Académique Documents
Professionnel Documents
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The purpose of this module of the study is to develop an intellectual framework and innovative content exploring
issues related to new technologies and regulation policies. The module is organized in three main parts:
■ Technological trends. This part examines the main technological trends and their impacts on regulation.
■ Market and regulation. The analysis of the technology implications on the current regulation and market structure
in this part is focusing on traditional regulatory areas, like Interconnection, price regulation, etc. and market
structure aspects, like horizontal and vertical integration.
■ New regulatory paradigm. Based on the technology trends and regulatory implications a new regulatory paradigm
and its constituent elements are discussed in this part.
RELATED INFORMATION
The technological development within ICT can be illustrated in three phases/levels: ‘The first wave of Technological Changes’, which
are the fundamental technological changes that ICT has undergone and that has enabled the second phase; called ‘Second waves of
Technological Changes’, which are further developments and deployments of the first wave of changes in the ICT industry and market.
The ‘Third wave of Technological changes’ goes beyond the ICT industry and covers the broader aspect of application of ICT in the
information society services.
In this part of the study these technological trends are described in detail.
■ Internet
■ Mobile communication
■ Next Generation Networks (NGN)
■ Convergence
These changes have directly influenced the communication markets and the regulation framework, as they are the basis for the IP
revolution, the convergence process and emergence of Next Generation Network (NGN) technologies, which in turn have reshaped and
restructured different communication sectors.
■ Digitalization. The development from analogue to digital is by far the most fundamental precondition for any other technological
changes we have witnessed in recent years. Digitalization enables the integration of different services in the same network and
enables synergy to be reaped in the whole value chain of service- production, distribution and consumption. Furthermore, digitalization
enables expansion of resources in the access and core networks in a technical and cost efficient way.
■ Computerization. Another vital fundamental development has been the deployment of computers in the production and consumption
parts as well as within the network infrastructures. The role of computers in production and consumption parts is quite obvious, but
seen in the light of the objective of this Toolkit, it is important to emphasize the role of computers in the development of network
infrastructures, including the deployment of computers in the network nodes as a replacement for switches and as devices adding
intelligence to the network nodes. Furthermore, the processing power affects the spectrum use and management.
■ Packet based switching. Packet switched technologies have had an important role in the more efficient utilization of the available
resources in different network infrastructures and the creation of platforms enabling multi-service delivery in the same network,
enabling real convergence. Different packet technologies have been developed with different advantages/disadvantages. Internet
Protocol (IP) is the most successful packet-based technology and the dominant paradigm of today’s ICT infrastructures.
1.1.1 Digitalization
Digitalization is the technological foundation for the modern convergence process. In the beginning the concept digitalization was used
synonymously with the simple conversion of an analogue signal to digital. However, even though the Analogue Digital conversion is the
precondition for digitalization, the concept of digitalization, as it is used today, goes beyond this and encompasses the whole digital
platforms & standards. Three main technologies have been important to make ICT digitalization become a reality: 1) Modulation, 2)
compression and 3) Forward Error Correction. These are described in separate sub-sections. The following is a definition for digital signal:
In the beginning of the 1960s, a radical transformation was introduced, as analogue telephone signals were digitized and multiplexed
digitally using Pulse Code Modulation (PCM). A telephone signal has a bandwidth of 3.1 KHz. The signal is sampled, using sampling
frequency of 8 KHz and quantised by 8 bit per sample, resulting in a digital bandwidth of 64 Kbit/s for a telephone signal. Two major digital
transmission systems and multiplexing schemes, PDH and SDH, were developed to transmit these PCM codes within the backbone
network.
Three main technologies that have been important to realise digitalization of communication technologies and infrastructures:
■ Compression
■ Modulation
■ Forward Error Correction (FEC)
COMPRESSION
Compression denotes the techniques and protocols that reduce the bandwidth necessary for transmission of a given signal. For example,
there is a huge amount of redundant information in the analogue audio and video signals. These can be removed and, consequently, the
amount of bits per second that must be transmitted will be reduced substantially. Compression technologies determine the digital bandwidth
by making a trade-off between how much capacity is available and the quality of service that is needed.
Compression standards have been a vital factor for enabling distribution of audio/video services on the IP networks. Furthermore,
compression techniques are the main pillars in the digital broadcasting standards. A number of different standards are defined for
audio/video compression. ITU, ETSI, and a number of other standardization organizations have been involved in the development of
compression standards. Moving Pictures Expert Group (MPEG) has developed three audio/video compression standards, widely deployed
in development of audio video services:
■ MPEG-1. Primarily intended for applications like computer images and graphics.
■ MPEG-2 is used in digital broadcasting. MPEG-2 is intended to be generic in the sense that it serves a wide range of applications, bit
rates, resolutions and services. MPEG-2 covers different picture resolution from Low Level (352X288) pixels to a very high resolution
of 1920X1152 pixels, also called High Definition TV (HDTV) resolution.
■ MPEG-4. Contrary to the MPEG-1 and MPEG-2, which are frame-based, MPEG-4 is object-based. MPEG-4 supports two-dimensional
arbitrarily shaped, natural video objects as well as synthetic data. Synthetic data includes text, generic 2D/3D graphics and animated
faces, enabling content-based interaction and manipulation. MPEG-4 is an important standard for the distribution of Digital TV to
Handheld devices, and also for broadband IPTV and Video on demand (VoD).
MODULATION
Modulation technology is used to transmit information, including audio and video signals, over different transmission media; the information
is modulated on the carrier waves when transmitted, and demodulated at the reception point. In principle, the technology is used for both
analogue and digital transmission, though the techniques used in digital modulation – where a stream of binary numbers must be transmitted
– are different from those used in analogue modulation.
The modulation technologies are developed based on the characteristics of the transmission medium, so that the data is transmitted in the
most efficient way. The modulation efficiency in digital transmission can be measured in bit per symbol or bit per second per Hertz
(bit/s/Hz). The modulation efficiency depends on the deployed modulation technology, which again depends on the type of the delivery
network deployed. There is always a trade-off between the error performance required and minimum data payload needed, which makes
some modulations more attractive to a particular broadcast media.
Modulation technologies have expanded the transmission resources in all infrastructures, and particularly in the radio spectrum modulation
and other technologies which improve the spectral efficiency or include new spectrum to be deployed in the ICT sector, have challenged
the scarcity argument, which has been an important pillar for the regulatory design in the ICT market. In this relation, a number of other
technologies like Software defined radio, Cognitive radio, smart antenna and the technologies which use new spectrums (like the
frequency range at 60 GHz and above) are important.
1.1.2 Computerization
Development of computers has had vital influence on the effective organization and operation of network infrastructures. As end devices,
computers act as intelligent terminals. The use of computers in the network nodes has reduced the cost of technology, network
management, operation and maintenance.
The processing power of computers and the new applications have had a radical impact on the ICT sector. On the one hand, the expensive
and complex functions in the network, such as switching and Intelligent Network services, are done to a large extent by computers. On the
other hand, computers have diffused in practically every function necessary for operation of an ICT network, such as billing and Human
Resource Management.
Packet switched technologies, on the other hand, are designed to use the network resources only when meaningful data is subject to
transport. Hence, packet switched networks utilize network resources more efficiently through bandwidth sharing. Another aspect of
packet switched networks is their capabilities in carrying different types of services. Many modern packet-based technologies like ATM
and IP are designed to be able to carry different types of services; however, specific technologies/protocols must be implemented for
different services.
Different packet switched networks are designed to support variable or fixed packet size and to operate in connection-oriented or
connection-less modes. To be able to handle the packet loss, retransmission is implemented in some packet-based technologies.
In the beginning 2 major packet switched standards dominated the market: X25 and Frame relay.
Another important packet based technology is Asynchronous Transfer Mode (ATM). ATM was developed by the telecom industry and was
telecom’s solution for integration of all services in the same network. ATM is cell-based technology consisting of packets with a fixed size:
53 bytes with 5 bytes of control information and 48 bytes of data segment. ATM is connection-oriented. Because of the fixed (small) cell
size the delay can be controlled. ATM can be used both at the transmission and switching layer. It is possible to have full control of the end
to end connection and guarantee Quality of Service (QoS).
The most important and widespread packet technology in the ICT platforms is the Internet Protocol (IP), which is described in chapter 1.2 on
the Internet.
Even though the Internet itself has not been regulated in many countries, it has however had massive implications on the regulatory
framework, as the Internet in different levels of development has been able to facilitate the offering of regulated services like voice
telephony and TV/radio. The resource organization and IP Interconnection, for example, are becoming more and more important as the
Internet development goes beyond advanced countries and becomes a part of daily day life in developing countries.
This section describes different important aspects of the Internet and relevant issues connected to the its development:
RELATED INFORMATION
End-to-End architecture
Scalability
The IP packets contain all the addressing information, which is necessary to be routed in IP networks. The IP routers transmit the IP packets
within the network based on the destination address available in the IP packet in a connection-less manner. This reduces network
complexity immensely. However, to provide services in the IP network, connection oriented protocols like TCP and UDP (User datagram
protocol) must be implemented to establish a session and make sure that it functions properly.
The separation between the underlying network technology and the services removes entry barriers for the service providers. The only
precondition for service provision is access to the network. This has created a huge dynamic in the service development within the
Interne, but it also creates a problem of revenue sharing between the owners of the network infrastructures and the service/content
provider. This is more obvious in the broadband IP infrastructures, which are mainly provided by the telecom operators. The development
in value proposition is obviously mainly connected in service provision, particularly because flat rate billing for connectivity has become the
dominant business model.
SCALABILITY
Scalability is another main feature of the IP design. One of the barriers for further scalability is the shortage of address room in the current
IP version 4 (IPv4) systems. As discussed in the section on IP version 6 (IPv6), the shortage of address room is a big problem for
developing countries, mainly due to uneven allocation of the IPv4 addresses.
Distributed design and decentralized control is another characteristic that has obviously improved conditions for the development of
services, innovations and creations of new businesses. Different networks can easily connect to other IP networks, including the Internet,
and can obtain added value from network effects etc.
1.2.3 QoS
QoS denotes the capability of the network infrastructure, client applications and the end user terminals to deliver a service living up to
certain quality levels. QoS requirements vary from service to service and depend directly on the specific services. In POTS, for example,
there are detailed recommendations on QoS from ITU on maximum delay, blocking rate, MOS (Mean Opinion Score) etc.
QoS on the Internet is affected by a number of factors, including:
■ Delay
■ Bit Error & Packet loss
■ Speech compression
■ Echo
■ Firewalls
Different methods can be used to improve QoS. One can provide the necessary capacity in the backbone and access networks by ‘over
provisioning’. QoS can also be implemented using one or more of following technologies:
■ Diffserve, ToS, RSVP, etc.
■ Using priority schemes in the IPv6
■ Using appropriate speech codes
■ Buffer size optimization
■ Packet size optimization
The main deployment of QoS is nevertheless connected to the introduction and development of IP version 6 (the advanced or next
generation IP), which allows for end-to-end QoS provision.
In the managed IP infrastructures it is possible to provide measurable QoS, but this is more difficult in the best effort infrastructures like
the Internet; however, in both cases regulatory measures may be necessary. An important issue is the facility-based operators'
willingness to offer access to QoS provision to non-facility based operators. For example, a major debate in Europe and other regions is
the lack of QoS provision in the wholesale Bit stream access products offered by the PSTN incumbents.
1.2.4 Security
In regular telephony services the security and consumer protection standards have been defined and are generally found adequate. With
regard to the IP services, there is no one-to-one relation between the service and the physical infrastructure. In the IP networks, anyone
with access to the network can tap the signal and actively damage the integrity of the message and the signal. For example, to ensure
privacy in VoIP application, the VoIP provider can implement end-to-end encryption, which is not 100% secure, but can establish security
levels comparable to those of regular telephony. The end-to-end encryption will, on the other hand, prevent the authorities from lawfully
tapping the VoIP signal, i.e. from using ‘Lawful Interception’.
1.2.6 IPv6
The current Internet Protocol, which is primarily based on IPv4 (IP version 4) has had rapid growth both when it comes to the number of IP
enabled devices and when it comes to applications and services. IPv4 suffers from major weaknesses when it comes to dealing with the
rapid growth in the number of devices connected to the Internet and the new applications and services. This has resulted in the
standardization of a new version of Internet Protocol, IPv6 (IP version 6), to cope with the shortcomings of IPv4.
One of the main weaknesses of IPv4 is the number of IP addresses available globally. The IPv4 address consists of 32 bits, meaning that
there are about 4 billion addresses available. On the one hand, it is obvious that 4 billion addresses are not enough in a world where more
and more devices and terminals become IP enabled. On the other hand, even the current addresses available are allocated so unevenly
that many of the developing countries lack IP addresses to develop their ICT infrastructures. For example, according to a consultation
paper on ‘issues relating to transition from IPv4 to IPv6 in India'[1]: ‘India has merely 2.8 million IPv4 addresses compared to 40 million
acquired by China’. Here it is important to note that any common US university has more IP addresses than the total of India, and that a US
ISP, Level-3, alone has more IP addresses than China. The distribution is much worse when it comes to the least developed countries; for
example, Bangladesh has about 150,000 IP addresses.
IPv6 extends the address room to 128 bits, meaning that the number of IP addresses will not be any problem in the foreseeable future. This
allows for the allocation of more addresses to different countries and regions. The allocation of IPv6 addresses can be done more evenly,
as it does not suffer from the historical matters that resulted in the uneven allocation of IPv4 address room. In future development, where
we are surrounded by the ‘Internet of Things'[2], there will be an even greater need for IP addresses.
The other issues that are dealt with in IPv6 are the QoS and security issues. QoS is important in relation to real time services, and security
at IP level will generally be required by a number of services in the future.
ENDNOTES
[1] TRAI: Consultation paper no. – 8/2005, TRAI, ‘issues relating to transition from IPv4 to IPv6 in India, August 26, 2005.
[2] See amongst others the ITU Internet report 2005: the Internet of Things.
In this section the three main generations of mobile standards (1G, 2G, 3G) as well as the 2.5G are described.
The second generation mobile standards are based on digital technology. Digital technology utilizes the transmission resources in an
efficient way, both due to advances in audio compression standards and also due to advances in digital modulation technologies. Another
important characteristic of the 2G mobile is the less fragmented mobile market. This is particularly due to Europe’s decision to use a common
standard and the creation of a single mobile market, but also because the European standard, GSM, has had enormous success beyond
Europe and is used in a number of other countries. However, there are a number of competing standards to GSM, mainly:
■ TDMA IS-136 is the digital enhancement of the analogue AMPS technology. It was called D-AMPS when it was fist introduced in late
1991 and its main objective was to protect the substantial investment that service providers had made in AMPS technology. It is mainly
used in North America.
■ CDMA IS-95 increases capacity by using the entire radio band, each using a unique code (CDMA or Code Division Multiple Access). It
is a family of digital communication techniques and South Korea is the largest single CDMA IS-95 market in the world.
■ Personal Digital Cellular (PDC) is the second largest digital mobile standard although it is exclusively used in Japan, where it was
introduced in 1994. Like GSM, it is based on the TDMA access technology.
■ Personal Handyphone System (PHS) is a digital system used in Japan, first launched in 1995 as a cheaper alternative to cellular
systems. It is somewhere between a cellular and a cordless technology. It has inferior coverage area and limited usage in moving
vehicles.
GSM
Group Special Mobile within the CEPT started to develop GSM in 1982. Later it was standardized by the ETSI and branded as a Global
System for Mobile (GSM). One of the most important conclusions from the early tests of the new GSM technology was that the new
standard should employ Time Division Multiple Access (TDMA) technology. This ensured the support of major corporate players like Nokia,
Ericsson and Siemens, and the flexibility of having access to a broad range of suppliers as well as the potential to get product into the
marketplace faster. After a series of tests, the GSM digital standard was proven to work in 1988.
GSM operates mainly on 900 and 1800 frequency bands. However, in North America it operates on 1900 MHz. There is also a version
which uses the 450 MHz band (GSM400), which can be used in the less populated areas, and can be relevant for the less populated rural
areas in the developing countries.
In the transition from 2G to 3G a number of standards have been developed, which are categorized as 2.5G. These are add-ons to the 2G
standards and mainly focus on deployment of efficient IP connectivity within the mobile networks.
EVOLUTION OF 2G (2.5G)
In the 2G and 2.5G mobile, several technological developments have been introduced to increase the capacity bandwidth of the networks
and to enable provision of new services in these platforms. Standard bandwidth for data services in GSM networks is 9.6 Kbps per time
slot. However, many providers offer 14.4 Kbps per time slot using more efficient modulation technologies. To increase the available
capacity at the end user’s site in GSM networks, two approaches are used:
■ Deployment of several time slots. This is called HSCSD (High Speed Circuit Switched Data).
■ Deployment of packet oriented IP based technologies like GPRS and EDGE.
When using HSCSD technology, a maximum capacity of 38.4 Kbps will be achieved if 9.6 Kbps per time slot is used (and 57.6 Kbps in the
case of 14.4 Kbps per time slot). In both cases, the assumption is that all 8 time slots are used: 4 time slots for uplink and 4 for downlink.
GPRS, on the other hand, is packet-based and is optimized for IP traffic. In GPRS, the capacity per time slot depends on the deployed
technology: CS1: 9.05 Kbps per time slot; CS2: 13.4 Kbps per time slot; CS3: 15.6 Kbps per time slot; CS4: 21.4 Kbps per time slot. In theory,
using 8 time slots and CS4 technology, a maximum capacity of 171.3 Kbps can be achieved.
EDGE can be seen as a technology with the same characteristics as GPRS, but with more efficient modulation techniques and,
consequently, higher capacities per time slot. Theoretically, it is possible to achieve 59 Kbps per time slot, providing a maximum capacity of
472 Kbps. The capacity will depend on the deployed technology (MsC1 to MsC9), and a maximum capacity per time slot of 48 Kbps is
considered realistic in mature EDGE networks giving a maximum overall capacity of 384 Kbps.
One important issue here is that even though GPRS and EDGE are capable of offering high bandwidth connectivity to the end users, the
amount of frequency resources in the GSM network is far below the resources necessary to cope with the ever increasing demand of the
end users for data services.
The technological evolution path towards 3G networks and the standards that will be deployed in different markets depend primarily on the
current 2G markets. The natural consequence of this has been the definition of a variety of variants of IMT-2000 standard, that can be
chosen by different operators based on parameters like reusability, interoperability, etc.
The main development in the mobile networks has been the development from 2G to 3G and beyond. This has been primarily driven by the
lack of frequency resources in 2G to cope with the rapid development and penetration of mobile services and the need for new mobile
services with varying demand on bandwidth. The 3G platforms on the one hand include new frequency bands for the provision of mobile
services, and on the other hand deploy more efficient technologies than 2G, resulting in increased spectral efficiency. Furthermore, the 3G
technologies have been developed due to their potentials in meeting universal access goal. This has been one of the arguments at ITU for
backing the development of 3G standards.
In order to generate a more efficient usage of available frequency, IMT-2000 had the job of standardizing the new air interface that would
enable this. The WCDMA air interface was selected for paired frequency bands (FDD operation) and TDCDMA (TDD operation) for unpaired
spectrum. CDMA2000 standard was created to support IS-95 evolution[1].
W-CDMA (Wideband Code Division Multiple Access). W-CDMA is the access scheme defined by the ITU to be the main technical
platform for UMTS or 3rd Generation Mobile services. W-CDMA services are to operate within the following frequency bands: 1920 MHz -
1980 MHz and 2110 MHz - 2170 MHz.
NTT DoCoMo’s FOMA network uses a version of the W-CDMA standard in its network deployment. The ITU had selected W-CDMA as one
of the global telecom systems for the new IMT-2000 3G mobile communications standard. In W-CDMA interface different users can
simultaneously transmit at different data rates and data rates can even vary in time[2]. W-CDMA is capable of delivering up to 384 kbps in
outdoor environments and up to 2 Mbps in fixed indoor environments.
CDMA2000 (Code Division Multiple Access 2000). CDMA2000 (with the ITU name IMT-2000 CDMA Multi-Carrier) represents a family of
technologies that includes CDMA2000 1X and CDMA2000 1xEV:
■ CDMA2000 1X can double the voice capacity of CDMAOne networks and delivers peak packet data speeds of 307 kbps in mobile
environments.
■ CDMA2000 1xEV includes:
❍ CDMA2000 1xEV-DO. CDMA2000 1xEV-DO delivers peak data speeds of 2.4Mbps and supports applications such as MP3
transfers and video conferencing.
❍ CDMA2000 1xEV-DV. CDMA2000 1xEV-DV provides integrated voice and simultaneous high-speed packet data multimedia
services at speeds of up to 3.09 Mbps.
1xEV-DO and 1xEV-DV are both backward compatible with CDMA2000 1X and CDMAOne. As a more advanced development from the
previous CDMAOne system, CDMA2000 supports data communication speeds ranging from 144kbps to 2Mbps, with 144kbps being the
maximum possible speed outdoors and 2Mbps being the maximum speed in an indoor environment.
Because CDMA2000 has evolved directly from the previous generation of proven CDMA systems, it provides the fastest, easiest, most
cost-effective path to 3G services. While all 3G technologies (CDMA2000, WCDMA and TD-SCDMA) may be viable, CDMA2000 is much
further ahead in terms of product development, commercial deployment and market acceptance[3].
The world's first 3G (CDMA2000 1X) commercial system was launched by SK Telecom ( Korea ) in October 2000. Since then, CDMA2000
1X has been deployed in Asia, North and South America and Europe , and the subscriber base is growing at 700,000 subscribers per day.
CDMA2000 1xEV-DO was launched in 2002 by SK Telecom and KT Freetel. The commercial success of CDMA2000 has made the IMT-2000
vision a reality.
TD-CDMA (Time Division- Code Division Multiple Access). UTRA TDD is planned to operate in the unpaired spectrum. TDD uses a
combined time division and code division multiple access scheme. It is based on a radio access technique proposed by ETSI Delta group
and the specifications were finalized in 1999[4].
ENDNOTES
[1] http://www.umtsworld.com/technology/technology.htm
[2] http://www.umtsworld.com/technology/tdcdma.htm
[3] http://www.qualcomm.com/cdma/3g.html
[4] http://www.umtsworld.com/technology/tdcdma.htm
Mobile services in the 1G and 2G are dominated by regular voice services, offered primarily in circuit switched network architecture. In the
2G, however, the SMS service has also been an important service. Furthermore, IP connectivity and Internet access have been the drivers
of the development towards 2.5G and 3G. It is generally accepted, particularly in 3G, that the data and Internet type of services will
dominate the 3G markets. Furthermore, the voice services will be further differentiated and will not remain as a unique and coherent set of
services as we know them today.
■ Inter-personal communication services: These are the main services in the current mobile networks, with voice services as the
absolute dominant one.
■ Data and other communication services: These are primarily communication services between a service provider (or a workplace,
machine or application) and the end-user. These services are developed rapidly on the Internet and the majority of them are based on
IP protocols provided on the Internet and /or other IP based networks.
VOICE SERVICES
Voice services are one of the major inter-personal communication services and will remain so in mobile networks. Three categories of
voice services are:
■ Regular voice services, as we know them from 2G networks.
■ Premium voice services: Voice services with higher Quality of Service, targeted at business users.
