Transcript Presentation

Liberalisation and regulation in the
electronic communications sector:
Theory and empirical evidence
Week 2
The International and European framework
of telecom reform
Technical aspects of Electronic
Communications Networks
Business models in network provision
Case studies
Setting the Stage: The International and
European framework of telecom reform
 The historical approach to telecommunication service
provision
 Main pressures for change (technological and socioeconomic)
 Major steps of reform: Strategies for the restructuring of
markets from the 1980s till now
 Reform experiences in the US, the UK, and Europe
 Main features of the telecommunications industry that
are important in the process of regulatory reform
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The historical approach to
telecommunication service provision
 The PTT (Post, Telephone and Telegraph Administration) was granted a
monopoly on the provision of telecommunication infrastructure and services
since late 19th century.
 Basic model world-wide = monopoly on equipment and on basic network
and service provision (public monopoly in Europe vs. private monopoly in
the US)
 The natural monopoly doctrine: the industry enjoys large fixed costs whose
duplication was neither profitable for private investors nor socially desirable.
Telecommunications was one of the societal benefits that economic
development allowed.
 European PTTs became large and powerful employers, often capable to
subsidise other social programmes.
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(…cont’d)
 PTTs had multiple roles as policy-maker, regulators, and operators.
 During this time, experiences in telecommunication performance &
liberalisation varied among countries (e.g. UK, France, Greece)
 Current Liberalization Phase 1990-2004: Competitive service
provisioning by alternate PNOs (Public Network Operators)
protected against incumbent PNO (former state monopoly) by State
Regulations; fair competition monitored / enforced by independent
National Regulatory Authorities (NRAs) after the US FCC paradigm
(UK OFTEL, now OFCOM, Greek EETT etc.)
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Main pressures for change (since late 1970s)
 Radical developments in the electronics/computer industry and
digital technology lowered the costs for certain types of
infrastructure, exposed the inefficiencies of PTT monopolies, and
offered opportunities for market entry.
 Increasing technological convergence between previously
separated industries (consumer electronics industry,
telecommunications, and media publishing) created new types of
value-added services.
 Internationalisation of business urged national carriers to
compete in attracting customers wishing to establish multinational
private networks.
 In Europe, concerns were raised over creating a single European
market for equipment and services able to compete against the US
and Japanese rivals.
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Major steps of reform: Strategies for the
restructuring of markets in the 1980s
 Market structure Strategies
Liberalisation
Deregulation
Divestiture (e.g. AT&T)
Consolidation (for capturing economies of scale and scope, e.g.
through mergers and acquisitions)
 Ownership strategies
Semi-Public Corporation (loosens direct government control on
the PTT)
Full Privatisation – Competition
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… (cont’d)
 International Strategies
Expansion into new international markets
Alliances
 Competitiveness Strategies
Industrial policy considerations
Vertical integration (often with equipment manufacturers)
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Reform experiences in the US
 Until the 1960s US telecom industry was dominated by a single private
monopoly, AT&T.
 1963: Competition in the long distance market following a request
filed by MCI. This generated policy debates on interconnection
arrangements with the local operating facilities of the Bell System.
 1968: Carterphone decision (FCC approves third party CPEs to the AT&T
network)
 1974: the Department of Justice filed an antitrust complaint against AT&T
monopoly position asking for its divestiture.
 1984: break up of AT&T. AT&T kept its long-distance operations, its
manufacturing subsidiary, and its R&D facilities (Bells Labs). It was also
allowed to enter other markets. The seven Bell Operating Companies
(BOCs) were restricted to local telephone service. Also known as LECs
(Local Exchange Companies) or ILECs (Incumbent LECs). Each LEC was
serving one of the 192 Local Access and Transport Areas (LATAs). InterLATA services were provided by long-distance carriers such as AT&T and
MCI.
