Regulation for “Civilians”

Albert Einstein used to say that you do not really understand something until you are able to fully explain it to your grandmother. I think that he was exaggerating and that, perhaps, some of you, fellow regulators, may have dealt, at any given point in time, with a certain difficulty trying to explain to your grandmother, friends or children what is it that you actually do and what is the impact of your work on society.

If so, “Regulação e Concorrência” (Regulation and Competition), a short book authored by João Confraria (Professor of Economics and former Member of the Board of ICP-ANACOM) is an ideal introduction to the subject of economic regulation, highlighting the pervasive character of regulation in modern life.

It is a didactic, often entertaining, systematic briefing into the: (a) definition of regulation; (b) interpretation of the nature of market functioning and of the different theories that explain economic regulation; (c) role of the State in the Economy; (d) development of NRA in the EU; (e) periodic cost-benefit assessment of the regulatory activity and (f) present trends and challenges of the regulatory activity.

Most unfortunately, this book, published by Universidade Católica Editora, is not yet translated (if you have some interest in getting it translated please comment at the end of this article).

Another interesting book, readable by non-engineers, who actually want to become familiarised with the buzzword of the XXI Century (VoiP) is “Voice Over IP – Crash Course”, by Steven Shepard, published by McGraw-Hill, which shows the driving forces behind the emergence of VoIP, explains its impact and, mostly, details how it is supported and how it works from the technological and engineering viewpoint.

Across the Atlantic

Broadband

OECD’s announcement that the USA has fallen in the international ranking of broadband penetration (see post of 24/04/07) had an immediate response at the FCC. Commissioner Prof. Copps (see FCC’s press release of 23/04/07) stated that this is a “national embarrassment” adding that “these rankings aren’t a beauty contest – they’re about our competitiveness as a country and creating economic opportunity for all our people” and reiterated a call for a National Broadband Strategy.

Also in relation with broadband, the FCC announced on 16/04/07, two measures related with the assessment of broadband penetration:

(a) A Notice of Inquiry to find out if broadband services are being deployed to all citizens in a “reasonable and timely fashion”;

(b) A Notice of Proposed Rulemaking which attempts to structure and rationalize the collection of data that the FCC needs to set broadband policy.

DTV

The FCC started on 25/04/07 its third periodic review of the broadcast system conversion from analog to DTV with a Notice of Proposed Rulemaking including a set of actions to facilitate this transition (e.g. restricting the grant of future extensions of time to construct digital facilities, offering expedited processing to stations applying for a construction permit for channels based on DTV, examine circumstances in which stations may reduce or terminate analog service, etc).

A Report and Order and a Further Notice of Proposed Rulemaking, published by the FCC also on 25/04/07, is seeking more public discussion on the use of “700 MHz Band”, which is occupied by television broadcasters during the DTV transition, but when released may facilitate the provision of innovative services and of wireless broadband services for the public safety community, especially since establishing communications between emergency workers has been a clearly identified problem during 9/11 and Hurricane Katrina.

At the same date the USA regulator:

(a) Adopted an order requiring retailers to fully inform consumers when TV equipment being sold has only an analog tuner;

(b) Asked for comment on proposals to ensure all cable subscribers, including those with analog TV sets, are able to view must-carry television conditions on cable systems after the transition to DTV.

IRG/ERG People: Augusto Fragoso

Augusto is known mainly as chairman of the IRGIS WG, head of the IRGnet Support Team, co-chairman of the IRG Visibility PT and participant in the IRG Informal IT Security WG. But his techno orientation and professional posture stop at the end of the day transforming him into a Argentinean Tango character - a worldwide known tanguero.

President of the most relevant Tango Association in Portugal - LUSITANGO - he organizes one of the most important International Tango Festivals in Europe - this year FTL2007 Festival Internacional de Tango de Lisboa - 23 to 27 May 2007.

You can dare and participate in this incredible event that gathers more than one thousant people from all over the world or just have a look into Lusitango's web site at www.lusitango.com or the Festival's web site at www.lusitango.com/ftl.

OECD UPDATE

The OECD has recently unclassified and published a set of documents with interest from the regulatory viewpoint.

Universal Service

The document “Fixed-Mobile Convergence: Market Developments and Policy Issues”[1] (dated 23/03/07) points out the evolution towards FMC, based on the adoption of NGN and on sound economical foundations (e.g. generating new revenues; reducing churn and adding value through bundling; lowering maintenance costs and reconsidering business strategy - namely, from the perspective of fixed operators, to defend against mobile substitution or, from the perspective of mobile operators, to persuade users of a fixed line to “cut the cord”).