■ Voice over IP: VoIP is used for enabling voice communication over packet switched IP networks. The possibility of using the Internet
as a backbone particularly creates possibilities for provision of long distance cost-efficient voice services. In the mobile networks, on
the contrary, it is not necessarily utilization of Internet as a backbone but efficiency of establishment and maintenance of one
switching technology, namely packet-switched technology, that will drive the development towards using VoIP.
IP protocols will be used to a higher degree in the future mobile networks and, as stated in the UMTS report number 11: “It is unlikely that a
3G network operator will want to operate both circuit-switched and packet-switched networks to cater for different data types for very
long. The most likely scenario is that the network operator will want to migrate quickly to a single multi-service packet-switched network”.
Different standardization organizations are working on ‘all IP’ 3G networks. Among them can be mentioned organizations such as 3GPP,
3GPP2, and IETF, as well as different industry forums such as 3G.IP and MWIF.
Other voice services will also be offered in close connection to non-interpersonal communication services. It will, however, be difficult to
separate voice services from data services. Voice is an essential component in many "data-oriented” services. Voice communication,
speech recognition and options such as Web-initiated voice calls and voice-activated WEB access are increasingly being added as options
in the fixed Internet world.
Any service that is created by using geographical location information as one of the components of the services can be categorized as a
location-based service. Location based services are business and consumer 3G services that enable users or machines to find other
people or machines, and / or enable others to find users as well as enabling users to identify their locations. Navigation is a good example
of a location-based service. Location-based services are especially essential regarding the 3G networks. These services are only
interesting in the mobile and wireless networks, and in the beginning it was predicted that location-based services would represent a high
proportion of services available in the 3G networks. However, the widespread success of location-based services is still to be seen.
MULTIMEDIA SERVICES
The provision of multimedia services, known primarily from Internet, will seriously begin by the introduction of 3G mobile networks. This is
due to higher capacity available for data services in 3G networks. Multimedia services are also relevant in GPRS and especially in EDGE,
where the available capacity facilitates the provision of services containing, for example, video, audio and text components. Multimedia
Messaging System (MMS) can be mentioned as a successor for the Short Message System (SMS) that has been a successful service in
the 2G markets in European countries. High expectations on MMS services are evident in different analysis, such as the above-mentioned
UMTS reports.
CORPORATE SERVICES
Remote access to corporate networks and services (intra/extranet) and tele-working has increased rapidly during recent years. Mobile
access to corporate IP networks has been underlined by the analysts as one of the vital services aimed at the business sector.
One of the important services in the future mobile networks is data (including Internet) services. These service types will be a subset of
the current fixed Internet service types like information, interactive and entertainment services. Some examples of information and
interactive services are news, weather, stock prices, horoscopes, sports scores, train times, restaurant guides, dictionaries, stock
trading, banking, ticket purchasing, m-commerce, insurance and car rental. Examples of entertainment services can be video/audio
services, gambling, chat or jokes.
Software Defined Radio (SDR) and Cognitive Radio are future technologies that provide a more flexible design for the wireless and mobile
industry, and at the same time these technologies enable the efficient utilization of frequency resources. However, correct deployment of
the technologies requires radical changes in the regulatory framework of frequency management.
Software defined radio (SDR) is a flexible radio architecture programmed through software, which is reconfigured depending on the usage
scenario. SDR consists of a programmable hardware base that is controlled through software, where different parameters, like power
level, frequency band and modulation are changed/configured depending upon the environments in which users move.
In Wireless Telecom, Issue 1 2004, called ‘Defining a Radio Revolution'[1], a good analogy is used between SDR and the emergence of
computers: ‘Before the commercialization of the PC, the typical business had many specialized devices. A typewriter was used for
correspondence. An adding machine handled various math functions. A drafting board and associated equipment might be required for
creating drawings. And so on. Each performed its assigned task very well, but for the most part each was a single-function device. No
matter how hard one tried, a typewriter would not add a column of figures, ... . As we all know, PCs changed that by creating a hardware
platform and an operating system, then allowing users to mount various programs on these as required. A single computer could become a
typewriter, a calculator, a drafting board, ... .’
In the current Hardware Defined Radio (HDR) era all the parameters in the radio access interface are fixed parameters that cannot be
changed. A GSM interface is designed for the GSM band, so a GSM phone cannot be reconfigured to work in a CDMA environment[2].
Therefore, using the analogy of the pre-PC era to the current HDR era, there are a number of specialized wireless devices for specialized
tasks. The SDR platform will, like PCs, create the possibility of changing the character of the device depending on the application and by
downloading different software modules.
SDR creates a number of regulatory challenges, especially when it comes to frequency allocation and management. For regulators, SDR
has the potential to bring radical changes to how spectrum is used, and therefore to the regulations that apply to radio communication
systems.
In the HDR era it is relatively easy to maintain frequency management, because ‘the manufacturer sets power limits and other restrictions
based on the regulations that govern the type of device being built, and the device must be certified before it can be sold. But in Advanced
Wireless Technologies and Spectrum Management…. the ITU suggests that if a device can change its function simply by loading a new
application onto it, the current, hardware-based approvals process will not be sufficient. (According to ITU) "This raises some difficult
questions for regulators since rather than focusing on the hardware elements of electronic devices... the key approval must lie with the
software that controls the radio'[3].
Furthermore, there are important issues related to the way the SDR market will emerge. In the SDR era (like PCs) one can acquire hardware
from one firm, software from another and the operative system from a third firm. Which one of these must be regulated? What if somebody
modifies the software, for example, to change the power level? These questions and uncertainties show that even though there are many
possibilities and flexibilities connected to the SDR development, there are also a number of challenges from the regulatory side to make this
revolution take place.
ENDNOTES
[1] http://www.crc.ca/en/html/crc/home/research/satcom/rars/sdr/news_room/wireless_telecom_sdr_apr04
[2] Another approach is to implement different hardware standards in the same terminal, like dual band, etc.
COGNITIVE RADIO
Cognitive Radio is a technology that could make efficient use of unused spectrum, potentially allowing large amounts of spectrum to
become available for future high bandwidth applications. Most of today’s radio systems are unaware of their spectrum environment; they
are designed to operate in a specific frequency band. A Cognitive Radio system senses and understands its local radio environment to
identify a temporarily vacant spectrum to operate in. Cognitive Radio would hop into unused bands of the radio spectrum and hop out again
if a primary user[1] of a band required that spectrum.[2]
Ofcom’s studies in this area are just commencing and no firm conclusions have yet been reached. The work undertaken into SDR suggests
that flexible, multi-protocol, multi-band Cognitive Radio systems are some way off. Handsets employing this technology are unlikely to
emerge before 2010. In the interim there is the possibility of specific band sharing technologies emerging, which would provide a stepping
stone towards the full Cognitive Radio vision.[3]
ENDNOTES
[1] For example a license holder to that part of spectrum
[2] Ofcom Technology Research Program
[3] Ofcom Technology Research Program
Fixed:
■ ADSL
■ ADSL2, ADSL2_PLUS & RE-ADSL2
■ VDSL & UDSL
■ Cable TV
■ PLC
■ FTTx
Wireless:
■ Wi-Fi
■ WiMAX
■ Satellite
■ Digital Broadcast Infrastructures
■ Wireless Mesh Networks
ENDNOTES
Source: Ofcom
In the NGN platform all of these different access technologies share the same IP core network. The main arguments for transition to the
NGN architecture are:
■ It is not efficient to maintain several core networks for different access networks. Substantial cost savings can be achieved due to
the economy of scope inherent in a single converged network. BT predicts[1] a reduction of costs by £1 billion per annum by
2008/2009 as a consequence of migrating to NGN.
■ According to BT, NGN enables improved time to market for new services and improves customer experience.
■ NGN enables the continued offering of services in the legacy access networks. For example, the analogue PSTN access line/service
does not need to be changed in transition to NGN. The main changes here are the efficiencies gained in the core network, especially
when one operator owns and operates several parallel core networks. The latter is the case for a majority of incumbent operators.
So the operator on the one hand utilizes the backbone efficiency gains and on the other hand continues to make profit from the
investments in the access networks.
■ NGN enables the provision of value added innovative services using the possibility that one core network is connected to and
manages different access networks. For example, a SMS can be sent to a mobile subscriber to inform the users if there are problems
with the operation of DSL.
These arguments show that the implementation of NGN is a radical change in the network architecture of incumbent telecom operators.
This raises the question of the role of regulation in this process: Should the regulators get involved in the practical implementation of the
NGN? The answer to this question is no, as it contradicts the new regulatory doctrine of telecom development, where the decision of
technological changes is taken on the market and by the market players/industry. However, the regulator must make this clear in setting the
constraints within which the industry should design their networks.
The role of regulation regarding NGN is on the one hand to make sure that effective competition can take place in the NGN era, and on the
other hand to make sure that the consumers and the level of services they receive are not affected in a negative way in this transition.
ENDNOTES
[1] Ofcom: Next Generation Networks: Further Consultation, Issued: 30 June 2005, Closing date for responses: 12 August 2005.
Due to the wide spread of the installed base of the PSTN physical infrastructure, PSTN has been the basis for fast and efficient
development and penetration of the Internet. In the pre broadband phase this was implemented by modulation of data signal in the same
frequency spectrum as regular voice in the copper access lines. The data capacity in this frequency bandwidth is small and it can reach
the maximum of 56 kbps. The next phase was introduction of ISDN, which improved the capacity and could offer 128 Kbps to residential
households.
While dial up PSTN modems and ISDN have had enormous impacts on the development of Internet access, today the Internet connectivity is
mainly influenced by different broadband technologies. The new IP broadband infrastructures are in the literature denoted as the New/Next
Generation Access technologies (NGAN). NGAN covers both the fixed (wired), wireless and mobile infrastructures, which enable IP
connectivity to the households and companies. The terms NGAN and broadband can be used interchangeably, however the important thing
is that NGAN is not only characterised by higher capacity networks but also by the two other main characteristics, namely: 1)'always on'
provision model, and 2)the flat rate business model.
With regards to the fixed networks the NGAN is mainly dominated by xDSL and cable modems. The advantages of the xDSL and cable
modems are the availability of the physical infrastructure and by that the low deployment cost. Other fixed technologies like PLC have been
on the market for some time, however it is difficult to see how this technology can compete on the NGAN market other than when it comes
to home networking, which is at best peripheral to NGAN. Another fixed network with huge potentials is the fibre access networks.
NGAN is also affected by the development of wireless and mobile technologies. Wi-Fi and WiMAX and their combination seems to have
huge potentials. Also satellite, broadcast and new mobile infrastructures are important in development of NGAN.
In this section the most important NGAN are described and organised in two major categories, Fixed and Wireless:
Fixed:
■ ADSL
■ ADSL2, ADSL2_PLUS & RE-ADSL2
■ VDSL & UDSL
■ Cable TV
■ PLC
■ FTTx
Wireless:
ADSL
ADSL (Asymmetric Digital Subscriber Line) is standardized such that the frequency bandwidth of regular telephony (below 4 KHz) on the
access lines remains for telephony service. Broadband is transmitted on two other frequency bands; one of them is allocated to the low
speed upstream channel (25 KHz to 138 KHz) and the other band is allocated to a high speed downstream channel (139 KHz to 1.1 MHz).
The theoretical maximum bit rate of 8.1 Mbps is defined by the standard, but the bit rates, which can be achieved in practical
implementations, depend on different parameters, for example, the distance between the household and the central, as the high frequency
band of the copper line gets strongly attenuated as the distance increases. This distance dependency results in a situation whereby some
households can simply not be reached by ADSL, even though they have access to PSTN infrastructures. Even in a country like Denmark,
which has quite an advanced PSTN infrastructure, in mid-2004 about 5% of households could not be reached by any ADSL services and
only 70% of the population could access a 2 Mbps connection.
As seen in the following, the new generations of DSL standards try to overcome these limitations and enable the DSL platform to be
competitive in the future broadband market.
A D S L 2 , A D S L 2 + & R E -A D S L 2
In the ADSL2 standards advanced technologies are implemented to improve the capacity/bit rate, to establishing QoS, and also to a lesser
degree to improve the coverage. Furthermore, ADSL 2 standard introduces radical innovations when it comes to power consumption,
monitoring etc. The extended possibilities for monitoring and control give the operators a tool to adjust the utilization of resources, so it
becomes possible to deliver reliable capacity in spite of external degrading parameters like ‘Cross talk’ and noise. Furthermore, improvement
of capacity is achieved by utilizing more efficient modulation technologies, reduction of overhead, deployment of efficient coding algorithms
and a number of other techniques. Over short distances it is possible to achieve bit rates of about 12 Mbps downstream and 1.2 mbps
upstream. Another way of achieving higher bit rates in ADSL2 is by bonding several lines. Here at the ends of the connection, multiplexing
and de-multiplexing is deployed to split a connection to several parallel connections at one end and reassemble them at the other end.
ADSL2 enables the implementation of QoS by, for example, splitting the bandwidth into different channels with different characteristics,
and reserving these channels for different applications. For example, it is possible to allocate a 64 Kbps of the bandwidth for the
transmission of regular telephony. This makes it possible to establish a transparent communication path for the transmission of PSTN
services (the so called CVoADSL) without IP conversion or conversion to other protocol. This is a technology that enables PSTN operators
to deliver efficient voice and data services. This is, however, not in line with the general VoIP development, which requires interoperable
technologies across different platforms.
In ADSL2+ the bit rate is increased by doubling the deployed frequency bandwidth, i.e. by including the frequency band between 1.1 to 2.2
MHz. As mentioned earlier, the high frequencies get strongly attenuated as function of distance, which implies that the increase in
bandwidth is only valid for short distances of under 2.4 km. Doubling of capacity can be achieved for distances less than one km.
RE-ADSL2 (Reach Extended ADSL2) is designed to optimize the coverage by increasing the power used in the lower part of frequency
spectrum in the upstream and downstream channels. Here it is possible to achieve coverage extension of about 900 meters, which
increases the potential market for PSTN operators considerably. The coverage problem is however not solved totally, as there will still be
areas where the PSTN operator cannot reach without changing of the current network.
VDSL enables capacities of about 52 Mbps, which are higher than the ADSL family. This is implemented by including more high frequency
bandwidth in the copper cables and by deploying more efficient modulation. Furthermore, VDSL enables high speed symmetrical
connections. The coverage of VDSL is on the contrary very short and is kept below 1.3 km. However, due to the aforementioned
characteristics of copper lines, the capacity is very much dependent on the distance, and at the maximum distance the achievable capacity
is about 13 Mbps. This implies that only in the very last part of the network (from street cabins to households) the current installed
infrastructure is used, and a backbone network infrastructure must be established to supply these street cabins. This backbone network
will mainly be based on optical fiber technology. Furthermore, this implies that compared to ADSL the cost of deployment is very high.
There are some limitations to VDSL, for example, the co-existence between VDSL and ADSL is a challenge due to interference.
Interference from AM radio is also a source of problems for VDSL. Furthermore, there is a problem of supply of electricity to the street
cabins, as in regular telephony it has not been necessary to have a power supply to these cabins. When it comes to interoperability, there
are some advantages to using VDSL (at least in the short term), as it will be possible to offer symmetrical 10 Mbps Ethernet connections.
VDSL2 is under standardization and the aim is to offer bit rates of up to 100 Mbps.
UDSL developed by Texas Instrument is the newest variant of DSL, which tries to utilize the un-utilized resources in the Copper network,
and to give the PSTN operators the possibility to be competitive on the broadband market. UDSL promises aggregated bit rates of up to 200
Mbps, including 100 mbps symmetrical connections.
Uni-DSL comprises the whole DSL family: ADSL, ADSL2, ADSL2+, VDSL, the coming VDSL2 standard and UDSL. Hence the platform gives
the operators a flexible possibility of offering a number of different connections to their customers. However, it is important to mention that
offering high bit rate connections cannot be done using the current PSTN infrastructure and, as discussed in relation to VDSL, it requires
the establishment of a new infrastructure and the use of the part of PSTN networks close to the households.
CABLE TV
Cable TV infrastructure is another infrastructure with a huge installed base and with great potentials for delivery of broadband
connections. The penetration of cable TV networks varies from country to country. In Denmark, for example, cable TV penetration is about
70%.
A cable TV system is a distributive system, where the resources are organized as a number of 8 MHz channels for broadcast TV
distribution. Cable TV systems have a huge capacity; however, the total capacity depends on how modern the system is and,
consequently, on how much frequency bandwidth of the coax is utilized.
When cable TV infrastructure is used for broadband provision, a number of 8 MHz channels are allocated to broadband provision. In an 8
MHz channel, it is possible to transmit between 27 and 56 Mbps depending on the deployed modulation technology and some other
parameters, such as level of error correction. To enlarge the IP/broadband capacity in the cable TV system, several solutions can be used:
· Using new standards with more efficient modulations technology
· Modernize the cable TV system and utilize more frequencies (channels) in the system
· Reallocate more channels from TV to broadband
· Digitize the cable TV distribution system. Consequently, one TV service will occupy fewer frequencies and in this way it is
possible to free some resources for IP services
Or more radically:
· Remove dedicated TV transmission and use the whole capacity for IP and also deliver TV over IP. This solution is however
strongly dependent on the development of IPTV technology
Cable TV infrastructure is optimally positioned in the future broadband market due to its capabilities in offering triple/multi-play services. This
is because the network is optimized for TV distribution and capable of delivering broadband. Many other broadband infrastructures face a
huge challenge in delivering broadcast TV.
One of the weaknesses of Cable TV network in relation to broadband is that it is a shared medium, i.e. a number of users share the
capacity in a network segment. Another problem which is connected to the current structure is that it is not a simple task to open the cable
networks to a third party operator and establish competition. This is both due to the ‘shared medium’ aspect and because the cable TV
networks are not standardized.
An important element in the utilization of Cable TV structure for broadband is the introduction of VoIP with QoS support. Particularly in
DOCSIS 1.1, there are specific procedures for establishing prioritization to minimize delay and jitter which are highly necessary for VoIP.
The problem is, however, that because of the aforementioned problem of opening the network to third party operators, the general ‘best
effort’ VoIP operators cannot take advantage of these QoS improving measures.
PLC
For the promotion of competition, the establishment of new access infrastructures has been very important (”Several pipes to the home”),
and in connection to this, broadband over power lines has been discussed, especially in Europe, for many years.
PLC utilizes the high frequency part of spectrum in the existing power line infrastructures. Electricity supply is provided in the low 50-60 Hz
band and the frequencies over 1 MHz can be used for broadband. With regard to the capacity, PLC has been able to match DSL
technologies in recent years. One of the important arguments for utilizing PLC as IP infrastructures has been the ubiquity of the physical
infrastructure. Power line infrastructures have very high penetration and the idea has been that one can use this infrastructure to offer
broadband in an easy way, and without establishing a totally new physical infrastructure. Another aspect is that all rooms in a household
are connected to the power line infrastructure, and this allows for new and innovative services within the ‘intelligent home’ technologies
paradigm.
PLC has suffered from several problems with noise and interference, which are solved today to a certain degree in the low voltage part of
the power line infrastructure. At EU level, the EMC-directive is the only regulatory tool which can be used to assess the level of
interference, and there is no agreement for harmonizing the interference requirements within power line (and other fixed infrastructures
like xDSL). The EU recommends that the member countries remove any barrier to the development of services over PLC.
Even though the major technical obstacles like noise and interference are being solved, there are not that many market players (within and
outside the power line business) that see any future for this technology as a means to deliver IP/broadband services. For more
discussions about techno-economics of PLC, please refer to part III.
In Denmark, for example, only one power Line Company has commercial trials with PLC but they are planning to out-phase it and replace it
with FTTH (Fiber To The Home) connections. Other power companies that have a very solid broadband business have decided not to put
any efforts for PLC technology from the very first day and solely deploy FTTx technology in their networks. This is, however, the main
tendency in power companies’ involvement in the IP business and what is evident is that the power companies get more and more involved
in the IP/broadband business, but mainly by focusing on fiber technology.
PLC is deployed in a niche market with low scale in connection to some FTTx solutions. For example, when a big apartment complex is
supplied by fiber to the cellar, connecting the apartments to this fiber requires that either the suppliers extend the fiber to all apartments,
they establish a new electrical cabling to the apartments, or they use PLC to deliver broadband to the apartments. Here it has been shown
that PLC is a good solution when the number of interested apartments is low. The strategy of the provider in this case is typically that the
PLC is used only for Internet connectivity, and real triple/multi-play may wait until new broadband infrastructures are established.
FTTX
Optical fibers are broadband infrastructures with huge potentials. Here the physical capacity is not indicated by Mbps but by Gbps, and
with regard to coverage we talk about distances of around 10 km from the central points. Even though it is possible to offer capacities of
Gbps, these capacities are not implemented at the end user's site. Different reasons for this are, amongst others, cost of termination and
the resource planning, as well as pricing issues at the service provider side.
Optical fiber infrastructures are implemented using different architectures which can be denoted commonly: FTTx (FTTHome, FTTArea,
FTTCabinet, FTTCurb etc.).
The cost of deployment of the optical infrastructures is higher than other broadband technologies, but the broadband products which can
be offered in the fiber infrastructures are incomparable with the traditional broadband. The development in the last couple of years shows
that the implementation of fiber infrastructures is becoming more and more viable, and that power companies in particular have been very
active in the area. This is mainly due to the decreasing cost of fiber, the decreasing cost of termination equipments, general liberalization
and the possibilities for offering triple/multi-play.
WIFI
The wireless network standard 802.11, which has gained a lot of attention, was published by the Institute of Electrical and Electronics
Engineers (IEEE) in 1999. Several variations of the standard have been published since, of which the best known is IEEE 802.11b, better
known to the public as Wi-Fi (Wireless Fidelity). The 802.11b standard uses the unlicensed Industrial, Science and Medical (ISM) band. In
the absence of licensing barriers, and because of the simplicity of the technology and its cost effectiveness, Wi-Fi networks have
developed rapidly in both industrialized and developing countries. Indoor coverage of 50 to 100 meters is normal and depending on the
standard, bit rates of 11 to 54 Mbps (in some proprietary versions even more) are possible. It is, however, important to mention that the net
data capacity is far below these figures, as depicted in the following figure:
Actual capacities in Wi-Fi, IEEE802.11b (Source: Measurements carried out by Lars Staalhagen, one of the researchers
at COM center, Technical University of Denmark.)
Furthermore, the capacity in a WLAN is shared and the available capacity per user depends on the number of users connected to an
access point. Wi-Fi coverage can be extended using outdoor antennas, and point to point connections can also be established using Wi-Fi.
WIMAX
WiMAX is the popular name of IEEE802.16 standard, which may become the international FWA standard. Other FWA standards have
shown not to be competitive in the access networks. In some cases FWA is used for business users and in the backbone network. FWAs
lack of success in the access networks is due to different reasons; among others the lack of open standards and the requirement for Line
of Site in the installations.
WiMAX is also developing to become mobile. It may be fixed wireless access now, but is expected to go mobile in 2008. The term FWA is
also changed to BWA (Broadband Wireless Access), which encompasses both FWA and mobile wireless access.
WiMAX is, like Wi-Fi, becoming a standard, which is supported by several market actors. WiMAX is forecasted to be a simple and cheap
technology with long coverage and high capacity. Coverage of 50 Km and capacity of around 70 Mbps is a reality in this technology. It is,
however, important to note that the capacity offered over long distances is only a fraction of the maximum capacity. And WiMAX as
access technology is offered in distances of 5 to 10 Km. WiMAX will then be a good complementary/competitive infrastructure to traditional
broadband. Another important aspect is that 70 Mbps will only be achieved if frequency bandwidth of 20 MHz is allocated and assigned by
the local authorities. Many regulators will probably assign smaller frequency bands to the potential WiMAX operators.