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… (cont’d)
 1993: Restrictions in RBOCs’ line-of-business started to be
gradually abandoned and were allowed to offer information services
 1994: RBOCs filed a request to enter into long-distance service
provision and equipment manufacturing
 1995: Restrictions in RBOCs’ long-distance service provision and
equipment manufacturing were abandoned
 1996: Release of the US Telecommunications Act of 1996
 The Act aims to foster local market competition and will enable RBOCs
to enter the long distance market once there is ‘sufficient competition’ in
the local market
 Entry into local markets can be done through own facilities, resale, or
unbundling
 Players need to enter into symmetrical and non-discriminant
interconnection agreements
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US Recent Developments
 1995: WorldCom formed after LDDS acquired Williams Telecommunications
Group (WilTel) for $2.5 billion.
 1996: WorldCom merges with MFS Communications Company (MFS) and
UUNet Technologies, an Internet access provider for businesses.
 1997: SBC Communications, Inc. acquired Pacific Telesis Group ($ 16.5
billion).
 1997: Bell Atlantic Corporation acquired NYNEX Corporation - New York
Telephone Company and New England Telephone and Telegraph Company
($25 billion).
 1998: BT fails to acquire MCI
 1998: WorldCom completes three mergers: with MCI Communications ($40
billion), Brooks Fiber Properties ($1.2 billion) and CompuServe ($1.3 billion).
 1998: SBC Communications, Inc. acquired Ameritech ($62 billion).
 1998: SBC Communications, Inc. acquired Southern New England
Telecommunications Corporation ($4.4 billion).
 2000: 5 January 2000 - AT&T and BT announce the $10 billion joint
venture, Concert (October 2001 - Final death of Concert).
 2000:Bell Atlantic Corporation and GTE Corporation merged into Verizon
Communications ($53 billion – 250,000 employees).
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… (cont’d)
 2000: U S WEST Communications Group merged with Qwest
Communications International, forming Qwest Corporation. ($45 billion)
 2000: Verizon Wireless, a joint project of Verizon Communications and
Vodafone (55% - 45%). Largest wireless US service provider (51,000
employees – 43.8 Million customers - $24.4 Billion annual revenues 2004)
 2002: July 21 — WorldCom CEO Sidgmore says the company will file for
Chapter 11, with the company listing assets of over $100 billion, and having
more than 1,000 creditors, debt estimated at $32.8 billion, serving around
20 million consumers and running the world's biggest Internet network
 2004: Cingular Wireless acquired AT&T Wireless Services Inc. 2nd largest
wireless US service provider($41 billion)
 2004: Sprint Corp. acquired Nextel Communications Inc. forming the 3nd
largest wireless US service provider. ($35 billion)
 2005: SBC Communications (a Baby Bell) acquiring the No. 1 longdistance carrier, AT&T, for $16 billion.
 2005: Verizon, MCI to link up in $6.7 billion deal
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Reform experiences in the UK
 1982: Licensing of Mercury for long-distance and international
service provision. Operations began in 1986 and duopoly
maintained until 1991. Discussions over interconnection charges
began.
 1984: Privatisation of British Telecom (BT)
 1991: Licensing of several new long-distance and international
operators. Cable TV companies allowed to offer local telephony
services and long-distance and international through wholesale
agreements with BT’s competitors. BT and Mercury were excluded
from offering television services on existing phone lines.
 1996: Ionica entered the local market through a fixed wireless
service. BT and Mercury were excluded from offering fixed wireless
service.
 Currently BT is loosing significant market share out of new
competitors
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Reform experiences in Europe (up to 2001)
 1987: Issue of the EC Green Paper on Telecommunications. It
proposed the introduction of competition in the equipment and
services market.
 1988: Commission Directive on competition in the markets for
telecommunications equipment.
 1990: Commission Directive on competition in the markets for
telecommunications services. Its scope was gradually extended
until 1998 when voice telephony and networks were completely
liberalised.
 1996: Commission Directive with regard to the implementation of
full competition in telecommunication markets (96/19/EC).
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The New European Regulatory Regime (2003)
From Telecommunications to Electronic Communications
Electronic Communications Networks (ECN)
Electronic Communications Services (ECS)