Among the regulatory and policy issues raised in the document (such as the need to rethink the concept of technological neutrality, to modify numbering policies and to reassess portability of geographic numbers from fixed to mobile networks), due importance should be conceded to the OECD statement that “the development of FMC may also require that mobile operators participate in universal service obligations by paying into universal service funds but also benefiting from these funds as USO providers”.

Naturally, this recent OECD position must be seen also considering the more controversial document, published in 18/04/06, “Rethinking Universal Service For a Next Generation Network Environment”[2], where relevant issues, are thoroughly discussed, such as the:

(a) sustainability of US during the transition towards NGN;

(b) services to be included in the US in a NGN scenario – where a complex relation between equity, efficiency and cost effectiveness must be achieved in order to minimize the risk of a Digital Divide (the document seems to favour “targeted programmes” such as “low user schemes” in the UK or the plan for retied people and pensioners in Portugal);

(c) quality of service levels associated with VoIP, including reliable access to emergency services, jitter, virus attacks, security, etc;

(d) merits of the funding arrangements, at the light of the principles of economic efficiency, equity, competitive neutrality, technology neutrality, certainty, transparency and cost effectiveness.

The combined re-reading of these documents ought not to be disregarded as a “warm up” exercise for the forthcoming Universal Service Green Book.

Broadband

The OECD released yesterday its broadband statistics to December 2006[3]. Some of the main findings:

(a) “Over the past year, the number of broadband subscribers in the OECD increased 26% from 157 million in December 2005 to 197 million in December 2006. This growth increased broadband penetration rates in the OECD from 13.5 in December 2005 to 16.9 subscriptions per 100 inhabitants one year later”;

(b) European countries have continued their advance with high broadband penetration rates - In Portugal the penetration has grown 20% in 2006. In December 2006, eight countries (Denmark, the Netherlands, Iceland, Korea, Switzerland, Finland, Norway and Sweden) led the OECD in broadband penetration, each with at least 26 subscribers per 100 inhabitants - Denmark and the Netherlands are the first two countries in the OECD to surpass 30 subscribers per 100 inhabitants;

(c) Fibre-to-the-home (FTTH) and Fibre-to-the-building (FTTB) subscriptions now comprise nearly 7% of all broadband connections in the OECD and the percentage is growing. Korea and Japan each have more than 6 fibre-based broadband subscribers per 100 inhabitants;

(d) DSL continues to be the leading platform in 28 OECD countries. Cable modem subscribers outnumber DSL in Canada and the United States;

(e) The breakdown of broadband technologies in December 2006 is as follows: DSL: 62%;Cable modem: 29%; FTTH/FTTB : 7%; Other (e.g. satellite, fixed wireless, powerline communication): 2%

Another document, “Internet Traffic Prioritisation: An Overview” [4] dated 06/04/07, attempts to provide background for national debates regarding policy and regulatory issues related with traffic prioritisation. According to the OECD, these debates should not focus on whether packet structuring for QoS should be allowed but rather “on how consumers should be safeguarded from anti-competitive behaviour, whether consumers maintain their ability to choose the services they want and how much control the end user may have over determining which packets receive better transmission”. The extent to which anti-competitive behaviour applicable to internet traffic prioritisation is a real threat is, nevertheless arguable – the document recognizes some would state that this sort of analysis is a solution in search of a problem.

Critical Infrastructure Protection

The document “The Development of Policies for the Protection of Critical Information Infrastructures”[5], dated 06/02/07, seeks to offer an analysis of the Critical Information Infrastructure policies in the UK, USA, Canada and Korea, focusing on the main drivers and challenges, risk assessment methodologies, models for public-private information sharing and cross-border collaboration.

One of the most interesting conclusions is that commonalities on risk management between these countries (that share effectively information at national and international level) include an effective national risk management: (a) similar strategy “with a set of policies and objectives reaching from the highest levels of government to individual owners and operators of critical information infrastructure”; (b) framework, with “the detailed organisation, tools and monitoring mechanisms required to implement the policy at every level”.

China

For those interested in looking beyond Europe (see yesterday’s post), the paper “Is China The New Centre For Offshoring of IT and ICT-Enabled Services?)[6], dated 29/03/07, suggests that China has the adequate economic conditions to grow in terms of receiving offshoring IT and ICT-enabled services, including highly skilled labour supply, ICT infrastructure and ability to deal with transnational firms. On the other hand, “it has not yet developed the specialised firms and human resources, including foreign language resources, or the stock of inward services investment to supply these services globally”.