SATELLITE
The history of satellite communications can be traced back to an article by the British science writer Arthur Clarke in the British Magazine
“Wireless World”. He pointed out that if a satellite could be flung into an orbit 36,000 km above the earth, it would travel at the same speed
as the rotation of the earth. It would thus appear to be stationary and would be in line of sight for sending and receiving stations at about
40% of the globe. Clark concluded that only three satellites would be needed for global communication.
The first satellite (Sputnik) was sent up by the former Soviet Union in October 1957, but not in the geo-stationary orbit. The first geo-
stationary satellite was sent up by the US in 1963. The satellites were primarily designed to enable a high-capacity transmission medium for
the increasing international telephone traffic. The development of optical fiber technology was also intensified at that time. The optical fibers
proved to be competitive with satellite communication in handling international telephone traffic. One of the alternative uses of the satellites
that turned out to be a success was broadcasting, both as a means of distribution to the transmitters and relay stations, but also as direct
broadcasting to end-consumers.
It is possible to use satellite for the provision of broadband connections. Here the return path must be established through other networks,
like PSTN. The technology used for implementing down-stream IP connectivity is IP data Cast (IPDC). IPDC can also be used in terrestrial
broadcast networks and is seen as a viable candidate to offer broadband services to mobile devices in combination with the regular mobile
networks. Another implementation of satellite networks, which is highly costly, is implementation of two-way satellite link using VSAT
technology. This is mainly used as backbone technology and as access technology to business users, mainly in the parts of the world that
are far from fiber backbones. Developing countries are the main users of VSAT.
Digital broadcasting denotes a broadcasting system where the broadcasting signal is digitalized. The digital signal at the end users’ site can
be fed directly into the integrated digital receivers, or in a transition period, e.g. regarding TV, through a set-top-box to a regular analogue
TV receiver.
Digital broadcast denotes a set of standards that aim to distribute broadcast signals in digital form in a specific and standardized way. In
this set of standards room is also created for the transmission of data services. Data services in Digital broadcast standards are either
stand-alone data services or program related data. Digital broadcast standards are not worldwide standards and different markets apply to
different standards: European DAB &DVB, US ATSC or Japanese ISDB standards. The main block of the Digital TV standards, namely video
compression standard MPEG-2, is deployed in the majority of standards.
Because of specific characteristics of different infrastructures, different standards apply to different infrastructures. In the European DVB
standard, different sets of standards are developed for all current infrastructures (Cable, Satellite and terrestrial). DVB standards are
widely used all over the world in terrestrial, cable and satellite digital TV. In some markets, combinations of different standards are also
used.
For analogue broadcasting each TV program requires its own set of frequencies. A transmitter distributes the program and as a
transmitter; for example, terrestrial broadcasting has a limited coverage area countrywide, and regional distribution requires the deployment
of several bigger and smaller transmitters. The different transmitters must use different frequencies to avoid noise or disturbance. The
result is that a set of frequencies is necessary to cover a country with one TV program.
For users, digital broadcast will offer many advantages over analogue broadcasting, such as better technical quality, more programs and
services on a given set of frequencies, and the option of multimedia and interactive services. This development is an expression of
converging media: digital broadcast platforms will integrate elements from several different media, computers, telecommunications and
broadcasting. The shift to digital broadcasting is not simple, however, as it introduces a range of interrelated political, economic and
technical challenges. Some of these challenges are specific to the mode of distribution: satellite, cable or terrestrial, with the latter having
special problems and potentials.
The services that will be feasible in the digital broadcasting networks will go beyond traditional TV and radio and encompass a range of
new services like:
· Enhanced text TV. By using graphical tools, hypertext etc. the text TV in digital version can be more advanced and usable.
· Download of software. The broadcasting networks are mostly used in the day and evening hours. The transmission capacity at
night can be used to download, for example, new versions of software to the set-top-boxes.
· Download of newspapers. In the same way newspapers can be downloaded to the set-top-boxes.
· E-commerce. The products can be ordered by remote control, e.g. during advertisement.
· Internet on TV. Access to the Internet as known in the communication networks will not be possible because of capacity-per-user
problems of digital TV networks. Here the solution can be to broadcast a limited version of Internet, e.g. sites that are seen
relevant from a political/societal perspective.
As seen, there are a number of possibilities to utilize the potentials of digital broadcast networks to offer data service and therefore to use
it as a tool to reduce the digital divide.
As the basic technologies are now ready, solutions to two sets of regulatory issues are pertinent for the development and diffusion of
terrestrial DVB. One set of issues is related to the concept of Public Service Broadcasters. In almost all countries, cultural policy
considerations have given rise to privileges and obligations for a few broadcasters. There is general acceptance of the need for the
continued existence of Public Service Broadcasters, but to what extent are they needed in the context of new services? There are some
parallels to be drawn in the discussion of Universal Service in telecommunications, but the emphasis on content in broadcast regulation
adds new dimensions to the discussion. These regulatory problems are, however, not the focus for this paper.
The other set of regulatory issues is related to new facilities such as multiplexing (management of frequency sharing), Electronic
Programming Guide (EPG), and Conditional Access (CA). The organization of the multiplexing function becomes crucial, as digital
broadcasting allows a number of content providers to share frequencies traditionally allocated to one channel. The EPG represents users'
entrance to the digital services. Especially for small language areas, the strong presence of national programs makes cultural policy and
some regulation a high priority in relation to these functions. Conditional Access regulates entry to services typically via an entrance code
on a PCMIA-card. From a user’s perspective, it is essential that entry control is standardized and does not require different hardware for
each content provider.
In a Mesh network topology all the terminals connected to the network also act as a repeater and relay information to other users in the
network. Mesh networks have been developed for a number of years for military purposes. Recently we can see signs for commercial use
of the concept, especially in the Wi-Fi Mesh networks. A number of different applications can use Mesh networks. Ofcom has listed a
number of applications in a recent report; however, these are only some examples:
■ Military, emergency and disaster relief activities which cannot depend on infrastructure.
■ Sensor networks
■ Hotspot extension of urban public wireless access
■ Rural Community Networks Lecture hall or convention hall networks
■ Integrating PAN (Personal Area Networks) devices (for example PDA phones) into the WAN
■ Home networks
1.5 Convergence
The traditional broadcasting and telecommunication industries have co-evolved with the developing Internet, but the technological
development is making this current sectoral distinction un-sustainable. Content and service provision has already taken place across the
traditional sectoral boundaries for some time. Different services can be carried on different infrastructures and the end users’ access
equipment will be designed to communicate with different services. This process of fusion of content, service, infrastructure and end user
equipment is denoted as convergence. This convergence process is illustrated in the Figure 1:
Figure 1: Convergence Process
■ according to the European Commissions Green Paper on convergence, it can be expressed as: 'The ability of different network
platforms to carry essentially similar kinds of services; and
■ the coming together of consumer devices such as the telephone, television and personal computer'.
In the Green Paper it is furthermore stated that 'Convergence is not just about technology. It is about services and about new ways of
doing business and of interacting with society'. This approach is interesting regarding the objective of this project to identify broader
implications of the technological parameters on market development.
Services like VoIP and IPTV are important drivers of future ICT infrastructures. The following two sub-sections describe these two
services.
VOIP
VoIP is an application that uses IP infrastructures, including the Internet to transmit voice telephony from point A to point B.
For a long time, POTS (Plain Old Telephony Services) was seen as a natural monopoly. In the new regulatory paradigm, it is generally
accepted that the networks must be opened up for competition through unbundling and interconnection regulation. However, within the
traditional telecom paradigm, competition will at best exist between a few actors in an oligopolistic market. The central reason for this has
its roots in the technological architecture of infrastructure and service development platforms.
The POTS network is a dedicated network, which is optimized for voice communication. Because of the deployed technology and the
way POTS services have historically been organized, a centralized structure has been implemented to offer POTS. Two network layers
are deployed in parallel in order to establish a network connection and to transmit services between points A and B, the so called
transport and signaling/control layers. Consequently, service creation and provision require access to both the control/signaling layer
and the transport layer of the network, which in turn requires access to the whole telecom infrastructure. Even though interconnection to
the POTS networks is possible, there are still large entry barriers for newcomers to offer services in the POTS networks. The
precondition for service provision in POTS is access to all infrastructure and services development platforms, which requires huge
investments.
Using VoIP has gradually changed this situation and, through the convergence process, has opened up new conditions for service
development. Using VoIP technology and the general Internet as backbone, new providers can offer competitive prices, particularly for
long distance and for international calls. The transmission of the service over long distances within the Internet is much cheaper than
keeping the service within POTS, with its distance-related cost structure and interconnection pricing schemes. The entry barriers for
these service providers are lower and the number of them is increasing, contributing to the overall competition in the public voice market.
IPTV
For a number of years, Video and Audio services have been distributed within the IP-based network, including the Internet, using streaming
technologies or by downloading the video/audio materials.
IP TV/radio denotes the delivering of TV/radio over IP protocol. IPTV can be transmitted in different networks that are based on the IP
protocol. One of the major IP networks is the Internet, but Internet is not the only IP network. Dedicated/Managed IP networks can be
established, and in current networks the IP protocol can be used widely without having specific relations to the Internet. One of the
examples for dedicated networks is cooperative networks or Local Area Networks in the firms and residential areas. Managed IP
networks have an obvious advantage for the distribution of IPTV compared to the Internet, because it is possible to maintain certain levels
of QoS in these networks. In Managed networks, the network provider can allocate resources such that different services/applications
perform in the most optimal way, where in the Internet it is a complex issue to guarantee specific level of service quality.
RELATED INFORMATION
These implementations are then likely to give rise to the further advanced development of infrastructure networks, including ubiquitous
networks, the portable internet and the automated Internet of things, rather than people. Furthermore, many new technologies are expected
to be smaller scale and cheaper to deploy, so this will change investment cycles and patterns. Smaller players will be able to enter markets
and fuel network expansion with relatively small scale investments.
The key elements of both the second wave and the third wave of technological changes thus impact the techno-policy environment.
Pursuing the overall more multi-faceted and complicated objectives will, however, also influence the technological trends. This
interrelationship implies that the overall problem area of regulation includes a list of parameters resulting in multi-dimensional success
criteria, compared to the more simple success criteria of securing competition and universal service in the first bundle of reforms. This is
not to argue that the first bundle of reforms has succeeded in introducing full competition as the general market structure. This is still an
important issue in most markets, but the second and third wave of technology introduces new challenges that have to be addressed by
regulators based on national policies for the development of ICT.
■ national e-strategies;
■ multi-stakeholder projects involving the private sector in partnership with public bodies;
■ infrastructure projects;
■ broadening access to ICTs;
■ international and regional cooperation;
■ access to information - create online libraries and provide open access to public and research data;
■ policy and regulation;
■ capacity-building;
■ online education, medicine, business, government;
■ security; and
■ cultural issues.
This very broad approach to promoting the benefits of ICTs can be seen as an illustration of the idea behind the concept of the "Third
Wave": ICTs basically have qualities as one of the emerging generic technologies, the others being biotechnology and nano-technology.
There are two main dimensions in the generic aspect of the ICTs; One is related to the effects on the potential commercialization of
services, and the other to the effects on the internal structures of companies and associated transaction costs, often discussed as "virtual
organizations."
[1] Proposed at the World Summit on the Information Society, Phase I, Geneva, December 2003 and confirmed at
Phase II, Tunis, November 2005.
[2] http://www.itu.int/wsis/tunis/newsroom/background/wsis-stocktaking.html
MARKETED SERVICES
It has, however, become clear that even if ICTs are truly generic,[1] their impact have been most profound on knowledge and information-
intensive services like entertainment/broadcasting, consultancy and banking, publishing and education.
Before the development of new ICTs, services typically required simultaneousness in production and consumption, even in the information-
intensive services mentioned.
This situation has completely changed now that services can be digitalized and transmitted on communications networks. For information-
intensive service elements, the introduction of computerization creates possibilities for dividing the processes of service production into
different components, i.e. division of labor, and for transporting and assembling the components at various places, i.e. international division
of labor and trade. This opens a window of opportunity for developing countries to enter the international production process at a new
level as actors in a global service sector. India has been the prime example, with back office functions, call centers, airline ticketing and
software production, but other countries are following.
This is, however, not a straightforward, fully technically determined process. The technical possibility of delivering a service to a party
located at a distance is a necessary element and a precondition for the division of labor and trade in the classic and narrow sense of the
word. However, the sheer technical possibilities are not sufficient to develop and realize the potentials. The economic and institutional
framework must accommodate for and allow the new possibilities enabled by technology.
Very basically, the electronic processing of information presupposes a codification and division of information-intensive working
procedures that hitherto have been embodied in individuals[2]. Once divided into components, the introduction of telecommunication
technologies enables the transporting of information-intensive service elements. Having established a technical possibility for transportation
of service elements, the transaction procedures and legal factors will influence the realization of the potentials for transport. This means
that the ongoing liberalization processes, for example, in the WTO, that cover various attempts to increase the level of competition by
means of deregulation of the markets for services, are crucial for the actual impact of the potentials for increasing international division of
labor enabled by ICTs.
Even if all the technical, economic and political/cultural factors are positioned to enable the international division of labor, trade is not
automatically happening. At least one of the parties involved must usually benefit in an economic sense, and they must be interested and
capable of agreeing to trade.
The introduction of ICT in the service industries as sketched out above begins a process that is similar, but not identical, to the
industrialization of the material producing industries in the 1700- 1800 years. As it was the case in the traditional industrialization process,
the socio-economic implications are not limited to the division of labor and industrialization. The development in ICT communication networks
and services also influences the organization of firms and their relations to the market.
VIRTUAL ORGANIZATIONS
The possibilities for new organization forms are attracting growing interest from business managers and researchers. These new
organization forms – often referred to as “virtual” organizations – are posited as radical departures from the traditional, hierarchic,
bureaucratic and co-located modes of organizing that dominated the twentieth century. In contrast, the characteristics of the new, virtual
organization forms are seen to be dynamic, networked, distributed, digital, flexible, collaborative and innovative. There is a strong focus on
the ability to operate in an increasingly distributed and networked manner, with people, resources and activities located in different parts of
the country or across the globe.
The growing interest in these new virtual and networked organization forms is motivated by fundamental macroeconomic, legal and cultural
changes associated with the ongoing processes of globalization. All these changes challenge the traditional modes of organizing, and
force corporations and their managers to rethink and revise their ways of organizing work and conducting business in the new, global
economy. This creates new opportunities for developing countries, as discussed above, but it is also challenging the possibilities for
creating national strategies – e.g. for ICT-development – in a global economy.
Pervasiveness of ICT services
The regulatory implications are obvious. If new technologies are taken up by the market but not by the incumbents, more competition will be
introduced and less regulation is likely to be necessary. Not only can regulation be scaled down once new and disruptive technologies gain
important market shares, but regulation should also pave the way for the introduction of new technologies that will have a disruptive effect
on the market and no only constitute sustaining innovations.
However, the ability of incumbents to take up new technologies is often underestimated. Incumbents may not be the first in the market to
introduce new technologies that do not build on existing technology solutions. But once it becomes clear that new technologies gain
sizeable market shares or have obvious potentials, it is often seen that incumbents are able to include new technologies in their product
portfolio – even though they may, at first, have been considered as potentially disruptive. Wi-Fi is up for discussion as an example. In some
cases Wi-Fi operators disrupt the market; in other cases Wi-Fi is offered by incumbents. When Wi-Fi first hit the markets, there was a vivid
discussion as to the potential disruptive character of this technology. It could eventually substitute for existing mobile solutions and thus
constitute a threat to existing mobile operators. However, Wi-Fi has also been taken up by many incumbent mobile operators and
complements the existing mobile services offered. This does not mean that Wi-Fi or other wireless solutions do not, in different cases.
substitute for existing mobile solutions, but it means that Wi-Fi does not necessarily disrupt the market. Wi-Fi often complements the
services offered by mobile incumbents.
There are, nevertheless, technologies that turn out to disrupt the markets. History has documented this. However, it is difficult ex ante to
determine whether a technology is disruptive or sustaining. This will have to be determined ex post. The issue of disruption is not only a
technology issue. It cannot be determined whether a technology is disruptive just by looking at its technology characteristics. Disruption is a
market issue and the degree of disruptiveness will be determined on the market by the market players.
Still, public policy and regulation should seek to pave the way for the introduction of as many new and potentially disruptive technologies as
possible. Though incumbents will be able to adopt the new technologies, new technologies will also open the market to new and alternative
players. The end-result may eventually be major disruptions through cumulative innovations even though it did not seem that way at the
beginning. It will, at any rate, be an advantage to the users to have as many alternative offers as possible, technologically as well as with
respect to supplying market players.
RELATED INFORMATION
VoIP
IPTV
Wi-Fi
WiMAX
2 Market and Regulation
This section analyzes the implications of new technology trends on specific market and regulatory issues. Following technology trends are
considered:
1. Internet
2. Mobile communication
3. Next Generation Access Networks (NGAN)
4. Convergence
The impacts of technology trends on regulation are either direct or mediated via their impact on market conditions. Therefore both market
and regulatory implications are included. The section is organized as follows:
Market Structure
■ Service innovations
■ Network innovations
■ Vertical Separation – the Scope for new Business Models
■ Horizontal integration
Price regulation
Interconnection
(Re) Licensing
Universal Access
Spectrum management
Numbering
INTERNET
In spite of impressive growth rates of the Internet with respect to the number of users and number of subscribers, the revenue collected
from provision of Internet services is far lower than that of mobile communication, and the penetration is also substantially
lower, particularly in developing countries. The digital divide between developed and developing countries is much wider with regard to
access to the Internet than for mobile communication. While the penetration of mobile subscribers is four times higher in developed
countries than in developing countries, the penetration of Internet subscribers is eight times higher. In addition to this, the bandwidth
available is higher in developed countries.
Several low income countries have, however, achieved comparable high penetration rates. These include Bulgaria, Romania, Belarus,
Guyana, São Tomé and Principe and Moldova. Countries like Jamaica, Chile, Barbados, Latvia, Estonia, Slovenia, Taiwan, Malaysia,
Singapore and Hong Kong have also obtained higher penetration rates than other countries with comparative income levels. According to
OECD, a major cause to their success is their implementation of regulatory reforms, including market liberalization, competition and an
independent regulator (OECD: Communications Outlook 2005).
The importance of the Internet as a telecom service goes far beyond its share in the telecom revenue. The Internet has provided the
infrastructure for an entirely new way of doing business and has in this way facilitated the creation of a new business service sector. In
addition to this provision of Internet services is the driving force behind the growth of demand for broadband. This contributes to more
facility-based competition as the demand for broadband has driven the market for alternative access network infrastructures, such as
hybrid cable TV networks and Wi-Fi. The economics of such infrastructures are further explored in the section below on network
innovations.
The Internet is also instrumental to both convergence and vertical separation. The Internet provides a common platform for a wide range of
services and thereby facilitates way convergence between different services. Provision of IP/Internet services can be done through the
use of several different types of network infrastructures, and many Internet service providers do not own their own physical network
infrastructure.
One of the most debated services, with a profound impact on the whole structure of the telecom sector, is VoIP, although in its infancy, this
service poses a threat to the traditional business model for voice telephony. VoIP is further discussed in the section on vertical separation.
■ The telecom market has developed from a single service to a multi-service market. This raises a number of questions for regulators
and a need for reformulation of the concept of network access. Is access to fixed telephony more important than access to mobile or
Internet services? Can barriers to access be reduced for all services? Should different services be regulated differently?
■ Mobile services have become more widespread than fixed services. Mobile markets are generally more competitive than those for
fixed services. Mobile services are often provided through the use of business models different from those used for provision of
fixed telephony services. This raises new set of issues with regard to consumer protection and competition.
■ Internet is less widespread than mobile services in particular in developing countries. The socio-economic impact of Internet services
can hardly be overestimated. The Internet provides a common platform for a wide set of services such as World Wide Web and e-
mail, services widely used by almost any type of business. Ensuring wide access to this service is therefore extremely important for
both economic and social development.
MOBILE COMMUNICATION
Mobile communication services have from the mid-90’s developed from being a supplement to fixed telephony reserved for a selected few
to become an industry in its own right, and partly independent of the fixed telecom operators. In 1994 the revenue from mobile services
constituted less than 10% of the global telecom service market, and the number of subscribers was around 50 million, compared to more
than 600 million fixed-line subscribers. In 2002 the number of mobile subscribers exceeded the number of fixed-line subscribers, although
the revenue was still somewhat lower than that coming from fixed services.
Particularly in Africa, mobile communication has led to a significant improvement in access to telecom services, as the penetration of mobile
phones is almost three times as high as the penetration of fixed telephony. This is compared to the rest of the world, where the number of
mobile subscribers is only 50% higher. Mobile has also played a remarkable role in improving access to telecom facilities in low income
countries in Asia.
Density of fixed and mobile services in African Region
The rapid take-up of mobile communication services, particularly in developing countries, is due to two different factors:
1. Establishing mobile communication networks is less costly and the necessary investments in infrastructure are lower than for fixed
networks.
2. Mobile markets have from the beginning been more competitive and less regulated than markets for fixed services.
As discussed further in the section on network innovations, mobile networks can be established at much lower costs than fixed networks.
This relates to the fact that a substantial part of the infrastructure investments in a fixed network lies in the local loop.
The combination of lower costs and the fact that mobile communication in many countries has been introduced after liberalization of the
telecom sector, has led to a more competitive market structure right from the beginning.
It follows from the figure that in particular in the African region, mobile markets are far more competitive than fixed-line markets. In many
countries, mobile services were first introduced by a new entrant, often with international backing. The national interests in maintaining a
monopoly market for mobile services have therefore been smaller than for fixed services. Although tariffs are still higher than for PSTN,
mobile communication provides an alternative to fixed lines and contributes therefore to a more competitive environment in the entire
telecom sector.
Another positive impact relates to a high degree of internationalization among mobile operators. A number of mobile operators, first of all
Vodafone and Orange, are established in several countries. International mobile operators with access to international capital markets
account for a substantial part of mobile network investments in developing countries. In Africa, 26 out of 52 million mobile subscribers in
Africa are served by foreign operators[1].
Finally, the introduction of the prepaid business model seems to have been a key for stimulating the demand in the least developed
countries[2]. Prepaid services are more affordable for low volume costumers, and the service can be provided without rating of
consumers’ creditworthiness.
Status of competition for fixed lines and mobile by region
Source: OECD Communications Outlook 2005, OECD 2005 http://ocde.p4.siteinternet.com/publications/doifiles/932005011P1_ch11-
e.xls
ENDNOTES
[1] This figure is calculated on basis of J. Whalley & P. Curwen (2005), on the assumption that Vodacom (partly owned by Vodafone) is
seen as a foreign company, 2003 figures.
[2] ITU: The Application of Information and Communication Technologies in the Least Developed Countries for Sustained Economic Growth.
Geneva 2004.
This section provides an overview of trends in the cost structure of existing and new types of communication networks.
Note: Other includes Wi-Fi, Metro Ethernet, Fixed Wireless access, Satellite etc.