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Framework Directive (2002/21/EC)
Authorization Directive (2002/20/EC)
Access & Interconnection Directive (2002/19/EC)
Universal Service and Users' rights Directive (2002/22/EC)
Data Protection Directive (2002/58/EC)
Unbundled Local Loop Regulation (2000/2887)
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… (cont’d)
 Major principles underlying EC liberalisation measures:
removal of special or exclusive rights
objective, non-discriminatory and transparent conditions for
granting of licences and access to networks
breaking of “monopoly bottlenecks” e.g. local loops, obligation
for fairness in wholesale services market.
universal service provisioning
The old Regulatory Framework: The ONP Principle (OPEN
NETWORK PROVISION), access and interconnection rights for
licenced operators at wholesale, cost-based tariffs imposed by
NRAs to ex-post regulation of incumbent operators.
The new Regulatory Regime: Competition Law. Definition,
Analysis and Remedies of Markets by NRAs, ex-ante
regulation of SMP (Significant Market Power) holders.
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Technical aspects of Electronic
Communications Networks
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Core – Backbone Network
 Fixed (Fiber, PDH/SDH, PoS, GigaBit Ethernet, WDM, DWDM)
 Wireless
Access Network
 Fixed wired (Fiber to the Curb/Home, Cable, Coax, Copper xDSL)
 Wireless (802.11, 802.16, LMDS)
 Mobile (GSM, UMTS, 802.11)
 Satellite communications (DVB/RCS, VSAT)
Interconnection
 Interconnection
 Unbundling
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Backbone - Core Networks
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Backbone - Core Networks (cont'd)
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Access Networks
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Access Networks (cont'd)
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Electronic Communications Networks
Single Operator
Access Network
Access Network
Backbone / Core Network
Access Network
Access Network
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Electronic Communications Networks
Competition
Access Network
Access Network
Backbone / Core Network
Access Network
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Backbone / Core Network
Access Network
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Interconnection
 Physical and logical connection of
telecommunications networks.
 Users connected to different telecommunications
networks communicate directly or indirectly.
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Interconnection - PSTN
Operator
B
Operator
A
Trunk Group
Switch
A Subscriber
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Point of
Interconnect
(POI)
B Subscriber
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Interconnection - NGN
Web Sites
Web Sites
Terminating
Carrier
ISP B
ISP B
Point of
Presence
(POP)
Originating
Carrier
Users
Users
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Interconnection - NGN
Web Sites
Web Sites
Terminating
Carrier
ISP B
ISP B
Originating
Carrier
Backbone
Carrier
Users
Users
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Business models in network provision
Traditional TELCO offerings (ATM –
PDH/SDH)
New TELCO Broadband offerings (Gigabit
Ethernet/Packet over SDH, λ-DWDM)
alternate models (dark fiber, condominium
arrangements)
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Customer Empowered Networks


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
School boards and municipalities are building condominium dark fiber
networks in partnership with next generation carrier
Individual institutions – the customers – own and control their own strands
of fiber

Fiber are configured in point to point private networks; or

Connect to local ISP or carrier hotel

Private sector maintains the fiber
Low cost LAN architectures and optics are used to light the fiber
These new concepts in customer empowered networking are starting in the
same place as the Internet started – the university and research community.
Customers will start with dark fiber but will eventually extend further
outwards with customer control and ownership of wavelengths

Extending the Internet model of autonomous peering networks to the telecom
world
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Market Drivers

First - low cost


Second - LAN invades the WAN – no complex SDH/SONET or ATM in network


Network Restoral & Protection can be done by customer using a variety of
techniques such as wireless backup, or relocating servers to a multi-homed site,
etc
Third - Enables new applications and services not possible with traditional
telecom service providers





Up to 1000% reduction over current telecom prices. 6-12 month payback
Relocation of servers and extending LAN to central site
Outsourcing LAN and web servers to a 3rd party with no performance impact
IP telephony in the wide area (skype)
HDTV video
Fourth – Allows access to new competitive low cost telecom and IT
companies at carrier neutral “meet me” points

Much easier to outsource servers, e-commerce etc to a 3rd party at a carrier
neutral collocation facility
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What is condominium fiber?