[1] http://www.oecd.org/dataoecd/20/26/38309911.pdf

[2] http://www.oecd.org/dataoecd/59/48/36503873.pdf

[3]http://www.oecd.org/document/7/0,2340,en_2649_34225_38446855_1_1_1_1,00.html

[4] http://www.oecd.org/dataoecd/43/63/38405781.pdf

[5]http://www.olis.oecd.org/olis/2006doc.nsf/43bb6130e5e86e5fc12569fa005d004c/44ab233025bbcdbbc125727a005913b2/$FILE/JT03221273.PDF

[6] http://www.oecd.org/dataoecd/6/59/38327582.pdf

Meeting With a People's Republic of China Delegation

Today I had the pleasure to receive, together with Mr. Garcia Pereira (Director of Market Regulation), Mr. Mário de Freitas (Director of Special Projects) and Mr. Mário Florentino (Head of Mobile regulation) a Delegation from the People’s Republic of China, integrated by Mr. Shu Jianjun (Director of the Department of Planning – China Mobile), Mr. Wang Xicheng (Deputy General Manager of China Mobile),Mr. Du Guangda (Department of Planning of the Ministry of Information Industry), Ms Liu Shuping (Deputy Director General of the Ministry of Information Industry), Mr. Liu Yi (Department of Fixed Assets Investment of the National Development and Reform Commission), Ms Liu Li (Department of Development Planning of the National Development and Reform Commission), Ms. Chen Suang (Director of the Hi-tech Industries Development Division of the Beijing Municipal Commission of Development & Reform), Mr. Li Bo (Deputy General Manager of Ericsson China) and Mr. Xing Laijun (Senior Sales Manager of Ericsson China) and Mr. Miguel Filipe (Ericsson Marketing & Business Development).

The Chinese Delegation was particularly interested in the regulatory framework of Universal Service (US) provision in Portugal (including US scope, net cost assessment and financing of net costs), in the development of the mobile wholesale and retail markets in Portugal and in Europe, in the competitive panorama in Portugal, in the authorisation and licensing regimes and in the conditions governing access to submarine cable landing stations. The deployment of NGN in China, which is occurring at a fast pace, was also briefly discussed.

IRG/ERG Team Photo

My application to the IRG/ERG Chair’s Secretariat was also a time for us, at ICP-ANACOM, to rethink the whole participation in the IRG/ERG in terms of confirming priorities, reinforcing commitment, widening availability and reanalyzing inputs and results.

I am really grateful for all the suggestions and contributions received from my ICP-ANACOM’s colleagues concerning the rationalization and efficacy of the Secretariat and also in relation to the words of incentive from fellow regulators in Europe and beyond.

From left to right our “IRG/ERG” Team: Carlos Costa (Co-chair of the End Users WG), José Barros (Director of European Affairs – CN), Prof. José Amado da Silva (Chairman of ICP-ANACOM), Ana Tojal (attaché of the candidate and former TF 99 Review participant), Luis Garcia Pereira (Director of Market Regulation), Manuel Costa Cabral (EU WG), Carla Amoroso (Mobile Market WG), Paulo Goulart (NGN TF), Teresa Lima (EU WG), Hugo Brito (Convergence PT), Paulo Fontes (Mobile Access WG; Legal Issues WG), Luis Manica (FN WG), Teresa Melo (Regulatory Accounting WG), Patricia Teodoro (SMP WG) and José Godinho (Fixed Termination Rate PT).

Reported as “Missing in Action”: Augusto Fragoso (Chair of the IRGIS WG, Co-chair of IRG Visibility PT, Head of IRGnet Support Team, IT Security WG), Mário Florentino (Mobile Termination Project Team, Competition in Oligopolies PT), Eduarda Gonçalves (VoIP High-Level TF) and Fátima Tobias (CN).

Behind this team there is, off course, an immense “invisible” work developed by many other people that contribute to IRG/ERG output production but usually do not attend meetings.

To all, many thanks !!!

AGCOM’s NGN WORKSHOP

Torino, where Italy’s past (embodied in the magnificence of its superb palaces) meets its promising future (anticipated in the aerospatiale and automobile industries), was undoubtedly an appropriate place to discuss the transition from traditional networks to NGN.

The speakers certainly contributed to form a better understanding of the technological, economic, competition and regulatory context associated with the rollout of NGN, in particular concerning the country case studies of the Netherlands, the UK and Italy.