Source: ITU: Trends in Telecommunication Reform 2004/05. Geneva 2004
Broadband Market Shares of incumbents and new entrants by technology in EU (Jan. 2005)
Note: 79.1% of the BB connections were using xDSL
Source: European Commission: Broadband access in the EU: situation at 1 January 2005. COCOM05-12 FINAL Brussels, 1 June 2005.
COPPER-B A S E D T E L E C O M N E T W O R K
The major advantage of this network is that it is widely available. In industrialized countries there is almost universal access to this
network, and in all countries the network can be accessed in the major cities. In those areas, use of existing infrastructure facilities is still
very competitive in providing most types of services. However, in areas not covered by copper-based networks, use of other network
technologies is likely to offer a cost efficient alternative.
The network is usually operated by the incumbent operator, which in many cases is fully or partly owned by the public. The copper-based
networks are established in markets with monopoly, and are therefore designed for covering the entire market. Efforts have been made to
introduce competition through demands for unbundling of facilities and interconnection with other networks.
To establish a copper-based network demands substantial long term investments in particular in the access network. Existing copper-
based networks have gradually been expanded during several decades and their architectures are not optimized with regard to use of
current technologies. If an entirely new network were to be built today, it would not be based on use of copper-based technologies, and
the design would therefore be very different from those of today’s copper-based networks operated by the incumbent operators.
One problem is that networks are designed mainly for carrying POTS, while a growing share of the traffic is based on IP or other data
communication protocols, and in some areas there are problems with capacity and quality of service.
Network costs depend on the kind of network design applied. The most recent detailed cost analyses are those made for calculation of
interconnection charges using forward-looking cost accounting methods, such as long run average incremental costs (LRAIC), used within
the EU, or total element long run incremental costs (TELRIC), which are used in the US. These types of cost analyses are to a certain extent
based on existing basic network designs, but with use of the most recent transmission technologies. It should be noted that the outcome of
such analyses highly depends on the assumptions made, and very different results may be obtained for different network architectures
and geo-types.
A survey of cost analyses made shows that access costs constitute 35-50% of the total network costs. Here the major cost driver is total
cable length, which again depends on the number of connections and the density of customers. Therefore it may cost as much as five
times more to connect customers in rural areas than in metropolitan areas. A major part of the costs are related to the laying of cables
underground. Here substantial savings can be obtained through the use of ducts that can be shared between several cables. The digging
costs are highly dependent on the geo-types. Here it should be noted that digging costs per km often are much higher in metropolitan areas
than in the open land.
The costs of copper-based networks are affected by the following technological advances:
■ Today the copper-based trunk network is replaced by an optical network, while the access network is still based on copper lines.
Installation of fibers has reduced the cost of capacity in trunk networks considerably.
■ Digitalization of switching facilities and use of packet switched transmission technologies has reduced switching costs.
Implementation of Next Generation Access Network technologies will reduce transmission costs even further. Altogether these trends
imply that the cost of the copper-based access network constitutes a still larger share of the total network costs.
However, technological advances are also taking in this part of the network. As discussed in other sub-section, alternative access
networks offering lower costs or higher capacity have been developed, but in areas where investments in copper-based access
networks have already been made, the development of technologies offering more capacity on existing access facilities is at least as
important.
It is possible to upgrade the copper-based access networks to carry high-speed services through the use of xDSL technologies; the
possible capacity depends on the length of the copper cables and the quality of the network. The bandwidths offered here range from 128
kbps to 10 Mbps. xDSL is the most widespread access technology for broadband access as 57% of all broadband connections use xDSL
(end 2003).
Provision of higher bandwidth will often, but not always, require more investments in the access network, and of course more capacity in
the core network. By all means, the capacity is much lower than in optical networks. On the other hand, the additional investments needed
for upgrading the network are only a fraction of what is needed for the establishment of an optical network.
Cable TV networks were first established to provide broadcast services. The availability of cable TV networks varies from country to
country. In some countries, like the Netherlands and Belgium, this service is available to 80-90% of the households. In some countries this
service is only available in major housing complexes, while other countries are virtually uncovered.
The ownership structure is also very different in different countries and in different areas. Sometimes the networks are owned by local
communities, sometimes by the municipalities and sometimes by private companies, including the incumbent operators.
The networks are built for distribution of TV signals and the capacity in the local loop is therefore higher than in the copper-based telecom
networks. However, the networks are designed for carrying distributive services only and have no switching capabilities. Furthermore, the
capacity is not dimensioned to carry different signals to every user. If upgraded, cable networks are able to provide a higher capacity, but
in contrast to xDSL users, they do not have their own channel all the way to the local exchange. This implies that the speed will be reduced
if many users are connected at the same time.
The total costs for cable TV networks are somewhat lower than for a copper-based telecom network. The costs for an upgrade in order to
provide data services are comparable with those for upgrade of telecom networks to xDSL. However, the share of fixed costs is lower.
In particular in high density areas, cable networks can offer a cost efficient alternative to xDSL services. In 2003, cable provided 37% of all
broadband access connections. As the availability of this service is much lower than that of xDSL, the market share is higher than for
xDSL in those areas where this technology is available.
Optical fiber networks have replaced copper cables in large parts of the core network, but up to now optical fibers have not been widely
available in the local loop. Optical fibers are today not more expensive than copper cables, but as with copper cables, laying the fibers
underground constitutes a substantial part of the costs. Therefore, the replacement of copper-based cables with fibers is a costly affair. In
addition to this, the end equipment converting optical signal to electrical signals and vice versa is also expensive.
Deployment costs including components, civil works and installation have in Europe decreased from 1250-1500€ per connection in 2001 to
600-800€ in 2006 [1]. The most expensive component is labor costs related to laying down fibers. This component will be far cheaper in
countries with low unit costs for labor.
Due to the very high capacity, the unit costs per bit are very low, and much lower than in copper lines and in wireless systems. Optical
fibers have first been installed in the core network. This has reduced the costs of long distance communication to less than 1% of the
former costs per traffic unit. This indicates that the costs of fixed network services are concentrated in the local loop and convergence
between the costs of local and long distance communication.
Incumbent operators are gradually replacing their copper lines with optical fibers, beginning with the trunk network and gradually
approaching customer premises. However, other types of telecom operator are also installing optical fibers, particularly in the core
network.
It is also common to install fibers in connection with construction work related to other network infrastructures such as electricity, water
and gas. In contrast to network cables made of copper, optical fibers can be integrated in power cables, as the transmission of electricity
power does not interfere with the light signals in the optical fibers. Public utility providers, in particular power companies, will therefore
become new actors on the market for provision of communication network facilities (see practice note on NESA).
As the fibers themselves constitute only a small fraction of the total costs, it is common to lay down many more fibers than necessary
when an optical network is constructed. These fibers will not be connected to the network and no transmission equipment will be installed
in the end of the fibers. This implies that once optical fibers have been installed, it will be possible to upgrade capacity. As the maximum
capacity per fiber increases constantly, it is unlikely that additional cables will be needed in the foreseeable future.
It follows that the installation of an optical fiber network involves substantial long-term fixed costs, and that there are very high levels of
economies of scale and scope. However, the costs of end equipment are to a large extent variable, as the costs of transmitters,
converters etc. depend on the capacity.
The wide availability of dark fibers has created a market for such facilities (see practice note What is a dark fibre?). It is therefore in certain
areas possible to buy or lease fiber facilities. As the additional costs of upgrading existing dark fibers to a working communication network
are much lower than building a new network, it becomes possible for new entrants to establish their own networks at very competitive
prices.
This is however possible only at destinations where fibers are readily available. Therefore, the economics of fibers imply that unit costs
highly depend on the supply of fiber capacity. Transmissions between major destinations, such the metropolises of Western Europe and
the US may be far cheaper than connecting two small neighboring cities. A study of the European market for broadband connections
shows prices which are largely independent on distance but highly dependent of the level of competition. The price for a fiber broadband
connection in the most expensive monopoly markets were up to 39 times the price in the most competitive markets[2].
In conclusion, the techno-economic characteristics of optical fibers imply an increasing price gap between major routes and less developed
areas. This trend is exacerbated by the supply of dark fibers offered at very competitive prices, not even covering investment costs.
[1] Albert Grooten: Reducing CAPEX and OPEX in FTTH networks . Europe at the speed of Light, Vienna 25-26
January.
[2] Report on present status of international connectivity in Europe and to other continents. SERENATE deliverable
no. 6, 2003.
A technical description of optical fibre access networks can be found at FTTx.
Power line communication is mainly used for in-house cabling and may in this case become a cost effective alternative to other wired local
loop services.
Power lines are even more widespread than telecom lines. The potential for using power lines for telecom access is therefore enormous.
More than 100 trials have been implemented in at least 40 different countries within the past decade. In spite of this, the penetration of this
technology for use in the provision of local loop is still very limited. In Europe in 2004 fewer than 20,000 actual users, and in the US the
number was even lower[1]. One of the problems has been high costs of equipment. Power line communication is today mainly used for in-
house cabling and may in this case become a cost effective alternative to other wired solutions.
The potential for using power line communication in developing countries depends on whether a critical mass can be reached at the global
market. This is necessary in order to achieve sufficient economies of scale in production in order to enable supply of low-cost equipment.
MOBILE NETWORKS
Wireless networks include a wide range of technologies both in the access and the core network. Of these wireless cellular networks,
supporting mobile communication is the most widespread. Mobile networks have become widely available all over the world. As it follows
from the page on mobile services, the number of mobile subscribers has exceeded the number of fixed network subscribers, and in some
countries they have become even more available than fixed telecom facilities. In many countries the most important actor is the incumbent
operator of fixed network services, but there are other operators which also have their own networks. Often they will however need to
rely on the incumbent operator in order to connect their base stations to the core network.
The cost factors depend rather weakly on the basic type of radio technology employed[1]. The costs of establishing a new network are
considerably lower than for a fixed network, as the costly last mile can be completely bypassed. In particular, 2G networks have proven to
be a cost effective viable alternative for provision of telephony services. Compared to a fixed network the investment costs constitute a
much lower share of the overall costs. Still a major share of the investments costs are in the access network as the site build out
constitutes 30-50% of the investments costs.
mobile
operators
Source: Tim Giles a.o.: Cost Drivers and Deployment Scenarios for Future Broadband Wireless Networks – Key research problems and
directions for research Proceedings IEEE Vehicular Technology Conference, SpringDate: May 2004.
http://www.s3.kth.se/radio/Publication/Pub2004/TimGiles2004_1.pdf.
The capacity of 2G networks is too limited to provide an alternative to the fixed networks as an infrastructure for provision of most types of
data services. 3G networks are able to provide some data services, but the capacity is still much lower than what can be offered through
the use of xDSL, cable or optical fibers. Establishment of 3G networks is also more costly than establishment of 2G networks, in particular
in low density areas, as maximum cell size is much smaller than for 2G services. In high density areas, however, the costs per bit may in
some cases even be lower than in 2G networks.
The major cost driver for 2G and 3G networks is geographical coverage. When density of use increases beyond a certain point, usage
becomes the major cost driver. The fixed costs in mobile networks constitute a lower share of the total costs than the fixed costs in fixed
networks. The lifetime of the investments is also shorter.
Both 2G and 3G networks operate in designated frequency bands, which are licensed. Paying of license fees is an additional cost which
must be paid. In countries using auctions for assignment of these frequency bands, this can be a considerable extra cost. For 3G services
this type of cost has in some countries reached a level comparable with the costs of the entire network investment.
Other wireless networks include a wide range of technologies both in the access and the core network. In this context we will only
discuss the cost implications of use of wireless technologies in the access network, as these are most important for the techno-economics
of provision of telecom services. The wireless access technologies include:
■ Wi-Fi/Wi-MAX
■ Wireless Local Loop e.g. Fixed Wireless Access
■ Terrestrial broadcasting networks
Wi-Fi is mainly used for provision of Internet access and is available from so-called hot spots installed at public places like hotels, airports
etc. Here customers can subscribe to Internet access either for a limited time slot of 2-4 hours, or they can they have a monthly
subscription. A monthly subscription may Include access from a large number of access points see IPASS ).
Wi-Fi is also used as a substitute for internal cabling at customers’ premises. This includes provision of access to neighbourhood networks
operated by local communities. Such networks provide Internet access to residents in an apartment complex or in a neighbourhood through
a combination of Wi-Fi and a centralised data connection using the fixed network or FWA (see below).
Provision of Wi-Fi access was from the beginning dominated by a large number of small operators, often without any background in the
telecom market, but as the service has matured more telecom operators, including the incumbents, are providing this service as well.
A Wi-Fi network can be set up at very limited costs and demands no long term investments. Wi-Fi is often seen as an alternative to 3G, as it
offers higher bandwidth at lower costs. At present the limited coverage of up to 300 meters implies that Wi-Fi cannot be used as a
substitute for the entire local loop in rural areas. However, the WiMAX standard provides similar functionality as Wi-Fi, but with a much
higher range (up to 50 km). In contrast to Wi-Fi, WiMAX uses in some case licensed frequency resources which may add to the costs
and make it more difficult for small local operators to use this technology.
Wireless local loop is a fixed wireless service, where the copper-based local loop is replaced by a wireless connection. In this way
new entrants can bypass the part of the incumbent’s network facilities which is most costly, and therefore most difficult part of the
network, to establish for a new entrant. Wireless local loop has so far mainly been used in two particular cases:
1) In areas beyond the reach of the copper-based network
2) For high speed connections (FWA)
The first case relates first of all to rural areas in developing countries. Here WLL is a cost effective alternative to extension of the wired
network. WLL is for instance used in Ghana by Capital Telecom. One the advantages of WLL is that it can be used to cover an entire area.
This is in contrast to a fixed network connection. It may economic feasible to extent network facilities to connect a small village, but this will
still leave the surrounding habitations unconnected.
In the second case WLL is used to deliver a higher capacity than it is possible to deliver via an ordinary telephone line. In a number of
countries a number of licenses for FWA have been issued in order both to improve coverage of high speed services and to increase
competition on the high-speed service market.
Terrestrial broadcasting networks are designed to carry broadcasting signals only, but the digitization of broadcasting signals allows
integration with other digital services. Digital broadcasting networks may therefore in some cases prove to be an alternative to other
telecom infrastructures. How this opportunity will affect the market structure remains to be seen.
[1] Source: Tim Giles a.o.: Cost Drivers and Deployment Scenarios for Future Broadband Wireless Networks – Key research problems and
directions for research Proceedings IEEE Vehicular Technology Conference, SpringDate: May 2004. Cost in Wireless networks
SATELLITE
Satellite networks are particularly cost effective for broadcasting and for transmission over long distances in remote areas. A major
advantage is that use of satellite enables a complete bypass of regional and even national network facilities. Satellite is therefore an
attractive alternative for business customers, for instance banks, demanding reliable data services outside the major cities.
The major cost component is the satellite itself. The major cost driver is therefore traffic volume, while distance
does not affect costs. Satellite is therefore cost-effective in low demand areas without a reliable communication
infrastructure
See Satellite for a technical description.
■ Innovations in network technologies have enabled construction of a number of alternatives to the traditional PSTN network. In areas
with an existing telecom infrastructure, these networks can be used to offer new services and more bandwidth. In other areas
without adequate telecom facilities, alternative network structures can be used to extend coverage and improve accessibility of
existing services.
■ Cost characteristics of wireless networks are very different from those of fixed networks. The cost profiles of wireless networks
make them in particular suitable for provision of network access in low density areas.
■ The economic viability of different network technologies will, among others, depend on the regulatory environment. Particular types of
regulation such as license fees and administration of universal service funds may benefit some types of infrastructures at the cost of
others. Regulators must be aware of this in their design of regulation in order to avoid favoring of suboptimal solutions.
Basic network facilities include ducts as well as fibers or other physical network facilities. These facilities can be provided in many
different ways. For instance, fibers can be offered, including all the auxiliary services needed to provide a telecom network, simply as dark
fibers or including some basic services.
In the same way, wireless network infrastructure may include or may not include various types of passive and active components.
This has implied a market structure with different levels of competition within the different market segments, and a supply structure with a
wide range of companies representing different degrees of vertical integration.
Categorisation of suppliers according to business models applied
INTERNATIONALISATION
When the liberalization of the telecom markets took off in the mid-1980s, it was foreseen that the former national markets would be
replaced by an international market dominated by transnational operators, and that the sharp distinction between national and international
communication would vanish.
While the markets for telecom equipment soon became truly international, the markets for telecom services are still national. Many of the
incumbent operators have engaged in operations abroad, but these operations in different countries are not really integrated with each
other. The telecom operators have become multinational, but are not yet transnational.
This is not surprising, as network operations are tied to the physical telecom facilities in each country. It is very costly to invest in such
activities, and in particular after the telecom crisis, even the largest operators have been reluctant to spread their activities to more than a
limited number of countries. In the markets for mobile communication and for international high speed networks a few operators have
achieved a wider international presence, but the retail markets for fixed network services remain nationally oriented.
A vertical separation of network provision and service provision enables service companies to achieve a global presence without major
investments in local facilities. Skype is an example of such a company. Vertical separation thus implies that national operators will get more
competition from abroad. It will be much more difficult to enforce national regulation, and it may be necessary to allow local companies to
offer their services on the same conditions as service providers from abroad. Vertical separation will therefore lead to more competition
and more innovation at the service market.
Service providers such as Skype and EasyMobile are mainly addressing the major first world markets, but also in developing countries for
instance in Africa, service providers begin to offer their services. Here the impact may be more visible, as service providers here provide
their services in an environment where competition and access to telecom services have been more limited.
■ The concept of end to end services, where a monopoly operator is responsible for all parts in the value chain, is being replaced
by a more disintegrated market structure. In addition to the traditional telecom operators, a number of specialized actors
have emerged. These include first of all service providers providing their services through the use of leased infrastructures.
■ If the provision of services is separated from the infrastructure, an important barrier to entry on the telecom service market is
removed, and a more competitive market for telecom services can be created. An important challenge here is to ensure fair
competition between vertical integrated companies, like the incumbent operators and service providers. Possible remedies to
be considered include the regulation of terms for interconnection, accounting separation, and in some cases a complete
structural separation between service and network operations.
■ Vertical separation has made it possible for new local infrastructure providers to emerge. These may be founded by local
citizens or municipalities, or by providers of other types of infrastructures, such as cable television operators or electricity
companies. Such actors can make important contributions to improving local connectivity. It is crucial for the viability of such
initiatives that access to the core network and to services on fair terms is ensured.
Source: A. Henten, R. Samarajiva & W.H. Melody: Designing Next Generation Telecom Regulation: ICT
Convergence or Multisector Utility? Regulate online.org 2002.
Convergence can take place in one or more of these three levels. Although they are interrelated, convergence at the content/service level
does necessitate convergence at the transport level (network convergence), and convergence at the transport level does not necessitate
convergence of services.
The Internet is the most prominent example of a service combining elements from all of the four sub-sectors. The Internet provides a
common platform on which IT services, telecom services, broadcasting and other media services can be provided. Moreover, digitalization
of content has made it easier to provide the same content on different platforms.
Mobile services are not convergent services as such, but mobile has created a new sub-sector, which in some respects can be seen as a
part of the traditional telecom sub-sector, but in other respects represents an entirely new industry. Moreover, some mobile services, such
as SMS and mobile broadcasting services, combine elements from ‘Telecom’ with elements from IT and Broadcasting.
Examples of convergent services
■ Cable telephony
■ Internet via Cable
■ Internet TV and radio
■ VoIP
■ Triple play
■ 3G Broadcast
Digitalization of voice and other communication services implies that it is becoming possible to separate networks and services, and many
different services can be handled on the same networks (network convergence).
One of the first examples of this was the provision of telephony sharing infrastructure facilities with cable broadcasting networks. Later
on, Internet access and voice telephony via cable modems were also developed. This has led to the introduction of a new business
concept, where all fixed residential communication services are provided in the same cable (triple play). Several different kinds of players
populate this market: Cable companies upgrade the broadcast networks to include interactive services like voice telephony and Internet,
and telecom operators offer broadcast of TV and radio via xDSL broadband connections. In addition to this, optical fiber connections are
being offered by electricity companies and other new entrants. This development can be observed in the US, in Europe and in Japan. Later
on, it can be expected that triple play services are provided though the use of Wi-Fi or other wireless connections.
The concept of triple play services demands heavy investments in network infrastructures, but other types of convergence are less
demanding in this respect. Convergence between radio and the Internet enables an extended reach of both services, even though
broadband services are not available.
These trends do not imply an immediate unification of the markets for four different sub-sectors. Different services will be transmitted on a
number of competing networks using different technology platforms (e.g. wired and wireless). However, as seen in the section on
network innovations, each type of network will have its own comparative advantages in providing particular services in a particular
environment. Although a unified pure optical network providing all sorts of communication services may be the optimum solution in the long
run, this will not materialize in the immediate future, particularly not in low and middle income countries.
The competition between network types will be shaped by the availability of existing network structures as well as demographic factors
such, as density of customers and the demand for particular services. It is a regulatory challenge to ensure a fair competition without
favoring particular technologies. If not properly designed, regulation may skew the competition between different networks.
Markets will converge in the sense that different networks will compete in provision of particular services such as Internet provision. In the
long term, however, it is possible that at least all fixed services will be transmitted via one unified network.
■ The boundaries between IT, telecom, broadcasting and other media are constantly moving. New services combining elements from
two or more of these subsectors are being created. Many of these services for instance IPTV and VoIP, are using the Internet as a
common platform, but the Internet by itself is also a convergent service combining elements from the IT and telecom sectors.
Convergence of services complicates regulatory practices where different services are regulated differently. For instance, it
becomes still more difficult to distinguish between different types of Internet-based voice services, such as VoIP and voice mail and
telephone services. Video services provided via the Internet and mobile phones are also difficult to distinguish from broadcasting
services.
■ The boundaries between different types of networks are also moving. Network infrastructures originally designated for the provision
of particular services such as telephony or TV broadcast are increasingly used to provide a broad range of communication services.
The most prominent example is the provision of triple play, providing Internet access, telephony and TV broadcast via the same
connection. This makes it more difficult to maintain different regulation of different types of network infrastructures. For instance,
obligations will with regard to open access or a universal service tax imposed on particular types of networks will create unfair
competition between different types of network technologies.
RELATED INFORMATION
Interconnection
Discretionary price setting is a “heavy hand” type of price regulation, and usually implies that tariffs are determined on the basis of political
factors by the telecom authorities or even the minister. Discretionary price setting has in particular been used in countries where telecom
operators have been partly or fully publicly owned. In these cases the price setting has in reality been left to the monopoly operator, with
subsequent approval by the telecom authorities. Discretionary prices have often been set below costs in order to serve social objectives
or political interests. However, such a type of price setting conflicts with the goal of efficiency, as this will hamper financing of further
investments in the sector. The result tends to be a very long waiting list for services that cannot be provided.
Discretionary pricing by private operators with significant monopoly power will also result in inefficiency and under-investment, as they will
have an incentive to charge high monopoly prices and restrict the market they serve. Discretionary pricing by the operators is appropriate if
the market is truly competitive and the particular operators do not have significant market power. Thus even in liberalized markets, there is
generally price regulation for monopoly services of incumbent operators, but discretionary pricing is permitted for new operators that have
no significant market power. The purpose is to regulate monopoly power over price setting, wherever it is found, and to allow discretionary
pricing wherever competition is effective.
