REGULATION CHALLENGES IN NGN ENVIRONMENT Prof. dr Natasa Gospic University Belgrade December 2009 ITU-D Regional Workshop, Cairo (Egypt)

OUTLINES REGULATORY OBJECTIVES REGULATORY CHALLENGES MACRO AND MICRO ASPECTS NGN CORE AND NGN ACCESS OPEN QUESTIONS ON NGN REGULATION ITU-D GUIDELINES ON NGN FOR DEVELOPING COUNTRIES CONCLUSIONS December, 2009Regional Workshop on NGN, Cairo

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) REGULATORS OBJECTIVES PROMOTE COMPETITION FOSTERING INVESTMENT Network modernization Roll-out Most of investment will be done by incumbents INNOVATION Infrastructure Services BALANCE between ex-ante regulation and ex-post remedies PUBLIC NEEDS Universal service Consumer protection SOCIO-ECONOMIC ASPECT Investment in NGNs should lead to major economic gains

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) REGULATORY CHALLENGES Macro and Micro Macro- policy and structural issues Legacy regulatory questions FROM VERTICAL TO HORIZONTAL; Regulatory lag and capacity; Affordability; Access regimes; Fostering competition and investment; Regulatory transparency Micro-implementation: Competition, licensing, spectrum assignment, numbering, interconnection, consumer protection, universal services and access, standards and interoperability

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) NGN AND REGULATIONS The emergence of Next Generation Networks (NGNs) raises profound challenges for regulators everywhere Different regulatory authorities have approached these problems in strikingly different ways depending: In part on the overall regulatory policy, In part on the nature of the NGN migration envisioned by major market players NGN core network raises significantly different issues from those of the NGN access network. In part on the nature of market power

The nature of market power As regards market power, very often it is claimed that the evolution of the traditional networks to NGN based networks will eliminate the need to consider market power; The reality is considerably more complex There are aspects of market power that are unlikely to change much for the foreseeable future and There are credible risks that new, troublesome forms of market power might emerge What about access networks? It is impossible to predict at this stage which of effects will predominate, but it is clearly premature to assume that market power will no longer be a concern It could decline over time; December 2009 ITU-D Regional Workshop, Cairo (Egypt)

The nature of the NGN migration envisioned by major market players NGN core network Operator interoperability is about open, standardized interfaces allowing one operator to access another operators NGN and/or its related functions which may result in additional standardization requirements. This issue is relevant between interconnected NGNs or between NGNs and interconnected legacy networks and may become critical in terms of competition at the various levels of the value chain where old bottlenecks may be fostered and new ones may be established. NRAs may have to ensure that interconnection is possible at specific functional levels in a reasonable manner December 2009 ITU-D Regional Workshop, Cairo (Egypt)

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) NGA (New Generation Access) REGULATION Many national regulators-NRA are at an early stage for this regulation NRA could consider NGA as economic bottleneck, which needs a regulation, NRA promotes investments From another side NGA operators need regulatory freedom to meet end user needs and ensure their investment Survey on a number of OECD countries (DSL networks in all these countries except the USA, are subject to ACCESS REGULATION) shows that the regulatory discussion centers on three regulatory models for high-speed networks: (1) Access holidays or deregulation, e.g., in the USA and Germany, (2) Access regulation, e.g., in the Netherlands, the Republic of Korea, Japan, Belgium, and (3) Structural separation, e.g., in the UK, Australia.

NGA REGULATORY MODELS (1) Temporary or permanent deregulation, the removal of sector-specific rules and regulations, PROS:Deregulation increases investment incentives as it overcomes the "truncating problem" and allows above-normal profits (GANS & KING, 2003). CONS: However, under limited competition or threat of entry into the upstream market - that is, in the absence of alternative infrastructures or in areas of low population density - an integrated incumbent may leverage its market power to competitive downstream segments (2) Regulated access-mandated access the obligation to grant access to bottleneck facilities at regulated price and quality reduces uncertainty and protects competition in the downstream market while the effects on investment depend on the allowed margin regulated access to cable ducts physical unbundling becomes increasingly difficult with the rollout of fiber- to-the-home (FTTH) deployments 15-1 December 2009 ITU-D Regional Workshop, Cairo (Egypt)

NGA REGULATORY MODELS (3) Structural separation separation supplements access regulation though the disintegration of the monopolist and the introduction of a "bright line of equivalence" that ensures equal treatment of access seekers The functional separation of BT's access division "openreach" creates transparency and decreases openreach's incentives to discriminate against competitors on the downstream retail market (F. Kirsh, Ch. Hischhausen, Regulation of NGN: Structural separation, Access regulation or No Regulation at all, 2008) December 2009 ITU-D Regional Workshop, Cairo (Egypt)

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) Regulatory approach to enable competition Depend on country regulatory policy General principles: light touch, targeted, proportional Introduction of mandatory reporting of QoS figures already started in some EU countries, must be improved to be meaningful for users Regulate for market abuse/ dominance, concentration Distinguish between core NGN (effectively competitive) and NG Access –NGA Define the types of investment that regulator may give regulatory holidays (e.g. high speed access) Dominance should not be exempted as a result of NGN investment Despite NGN has the potential to increase competition, certain conditions of significant market power may still resist or some new troublesome forms might emerge. Promote effective competition and not existing competitors

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) OPEN QUESTIONS Creation of new markets Market power and Network effects Implication for existing and future customer access Any-to-any connectivity Support for legacy wholesale products Interconnection Transport and service functional separation Charging model for multiple providers in E2E services Confrontation of two existing models (Internet model versus circuit-switched model) Service aware or service agnostic approach Pricing Will it be possible to separate connectivity and services (Operators aim for NGN to be no more then a complete re-building of PSTN on top of a new IP structure. Will NGN be more?) Business models may not be change Revision of international settlement system Standards Technical

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) Country studies into NGN issues New Zealand Commerce Commission Involving engagement with all stakeholders, into NGN issues for defined time period Scope of study: opportunities for innovative services to be delivered to end users; opportunities for achieving greater efficiencies and cost savings significant technical and operational design, and implementation, issues; uncertainty for business plans and business models, including sustainable models for competitive entry; uncertainty for investors; regulatory and competition issues. concern for continuity of service for end users Aims od Study: Provide a roadmap for industry and the market so that there is a common understanding of the issues Develop a robust analytical framework for assessing the impact of NGN on competition issues Provide a strategic assessment of the likely impact of technological change on market structure and competition; Give increased certainty to end users and stakeholders by providing guidance as to likely regulatory responses to market developments – for example, to identify likely triggers for regulatory forebearance or intervention; Explore any joint industry processes which could provide ongoing transparency on NGN issues;

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) Country studies into NGN issues Hungary: Project: Study on The Regulation of Next Generation Networks for the NHH General developments in the communications sector Technological basis of NGN Regulatory tasks and instruments Possible regulatory alternatives NGN issues from a Hungarian perspective

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) CONCLUSION Regulators will have an interesting time trying to manage what is likely to become standard/systems battle between various players NGN is a concept, not just a technology Regulators should recognized that there are fundamental differences in regulating NGNs and the traditional PSTN/ISDN. Development of HR Robust and open standards are essential to the long term success of NGN and its regulation NGN is a global initiative, coordinated by ITU and developing countries shell benefit being a part of this initiative and expressing their needs

15-16 December 2009 ITU-D Regional Workshop, Cairo (Egypt) THANK YOU FOR YOUR ATTENTION! Prof. dr Natasa Gospic University Belgrade Transport and Traffic Engineering Faculty Tel: