1. 1 mec1128 1 ACCC 2004 Regulation Conference 29-30 July, 2004 Competition in a IP World Martin Cave Warwick Business School martin.cave@wbs.ac.uk

2. 2 mec1128 2 The question: What is the scope for competition in a post- PSTN/first generation broadband world? The (UK) starting point: Dominant PSTN operator extending dominance into burgeoning broadband markets (subject to cable modem competition); little or no access competition; limited unbundling; rival networks principally serving business data needs.

3. 3 mec1128 3 Issues in voice What is the degree of fixed (mobile subscription)? Fixed and mobile found to be in different markets in Europe Transition to VoIP technologies in both will affect this. How does VoIP operate?

4. 4 mec1128 4 PSTN – traditional circuit-switched voice Customer Premises Equipment (CPE) Access Transit Core Access Transit Customer Premises Equipment (CPE) Digital Main Switching Unit DMSU Digital Local Exchange DLE Narrowband Circuit

5. 5 mec1128 5 PC-to-PC VoIP Access Transit Core Access Transit CPE Router Narrowband Internet DLE CPE Modem ISP Packets Broadband DSLAM DSL or cable modem

6. 6 mec1128 6 Phone-to-phone VoIP Access Transit Core Access Transit CPE Broadband CPE DSL or Cable Modem VSP ATA CircuitPackets PSTN Gateway PSTN Gateway Narrowband Internet VSP VoIP user PSTN user Router

7. 7 mec1128 7 VoIP in the PSTN Access Transit Core Access Transit Digital Local Exchange DLE Narrowband CPE CircuitPackets Incumbent-owned private IP network

8. 8 mec1128 8 VoIP in the corporate network Desks Voice Data Office LAN CircuitPackets Voice over LAN

9. 9 mec1128 9 Implications for competitive process Existing operators can migrate their customers to VoIP at will; they may not notice. Winning new customers to be achieved by selling broadband access and offering VoIP as an additional service

10. 1010 mec1128 10 Importance of promoting ADSL competition Sought via ‘ladder theory of investment’ First make intermediate wholesale broadband access – bitstream - available Then increase price of / withdraw WBA and lower price of (high frequency) unbundled loops Apply severe margin squeeze tests ex ante to prevent deterrent to further investment

11. 11 mec1128 11 The cost structure of PSTN and of IP There is evidence that Minimum efficient scale of IP network much smaller percentage of market than mes of PSTN as percentage of (declining) fixed voice market This creates scope for competition – in core networks

12. 1212 mec1128 12 However, the scope for competition is backhaul is limited, especially is less densely populated geographies this creates an argument for geographically differentiated markets – again directed at encouraging investment

13. 1313 mec1128 13 Access Competition No apparent silver bullet providing country-wide competition to incumbent’s copper wire Instead likely to be a patchwork quilt of (primarily) wireless technologies, UMTS, WiMax etc.