RATE OF RETURN
Rate of return regulation (ROR) limits the return an operator can earn on its investment in providing services. The principle is that operators
should be allowed to earn revenue covering the total operating costs, plus a return on their investment. ROR can be applied either for each
service or for the entire operations of the operator. If a rate of return is to be determined for each service, it requires a detailed breakdown
of its revenues and costs. ROR both ensures that the operator is allowed to secure sufficient revenue to cover its costs and a reasonable
return, and prevents monopoly pricing to gain excessive profits.
The weaknesses of ROR are that the operator lacks an incentive to innovate or to minimize costs. If the rate of return is calculated on a
cost-plus basis, with its allowed return as a percentage of its investments, the operator can realize an advantage in over-investment and
inflation of costs. This incentive can be mitigated somewhat by building time lags into the process of price regulation, but this can only have
a limited effect.
RELATED INFORMATION
Rate of Return Regulation (Module 2)
Rate of Return Regulation Versus Price Caps (Module 2)
PRICE CAP
Price cap is today perhaps the most common type of regulation. Price cap sets a maximum for how prices may develop over the next few
years, usually 3 or 4 years. Operators are allowed to increase prices with inflation, but at the same time they are required to decrease
prices with a certain percentage every year, as productivity is expected to increase. The allowed maximum price is thus:
Pt = Pt-1*(I –X)
where Pt-1 is the price for the previous year, I is the rate of inflation and X is the productivity factor. Price caps can be set either for
individual services or for a combination of services. The latter is sometimes done to enable some rate rebalancing within service groups.
The advantages of price caps are that this method can be simple and the operator maintains a stronger incentive to improve efficiency.
However, one should note that there is a certain level of discretion in the setting of the X-factor, which is not subject to scientific
calculation, and is generally negotiated between the regulator and the operator. Thus a strong and well informed regulator is needed to
make price caps work effectively. If excessive profits are obtained after price caps have been implemented, it is a signal that the X-factor
should increase in the following period.
RELATED INFORMATION
Rate of Return Regulation Versus Price Caps (Module 2)
Implementing Price Caps (Module 2)
C O S T -B A S E D P R I C E S E T T I N G
A number of approaches for cost-based price setting have been developed, particularly as it has been necessary for regulators to
approve or establish reasonable interconnection prices for competitors to obtain access to network capacity. These are often based on
detailed modeling of network costs, and are mainly used for determination of interconnection charges. They are discussed further in
comparison of existing regimes for interconnection.
The shift in telecom markets from a limited number of uniform and homogeneous services to a market with a wide range of different
services, tailored towards serving particular service and user needs, complicates the regulation of prices. In this new dynamic market
environment, regulators must often seek new benchmark standards for price regulation, rather than attempting to determine specific prices
with limited information.
2.4 Interconnection
This section deals with technology implications for regulation of interconnection.
RELATED MATERIALS
RELATED MATERIALS
Switched interconnection products offer connectivity in particular for voice telephony services. They also include other services, such as
dial-up Internet services and SMS, services which are all provided through fixed or mobile circuit switched PSTN networks.
Switched interconnection products (interconnection of circuit switching services) include whole sale of traffic minutes. This product is
used by fixed or mobile service providers. These service providers take care of all sorts of customer relations such as marketing, billing
etc., but leave all network operations to the network operator.
Origination is used if a customer subscribes to a different operator than the one handling the call (this is for instance the case if pre-coded
carrier selection is used). The handling operator must then pay a fee for using the access line.
Termination is used if the subscriber with whom the call is terminated subscribes to another operator. A fee must also be paid in this case.
For both origination and termination the charge may depend on at what point in the network the call is handed over to the other operator.
Here a distinction between interconnection at three different levels in the network is made:
■ local: interconnection at the same local exchange to which the subscriber is connected
■ Single transit: Interconnection to the same transit exchange to which the subscriber is connected.
■ Double transit: Interconnection at any other point in the network.
The closer the interconnection point is to the subscriber, the lower the fee may be. Therefore, the handling operator will usually choose to
interconnect as close to the subscriber as he can, taking the coverage of his own network facilities into account.
Transit is used by operators not having their own network facilities connecting all local exchanges in order to provide full coverage for their
services.
Exchange of international traffic may include origination, transit and termination of fixed telephone as well as mobile calls, as they may be
channeled through the same core network.
Roaming is used to connect mobile subscribers in areas not covered by the network of the operator they subscribe to. National roaming is
important for new entrants or small operators not providing full coverage.
Unbundled network components may include physical facilities such as transmission and switching facilities, as well as software facilities
such as directory databases.
Provision of unbundled network components allows new entrants access to telecom facilities owned by the incumbent operators (or in
some cases to any other operator with a strong market position). This enables them to enter the market without investing in a fully
developed network. They can choose to invest only in some key facilities and complement these with usage of network elements from the
incumbent operator. In this way unbundling can be used to create facility-based competition for certain network elements without
duplicating investments in all parts of the network. Access to unbundled network elements will thus lower the barriers of entry as the
investment requirements are lowered.
The most important unbundled network element has been the local loop. The local loop constitutes a large share of the total investments in
fixed networks (see section III.B.2). New entrants will therefore be hesitant to invest in this part of the network infrastructure if adequate
facilities are in place already.
Unbundled local loop facilities have in particular been important for provision of broadband services, as the revenue from voice telephony
alone is deemed not to be sufficient to cover the full costs of leasing the access line. In this case, use of switched interconnect will most
often be a more attractive solution.
Providers of broadband by use of xDSL will usually have three different options:
1. Raw copper (full unbundling)
2. Shared access
3. Bit stream access
The first option implies that the new entrant has the full control with the access line. The new entrant must install their own equipment at
the local exchange in order to provide the communication services the subscriber needs.
Shared access is used if the subscriber wants to maintain his PSTN subscription with another operator. In this case the new entrant may
choose to get access to that part of the frequency spectrum which is not used for PSTN. This solution is to be preferred by ISPs not
providing voice telephony services, but Internet access only.
Bit stream access is provided through the use of the incumbent operator’s DSLAM. This implies that the new entrant receives a bit stream
directly from the incumbent, and does not need to install any equipment at the local exchange. It can be argued that this interconnection
product in reality is a packet switched service rather than an unbundled network component. The new entrant buys a service and does not
need to invest in his own equipment.
Unbundled network components are first of all provided from network facilities owned by the incumbent fixed telecom operators. However,
the emergence of other communication infrastructures creates a long list of new opportunities for provision of unbundled network
elements. These include access to raw fibers or to raw coax links (wire only), as well as basic infrastructure facilities in wireless
networks.
Also in these networks, unbundled network elements can be provided in different ways, implying different levels of service included in the
infrastructure provision. For instance, fibers can be provided as:
■ Dark fibers
■ Fibers with or without regeneration of signals under way
■ Fibers with or without amplification of signals under way
■ Fibers with or without end equipment
■ Lambda connections providing a limited spectrum range
While the dark fiber option includes the raw infrastructure, a lambda connection can be compared with bit stream access.
In the same way various service options defining different types of unbundling network components can be defined for wireless services,
as the interconnection product can include passive components only, or can also include various active components.
As noted above, unbundled network elements may include parts of the physical network infrastructure as well as software facilities and
databases. Vertical separation and development of new services and applications implies that a need for service related unbundled
components may arise in order to ensure interconnection between services. Such components could be directory information on users of
instant messaging or other IP-based communication services.
PACKET SWITCHED INTERCONNECTION PRODUCTS
The most important types of interconnection in packet switched networks relate to Internet interconnection. Internet interconnections are
interconnections between different public IP networks operated by Internet Service providers (ISPs). Internet interconnection serves a
purpose similar to that of switched interconnection, as it enables subscribers to the Internet to connect to subscribers (ordinary users or
content providers) served by other ISPs.
Internet interconnection agreements are commercial agreements. In contrast to many other types of interconnection agreements, they are
usually not subject to regulation and most often their content is confidential. Agreements can therefore take many different forms.
In order to understand the difference between these products, it is necessary to look at the different types of actors on the market for
Internet services:
■ End users: End users include both business and residential customers. These may use the Internet for very different purposes:
❍ Use of communication services such as e-mail, VoIP and instant messaging.
❍ Information retrieval
❍ Provision of information (may be financed through commercials or user charges)
■ Internet Service Providers (ISPs) providing end user access to the Internet.
■ Internet Backbone Providers (IBPs) providing connectivity between ISPs and to other IBPs.
Some companies act both as an ISP and an IBP. IBPs can be categorized into different layers according to their network coverage. Only the
largest ones provide world-wide connectivity, while others provide national or regional connectivity only.
In principle there are two different types of agreements, peering and transit:
RELATED MATERIALS
RELATED MATERIALS
MOBILE COMMUNICATION
While the incumbent operator usually enjoys a monopoly on fixed telecom network facilities in the local loop, most countries have two or
more operators with their own facilities in other network segments e.g. in the core network or in the mobile network. The various types of
interconnection will therefore be subject to various degrees of competition. This has implications for the kind of remedies to be used on the
various markets. While price regulation may be necessary in some markets without real competition, demands for access obligation and
non-discrimination may be sufficient on other markets. On some markets competition may be so well developed that regulation may become
unnecessary.
It is however important not to treat interconnection with mobile networks as one market. The markets for fixed-to-mobile, mobile-to-mobile
and mobile-to-fixed are different markets, the levels of competition on these markets will often be very different, and each market must be
assessed independently. In particular the market for termination of fixed call in mobile networks has been of concern, as the charges for
this type of termination sometimes are three times as high as the charge for termination of mobile calls in fixed networks. Such differences
cannot be explained by cost differences but are due to the fact that the markets for these two products are very different. Every mobile
operator enjoys a monopoly on termination of calls in his own network, while there is competition in offering the lowest charges on
outgoing calls.
National and international roaming creates a particular challenge to regulators. National roaming is of particular importance, if some
operators lack full national coverage of their own network. National roaming can in this situation be used to extend geographical coverage
of their services. This will in particular help new entrants and thereby facilitate more competition. On the other hand it may delay expansion
of network facilities. This impact may however be compensated through inclusion of specific demands to network coverage in licensing
conditions.
Rates for international mobile communication are in general substantially higher than national rates, and the price gap goes far beyond what
can be justified by the underlying costs. A Regulation of international roaming demands international cooperation.
Development of new types of infrastructures has created a wide range of new possible interconnection products. It must be asked
whether the demand for unbundling posed upon operators of copper-based telecom networks should also include these new network
infrastructures. Is it fair that operators of broadcast networks are allowed to refuse other operators access to their facilities, if they want
to provide e.g. Internet access by use of cable modem? Why should optical fibers not be subject to the same type of regulation as copper
lines? If the philosophy of technology neutrality is applied, the same rules should be applied for all network technologies. On the other hand,
these networks are often established on very different market conditions. Long term investments in network facilities may be hampered if
heavy regulatory measures are used in order to promote service development in the short term. In particular in the least developed
countries it is important to ensure that investors can recover their costs in order to encourage foreign investments. It may therefore be
necessary to apply generous access rules for new entrants.
Another problem relates to pricing of interconnection products. Technology neutral regulation will imply that the same charges should be
used for the same services provided by different types of networks, but this does not always correspond to the principle of cost-based
prices. It is therefore possible that operators may be requested to provide interconnect services at prices below the cost of production, if
interconnection charges are not carefully designed.
Use of forward looking cost accounting models will be even more resource demanding than it is today. Use of new types of infrastructures
demands that more cost models must be constructed, and these models must be revised every time it becomes possible to implement new
technologies affecting costs. As the cost models are forward looking and based on the most efficient operator principle, new technologies
must be taken into account even they if not yet are implemented in the domestic network infrastructure.
Switched interconnection of voice telephony and the related charging mechanisms will become less important. As phone calls only will be
one out of a number of different types of communication services in a packet switched network, the core issue will be interconnection
between unbundled network elements and exchange of data in an IP network rather than mediation of voice calls between different
networks.
In a fully implemented next generation access area, circuit switched interconnection is no longer a relevant product. This does not mean
that interconnection of telephone services becomes unnecessary, but this interconnection product will affect the service layer only. This
implies that interconnection of network facilities and interconnection of services are clearly becoming separated, and the needs for
regulation in these two areas may become very different.
Regulation of interconnection of network facilities may be necessary due to lack of facility based competition in certain areas. Competition
at the service layer is much more likely to occur as services can be provided without local physical presence. However there may still be a
need for regulation of interconnection of services such as VoIP. ‘If anyone possesses a termination monopoly, it is the VoIP service
provider, not the provider of the broadband pipe’. A need for regulation of services relates to the fact that communication services inhibit
substantial network economies, which only can be realized if various service providers are interconnected. Therefore access to essential
facilities such as directory databases must be ensured.
With regard to Internet interconnection establishment of one or more public National Access Points (NAPs or IXs) can help to provide better
access to local content and reduce interconnection costs for local ISPs.
CONVERGENCE
Convergence of services involves a clash between two very different interconnection regimes: Interconnection of telephony services and
interconnection of Internet services. While the latter is largely unregulated the former is often subject to complicated regulation based on
cost-based prices.
VoIP enables provision of voice telephony in a setting which in some cases escapes the current regulation made for voice telephony.
Therefore VoIP operators may have difficulties in demanding the right to interconnect with PSTN networks. It is here important that
development of new innovative business models for providing VoIP or similar services are not hampered unintentionally by regulation.
Convergence has created a wide range of new communication products. These products may flourish without any public intervention, but
there may also be cases, where public intervention may prove to be necessary. For instance by demanding open access to facilities such
as name and numbering registers in order to enable interconnection between different platforms for instant messaging.
Technology also has an impact on the kind of remedies it will be relevant to consider. For instance use of ex ante price regulation will
demand a clear definition of all kinds of service products.
Many developing countries have been net recipients of payments from international settlements from international calls, and for some
operators these payments have been a major source of income. This source of income is being undermined both by drastic reductions in
tariffs for international calls and by increasing use of VoIP.
On top of this, developing countries may face substantial expenditures with regard to settlements paid for Internet interconnection transit
services. These expenditures can be substantial. In Colombia, Internet interconnection charges constitute 33% of the total costs paid by
users, and in Mexico the international rates alone constitute 23%[1]. Such costs lead to a vicious circle, where high internet costs delay
penetration, and low penetration increases Internet interconnection costs.
The market for such services is not very competitive, especially in developing countries. It has been estimated that there are in total about
6000 ISPs and 60%20 IBPs on the global market[2]. However out of these only six can be termed as tier-one IBPs. In particular in developing
countries the number of IBPs offering connectivity between local ISPs and the global Internet is very limited. In Burkina Faso, Teleglobe was
in 2002 the only provider of a single dedicated communication link to the Internet backbone.[3]
As noted above, establishment of National access Points may be a way to reduce interconnection costs, but a trend among IBPs to refuse
interconnection at NAPs instead of bilateral transit agreement has been observed[4] This is however only one out of a number of examples
of anticompetitive behavior observed at the market for Internet Interconnection.
Anti-competitive behavior by large Internet backbone providers
“Complainants about Internet interconnection services (IIS) – developing countries, Australia, Mexico and Singapore – allege inequitable
and anti-competitive behavior by large Internet backbone providers (Tier-1 IBPs) at the expense of smaller IBPs and Internet service
providers.”
Source: Daniel Roseman: The digital divide and the competitive behavior of Internet backbone providers.
It is difficult to document how widespread anti-competitive behavior is, as conditions for Internet interconnection often are kept secret.
Antelope suggests therefore in their study that IBP should be demanded to allow regulators to see the agreements. In addition to this, they
also suggest a requirement for cost accounting and cost based prices. This implies that they suggest a regulation similar to the type
enforced on circuit switched interconnection.
According to Antelope the current EU framework allows a requirement for cost-based prices, and enables developing countries to raise a
case on price lifting, if this occurs[5].
China has in collaboration with other developing countries in ITU made an even more far reaching proposal in a response to the ITU
recommendation on international Internet connection, claiming that it is unfair that other countries bear the full costs for interconnection to
the American part of the Internet.
It is important to define a framework interconnection of IP networks that benefits all parties. If some operators lose revenue by migration
from switched interconnection towards interconnection between IP-networks, and this is at present the situation for many operators in
developing countries, it is likely that they will seek to delay the process. This will delay growth in use of NGN in developing countries and
hamper the development of the Internet.
ITU-T Recommendation D.50
International Internet Connection: General considerations for charging criteria and options for international Internet
connectivity
I.1 Connection criteria
Administrations* may agree to interconnect their networks based on charging criteria including, but not restricted to, the extent of
network connectivity and degree of reachability to Internet end users and websites.
The agreed level of traffic exchanged may also be taken into consideration, provided that
Administrations* may use suitable safeguard agreement to address any concerns that international traffic flows are not fraudulently
manipulated.
Service performance is another factor that may be considered. Administrations* may agree to consider network performance,
availability of contact points, trouble reporting, among other considerations.
I.2 Charging options
Administrations* may find these charging criteria helpful in establishing the method of charging. Interconnection methods, and therefore
charging methods, include peering, transit, hybrid forms of peering or transit, and any arrangement as mutually agreed between them,
including indirect
interconnection.
I.3 International link capacity
Where one or more international links are required, arrangements for the international link capacities required and the apportionment of
cost for the international link recognize that Administrations* bring value to the connectivity agreement. In determining the apportionment
of cost, multiple methods of apportionment are acceptable, as long as mutually agreed to by Administrations*, including making
alternative arrangements.
China and others expressed reservation on this appendix.
Source: ITU-T
Response to ITU-T Recommendation D.50
WORLD TELECOMMUNICATION DEVELOPMENT
CONFERENCE (WTDC-02)
The World Telecommunication Development Conference 2002 (Istanbul 2002)
Asia-Pacific Telecommunity
CONTRIBUTION TO THE WORK OF THE CONFERENCE DRAFT NEW RESOLUTION FOR INTERNET ACCESS AND AVAILABILITY
FOR DEVELOPING COUNTRIES AND INTERNATIONAL INTERNET CONNECTION CHARGING PRINCIPLES
The Asia-Pacific Telecommunity (APT) submits this document to WTDC-02 for its consideration. The proposal contained in this
document is commonly endorsed by the following APT members, who are members of ITU: Proposal from Australia, Bangladesh,
Bhutan, Brunei Darussalam, China, Fiji, India, Japan, Malaysia, Philippines, Singapore, Sri Lanka, Thailand, Vietnam, TRAI (India).
noting
a) that ITU Recommendation D.50 on International Internet Connection recommends that administrations* involved in the provision of
international Internet connections negotiate and agree to bilateral commercial arrangements enabling direct international Internet
connections that take into account the possible need for compensation between them for the value of elements such as traffic flow,
number of routes, geographical coverage and cost of international transmission amongst others;
b) the rapid growth of the Internet and IP-based international services;
c) that international Internet connections remain subject to commercial agreements between the parties concerned; and
d) that continuing technical and economic development require ongoing studies in this area, recognizing initiatives by service providers
have the potential to deliver cost savings for Internet access, for example by the development of more local content and the
optimization of Internet traffic routing patterns in a manner that provides for a greater proportion of traffic to be routed locally,
resolves to
invite Member States
1 to support the work of ITU-T in monitoring the implementation of ITU Recommendation D.50, bearing in mind the importance of this
issue for developing and least developed countries' international Internet connectivity;
2 to create policy conditions for effective competition in the international Internet backbone network access market as well as in the
domestic Internet access service market as an important aspect of lowering the cost of Internet access for users and service
providers,
urge regulators
1 to promote, within the context of national policy, competition among all service providers, including small and medium-sized Internet
service providers and incumbent network access service providers,
urge service providers
1 to negotiate and agree to bilateral commercial arrangements enabling direct international Internet connections that take into account
the possible need for compensation between them for the value of elements such as traffic flow, number of routes, geographical
coverage and the cost of international transmission, amongst others,
instruct the Director of the BDT
1 to organize, coordinate and facilitate activities that promote information-sharing among regulators on the relationship between
International Internet Connection Charging Arrangements and affordability of international Internet infrastructure development in
developing and least developed countries.
Source: ITU – D
ENDNOTES
[1] Daniel Roseman: The digital divide and the competitive behaviour of Internet backbone providers part 1. Info 5.5.2003.
[2] Antelope Consulting: DFID Cost Study Appendix G: Regulating Internet Interconnection, 2001.
[3] Daniel Roseman: The digital divide and the competitive behaviour of Internet backbone providers part 1. Info 5.5.2003.
[4] ACCC: Internet Interconnect: Factors affecting commercial arrangements between network operators in Australia. Discussion paper.
2000.
[5] Antelope op. cit. p. 30.
RELATED MATERIALS
For a detailed examination of licensing of telecommunciation/ICT services and trends in authorizations, please see Module 3, "Authorization
of Telecommunication/ICT Services".
RELATED MATERIALS
For a detailed examination of licensing of telecommunciation/ICT services and trends in authorizations, please see Module 3, "Authorization
of Telecommunication/ICT Services".
MOBILE COMMUNICATION
The development of the market for mobile communication depends on how issuing of licenses is managed. Licenses will by all means be
necessary as mobile operators need allocation of radio spectrum, which is a scarce resource. It must be considered how licensees for
mobile communication should be formulated. Licenses may include demands to geographical coverage, capacity, level of service, pricing
etc. Rules for right of way and infrastructure sharing must also be specified. It is here important to carefully assess the market potential
before demands in these areas are detailed. Demands for extensive geographical coverage may be an important contribution to ensuring
universal access. On the other hand, overly ambitious requirements will be so costly for the operators that economic viability of providing
the service is threatened. This will hamper network development as well as universal access in the long run.
Methods for assignment of mobile licenses are discussed further in the section III.G on frequency management.
Development of new types of infrastructures enables more facility based competition, where different network structures compete for
provision of the same or similar services. It is necessary to ensure that regulation in different areas is technology neutral, if favoring of a
particular infrastructure is to be avoided. In this respect licensing is one of the regulation areas that may impact technology development. If
different licensees are needed for provision of different types of network structures regulation can easily unintentionally favor a particular
technology.
It is, however, not always possible to treat all technologies in the same way. Provision of wireless technologies may need special
regulation in order to avoid interference, and the laying of cables may also need some regulation in order to avoid unnecessary digging etc.
The task is here to prepare a licensing system avoiding subsidizing or taxation of particular technologies, and on the other hand to ensure
that the external costs of possible externalities are included in the licensing fees.
Apart from this, it should be noted that requirements for technology specific licensees will impose a barrier of entry. A network operator
may refrain from use of an alternative network solution, if this needs an additional license. Technology specific licensees will therefore
hamper development of new types of alternative infrastructures.
Separation of the various layers in the network enables use of separate licensees for each layer. Such a model is used for instance in
Malaysia (see box III 18). This may at first glance be seen as a further complication for telecom operators, as they will now need to obtain
more licenses than in a situation where the same license applies for all layers. On the other hand such a system enables service provision
to be liberalized without loosing control with infrastructure development. Therefore it becomes possible to reduce barriers of entry for
actors not engaged in all layers, as requirements for licensees in some areas can be reduced or lifted entirely.
CONVERGENCE
Convergence implies that the same services are delivered by different types of networks, and that new convergent services arise. It will
therefore be necessary to review service coverage of licenses and consider introduction of unified licenses in order to enable facility
based competition and remove regulatory barriers towards development of new converging services. A unified licensing system is being
considered in India. The aim here is to enable provisioning of one unified license, which allows provision of all types of telecommunication
services. This is done for instance in India.