As tentative conclusions of the workshop, one could highlight the following:

(a) migration towards NGN is an evolution, not a revolution - change will happen gradually and require large investments;

(b) NGN will result in high operational cost savings, which distribution has to be carefully considered;

(c) there is no actual evidence that supports the case for “regulatory holidays”, but there is a real need to ensure transparency and predictability of regulatory decisions;

(d) establishing adequate standardisation and interconnection principles and models is paramount;

(e) “horizontal” barriers (mainly related with access to ducts and related infrastructure), “vertical” barriers (essentially associated with in-building wire costs) and the cost of equipment, may result in considerable obstacles to the investment of alternative operators;

(f) information about the precise rollout plans and business cases of the operators is scarce, which tends to aggravate the classical information asymmetry problem between regulator and regulated entities;

(g) bundles of services may probably become a standard offer in a NGN scenario;

(h) new NGN supported services require ICT skills from customers, which, in conjunction with the elevated costs of broadband deployment in rural areas, recommends special attention should be given to the “Digital Divide”;

(i) there is not a “one size fits all solution” for Europe – significant differences in terms of obsolescence of the “traditional” networks, length of the local loop and of the sub local loop, distribution of the population, economies of scale and scope, access to ducts conditions, etc – advise that particular attention should be given to specific national conditions, naturally in the framework of a globally European coherent regulatory approach.

Getting To Yes

This book (written by Roger Fisher, William Ury and Bruce Patton; published by Random House Business Books) begins with a question: what is the best way for people to deal with their differences? According to the authors, the negotiation game integrates two levels: (a) substance and (b) the procedure for dealing with substance.

To address both these levels, the method of principled negotiation (or negotiation on the merits) is proposed, which focuses in four points:

(a) People – separate the people from the problem;
(b) Interests – focus on interests, not positions;
(c) Options – Generate a variety of possibilities before deciding what to do;
(d) Criteria – Insist that the result be based on some objective standard.

Expectably, the principled negotiation method of focusing on basic interests, mutually satisfying options and fair standards, typically results in a wise agreement and in an efficient decision.

The authors also make clear that the good negotiator should consider people as individuals with emotions, deep systemic values, widely different backgrounds and personal values and that “failing to deal with others sensitively as human beings prone to human reactions can be disastrous for a negotiation” and may endanger the interests of an ongoing relationship.

An interesting conclusion is drawn regarding perception: ultimately “conflict lies not in objective reality, but in peoples’ heads. Truth is simply one more argument – perhaps a good one, perhaps not – for dealing with the difference. The difference itself exists because it exists in their thinking”. Hence, it is important to put yourself in the other side shoes.

To sum up, this very interesting reading proposes a win-win approach to negotiation that avoids a choice “between the satisfactions of getting what you deserve and of being decent”, when you can have both.

Critical Infrastructure Protection

Yesterday’s meeting with the Vice-President of the Committee for Emergency Communications (former IRG participant, Henrique Gomes) resulted in a very straight forward discussion about the status of communications in case of emergency situations in Portugal and in Europe. The evolution of “traditional” networks to NGN was also discussed and, in particular, the eventual necessity to rethink the concrete reality of critical network infrastructure.

In this context the implications arising from the Communication from the Commission on a European Programme for Critical Infrastructure Protection [COM (2006) 786 final][1] – which followed the Green Paper[2], from the related Proposal for a Directive of the Council on the identification and designation of European Critical Infrastructure and the assessment of the need to improve their protection[3] and from the European Programme for Critical Infrastructure Protection[4][5] were thoroughly discussed, emerging a long path that Europe still has to follow in order to achieve the main objectives set out in those documents.

[1] http://ec.europa.eu/justice_home/doc_centre/terrorism/protection/docs/com_2006_786_en.pdf

[2] http://eur-lex.europa.eu/LexUriServ/site/en/com/2005/com2005_0576en01.pdf

[3] http://eur-lex.europa.eu/LexUriServ/site/en/com/2006/com2006_0787en01.pdf

[4] http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/06/477&format=HTML&aged=1&language=EN&guiLanguage=en

[5] http://www.etno.be/Portals/34/ETNO%20Documents/Information%20Society%20i2010/CP079%20-%20FRD%20Robustness-ARECI.pdf

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?

[1] http://www.ofcom.org.uk/consult/condocs/ngn/

[2] http://www.openreach.co.uk/orpg/networkinfo/developnetwork/downloads/cn21_13_10_6.pdf

[3] http://www.btglobalservices.com/business/global/en/docs/other/network_systems_21st_century_2301.pdf

[4] http://www.ofcom.org.uk/accessibility/rtfs/consultations/archive05/708.rtf

[5] http://www.ofcom.org.uk/consult/condocs/nxgnfc/statement/gradients/gradients.pdf

[6] http://www.ofcom.org.uk/consult/condocs/nxgnfc/statement/

[7] http://www.ofcom.org.uk/consult/condocs/cost_capital2/

[8] http://www.ofcom.org.uk/consult/condocs/gc18/summary/

[9] http://www.ngnuk.org.uk/