit switched network From Total-Cost-of-ownership point of view no need to phase out circuit switched network due to already optimized investments and optimisation efforts from the past Implementation of a market driven NGN overlay network for the generation of first new voice/data integrated services Approach II. Overlay Business A national or international overlay NGN can be deployed to serve large enterprises and multi national businesses with IP based voice services Approach III. Digitization Cases where network is not totally digitalized yet Competitive environment in voice and data area requiring to launch new innovative products Migrate the remaining part of the analogue voice network directly to an NGN structure rather than to continue investing in circuit-switched technology Existing Traditional Network VoIP Overlay Network Overlay Approach Different Approaches IP Phone

7. Page 6 ===!"§ Deutsche Telekom Approaches for NGN Interconnection Several fundamental approaches for NGN Interconnection have to be considered NGN -Interconnection Networks Service aware= differentiated Network Service unaware = pure Transport Network Best effort only Functional Internet quality questionable QoS connected to NGN Relevance for network efficiency Cost orientated price differentiation NGN-Interconnection will be based on standards voluntarily agreed. Services will be highly competitive, which will put pressure on infrastructure providers itself to interconnect voluntarily. The migration from PSTN towards IP-Networks may bring new charging models based on different business models. Potential issues

8. Page 7 ===!"§ Deutsche Telekom Technology Neutrality Concept As an result of convergence the technology neutrality concept is in general appropriate. However, the concept is mainly inequitably used to leverage regulation from traditional telecommunications markets into newly emerging markets such as, to Mobile or VDSL in mass market The technology neutrality concept needs to be redefined for more deregulation, in order to provide incentives for infrastructure investments at market definition level at remedies level. The technology neutrality concept must ensure adequate and fair safeguards for investments and focus on infrastructure based competition. The danger of using technology neutrality to perpetuate regulation into new segments

9. Page 8 ===!"§ Deutsche Telekom Legacy versus New Infrastructure The history of infrastructure matters The evolution of network development must play an essential role, when it comes to regulatory assessments. Legacy networks, developed in a monopolistic environment need certain different treatment However, with growing diversity of access forms it is questionable whether the local loop is still a fixed access bottleneck? Technologies enabling multi-access to the end-user increase competition intensity by offering by-pass possibilities and thereby reduces market entry barriers. Networks evolved in a completely competitive environment opens same opportunities to all market players in similar manner and therefore does not need to be regulated.

10. Page 9 ===!"§ Deutsche Telekom Incentives for New Infrastructure Investment The main incentive to foster NGN-investment is to avoid regulation, as it is a nascent market (characterised by innovation, rapid market growth, volatile market shares) The substitution-criteria seems to be key to differentiate between NGN-based services and current services In addition, the difference between new and old infrastructure is essential In theory, three regulatory instruments, which provides incentives for own Infrastructure investments, are possible Access Holidays Provides the right signal to make risky investments, especially if it is combined with the anticipation, that after the holiday there will be effective competition and no need for ex ante regulation any more… Sunset Clauses Provides the competitor the right signal not to rely on regulation for ever... Real Options Integrate real options into cost calculation (as risk adjustment factor) for access prices, to provide the right signal for make-or-buy decisions… There is a need for a favourable regulatory environment for investment and innovation in NGN

11. Page 10 ===!"§ Deutsche Telekom Potential Regulatory Issues on NGN Status Quo in Germany IP-Interconnection is currently not regulated, nor it is part of the 18 rel. markets of EU-COM, but VoIP regulation is likely to appear soon, as it is already classified as PSTN voice, The BNetzA is already discussing with telcos possible regimes of future IP- interconnection. Future asymmetrical regulation It is a common misconception that one of the main features of NGN would be that service related functions become completely independent from transport. A divested approach appears not to be reasonable since many services will have a complementary character. NGN might require special treatment of specific services (such as Voice, TV). Thus services are unlikely to be completely independent from transport. The implementation of service classes as a means of differentiation seems to be appropriate. QoS seems to be the key parameter. Whether network operators choose transit, peering, or a form of Requesting Network Pays should be the outcome of the market and not of regulation. Future symmetrical regulation Symmetric regulation will remain in force and apply (in the long run) to all network and/or service providers regardless of their market power, i.e. emergency calls, intercept, data retention, consumer protection etc.