VoIP is an important example of a new service which has challenged the current framework for licensing. The demand for licensing will
often depend on the technical solution applied for provision of the service. The current practice varies between countries. For instance are
different rules applied for licensing of VoIP. Licensing can help provide regulatory certainty, as in Peru, but the demand for a license can
also be a barrier of entry for new operators.
Convergence does also affect licensing in broadcasting. Broadcasters are able to provide their services on multiple platforms such as
Web-TV and mobile phones, and telecom operators are able to develop content services, which are difficult to distinguish from
broadcasting services. There is therefore a need to co-ordinate licensing for telecom content providers and broadcasters.
Telecom markets are becoming still more international and this complicates national regulation in all areas. Licensing is one of the areas
most affected as it becomes more difficult to restrict market access. Apart from satellite, all other network infrastructures demand some
kind of physical presence at the national market. Service and content provision can be provided from anywhere. Trends in costs
structures, and separation of network functions and service functions facilitate development of internal markets for provision of services
and applications. On these markets national licensing requirements are easily circumvented. It becomes impossible to restrict market access
at the national level and general requirements to providers can only be imposed through development of a common international framework.
For a detailed examination of licensing of telecommunciation/ICT services and trends in authorizations, please see Module 3, "Authorization
of Telecommunication/ICT Services".
Provision of universal access is one of the most important policy objectives of telecom regulation. The methods for attempting to achieve it
sometimes go beyond those included in traditional telecom regulation, e.g., industrial policy remedies such as support from regional
development programs, tax incentives etc. In this section we will however, limit the discussion to the technology impact on the primary
remedies used in telecom regulation; namely Universal Service Obligations and the establishment of a universal service fund as a method
for providing it. The use of internal cross-subsidies by a national telecom monopoly is no longer a viable method in the face of the new
technologies and competitive telecom markets.
The Universal Service Obligation is an obligation which can be imposed upon the dominant telecom operator (usually the incumbent). This
obligation includes a demand to meet any request for provision of a particular telecom service to anybody within the country. The purpose
of having such an obligation is to ensure national coverage of a particular telecom service also in remote rural areas, where provision of
telecom service may become less profitable.
Most often USO includes provision of PSTN services only, but some countries include more advanced services as well. In Denmark ISDN
and leased lines with a capacity up to 2 Mb are included in the USO, and within the EU it has been considered to include broadband
services. In many developing countries, it is too ambitious to demand a universal provision of PSTN in all parts of the country and the USO
may be replaced with a less demanding obligation of universal access. Universal access can be defined for instance as provision of at
least 10 working phones in a certain area, as it is done in Bhutan.
A universal service obligation may include some price regulation in order to ensure affordability or a non-discrimination clause demanding
that rural areas are provided telecom services under conditions similar to those applied in other areas.
UNIVERSAL SERVICE FUND
The operator on whom the universal service obligation is imposed may demand some kind of compensation to fulfill this obligation. For this
purpose, a universal service fund may be set up in order to fund service provision in high cost areas. Such a fund is necessary in
particular, if high cost areas are covered partly by small local operators, as is the case in the US. Here local carriers are eligible for
financial support, if their costs are more than 15% above the national average. A universal service fund may also be used to fund
development of other ICT services to rural health care and educational institutions. Universal service funds can be financed via the public
budgets or by a service charge imposed on telecom services. A common solution is to impose a minute charge on certain telephony
services (e.g. international and long distance calls), or on interconnection rates. Such charges must however be designed carefully, in
order to avoid market distortions such as favoring one technology compared to another.
MOBILE COMMUNICATION
There has been an impressive growth in the demand for mobile communication, and the penetration of mobile phones is higher than the
penetration of fixed lines. Innovations in mobile business models such as prepaid services have considerably lowered access costs for
low income – low usage customers. It is therefore relevant to consider how to include mobile communication in universal service schemes.
Should mobile operators be eligible to receive financial support in order to extend their own coverage? Is it relevant to fund expansion of
fixed network facilities to areas already covered by mobile services? Should mobile operators contribute to the financing of universal
service schemes? All these questions must be assessed in a strategy for achieving universal access. As mentioned in the section on
licensing, licensing conditions may be instrumental in ensuring a positive contribution to universal access by mobile services. Mobile
licenses may include demands for covering less populated and hence less profitable areas. Too strict demands of this kind will however
threaten the economic viability of mobile services and therefore have a negative impact on network expansion.
RELATED INFORMATION
(Re) Licensing
The traditional copper-based telecom infrastructure is not well suited to low density regions in developing countries. In particular wireless
solutions may be more cost efficient. It is therefore important that universal service obligations are defined in a way not favoring particular
network infrastructures.
In the most remote areas, satellite may be the most efficient way to provide universal services. In other areas, wireless local loop or use of
mobile network facilities may be the optimal solution. For instance it may be possible in rural areas along major traffic routes to get access
to a GSM network, while the fixed network is not yet accessible. In a 5-10 years time horizon, there will be a significant potential for
WiMAX in rural and remote areas.
In many countries, different network structures may be operated by different companies. It is therefore necessary to allow other operators
than the incumbents to participate in the task of providing universal access. It can be done by appointing different universal access
providers in different regions, but this solution will hamper use of different network technologies within the same region. Therefore a more
flexible solution will be to let a possible subsidy follow the subscribers. In this way, operators receive subsidies according to the number of
subscribers they connect in each area.
Today universal access mainly deals with provision of voice telephony although provision of Internet services e.g. from tele-centers may
be included as well. By introducing packet switching network structures, it becomes more reasonable to focus regulation on network
access rather than access to services. Provision of network infrastructures will maintain those techno-economic characteristics that make
real competition in low density areas unlikely, while the markets for service provision will become more competitive.
A definition of universal access, based on access to network infrastructures rather than on access to a particular service, will contribute
to an unbundling of networks and services, and it will become more difficult for a universal service provider to achieve a monopoly position
in both markets.
An argument against this position is that consumers are not interested in pure access, but in access to services. An assessment of
affordability must therefore include the full service costs (including all types of devices needed to ensure service provision of a required
standard) and not just the costs of access. According to a background paper from ITU it is too early to ascertain that the scope of
universal access can be met by an IP connection.
The possible separation between service providers and network operators challenges however enforcement of a service based definition
of universal access obligation. It is more difficult to impose a universal service charge on service providers. Use of IP enables nomadic use
of services. This implies that subscribers can use the same VoIP service from many different locations. This makes it harder to enforce
contributions to a universal fund, as the VoIP operator may be located in a different country. Without contributions from VoIP, it may become
increasingly difficult to finance a universal service fund (see practice note on VoIP and the US Universal Service Fund).
CONVERGENCE
Convergence challenges the traditional USO in two ways: first, funding of universal services is usually obtained through extra charges
imposed on certain telecom services e.g. access charges or interconnection charges. These charges are only demanded from use of
telecom networks. USO funding may therefore create a market failure favoring transmission in alternative networks. Second, it becomes
questionable to fund one particular service (POTS) when it is produced in conjunction with a host of other services. Regulators must
therefore consider a reformulation of the definition of the content of the USO and find new ways of funding which are technology neutral.
An important question with regard to convergence, is whether broadband should be included in the definition of universal services. The
following considerations are relevant for considering inclusion of a specific service in the universal service obligation:
These or similar parameters are applied for review of USO in US and the EU.
Even if broadband is deemed to be eligible for being a part of USO, it must be considered whether an obligation will be the best way to
stimulate penetration. If not properly designed a universal service obligation may distort the market and delay network investments. A more
light handed approach is therefore to be preferred.
In particular development within wireless network technologies has reduced the costs of providing universal access. This implies that
network provision becomes more viable also in low income low density areas. Regulatory intervention may therefore become less
important, as universal access can be achieved on market basis.
Another implication is that developments in usage and demand for telecom services may imply a demand for an upgrade of the definition of
universal service. It has been argued above, that from a technological point of view it does not make sense to treat voice telephony as a
special service. As the Internet become still more essential for access to all type of community services and to public life in general, it can
be argued that Internet access at a certain level of quality of service must be guaranteed to all citizens. If such an upgrade is made,
universal service obligation may play a role in future telecom regulation, even when voice telephony has become widely accessible.
The concept of universal service obligation has been developed in a non-competitive environment and its application in a liberalized market
can be very problematic.
It is difficult to subsidize provision of particular services in particular areas without distorting the market. Usually the USO is imposed on a
particular operator (most often the incumbent), and this may discourage other operators from investing in competing infrastructures. If
subsidies are paid, development of more cost-effective infrastructures becomes less attractive and the outcome may be poorer services
and higher costs in the long run. Therefore USO should be used only if reliance on the markets is deemed insufficient to ensure availability
also in the long term.
ALLOCATION
The model has been to allocate frequencies between different types of applications. This allocation has mainly been conducted according
to technical considerations concerning the suitability of frequencies for certain applications, and political priorities between different types
of applications. Different frequencies have different propagation characteristics and different capacities for transport of information. When
frequencies are low (long wavelengths), the electromagnetic waves bend around corners, buildings or mountains. When they are high,
they travel only in straight lines, requiring line of sight between transmitter and receiver. This implies that it is easier to transmit to a wide
area using low frequencies, but that high frequencies are easier to reuse. The amount of information that can be carried increases with
increasing frequencies. For these reasons not all frequencies are equally attractive to users. Low frequencies are particularly suitable for
communication with long distances and low information loads, while high frequencies are useful for carrying high loads of information
where line of sight is obtained through the use of satellites.
The allocation of frequencies to various applications takes these differences in technical characteristics into account in order to optimize
technical performance. However, market considerations play a role, just as scarcity within a certain application may lead to allocation of
additional resources. Allocations are first made at the international level, although the national regulators have some freedom in the detailed
planning of frequency resources.
ALLOTMENT
Allotment includes allocation of frequencies between countries and, in large countries, allocation between states or provinces.
ASSIGNMENT
Licenses are given to a specific application (e.g. broadcasting of a radio channel) and it is prohibited to use the frequency for other
purposes. As licenses are issued to a well-defined application, specifics of this application in terms of location, power of signals etc. can
be taken into consideration in the design of the licenses, and thereby technical performance can be optimized.
Assignment within this model is mainly carried out either by issuing of licenses to selected public/semi-public institutions or according to the
‘first come, first served ’principle, and it is not possible to transfer a license to another user.
This principle works well if scarcity is limited and the users mainly are public utilities or other public companies, but in a liberalized market
where access to radio frequencies is an important strategic resource, it is necessary to establish rules that can ensure equal access
among competitors. This has led to the development of a series of alternative assignment procedures, such as beauty contests, auctions
and, in some cases, in the US lotteries.
In a beauty contest, companies are selected on the basis of offerings covering a wide spectrum of qualitative and quantitative measures
such as quality of service offerings, coverage and number of customers and license holders are mainly public utilities and other providers
of public infrastructures.
Another alternative is auctions, where licenses are given to the companies with the highest bids.
Auctions have been used in the US since the mid-1990s, but were first introduced in New Zealand[1]. In Europe auctions have been used
mainly in the recent assignments of UMTS licenses. The argument for auctions is that licenses will go to those who are able to profit most
from use of the spectrum by creating valuable services, as they will come with the highest bids.
Auctions create income for public budgets and thereby draw money out of the telecom sector.
This may be beneficial for public budgets but has been a concern for the telecom sector. The problem became most evident during the
UMTS auctions in the UK and Germany, but has been experienced in the US as well[2].
ENDNOTES
[1] A. Grünwald, Riding the US wave: Spectrum auctions in the digital age. Telecommunications Policy 25 10/11), Nov./Dec., 719-728. 2001.
[2] Eli Noam, Taking the next step beyond spectrum auctions: Open spectrum access. Working Paper, 1995.
The question of scarcity is important for the choice of regulatory approaches to frequency management. The radio spectrum represents a
very valuable resource and the 3G auctions proved that scarcity could lead to a situation where operators were willing to pay substantial
amounts to ensure the right resources.
Technological development has led to an ever increasing number of applications for the spectrum and it is foreseen that demand for
spectrum resources will increase in the future. However there are also trends going in the opposite direction:
■ More effective use through better modulation, compression techniques and smart antennas
■ More flexible allocation mechanisms
■ Usage of high frequency radio waves.
In addition to this, it should be noted that scarcity will not be the same in different parts of the spectrum and in different regions. Scarcity
will be a much more important issue in the most favorable frequencies for supplying the most profitable products and services in densely
populated regions.
If these developments will remove scarcity in most frequency bands, this will imply that the traditional ‘first come first served’ principle can
be used. However, this principle may be used in quite a different way than today, as it will become possible to apply a much more dynamic
approach to spectrum management, where several users share a common frequency band, but have assigned parts of this for exclusive
use on a temporarily basis.
Many new applications e.g. Wi-Fi are using unlicensed spectrum bands. It is therefore important to make such bands available in order to
facilitate development of new applications, but about half of the countries have already allocated parts of the 2.5 GHz spectrum band to
other purposes – e.g. military purposes. Mexico provides a prominent example on how use of Wi-Fi can be facilitated. Here, the regulatory
authority COFETEL has allowed use of several new frequency bands for developing WiMAX Internet access for remote regions.
Development of new wireless service applications may create a need for freeing new spectrum resources in a particular band in order to
be able to comply with international market standards and enable use of mass produced wireless equipment. Regulators may therefore
need to refarm current use of spectrum resources.
MOBILE COMMUNICATION
Development of mobile communication networks has increased the demand for spectrum resources. This increases chances for spectrum
scarcity, and assignment by use of auctions or public tenders becomes more relevant. Auctions and public tenders can be used if the
demand exceeds the number of licenses available. The number of licenses may be restricted for various reasons, but if restrictions are
caused by spectrum scarcity, regulators should consider the possibility of removing scarcity by use of frequency administrative measures
such as frequency refarming, before a public tender or a spectrum auction is initiated.
International roaming is an important mobile service, which demands some harmonization of allocation of frequency bands for mobile
services. This must be taken into account when deciding upon which frequencies to allocate for mobile services.
CONVERGENCE
Use of similar standards for transmission of different applications implies that reservation of particular frequency bands for particular
applications will become less important for technical optimization of spectrum use.
Many of the current restrictions in use of spectrum can therefore be relaxed without affecting technical efficiency. This will simplify
spectrum management and it will become more flexible. It is no longer important for the regulator to know how license holders are using the
spectrum resources, and it will become easier to introduce new applications as this can be done without issuing separate licenses.
CONVERGENCE
Restrictions on use become more difficult to maintain in an environment, where services are developing rapidly and borders between
different applications are blurring. For instance 3G and in particular 4G will support broadcasting services. Convergence will therefore
support the aforementioned relaxation of license conditions.
Development of many different new wireless applications has in combination with the liberalization of telecom markets created an
environment, where a wide range of different types of actors are applying for frequency resources. This challenges spectrum
management which has developed from being a primarily technical discipline to become an area, where economic and policy
considerations play an increasing role for both allocation and assignment of frequency resources.
Implications of technology trends must be seen in the context of the ongoing liberalization and market orientation of frequency management.
It can be argued that this trend by itself is affected by technology trends, but economic as well as political factors also play a role in this
context.
Spectrum auctions are one way to introduce more market-based prices for spectrum resources, but auctions do not solve the allocation
problem, as licenses are still connected to a specific application. A response to the allocation problem will be to issue licenses without
restrictions on the type of applications the spectrum is used for, and to establish a free market where spectrum licenses can be resold.
Such an approach was suggested in a study commissioned by Oftel[1]. In such a system no prior allocation of the spectrum between
different types of applications is necessary. It is up to the licensees to decide how to use their own spectrum resource.
Within the EU there is a clear trend towards a more market-oriented regime for spectrum management, but there is no general consensus
on the use of auctions. Several countries have preferred to use the beauty contest approach for assignment of UMTS licensees, and a
free market for spectrum resources as proposed by the Oftel study has not been on the EU agenda at all. The EU is more concerned about
harmonization of both allocation and procedures for spectrum management (CEC, 2000). There is, however, a trade-off between
harmonization and flexibility of allocation. A free market based on issuing of tradable licenses without restrictions on usage cannot ensure
a harmonized use of the spectrum.
The free market approach may be the best way to ensure that frequencies are assigned to those users who can create the most value
using the spectrum within a certain frequency band. It is however more doubtful, whether the market approach can be used to obtain an
appropriate allocation of frequencies between different services. At least in the near future, several specific problems mainly of a technical
nature complicate a free market approach towards spectrum management.
For instance interference between various users and applications depends on the power of transmissions and the types of applications.
For instance, analogue TV broadcasting will not only prevent other broadcasters from using the same frequencies in a considerable
geographical area, it will also prevent use of certain other frequencies for broadcasting purposes. Therefore the number of licenses that
can be issued depends on what they are going to be used for. This implies that restrictions on usage will enable more licenses to be issued
and hence a more efficient use of the spectrum.
A free market approach may be suitable for assigning frequency bands between operators within the same application. Regulators can sell
licenses on the market and users may be allowed to buy and sell licenses from each other. A relaxation of current restrictions may in
certain frequency bands lead to a use that is closer to optimal from a technical as well as an economic point of view. However, as long as
restrictions persist on how the various bits of the spectrum are used, it will be necessary for a regulator to decide on allocation of
resources between different applications, and regulatory intervention will also be necessary to ensure efficient and harmonized patterns
of usage across countries.
In the long term, however, convergence will make it more difficult and somewhat meaningless to maintain a strict regulation of what
applications a certain spectrum license is used for. Convergence may therefore pave the way towards a free market for spectrum
licenses also for allocation, but until then a prioritization among applications must be made.
[1] Valetti, T. M.: Spectrum trading. Telecommunications Policy, 25(10/11), Nov./Dec. 2001, 655–670.
2.8 Numbering
This section examines objectives of numbering, the regulatory framework for allocation of numbers, implications of technology trends as
well as the respective key points and recommendations.
Service innovations
Network innovations
Horizontal integration
Regulation impact:
Price regulation
Interconnection
(Re) Licensing
Universal Access
Spectrum management
Numbering
3 New Regulatory Paradigm
Based on the technology trends and regulatory implications examined in the two previous sections on technology implications, the present
section puts forward and discusses a new regulatory paradigm and its constituent elements. While the section on ‘Market and Regulation’
analyzes the regulatory implications regarding traditional regulatory fields, the present section takes a more transversal view. The overall
Executive summary purpose is to present a challenging new regulatory paradigm going beyond known regulatory models and aiming at
facilitating the deployment of different technology solutions based on the establishment of an open and level playing field for all commercial
companies as well as non-commercial, community-based and end-user-organized network initiatives. A new regulatory paradigm should
not only reflect existing best practice regulation but should also build on an understanding of upcoming technology and market
developments, which however have immediate implications for present regulatory practices.
Introduction
Based on the technology trends and regulatory implications examined in the two previous sections of this study, the present section
discusses a new regulatory paradigm and its constituent elements. The basic point of departure is that regulatory activities and
organizations must reflect the changing technology and market developments. The reason is that regulation is an important factor in
technology and market developments. Good regulation can be a vital factor in supporting growth and increasing spread and use of
technologies, while failing regulation can be a major barrier. This is why regulation continuously has to adapt to the changing technology
and market environments in which it operates.
The study focuses on the relationships between technology changes and regulatory changes. These relationships are mediated by the
actual and foreseen changes in the markets induced by technology developments, as it is these actual and foreseen market changes that
necessitate changes in regulations. In a broader societal perspective, the relationships between technology, market and regulatory
changes are co-evolutionary. However, to the individual policy making organization or regulatory agency, the issue presents itself as the
regulatory changes made necessary by the introduction of new technologies and the challenge to develop a regulatory framework that
enables the best possible use of new technological potentials.
The basic aims of regulation, to a large extent, remain the same as they have generally been since the beginning of the telecom reform
process starting in the 1980s and 1990s, i.e. to facilitate competition in the markets primarily by means of access and interconnection
regulation, to enhance the access to limited resources such as radio frequencies, and to implement the social aims instituted by policy
decisions regarding, for example, universal access and service. In spite of the same basic aims, the specific content of these aims,
however, changes considerably with technology and market developments. Interconnection in a packet switched environment is different
from interconnection with regard to circuit switching; the vastly increasing number of new radio based access technologies makes it
necessary to change frequency allocations and assignment procedures; and, universal access policies can take advantage of new
access technologies such as mobile communications.
One of the basic aims, which has been important in all countries and especially important in developing countries with under-developed
telecommunication infrastructures, has been to promote investments in order to extend and expand backbone and access networks. A
crucial element in promoting investments, national and international, is to establish a stable regulatory framework so investors know the
regulatory terms on which they make their investments. This includes predictability and due process. This, however, may also create
problems in an environment of increasingly fast changing technology developments. If, for instance, radio frequencies have been assigned
to an operator for 20 years, the operator will expect to have the right to exploit these frequencies for the period of time agreed using the
agreed technology solution even though new and more efficient technologies are developed. Similarly, an operator which has been
appointed as universal access provider using a specific technology, e.g. PSTN, with some exclusivity rights, will also expect to retain these
rights for the period agreed even though access may be obtained more efficiently using mobile or other access technologies. This is a
general problem that regulators have to address and it becomes more acute with the increasing speed of technology development. It
requires the development of a regulatory framework which is, at the same time, stable and flexible.
Another important issue concerns the relationships between policy and regulation. A fundamental part of the regulatory reform process
has been to separate operation, regulation and policy. However, the borderlines between policy and regulation may differ from country to
country and may also change over time. There is no single way of defining these borderlines although the general aim of limiting political
interference in day-to-day regulatory deliberations must be maintained. Furthermore, there is a general development in direction of
diminishing direct policy interventions in the markets and instead relying more on the establishment of a general regulatory framework. This
is a continuous process. In the monopoly period, policy intervention in network operation was very direct. With liberalization, most public
administrations have maintained a direct influence on market players via licenses, but there is increasingly a movement towards regulating
the telecom environment by means of framework regulation instead of regulating the players directly. There is, for instance, a movement
away from strict and narrow licenses in direction of broader licenses, class licenses and even no licenses.
An important question in this connection is the extent to which regulation is necessary. The liberalization of telecom markets has in all
countries been accompanied by regulation. However, during the past few years, the aim of diminishing regulatory market intervention has
become increasingly explicit. The growth of operators competing with the incumbents and new technologies offering new market entry
potentials for market players make it possible to rely more on general rules for market competition and less on sector specific telecom
regulation. The necessity and degree of regulation, therefore, has to be evaluated in each specific case. In the present section of the
study, regulation is discussed in light of such specific market and technology developments.
Furthermore, telecom regulation cannot be seen in isolation from general economic and social developments. Information and communication
technologies (ICT) play an increasing role in the economic and general social life and conditions in societies with the result that policies for
their implementation and use become increasingly important. Universal access, for instance, is a social policy as well as a precondition for
improving the business development of countries. Regulations of communication, therefore, have to be seen in a broader ICT related policy
framework. A comprehensive and coherent approach, consequently, has to be developed.
It is in this spirit regarding the necessity of a regulatory framework, which is at once stable, flexible and part of a larger policy framework,
that the development of a new regulatory paradigm is put forward in this section. The overall purpose of the section is to present a
challenging new regulatory paradigm going beyond known regulatory models and aiming at facilitating the deployment of different
technology solutions based on the establishment of an open and level playing field for all commercial companies, as well as non-
commercial, community-based and end-user-organized network initiatives. A new regulatory paradigm should not only reflect existing best
practice regulation but should also build on an understanding of upcoming technology and market developments, which however have
immediate implications for present regulatory practices.
