NGN Interconnection: far from an agreement

There is no agreement or even a consensus on how NGN interconnection in UK will look like. The current debate is so far from reality that many operators (someone says also BT) do not know even what the problems are. Part of the challenges arises from a general lack of experience in interconnection of a so large and extended set of products and services.

Consultants, regulators and academics have different and divergent views on how to set interconnect rates for NGN. Views essentially spread from bill&keep innovative models to old-fashioned per minute or per service charging.

A possible solution might be to charge per 'contended capacity' and per 'quality of service'. However, even here there is no agreement whether voice needs more or less priority.

Some observers argue that voice do not need more quality as it can be accepted and priced at low quality (see Skype). Therefore regulated voice services will be almost free of charge and priced according to capacity. Others instead argue that voice needs a high prioritisation and should cost more than other services. What is clear from the above discussion is that there is still lot to say and argue about this topic in the future.

Interconnection of NGN can remain billed per minute for quite some time during the transitional phase, even if minutes are not a cost driver for NGN. However, prices probably should be adapted to the costs of an efficient operator (e.g. overcapacity should be reduced) in order to avoid irrelevant costs.

Simplicity and continuity in pricing models (for retail customers at least) are and should remain a must in the near future in order to reduce cases of anti-competitive behaviors and the effect of bottlenecks. Operators should look for a solution that combine the need for stable rates and the request of innovation and profitability from shareholders. Two kings for the same throne!

Openreach & Co: the network separtion

BT Openreach has solved many of the old-time competition problems and promoted the deepest level of infrastructure competition possible. In Sweden and Italy, both Telia Sonera and Telecom Italia have started the process of creating clones of Openreach in an attempt to satisfy upcoming regulatory pressures and EU attempt to increase NRAs powers with functional separation.

However, the approach of the two clones is different. While in Sweden PTS has announced lighter regulatory pressures on Telia-Sonera in case of voluntary network separation, in Italy AGCOM is struggling to convince Telecom Italia that network separation does not mean a complete relief from all obligations in all markets. Telecom Italia proposed to have all retail caps levied.

Network separation can be the solution for some competition problem, but it is not a panacea or a one-size fits all incumbent strategy. It a tool that should be adapted to the environment it wishes to regulate. In some cases, I believe that a sound cost separation system can give similar results to a fraction of the costs and time of a separation.

Moreover, we should not underestimate the cultural factor. Something that worked in UK and Sweden, can be very dangerous in other organizations and cultures. Process and procedures should be therefore carefully adapted and alternatives evaluated before taking any decision. A network separation is a radical change that can take years to recover in case of very complex or old-fashioned organizations structures, therefore, distortion effects on competition can be unpredictable.

Skype Regulatory and Business Concerns

Skype has been down for quite some time on an algorithm problem in the last days. What are the business and regulatory concerns?

A traditional telephony network have a back-up system that works in case of major problems, such as peak season, break down or catastrophe. It can, for example, re-route the traffic to another region if the network is down and there is normally enough capacity to handle the traffic even in peak situations.

I can agree that the Skype P2P service shouldn't have a 99.99% reliability, it's free, but I believe that Skype-in and Sype-out have to provide a minimum quality of service otherwise it should be replaced by competitors.

I am personally against the current political trend that give the opportunity to 'innovators' to have a completely free regulatory regime to the damage of consumers and competitors. We should think also at consumer's interests and not only on innovation per-se. For example, it is technical possible and not so expensive for Skype to provide a CLI for its clients (as required by ITU), however, it does not want to do so claiming a too high burden for them.

Skype is also another monopolist. Just think at the level of lock-in situations with Skype. If you buy a Skype phone (e.g. SMC) you cannot run another client on it or have a multiple VOIP provider (for example, on top of Skype Google Talk).

Security is another big concern. On one side Skype does not provide lawful interception, but on the other side there are rumors that the US 'Homeland Security' is controlling the traffic and has an hand on Skype's Algorithm. Can you immagine the 'Homeland Security' not able to listen to Skype's or other VOIP calls? Food for thought...

Vodafone ultra low handset strategy: let's see

VODAFONE Group offer of ultra-low 2G handsets is a move to follow further developments in the mobile market. Vodafone UK latest information on subscribers net addition shows that almost 500,000 new customers, out of 700,000, were pre-paid, however, with very low ARPU. With this move Vodafone is clearly targeting low budget segments and people that are not confident with high-tech technological and complex phones. In Switzerland a similar move of Swisscom Mobile two years ago has been not as successfully as expected. No frills and virtual operators are offering old models of Nokia mobile phones at less than €10 with €10 pre-paid credit. Swisscom mobile handsets were too expensive (€120) and able to offer only basic functions, such as, voice and SMS.

However, the GSM association forecasts that this segment could be a incredible opportunity for acquiring new customers. It has been demonstrated that voice become a commodity for many customer segments in Europe, however, low wage customers have higher then the average price elasticity for making calls as they still think that the benefit of 'mobility' is higher that its relative cost. Let's see the Q1 2008 for a critical analysis of this move.