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A number of organizations (schools, hospitals, businesses and universities) get
together to fund and build a fiber network
Carrier partners are also invited to be part of condominium project
Fiber is installed, owned and maintained by 3rd party professional fiber
contractors – usually the same contractors used by the carriers for their fiber
builds
Each institution gets its own set of fibers, at cost, on a 20 year IRU (Indefeasible
Right of Use).
One time up front cost, plus annual maintenance and right of way cost approx
5% of the capital cost
Institution lights up their own strands with whatever technology they want –
Gigabit Ethernet, ATM, PBX, etc
Ideal solution for point to point links for large fixed institutions
Payback, with the current level of prices, is usually less than 18 months!!!
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Municipal Condo Architecture
Fiber Splice Box
Central Office
For Wireless
Company
Carrier Owned
Fiber
School board or
City Hall
Cable head end
Telco Central
Office
Condominium Fiber
with separate strands
owned by school and by
service providers
School
Colo
Facility
School
802.11/802.16
Average Fiber
Penetration to 250-500
homes
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Benefits to Carriers

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Cablecos and telcos: helps them accelerate the
deployment of high speed internet services into the
community
Small Innovative Service Providers: provides opportunities
to offer service to public institutions as well as homes
e-Commerce & Web Hosting Companies: generates new
business in outsourcing, web hosting, Hosting etc.
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Montreal, Quebec (consortium)

Municipal authorities, school boards, RISQ (Réseau d’informations
scientifiques du Québec – Quebec scientific information network) and
IMS (IMS Health Canada) have joined in a consortium to build a
municipal owned dark fibre network.





Schools can be connected for an average of $80 per month, per school
based on a 20 year amortization of the fibre & eliminate the network
servers at each individual school
Each school has essentially unlimited bandwidth (100 Mbps)
Schools LAN can be extended back to the central administrative site.
Maintenance, Backups and Software Updates can all be done much more
cost effectively from the central administrative building.
Schools are able to explore new high-end applications such as video
conference & Voice over IP.
In Montreal, the estimated payback for dark fibre is between 6
months and 2 years.
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The case of FTTH (Fiber to the Home)

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Problem: How to provide facilities based competition with FTTH?
The incumbent avoids heavy regulation
First generation FTTH models assume the old telco model where
competitors can only get open access e.g. PON (Passive Optical
Networks)
Second generation FTTH models assume structural separation
between service providers and an “aggregator” using Gigabit
Ethernet or ATM
CANARIE (the Canadian Research & Education Network) proposes a
third generation FTTH model with structural separation using
condominium fiber and choice of aggregators or service providers
through point to point fiber and RPON (reverse PON)….
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Gigabit Internet to the Home


With municipal condominium fiber builds multiple carriers share in
the cost of fiber build out to neighbourhood nodes serving
approximately 250-500 homes
It is impractical to have multiple carriers own individual strands from
the neighbourhood node to each and every home:




Therefore let the customer have title to individual fiber from the
residence to the neighborhood node
The customer connects to the service provider of their choice at
the neighborhood node
Customer decides if they wish to connect to an aggregator,
convergence provider, or single service Internet provider
Two approaches:


RPON which allows easy moves, adds and changes
Micro conduit, fiber is blown in upon customer request from designated
service provider
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Gigabit to the Home
Colo Facility
ISP E
ISP C with RPON
ISP D
Up to 15 km
Customer owns fiber
strand all the way to
Neighborhood Node
X
ISP B
Colo Facility
Splice Box
X
Business
with dual
connections
864 strands
Municipal Condominium Fiber Trunk
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RPON
Aggregator
Switch
TDM return
Active laser
at customer
premises
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ISP
Passive Optical
Splitter
Neighborhood
Node
Customer
Controlled or
Owned Fiber
36
Regional Networks in EU
Sweden
UK
Ireland
Greece
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