Main pillars of the new paradigm
The main pillars on which such a new regulatory paradigm rests are the following:
■ First, to open the communication area for as many different initiatives as possible and to diversify participation in order to establish a
basis for the development of network access and communication services in the highest possible quality at the lowest possible price
to as many people as possible, with the implication that an open market environment should be supported, as this is the best
mechanism to facilitate the growth of markets and technology use. It also means an increased emphasis on universal access or
service policies in developing countries, where the other regulatory fields should support the universal access or service aims, for
instance in the field of frequency regulation where new and more open frequency management policies should be implemented.
■ Second, it is important to develop a comprehensive and, at the same time, coherent national ICT policy of which communication
regulation constitutes an essential part. Communication regulation encompasses the regulation of communication infrastructures and
services, which play an essential role for all technology mediated communications and communication dependent processes in
society, residential as well as business. Communication regulation must, consequently, be seen in the light of this broader societal
context. Furthermore, the regulatory approach must reflect a greater degree of pro-activeness and facilitation including a broader
view on systems failures instead of simple market or policy failures. A coherent analysis of the totality and intersection of market and
policy developments must be the basis for the appropriate regulatory measures to be implemented.
■ Third, an appropriate regulatory paradigm must take technology and market convergence into consideration. Where telecom formerly
was a separate industry in relation to IT, broadcasting and other media industries, there is a growing degree of integration between
these industries based, to a large extent, on technology developments with similar technology foundations in the whole ICT and media
area. This leads to new competitive possibilities, as different infrastructures can be used for conveying the same kinds of services. It
also leads to new services being developed and to new questions regarding the interrelationships between infrastructure and
content regulation.
■ Fourth, it is crucial to acknowledge that the national developments in ICTs take place in a wider international context with an increasing
importance of global developments in the communication field. The influence on basic technology developments is rather limited in the
case of most countries and it can be important to attract international investments. However, local and national initiatives also play a
significant role, and national and regional policies are the foundations for developing these international, regional, national and local
contributions to network and service expansion.
■ Fifth, the organizational aspects of regulation must be adapted to the changing technology and market developments in terms of scope
and regulatory practices. Even though the general technology trends have many similarities all over the world, it should be
acknowledged that there is a wide range of regulatory and organizational responses and that specific technology developments may
diverge. Convergence will lead to new technology solutions and the development of new market opportunities, and developing
countries will have the possibility to leapfrog some technology solutions implemented in economically more developed countries. They
will also have the opportunity to leapfrog organizational forms used in regulation in developed countries. Furthermore, the lack of
regulatory resources can make it necessary to implement organizationally less demanding methods of market regulation.
CONVERGENCE
Issues on convergence in the ICT area can be divided into technology convergence, market convergence, convergence of regulatory
provisions, and convergence of regulatory organizations. In the section on ‘Technological Trends’ of this study, the technology aspects
regarding network and service convergence and, hence, end-user equipment are analyzed. In the section on ‘Market and Regulation’, there
is focus on the market aspects of ICT convergence and divergence. In the present sub-section, the general features of the regulatory
provisions regarding convergence are examined, and in the sub-section on ‘Organizational Aspects’, potential organizational implications
are analyzed.
Focus in the discussions on the implications of technology and market convergence on the regulatory provisions (laws) has partly differed
in different parts of the world. In the US, emphasis has mainly been on the possibilities for enhancing competition, when different networks
can deliver essentially similar services, and on the problems for competition created by the horizontal integration of operators, e.g. when
the same operators own different kinds of infrastructures (see practice note on access competition in the USA). In Europe, focus has been
more on the broader societal advantages that convergence potentially entails in the form of new services and new industries[1].
Conversely, the downside has been seen as the problems that this may create for content regulation related primarily to public service
provisions in the broadcast area. In many developing countries, the main interest has been the new access possibilities and the
discussions on unified licensing[2]. These differences in the main focus do not, however, mean that the other issues have been out of
scope in the different countries. The issue of new access possibilities will mostly be strongly correlated with increased competition, but it
means that the emphasis has differed.
Technology convergence provides the possibility for new competitors to enter the markets. Telephony can, in addition to traditional PSTN
operators, be offered by cable TV operators, for example, but these positive implications may be undermined by operators owning different
infrastructures horizontally. Horizontal integration can also be seen in the content area, where content products, for instance computer
games, can run on many different platforms. However, this does not constitute a problem equal to the infrastructure area, as content is not
a bottleneck or an essential facility (see practice note on the essential facility doctrine). There may, however, be arguments relating to
media pluralism and the problems in cross-media ownership affecting horizontal integration in the content areas.
The ‘rule of thumb’ regarding horizontal and vertical integration of market players is that horizontal technology convergence potentially is
beneficial to competition. However, the competition enhancing implications of technological horizontal convergence are diminished when
individual companies integrate horizontally, increasing their market power across different technology platforms. With respect to vertical
integration, this will, in most cases, not in itself hurt competition. However, when vertical integration is combined with horizontal market
dominance in one of the market layers, vertical integration may impede competition[3].
An example of the combination of vertical integration and market dominance horizontally is the provision of DSL services in markets with
one operator dominating the provision of local copper loops. In such a market, the owners of the local loops have a clear advantage in the
provision of DSL services. This has been witnessed in the actual developments of market shares in the DSL area. The problem of vertical
integration is much smaller if combining market dominance in the local loop market with content provisions, i.e. ‘higher’ in the value chain
than conveyance services. Even though an access infrastructure provider can have an interest in offering content services to supplement
its infrastructure provision, the interest in having traffic on the network caused by the provision of content services by other companies
may supercede the interest in dominating the content market.
An additional type of question relating to ICT convergence has centered on how to promote new convergent services and converging
industries. Whereas the different communication and media industries formerly were more confined to their specific areas, technology
convergence creates possibilities for companies to develop and deliver services across technology platforms, and for users to get access
to new kinds of communication and media services. In connection with this, issues regarding cross media ownership problems have also
played a role. For many decades, some countries have had legislation limiting cross media ownership in order to support pluralism in the
media. Convergence tendencies in the media are thus not entirely new. The new issue is that with technology convergence, there are not
only market reasons for integrating companies from different business areas; there is also a stronger technology basis.
In developing countries, the highest interest has centered on the new possibilities for people to get access to communication facilities by
means of different technological solutions. The implications are that the use of different technologies should be promoted and, that
universal access policies should not focus specifically on PSTN access but more on the wider range of different technology access
possibilities. Part of this may be to change the licensing regime in direction of unified licensing instead of technology specific licenses, if
licensing is considered to be necessary at all.
RELATED INFORMATION
Technical aspects of convergence
Horizontal integration
ENDNOTES
[1] European Commission: ‘Green Paper [COM(1997)623] on the Convergence of the Telecommunications, Media and Information
Technology Sectors, and the Implications for Regulation: Towards an Information Society Approach’, December 1997.
[2] On access, see ITU: ‘Trends in Telecommunication Reform 2003: Promoting Universal Access to ICTs: Practical Tools for Regulators’,
ITU, Geneva, 2003. On licensing, see ITU: ‘Trends in Telecommunication Reform 2004/05: Licensing in an Era of Convergence’, ITU, Geneva,
2004.
[3] These issues are discussed in a report from the Nordic competition authorities, ’Telecompetition: Towards a Single Nordic Market for
Telecommunications Services?’, no. 1, 2004, Nordic Council of Ministers, pp. 90-104. The ‘rules of thumb’ are taken from this report. A
theory overview can be found in, for instance, Patrick Rey and Jean Tirole: ‘A Primer on Foreclosure’, IDEI Working Papers no. 203, 2003,
Institut d'Économie Industrielle (IDEI), Toulouse.
DIVERGENCE
Formerly, infrastructure and service provision of telecom were integrated in individual companies. It was the same company that rolled out
the infrastructure and provided the relatively few services provided on this infrastructure, primarily telephony. However, with digitalization
the technological potentials for separating the different layers in the provision of communication services have increased, and these
potentials have further increased with packet switching technology. Internet is the prime example. However, this does not mean that,
formerly, there were only technology reasons and no market reasons for integrating vertically. However, vertical integration is, presently,
driven by market imperatives rather than technology imperatives.
An example is triple-play coming as a service package on top of a specific access technology. It is often claimed that the money is in
applications, services and content and not in infrastructure provision, see for instance the claim that ‘content is king’. This claim is
problematic, as infrastructure provision combined with interpersonal communication services in many instances have shown to be a
profitable business[1], but it is true that customers demand interpersonal services and content and not just infrastructure. Companies will,
therefore, often seek to combine the provision of infrastructure with applications, services and content, as in the case of triple-play
combining the provision of broadband access with Internet access, VoIP and broadcast.
The problem in such an arrangement is that the companies offering these service packages get a monopoly on the individual customers.
There may be other companies in the market, but once a customer or group of customers have signed up with a provider of such a
package, they are tied or locked-in to this specific company reducing competition in the market. This could call for regulatory intervention,
but there can also be a problem in hindering such vertical integration, as an important incentive for a company to roll out the access
infrastructure is the demand for the services in the package.
This leads to one of the important discussions on the separation of infrastructure and services. With the technologically improved
possibilities for separating services from infrastructure, the idea has often been advanced that a market-based separation would result in a
more sustainable competitive situation. In the present situation, operators are most often allowed to operate in the infrastructure markets as
well as the services markets. Furthermore, with the traditional dominance of incumbent operators in the infrastructure markets, the situation
is often difficult for the competitors. With a split between infrastructure and services, there would be a more level playing field in the
service markets. Furthermore, such a split between infrastructure and service provision is known from other utility areas, for instance rail
transportation and electricity.
The proposal to separate infrastructure and services has been put forward in developed as well as developing countries, and there is no
discussion that it would contribute to solving the issue of the leverage of market dominance in the infrastructure area to the service area.
The less clear questions, however, are who the infrastructure provider(s) will be and what the incentive structure for extending the
infrastructure will be. Infrastructure providers could be different competing companies with licenses to operate at the infrastructure levels.
It could be a cooperative between the infrastructure parts of telecom companies. It could, furthermore, be a private infrastructure monopoly
or a public monopoly. The basic question in all cases is what the incentive structure for such companies would be. There is a risk of
establishing a less dynamic market structure than in an environment with close ties between infrastructure and service provision. This is
an important issue to discuss if separating infrastructure and services.
RELATED INFORMATION
Vertical separation
ENDNOTES
[1] See discussion in Andrew Odlyzko: ‘Content is not King’, First Monday, vol. 6, no. 2, February 5th 2001.
■ Focus in the discussions on the implications of technology and market convergence on the regulatory provisions has been partly
different in different parts of the world. In economically developed nations, primarily the US, emphasis has been on the competition
enhancing aspects of technology convergence. Furthermore, the growth of new services and new business areas is considered to
be important. In developing countries, emphasis is mostly on new access possibilities with new technologies.
■ In relation to technology divergence vertically, the proposal to separate infrastructure and services has been put forward in
developed as well as developing countries, and there is no discussion that it would contribute to solving the issue of the leverage of
market dominance in the infrastructure area to the service area. The less clear questions, however, are who the infrastructure
provider(s) will be and what the incentive structure for extending the infrastructure will be.
■ The recommendation is for developing countries to take advantage of the new access and competition potentials created by new
technologies and to limit horizontal integration of companies to the extent that it hinders competition. Furthermore, vertical integration
should in general not be constrained when not presenting a serious problem to competition.
This section presents internationalization of telecom markets, international tariffs, public sector influence and respective key points and
recommendations.
INTERNATIONAL TARIFFS
The development towards packet switching is a process that will take a number of years. For some time still to come, circuit switched
services will be important in the fixed network area as well as the mobile area. For international communication, the consequence is that
service provision will still be running on the basis of well-known structures - including debatable, to say the least, tariff schemes. In fixed
line communication, international tariffs have for many years been priced high above costs, based on international accounting rates, and
this system continues in the mobile area with high international roaming prices. When dealing with international communication, this is an
issue where a discussion on regulatory intervention is obviously required[1].
International tariffs for circuit switched services have been on the agenda in international organizations, e.g. the International
Telecommunication Union (ITU) and the World Trade Organization (WTO), for a long time. It has been difficult to make any progress, primarily
because operators have an interest in high international tariffs, as they make money on this traffic and have a cartel-like mutual benefit in
keeping international tariffs high. In connection with developing countries, it should also be mentioned that with regard to countries with a
larger ‘export’ than ‘import’ of communication services in the shape of either incoming traffic or roaming of mobile users from other
countries, there has also been a certain reluctance towards abandoning the international accounting rate system and now also the roaming
system. The reason is that the income from these areas, in some countries, still constitutes an important share of total income of operators.
However, with the liberalization and the processes of privatization, the interests of operators and public authorities will increasingly
diverge, and public authorities will be more inclined to see to the interests of the users of communication services, which include
reasonable rates. Moreover, the massive bypass occurring across the world also puts great pressure on the international settlement
regime and will ultimately make it meaningless.
ENDNOTES
[1] In the mobile area, the International Telecommunication Users Group (INTUG) has been very active in working for lower international
mobile tariffs.
During the past 25-30 years, producers of telecom equipment have become increasingly international. In the network and service monopoly
period, it was not unusual with close links between national monopoly network and service operators and national equipment
manufacturers. This has changed considerably with the liberalization of the telecom area. Today, the large equipment manufacturers
(network equipment and handsets) must have an international outlook. The largest producers sell their products all over the world and have
production sites in a large number of countries. This applies, for instance, to Nokia, Ericsson, Motorola, Huawei, ZTE, LG and Nortel. There
is also a great amount of smaller and medium-sized equipment manufacturers, focusing regionally or internationally and producing
intermediate and final products. However, the structure of the telecom equipment industry has changed significantly during the past couple
of decades. This was, in fact, the first and very visible implication of the liberalization in the telecom area.
The telecom area has also witnessed an increasing internationalization of communication backbone networks. Formerly, the international
parts of networks were mostly owned and operated by consortia of national monopoly operators as in the case of satellite connections
and sea-cables. This was an expression of the dominating national structure of the telecom area, where international communication had
the form of correspondent relationships between national operators[1]. However, during the 1990s, wholly new and truly global backbone
operators entered the markets operating not only the international parts of networks but also different national parts. This market segment
witnessed a sharp setback with the telecom crisis in the beginning of the new millennium[2], but backbone networks are, presently, very
internationalized. This applies not only to operators with their origin in the economically developed countries but also in developing
countries. The Indian company Reliance, for instance, in 2003 took over FLAG, and the Indian international incumbent VSNL in mid 2005
acquired Tyco as well as Teleglobe.
The same kind of internationalization does not apply to the access parts of infrastructures (apart from satellite access). Most access
infrastructures are locally bound, whether wired or wireless. They can be owned by foreign/international operators but are physically
bound to the local areas. This is part of the background for the relative strength of incumbent operators in their national markets. They own
the physical access infrastructures and, therefore, access to the end-users.
With respect to the services provided via these physical infrastructures, they can very well be provided internationally. In the case of
traditional circuit switched services, exchanges may be placed in neighboring countries, but this only happens in very few instances.
However, with packet switched Internet-based communication, services and content can easily be provided internationally. This applies not
only to content services but also to interpersonal communication services as in the case of Skype telephony, which just requires that a
program be downloaded on the computers of the users. Such a ‘disconnect’ between the physical access infrastructures and the services
running on top of them is a consequence of the layered structure of communication networks described in the former sub-section on
divergence of infrastructures and services. Regulation-wise, the result is that where different kinds of services delivered on dedicated
networks traditionally have been regulated nationally, it will be increasingly difficult nationally to regulate services which are provided
internationally, but it will remain possible to regulate the access infrastructures.
The overall results of the processes of internationalization, so far, in the telecom area are thus that equipment production has increasingly
become international; international backbone operations have gone from a regime totally dominated by correspondent relationships between
national operators towards a system based on international backbone operators and international end-to-end communication; access
infrastructures are predominantly national (except for satellite access) but access infrastructures are not unusually owned by
foreign/international operators; finally, services and content are increasingly delivered internationally and are less locally bound. These
developments already have and will, to a growing extent, affect national regulations and, therefore, the relationships between national and
international regulations.
RELATED INFORMATION
Internationalization and vertical separation
ENDNOTES
[1] A good and short analysis of this development can be found in William Drake: ‘The Transformation of International Telecommunications
Standardization: European and Global Dimensions’, in Charles Steinfield, Johannes Bauer and Laurence Caby (eds.): ‘Telecommunications
in Transition: Policies, Services, and Technologies in the European Economic Community’, Newbury Park, Sage, 1994, pp. 71-96.
[2] The ups and downs of this industry are analysed, e.g. in Martin Fransman: ‘Telecoms in the Internet Age: From Boom to Bust to …?’,
Oxford University Press, Oxford, 2002.
■ Equipment production has increasingly become international, as have international backbone operations; access infrastructures,
however, are mostly locally bound, while services and content can increasingly be delivered internationally. These developments
have affected, and will affect more and more, national regulations and the interrelationships between national and international
regulations.
■ Tariffs for international circuit switched services are still well above costs, in the fixed and especially in the mobile area. With the
liberalization of communication and the establishment of independent regulators, the possibilities for lowering these tariffs have
increased. New technologies and the bypass of international settlement systems also lead in that direction.
■ The processes of liberalization and internationalization of communication has led to decreasing influence of public institutions on
international organizations and forums. To the extent this is considered a problem, working for the general improvement of the
influence of public institutions in the different kinds of international organizations is important, and one of the ways forward is south-
south cooperation between regulators.
With the wide-ranging changes in the telecom area internationally, the international organizational structure has also changed considerably.
In the former system of national monopoly operators, the international relationships were of a correspondent character with ITU as the
international organization in which not only recommendations for standards were elaborated but also agreements were reached on the
basis of which international tariffs were bi-nationally agreed (the accounting rate system). Currently, the organizational ‘picture’ is much
more complex. In the standards area, a host of international industry consortia have been created[1]; Internet has its own set of
organizations centered on the Internet Society and the Internet Engineering task Force (IETF); and, WTO has also played a role, especially in
the 1990s in relation to the Uruguay Round of negotiations. In this ‘picture’, the influence of developing countries is relatively small. Under
the former system, it was also the stronger nations and players that dominated international relations, but the present multi-faceted and
complex system is even more difficult for developing countries to influence[2].
A case in point is ICANN, the Internet Corporation for Assigned Names and Numbers. ICANN is a California-based non-profit corporation,
contracted by the US Government to assume responsibility for space allocation of IP addresses, protocol parameter assignment, domain
name system management and root server system management[3]. User representation in ICANN is continuously being discussed and was
actually reduced in 2002[4]. The discussion on user and public representation is not especially related to developing countries. There are,
however, different developing countries that have protested against the US centric character of the management of the Internet, among
them China and Iran. Furthermore, the European Union has also been critical of the manner in which the Internet is managed presently. The
main criticism is that ICANN should be brought under the rule of some kind of international law, as ICANN is an international regulatory
organization in the Internet area[5]. The counter argument is that this could risk making procedures more bureaucratic and that there is a
danger that countries wanting to censure content on the Internet would gain influence. The present result of these discussions is a
decision from November 2005 to establish an Intergovernmental Forum to discuss all Internet issues but to retain the arrangement with
ICANN as an organization based on a contract with the US Government and under the Californian law.
The ICANN construction and the root server system that it manages is a clear example of the difficulties for public organizations to gain
influence on Internet developments. From a developing country point of view, the Internet is very US centric with 10 of all 13 root file
servers on a global scale located in the US and Internet traffic centered very much on the US. There are good historical reasons for this,
but it nevertheless illustrates the difficulties for developing countries and their regulatory organizations to gain influence on communication
developments, which are vital also for them.
One of the implications of this is that, while interconnection principles for international PSTN traffic dictate each side involved in a
transaction to pay for a half circuit, the arrangement in Internet traffic is that the country or region wanting to connect to another country or
region must pay the full costs. This situation makes African Internet backbone operators, for instance, subsidize the connectivity costs for
international backbone providers to the extent that the current burden of paying international bandwidth costs by African operators are
estimated to cost the continent between $250 and $500 million a year.
A further point to be mentioned is that when operators become international in the sense that they own communication infrastructures in
different countries, their bargaining position in relation to national regulators will strengthen. This phenomenon applies to most countries but
will apply specifically to economically weaker countries. All in all, the challenges for regulatory organizations to act in an increasingly
international communications environment are significant, taking the shifting relations between national and international aspects of
electronic communications into consideration. One way of dealing with this development is to improve the cooperation between regulatory
agencies in different regional contexts and internationally. In the southern part of Africa, there is such cooperation in TRASA
(Telecommunications Regulators of Southern Africa). The same applies to Latin America with Regulatel (Foro Latinoamericano de Entes
Reguladores de Telecomunicaciones). This kind of south-south cooperation is one of the ways forward alongside working for the
improvement of the influence on the different kinds of international organizations.
ENDNOTES
[1] See sub-section on standardisation in the present study.
[2] This has, for instance been pointed out by Richard Hawkins, Robin Mansell and Edward Steinmueller: ‘Liberalization and the Process and
Implications of Standardization’, in Robin Mansell and Edward Steinmueller: ‘Mobilizing the Information Society’, Oxford University Press,
2002.
[3] For an elaborate introduction to ICANN, see Milton Mueller: ´Ruling the Root: Internet Governance and the Taming of Cyberspace’, The
MIT Press, 2002.
[4] At a public ICANN meting in Accra Ghana in 2002 it was decided to reduce direct user participation. See Hans Klein: ‘ICANN Reform:
Establishing the Rule of Law’, a policy analysis prepared for The World Summit on the Information Society, Tunis, 16-18 November 2005,
Internet & Public Policy Project, Georgia Institute of technology.
[5] This case is well presented in the policy analysis by Hans Klein: Op.cit.
The first factor to consider in technology leapfrogging is the technology itself, i.e. how the new technology fits into the existing technology
system. Communication technologies are system technologies, and if new technologies do not entirely substitute for existing technologies,
there will be an adaptation process. The more modularized communication systems become, the easier it is to insert new elements. And, as
Internet based technology solutions are modularized to a much higher extent than the earlier systems, processes of adaptation are getting
easier.
Secondly, there are the economic aspects to take into account. On the investment side, financial resources are generally scarce in
developing countries. This puts a limit on the deployment of new technologies and often makes it necessary to attract foreign investments.
On the demand side, the market prospects can be uncertain in developing countries because of lack of resources among potential users.
But experience has shown that demand often is far stronger than the existing diffusion of communication technologies seems to indicate.
Furthermore, the possibilities for implementing new communication technologies are far better now, as the costs of reaching users with
communication systems and services have decreased.
Thirdly, the power relations surrounding technology systems must also be examined. New technology systems are nowhere – not either in
developing countries – implemented in a total green field environment. There will always be different vested interests – even in hindering
new technology solutions to be implemented. This applies when the new technology systems are implemented by others than the existing
dominating companies and, especially, when the new solutions potentially substitute for the older systems. The policies of liberalization
already implemented limit these kinds of problems. However, vested interests in existing technology systems play a role as barriers to the
implementation of new technologies.
A fourth point deals with the broad range of other socio-economic factors. Absorptive capacity, access to equipment and know-how,
complementary technologies, and downstream requirements are important factors to be included in the analysis of the potentials for
technology leapfrogging[1]. Absorptive capacity deals with the processes of learning and adaptation of new technologies. Access to
equipment and know-how concerns the conditions under which technology can be transferred, including the limits created by intellectual
property rights. Complementary technologies relate to the systemic character of technologies and the linkages with other industrial sectors.