ITC: Future Perspectives in Regulation and Strategy

There is a potential threat from new bottlenecks in the case of access to user and content. In the case of access to user, some forms of access to networks (e.g. Access Directive 2002/19/EC) may need to continue to be regulated in the future to guarantee competition. Regulation in this case can be effective when it helps to avoid the formation of anti-competitive behaviors, such as for example the customer lock-in effect where customers are dependent from a service provider and are unable to migrate to competitors. For example, customers should be able to switch operator and receive ‘unbundled’ services from different players, as noted in OFCOM’s Annual Report 2006/7 (OFCOM, 2007 p. 6). I am of the opinion that regulation should also prevent excessive prices on bottlenecks facility and, if necessary, introduce a charge control mechanism on operators having significant market power.

In the access to content, from one side clients need content via competing networks and, from the other side, service providers need to channel their services via competing content providers. There may be a real threat to competition in cases of low cable penetration, strong pay-tv operator and a high level of vertical integration. In this case, we might argue that more difficulties may result from the application of different regulation (e.g. broadcast and telecom) to converging services; therefore, coordination of frameworks and remedies is critical for a competitive marketplace.

In this transitional period, it can be recommended to manage this change using a flexible approach, balancing continuity and change – holding one foot in the old system while tempting a coalition of resources and intents with potential supporters and partners for the future. I believe that the best option in this transactional period is self-regulation, allowing a ITC fast-changing industry to take responsibility for necessary rules. However, it is also necessary that current regulations that protect innovation, investments and consumer’s choice remain in place.

Convergence and Digitalisation

Convergence and digitalisation are part of a new and important phenomenon that influences strategy and business models. There is no surprise that it attracted so much attention from so many stakeholders. David Currie, OFCOM chairman, argued in December 2003 that convergence was slowly happening at network, device, industry and regulatory levels (4th ECTA Regulatory Conference, 10 December 2003). Now, almost four years later, convergence is reality with, as industry’s norm, Quad and Triple play offers (fixed, mobile, data and TV). In the EITO 2007 Report the European Commissioner for Information Society and Media, Viviane Reding, defines digital convergence as the ‘heart of new technology revolution’ (EITO, 2007 p. 12) and notes how the ICT sector is ‘adjusting to stronger competition and digital convergence’ (EITO, 2007 p. 14).
In the telecommunication industry convergence is based on the integration of IP systems and telephony. In ICT it can be described as the integration of fixed, mobile, data and telephony networks and IT systems (e.g. IMS). An example is the application of e-commerce systems to mobile networks.
Convergence has been enabled by the decreased cost of digitalisation of products, success of Internet and increase digital systems customisation opportunities. Digitalisation permits to deliver a wide range of push and pull products, mainly designed as voice, data and video services, in an innovative, intuitive and customisable fashion and over a sole electronic communication platform. An integrated IP-based network gives diverse firms the opportunity to invest and launch flexible and timely products for a considerable lower unit cost; in this perspective economy of scale and scope is expected to be maximised, competition at retail level enhanced and value-to-customers efficiently delivered. However, our understanding of convergence should not be limited to technological convergence. As phenomenon, it expands to business models (e.g. from e-commerce to m-commerce), markets (no boundaries), services (bundles) and organisation (horizontal organisations serving different markets). For example, e-Bay acquired Skype and Pay-Pal to address two basic needs of its customers: communicate about the products and pay. Telecom Italia merged with TIM to increase efficiency, offer a complete set of communications products and upgrade its business model.

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iPlayer and the net

BBC is offerring a new Internet download and broadcasting service for a wide range of BBC television programmes (currently in Beta Phase) and ISPs are already complaining that this new service will use a large amount of bandwidth and places an intolerable strain on networks. Some ISPs want to sniff traffic and limit download speed for IPlayer traffic. BBC download service is potentially less dangerous that Joost, that offers P2P TV, because it tolerates higher delay of traffic and can for the moment be run at flexible quality of service (for example, at peak or off-peak network times). BBC tries in this way to redesign its value-chain and deliver its services via Internet, cable and other platforms. Digitisation permits, therefore, to rewrite the rules of production and distribution of content. However, BBC plans do crash with network's operators own plans of convergence. In this case, it can be suggested to include in the strategy a collaborative approach and include the largest number of potential value-chain participant in the project.

United Mobile and Roaming Regulation

The Erotariff is available or will be soon available in Europe after one of the fastest legislation processes in the history of the European Parliament. It is a clear example on how regulation can be positive for consumers and competition.

Let me explain you, I do not mean that consumers will pay less, operators are already re balancing tariffs and packages and re-negotiating wholesale charges to cope with the reduction of international roaming revenues.

It is just a start! Let wait and see how the industry evolves. For example united-mobile have launched a new virtual roaming services from the Isle of Jersey with incredible good rates (http://www.united-mobile.com/)

Skype is Dead

Skype is dead in Europe.

There are already rumors in the industry that the Skype out and Skype in services will be discontinued in many European countries. Why? Simple. They are not able to comply with national and European laws on quality, security and surveillance.

New and Old regulation

Firms of the new economy do not like to be regulated even if they hold a form of monopoly. Customers, like Microsoft, standards, like Intel or services, like Goggle are new forms of bottlenecks. For example, Goggle Advertising service hold some 60% of the global market share and is starting to attack new markets, yes even software games will have advertising.