April 18, 2007

NGN UK Progresses

The public consultation OFCOM launched in 24/11/2004[1], after BT has announced its BT 21C NGN project[2][3], was a cornerstone in the discussion of the development of NGN in the UK and its regulatory developments.

This document was followed, in June 2005, by the “Next Generation Networks: Further Consultation”[4] which supported policy principles and processes for the development of NGN, with a view to ensuring that the deployment of BT’s NGN did not foreclose competition, either through disrupting competitive businesses or preventing equality of access in the future.

Already evident, at that stage, was the matter of the need for continuity of existing SMP products, which was considered questionable in cases where they would be replaced by future products. There was a strong debate as to how the existing WLR, CPS and IA remedies would be supported by BT’s NGN. An ‘MSAN voice access’ product was proposed which would allow an alternative provider to take over a BT line, as with the current WLR product, and control the origination of calls on that line via their own call server. If such a product were introduced, OFCOM admitted a separate CPS remedy, and possibly a separate IA remedy, may no longer be necessary. A potential benefit of this approach would be, also according to the regulator, that it could greatly increase the potential for service providers to differentiate their retail services.

As for the crucial matter of future models of local interconnection, these would very much rely on the distance dependence of NGN-based backhaul interconnection charges (their ‘distance gradient’). The refined technical report commissioned by OFCOM to .econ, “Distance Gradients – assessing the impact of NGNs on interconnection tariffs’ distance gradients”[5], dated March 2006, provides a reasoned insight into possible solutions:

(a)There is no “death of distance”. NGN allows traffic to flow more cheaply across distance, but it does not mean that costs become independent of distance. Thus, “a flat-rate charging model is inappropriate for regulated interconnection, as it would not reflect costs and would eliminate incentives for efficient bypass of the incumbent”;

(b)”Potentially, if the trend to more similar unit costs across the network were sufficiently pronounced, charging by distance rather than by level of network hierarchy might become a better proxy for the network costs of conveying traffic”;

(c)”There are no strong reasons to expect the potential for competition at the core to be affected by the move to NGN, as entrants in this segment can aggregate traffic significantly and achieve the minimum efficient scale”;

(d) “Other factors equal, the move to NGN may reduce incentives for infrastructure competition at the periphery, as incumbent’s costs in this segment are likely to fall significantly due to increased aggregation of traffic. However, where alternative networks can aggregate traffic in a similar way to the incumbent and have access to similar technologies, the differences in unit costs between entrants and incumbent should narrow. Therefore, infrastructure-based competition, where feasible, is likely to involve competition for the entire bundle of services offered to customers, rather than for individual services”.

In September 2005, BT committed (in addition to concluding, by September 2006, the delivery of “equivalence of inputs” in relation to Ethernet-based backhaul products - expected to be used by BT and other operators for their NGN) to:
(a) provide unbundled network access;
(b) to do so on an ‘equivalence of Inputs’ basis and
(c) not to make, without consultation, design decisions which would foreclose specific product options.

In that context, OFCOM addressed (policy statement of 07/03/06)[6], namely, the:

(a) promotion of NGN based competition [whilst maintaining a proper balance between regulatory certainty (including, namely, in cost of capital evaluation[7]), effectiveness of regulatory action and incentives for investment] while, in that precise framework, dealing with difficult questions associated with interconnection and the structure of markets;

(b) identification of a whole new set of related consumer issues (e.g. maintaining quality of service, ensuring continued efficacy of the number portability processes[8], providing accurate information about the migration process and safeguarding consumers from disruption trough the migration process, promoting transparency – insofar as the bundling of diverse services corresponds to the standard offer, comparing products may tend to become harder and that may, in turn, lead to higher transaction costs, info-inclusion – in particular when considering the investment needed to make available broadband in less attractive areas).

In relation to consumer issues, OFCOM’s approach seems to translate primarily in adopting a co-regulatory approach, in the expectation that the industry has a common interest in addressing them. Even when intervening, OFCOM would specify the overall objective and provide industry with the flexibility to determine how best to fulfill it.

One of the proposals of the referred policy statement of 07/03/06 was the development of Next Generation Networks UK (‘NGNuk’)[9] as an independent NGN industry body, with a view to improving industry engagement.

NGNuk's mission, which was launched in April 2006, is “to act as a co-ordination forum in which key investors in NGN infrastructure and services will discuss, research, consider and, where possible, agree the direction for NGNs in the UK and communicate such direction to other players in the telecommunications industry and the general public”.

NGNuk aims to create a set of guiding principles, a vision (this vision being that, “by January 2008, the UK industry will have an agreed NGN interconnect model that allows the predictable & seamless transport of a technically unrestricted range of services across multiple NGNs using a commercial framework that drives service & application innovation and efficient investment”) and an implementation framework for an interconnected NGN future for the UK, including “interconnection between PSTN replacement NGNs, IP-based mobile networks, VOIP operators, and other relevant future developments in communications networks and services”. One of NGNuk goals is also to work with international groups to ensure the UK is not isolated in any solutions that NGNuk adopts.

According to NGNuk’s Chairman’s latest report (dated 11/04/2007), the commercial work streams have continued to make steady progress and an NGNuk discussion paper was submitted to BT Wholesale giving the thoughts of members towards the number and location of future IP interconnects and making some alternative suggestions. The same report also notes that the charging work is continuing to progress and, hence, NGNuk views of how the various charge models (such as CPP, RPP and B&K) might be applied to End to End services could be published soon. Finally, a significant number of interconnect requirements are already undergoing consultation.

The ultimate success of OFCOM’s challenge may rest, however, on the success of:

(a) the co-regulatory approach conducted via NGNuk, whose results seems to be very productive up to the stage of requirements definition (running just a few months behind schedule). Notwithstanding, the more difficult to solve issues, related with framework development and implementation and transition lie ahead;

(b) Openreach - a new part of BT created to install and maintain phone and internet connections to Britain’s homes and businesses on behalf of most telephone and internet service providers, ensuring to all providers fair and equal access to local access and backhaul networks – where “non trivial” breaches of the roadmap and conditions agreed with BT have been noticed.

In conclusion, the UK has already come a long way in what regards the implementation of NGN and the necessary evolution of the applicable regulatory framework, thus offering valuable lessons, notwithstanding relevant national differences, related namely with the technological options incurred by the historic operators to deploy NGN, the types of network already in place and their relative obsolescence, the density and distribution of population and the structure of housing (which impacts upon in-house wiring costs).

Some questions may also incite additional thinking at the light of particular national circumstances in each Member-State:

(a) Is the implementation of vertical separation in parallel with the deployment of NGN more likely to facilitate or to hinder the latter?

(b) What is the appropriate pricing regime for NGAN?

(c) What levels of quality of service should be associated to the provision of access to NGN?

(d) To what extent should bundles of (a) NGN supported services and (b) between NGN supported services and “traditional services” be subject to regulation and under which precise circumstances?

(e) What safeguards/information should be guaranteed to wholesale customers and end users in order to minimize disruptions during the migration period?
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