And, downstream requirements deal with the development of the relations with the users.
ENDNOTES
[1] The factors are mentioned by Edward Steinmueller (op.cit.). The following short description of these factors is also taken from this
paper, p. 95-96.
■ Leapfrogging involves the technical aspects of implementing new technologies in the existing technological environments, the
economic, including financial, aspects, the power and broader social interests related to existing and new technology systems, and it
involves a wide range of other socio-economic factors.
■ The prospects of technology leapfrogging in the ICT area seem relatively good in relation to backbone infrastructures as well as
access infrastructures and the services delivered, for instance the fast growth of mobile telephony in many developing nations in
comparison with fixed-line telephony. The overall recommendation is to take advantage of such potentials for technology leapfrogging
by developing a regulatory framework that favors an open technology environment and technology change.
TECHNOLOGY EXAMPLES
In spite of these factors limiting the possibilities for leapfrogging, technology leapfrogging actually does take place. Internet and wireless
technologies are making leapfrogging easier than before. The layered and modularized structure of Internet communication makes it
possible to implement different aspects of Internet based communication on the basis of existing communication systems. Furthermore, the
fact that the intelligence in communication systems is moving from the centers to the peripheries also makes it easier to establish systems in
a more decentralized manner with less upfront capital requirements. Moreover, the costs of equipment are decreasing, which also applies
to different forms of wireless communication. For example, it is cheaper to reach customers by means of mobile telephony than fixed-line
telephony, and, mobile networks are not the only alternatives for local loop access. Different wireless solutions, such as Wi-Fi, WiMAX,
etc. can also be used.
RELATED INFORMATION
Next Generation Access Networks
RELATED INFORMATION
Price regulation
Interconnection
Licensing
Universal access
Spectrum management
Numbering
■ There are basically three market oriented reasons for public intervention in markets: market failures, social concerns and industrial
policy. All three reasons have played a role in telecom and have contributed to the sector specific regulation in the area. However, the
present discourse on sector specific and/or general competition regulation is centered on the level of competition reached in the
different market segments. The issue of sector specific and/or general competition regulation is most prominent in economically more
developed countries but applies equally to developing countries.
■ If analyses document that a sufficient degree of competition has been attained in a market segment, specific regulations need not be
applied and general competition rules, where they have been established, will apply in this segment. The issue is not necessarily
sector specific regulation or general competition regulation at the general level. There will and should be a combination of general
competition rules and sector specific regulations according to the different situations in the different market segments.
PRESENT DISCOURSE
In the present discourse on telecom regulation in the economically developed nations, the question of sector specific and/or general
competition regulation is related to two intertwined issues: one on the market implications of technology convergence; the other one on the
development of the telecom markets towards more ‘normal’ market conditions[1]. The reason that they are intertwined is that convergence,
to the extent that it opens telecom markets to increasing competition, provides new modes of access, and eases the restrictions on radio
frequency usage – will contribute to a normalization of the telecom area.
It should be noted that there can be other reasons for having specific regulations of individual sectors besides their degree of normalization
in terms of level of competition. In the case of the telecom area, one of the reasons has been the infrastructural character of telecom in
society, i.e. its crucial role in the general social and economic communication processes. There are basically three market oriented reasons
for public intervention in markets: market failures, social concerns and industrial policy. All three reasons have played a role in telecom and
have contributed to the sector specific regulation in the area. However, the present discourse on sector specific and/or general
competition regulation is centered on the level of competition reached in the different market segments.
ENDNOTES
[1] The reason that the word normal is in inverted commas is that it is difficult to define normal market conditions. Conditions on most
markets are different and seldom live up to text book requirements for competitive markets. With the words normal and normalization are,
therefore, meant conditions approximating genuinely competitive conditions on the markets.
REGULATORY AREAS
The present sector specific regulation in telecom was implemented in connection with the liberalization processes in the area. The main
fields of sector specific regulation are universal service/access, interconnection and regulation of limited resources (radio frequencies,
rights of way and numbers). Although this may not have been the general understanding from the beginning, a main goal of sector specific
regulations has been to reach a stage in market developments in the area, where special regulation can be lifted. This applies to universal
service/access, if market mechanisms are able to cater to the optimal spread of access technologies in the specific markets without any
special universal service/access regulation. It also applies to interconnection regulation where, at least, the asymmetric parts can be
disbanded, once it can be determined that there is sufficient competition between different providers. An open question is whether
interconnection regulation of the relations between operators in a competitive market must continue, or whether network effects
automatically will lead operators towards interconnection. It finally applies to the regulation of limited resources to the extent that new
technological solutions will contribute to solving the scarcity issues. However, as there always will be some kind of exclusivity aspects in
these scarcity issues, some kinds of special regulations (or self-regulations) will always be necessary.
In the European Union, the present regulatory framework is based on the assumption that telecom markets are moving in the direction of
normal competitive markets, and that convergence is part of the foundation for this development. In order to determine whether different
telecom market segments are sufficiently competitive to lift sector specific regulations, a large number of market segment analyses are
performed in each EU member state based on traditional competition analysis methods regarding market dominance[1]. If analyses
document that a sufficient degree of competition has been attained in a market segment, specific regulations will be abandoned and general
competition rules will apply in this segment. Conversely, if competition analyses show that there is (still) a situation with significant market
power of one operator (or a couple of operators with collective dominance), sector specific regulation will be maintained/implemented. The
issue is, therefore, not necessarily sector specific regulation or general competition regulation at the general level. It will be a combination
of general competition rules and sector specific regulations according to the different situations in the different market segments.
ENDNOTES[1] European Commission: ‘Commission guidelines on market analysis and the assessment of significant market power under the
Community regulatory framework for electronic communications networks and services, 2002,
http://ec.europa.eu/information_society/topics/telecoms/regulatory/maindocs/documents/c_16520020711en00060031.pdf.
3.3.2 Technology neutrality
In a telecoms regulatory context, the concept of technology neutrality means that different technologies offering essentially similar services
should be regulated in similar manners. However, technologies offering similar services do not necessarily have similar features in all
aspects, and exactly identical regulations may, therefore, result in the advantage of one technology over another in the market. Technology
neutral regulation can, consequently, include slightly differing regulations for different technology solutions in the same market segments.
IMPLICATIONS
The technology neutrality concept has implications on most regulatory issues in telecom. With respect to universal service/access, the
implication is that services designated for universal service/access can be provided on different platforms, and that policies should
not promote a specific technological solution (mostly a PSTN solution). Technology neutrality will lead, for instance, to a policy of unified
licensing, as different technology solutions can deliver similar services. And, it will also lead in direction of a policy of similar regulation of
different technologies delivering similar services, taking into account the possible difficulties in implementing this principle entirely, as the
services on different technology platforms are not entirely identical. The emergency systems, for instance, are mostly based on specific
properties of the PSTN system, which VoIP, for example, does not have. This is why there should be a possibility for slightly different
regulations of different services in the same market segment.
Regarding radio frequency assignments, the traditional mode of operation in most countries has been to assign frequencies for specific
technology solutions. However, this practice can be modified and the policy goals can be to implement frequency assignment systems with
greater technology choice. This means that different radio technologies can be used to deliver radio based services in the same market
areas. However, it should be noted that these decisions are partly guided by national or regional technology strategic interests. In one
national or regional context, a special technology solution can be preferred for different reasons, among them the support for specific
technology producers located in the countries and regions in question. This may not be a desirable situation but can influence technology
choices and the degree of technology neutrality.
Finally, technology neutrality affects the competitive situations on the markets. Technology neutrality in the choice of technology solutions
for delivering access or services will lead to increased competition, as different solutions can compete on the same markets. The OECD,
for instance, uses the concept of technology neutral regulation to promote inter-modal competition between different access technologies
[1].
ENDNOTES
[1] OECD: ‘Regulatory Reform as a Tool for Bridging the Digital Divide’, OECD, Paris, 2004,
http://www.oecd.org/dataoecd/40/11/34487084.pdf
The meaning of the concept of technology neutrality slightly differs internationally. The technology neutrality concept first gained ground in
Europe with the regulatory developments in the EU but also plays a role in other regulatory contexts internationally. In the EU, the concept is
closely related to the market analyses mentioned in the previous sub-section on ‘Sector specific and/or general competition regulation’.
Instead of regulating services, a central intention of the New Regulatory Framework[1] in the EU is to regulate markets as in general
competition regulation. This means that instead of regulating technologies delivering specific services, regulation - or the lifting of regulation
- is directed towards markets, where different technology solutions can be used to deliver services which are similar and, therefore
should be subject to similar regulation, with the abovementioned proviso that exactly identical regulation should be avoided if the result is
that one technology is given a competitive edge in relation to others[2]. The manner in which markets are defined is on the basis of the
market concept used in general competition regulation, i.e. based on substitutability analyses including demand substitution as well as
supply substitution[3].
In the EU and elsewhere, the concept of technology neutrality is also used in a broader sense. It is becoming a basic guidepost for
regulation around the world. The concept is used as a prescription for limiting public intervention in the choice of technology solutions in the
markets. Technology neutrality is based on technology convergence, as similar services can be supplied on different technology platforms,
and as regulations should seek to promote competition between different technology solutions instead of ‘picking a winner’. However, the
implications of technology neutrality go beyond technology convergence, as the concept is based on a more profound policy of limiting
public intervention in the directions of technology development[4]. The idea is that market mechanisms are better at making these choices,
and that the risks of ‘wrong’ technology choices by the public sector are substantial.
ENDNOTES
[1] Information on the EU New Regulatory Framework can be found on:
http://europa.eu.int/information_society/topics/telecoms/regulatory/new_rf/index_en.htm
[2] A good introduction to the use of the concept in the EU is Peter Alexiadis and Miranda Cole: ’The Concept of Technology Neutrality …’,
ECTA Review, 2004, p.76-80.
[3] For a short introduction to competition law and substitutability analyses: Office of Fair Trading: ’Market Definition: Understanding
Competition Law’, Office of Fair Trading, UK, 2004: http://www.oft.gov.uk/shared_oft/business_leaflets/ca98_guidelines/oft403.pdf
[4] This applies, for instance, to a US-based publication advocating keeping Internet an open network environment and refraining from
implementing in the Internet environment the regulations to which the more traditional telecoms is subject: Mark Cooper (ed.): ‘Open
Architecture as Communications Policy: Preserving Internet Freedom in the Broadband Era’, Center for Internet and Society, Stanford Law
School, 2004.
■ The concept of technology neutrality means that different technologies offering essentially similar services should be regulated in
similar manners. However, exactly identical regulations may result in the advantage of one technology over another in the market.
Technology neutral regulation can, consequently, include slightly differing regulations for different technology solutions in the same
market segments.
■ Technology neutrality is based on technology convergence, as similar services can be supplied on different technology platforms, and
as regulations should seek to promote competition between different technology solutions instead of ‘picking a winner’. However, the
implications of technology neutrality go beyond technology convergence, as the concept is based on a more profound policy of limiting
public intervention in the directions of technology development.
■ The technology neutrality concept has implications on most regulatory issues in telecoms, including universal service/access,
frequency management and competition. In a number of developing countries where narrow technology licenses have traditionally
been granted, the technology neutrality concept should be used to promote a greater degree of unified licensing.
An important topic, these years, is the issue of infrastructure and service competition. The background is that infrastructure or facility-
based competition is seen as more sustainable than service-based competition, where alternative operators competing with the incumbents
have to rely on the infrastructure elements provided by incumbents. The contention is also that if service competition is made too easy, so
that the conditions for using the infrastructures of incumbents are too favorable in comparison to building infrastructure, the new operators
in the markets will refrain from investing in infrastructure, and competition will never become sustainable enough to lift sector specific
competition regulation.
ACCESS COMPETITION
In economically developed nations, focus with respect to infrastructure and service competition has been on access competition. In the
backbone area, operators competing with the incumbents have often established infrastructures, and the ‘soft’ spot of creating a
competitive market has been the access area, where the incumbents generally are dominant. In the beginning of the liberalization process,
the economically developed nations have given priority to promoting competition by way of service-based competition formulas. Policies
have not been identical in the different countries, and some countries have pushed harder than others for infrastructure-based competition,
for instance the UK. Most countries, however, have been seeking to combine service and infrastructure competition, but with service
based competition playing a major role[1].
With the current intention to arrive at a situation where sector specific regulation can be minimized, there is increasing emphasis on
infrastructure-based competition. Broadband is at the center of attention in the economically developed countries, as this is the new
infrastructure question in these countries. Furthermore, this is an area where new operators have a greater chance than in the traditional
narrowband area of competing on a level playing field with the incumbents. However, it is also an issue affecting narrowband services,
for instance telephony, as this service nowadays can be provided on many different technology platforms.
ENDNOTES
[1] Papers on local loop unbundling regulation and the issue of infrastructure and service competition (in respectively, USA, UK, Italy,
Germany, Sweden, Netherlands and Denmark) were presented at the 16th European Regional Conference in September 2005 in Porto,
Portugal: http://userpage.fu-berlin.de/~jmueller/its/conf/porto05/start.html
■ Infrastructure and service competition has become an important issue. The background is that infrastructure or facility-based
competition is seen as more sustainable than service-based competition, where alternative operators competing with the incumbents
have to rely on the infrastructure elements provided by incumbents. In developing countries with little developed access
infrastructures, new operators will often be inclined or forced to build their own access loops. This can be seen as an advantage
compared with many developed countries but puts great emphasis on the necessity of network interconnection rules and also raises
the discussion on network sharing in order to hasten infrastructure construction.
■ The optimal policy is thus to support all kinds of competitive strategies and network expansion strategies. Instead of viewing service
and infrastructure-based competition as alternative policy options, an optimal policy is to consider them as complements. The reason is
that infrastructure and service markets partly are different market segments with different market players.
NEW ACCESS INFRASTRUCTURES
In developing nations, access infrastructures are generally underdeveloped. This means that, potentially, there is room for new operators
to reach un-served end users with access infrastructure provision. In a number of developing countries, new operators have difficulties in
obtaining reasonable interconnection agreements with incumbents. The difficulties of ensuring access to the incumbents’ networks have
resulted in infrastructure-based competition preceding service competition in many developing countries. To the extent that new operators
are successful in building such access infrastructures, there is an important issue of network interconnection with other operators and
primarily the incumbents. However, there are also operators using the access networks of incumbents, first and foremost in the Internet
area as Internet Service Providers. A regulatory framework including a combination of tools for advancing service as well as
infrastructure-based competition is, therefore, appropriate. However, great emphasis will placed be on the establishment of new access
infrastructures because of the under-development in this area. Different forms of cooperatives can be one of the ways to expand access.
In some countries such arrangements have existed for many years (see practice note on Argentina).
T H E ‘LADDER’ THEORY
The discussions have centered on whether and to what extent infrastructure and service competition exclude or supplement each other,
and whether there is a ‘ladder’ in the markets from service to infrastructure-based competition, so that operators will advance in the
markets from service-based competition to infrastructure-based competition. The ‘ladder’ theory has hitherto been the dominating
framework, but has increasingly been criticized for not putting enough emphasis on infrastructure competition and even, in reality, being a
barrier to infrastructure competition. The individual operators will make their choices regarding different competitive strategies based partly
on the immediate costs and benefits of different business models.
However, strategies are also determined on basis of longer term approaches including decisions on building own infrastructures or relying
on the infrastructures of other operators. Instead of looking solely at the individual operators and their ascent up the ‘ladder’, it is also
necessary to examine the long-term strategies of the different operators. Some operators will build their own infrastructures under all
circumstances, while other operators will concentrate on a service-based approach. The optimal policy is, therefore, to support all kinds of
competitive strategies. Instead of viewing service and infrastructure based competition as alternative policy options, an optimal policy is to
consider them as complements.
C O S T -BASED PRICING
In relation to the liberalization of the telecom area, cost-based end user and interconnection pricing was implemented. The principle in cost-
based pricing is that prices are regulated on the basis of the calculated costs plus an add-on profit percentage. Operators can claim this
price even if their actual costs are lower because of increased efficiency. At first, most countries implemented historical costs as the basis
for cost accounting, as these were the immediate cost figures available. However, historical costs bear some of the same disadvantages
as rate of return regulation, as an inefficient operator with high historical costs will be able to charge higher prices than a more efficient
operator with lower historical costs.
The costing method which, consequently, often has been chosen as the preferred one and which has been implemented in several
countries, especially the economically developed countries, is based on forward looking costs. Costing calculations are based on the
marginal costs that an operator would incur if it were to build similar network elements in the current situation. The elements are assembled
in larger increments and the costing method is, therefore, known as the Long Run Incremental Cost (LRIC) method. The primary advantage
of this method is that it rewards the efficient operators. Furthermore, the price signals sent to the markets will create a more forward
looking basis for the choices made by alternative operators with respect to using the network resources of the existing operator or
investing in their own network resources.
The prices set on the basis on the LRIC method will not always be lower compared with historical costs even though the present
technological solutions are more cost efficient than the solutions used hitherto. When using historical costs, parts of the original costs are
written off, and the costs of building a new similar network increment may, therefore, be higher. This may apply, for instance, to the costs
of unbundled local copper loops used mostly for DSL (Digital Subscriber Lines), while the LRIC prices for switched interconnection
products will be likely to be lower than prices based on historical costs.
There are, in addition, other costing and pricing methods, e.g. Wholesale Line Rental (WLR), where operators can lease network elements
for a price equal to the retail price minus a percentage rate. Furthermore, for the purpose of lowering prices, as new technologies make
networks more efficient, price caps can be used. This applies to retail prices as well as interconnection prices and is well-known, for
instance, in the case of retail price regulation, where RPI-x (Retail Price Index minus a percentage rate) is a method often used.
There are thus different costing and pricing methods available, and often regulators have a discretionary choice with respect to the
methods to be used in different cases. Even though LRIC is the method sending the right forward looking price signals to the market and
does not carry the weight of historical inefficiencies, there may be reasons for choosing another method. One such reason can be that
calculating and negotiating the LRIC based prices can be a very lengthy and resource consuming exercise. This can be a very good reason
in a developing country, where regulatory resources can be scarce. Instead of implementing a time consuming LRIC process, it can be
reasonable to apply simpler costing and pricing methods such as cost and price comparisons with similar countries.
No matter which costing and pricing methods are used, it is important to implement the basic principle of cost based regulation. This will
facilitate the development of more fair retail as well as wholesale prices. Furthermore, cost-based regulation can also be used as a tool for
promoting technology changes. Eventually, it will be the market players who determine which technologies to use. They are in a better
position than regulatory authorities to choose between different technology options. However, knowledge on the costs of different
technology solutions can be used to shape regulations so that market players have incentives to take up new technology solutions.
■ In relation to the liberalization of the telecom area, cost-based end user and interconnection pricing was implemented. The costing
method, which has often been chosen as the preferred one and, which has been implemented in several countries is based on
forward looking costs. The advantages of this method is that it rewards the efficient operators, and that the price signals sent to the
markets will create a forward looking basis for the choices made by alternative operators with respect to using the network
resources of the existing operator or investing in their own network resources. There may, however, be reasons for choosing
another method. One such reason can be that calculating and negotiating the LRIC based prices can be a very lengthy and resource
consuming exercise. This can be a very good reason in a developing country, where regulatory resources can be scarce. Instead of
implementing a time consuming LRIC process, it can be reasonable to apply simpler costing and pricing methods such as cost and
price comparisons with similar countries.
■ It is important to implement the basic principle of cost based regulation. This will facilitate the development of more fair retail as well as
wholesale prices. Furthermore, cost based regulation can also be used as a tool for promoting technology changes. Knowledge on
the costs of different technology solutions can be used to shape regulations so that market players have incentives to take up new
technology solutions.
DIVERSIFYING PARTICIPATION
This applies not only in a technology sense, promoting different ‘access pipes’ to the customers. It also implies promoting the diverse range
of different business models and organizational forms. Telecom has traditionally been dominated by large companies benefiting from
economies of scale and scope. These players will continue to play important roles in the area, but regulations should also seek to promote
other organizational forms, including alternative operators and more demand led initiatives, such as end-user organized networks.
Telecentres, demand aggregation, alternative operators offering new solutions – all such initiatives must be promoted by means of
regulations and not hindered in their development.
Though it is possible that some of these types of initiatives, if successful, will eventually be taken over by larger telecom operators, they
will contribute to the overall growth of telecom access. It is also a possibility that future telecom structures, to a larger extent, will be based
on end-user organized network elements. An important challenge for regulation is, therefore, to enable the combination of such end-user
organized initiatives with the more traditional network and service operators. From a technology point of view, this entails the
interconnection and interoperability of a heterogeneous web of different network elements and services. More importantly, from a
regulatory point of view, it requires a framework allowing for such interconnection and interoperability of network elements and services.
FOCUS OF REGULATION
Among the different areas of regulation and regulatory means that authorities in the field mostly work with, i.e. interconnection, resource
management, universal service/access and licensing, universal service/access stands out as the central issue in present regulatory
developments in developing countries. It also stands out as the centerpiece in the economically developed nations with respect to
broadband access. The expansion of broadband access is a central policy goal in developed countries, though it may not be part of a
universal service policy, which is most often limited to narrowband access. Nevertheless, the goal of increasing access applies to
developing as well as developed nations.
This emphasis does not mean that other regulatory issues or means are less important. Interconnection is, as mentioned, of crucial
importance and so is the management of limited resources in the areas of radio frequencies, names and numbers, and rights of way. It,
however, means that the different regulatory issues all should be guided by the aim of increasing access.
RELATED INFORMATION
Universal access
■ The overall purpose of the new regulatory paradigm must be to open as many paths to network development as possible and refrain
from controlling and restraining these developments.
■ This implies promoting the diverse range of different business models and organizational forms. Telecoms have traditionally been
dominated by large companies benefiting from economies of scale and scope. These kinds of players will continue to play important
roles in the area, but regulations should also seek to promote other organizational forms, including alternative operators and more
demand led initiatives such as end user organized networks.
■ Among the different areas of regulation that regulatory authorities mostly work with, universal service/access stands out as the
central issue in present regulatory developments. This absolutely applies in developing countries where access is still limited. This
does, however, not mean that other regulatory issues are less important. Interconnection is of crucial importance and so is the
management of limited resources. It, however, means that that the different regulatory issues all should be guided by the aim of
increasing access.
■ In developing countries, the problems of QoS are among the biggest issues in telecom. Often quality is poor on all parameters. This
applies to the PSTN technology and also applies to Internet technology.
■ Internet is presently a ‘best effort’ network, which is not a big problem for most data communications, as smaller delays are
unimportant for the transmission of data files, and as packets can be re-transmitted. However, it does constitute a problem for real-
time communication as telephony.
■ The technical parameters for QoS are different when comparing circuit-switching and the Internet. However, the real differences in
terms of regulatory implications are related to the multi-service and multi-operator environment of the Internet and to the fundamentally
global character of the Internet.
■ The areas where regulation can have a role to play are in connection with service level agreements (SLAs) in relation to
interconnection agreements between dominant market players and competitors depending on the quality of the interconnection
services delivered by the dominant operators. Furthermore, QoS for end-users can be secured by way of regulatory provisions.
Users will often experience that the QoS delivered does not correspond to the promises made, for instance with respect to
transmission speed or the quality of VoIP services.
■ There are, however, good reasons to hesitate with respect to strict regulatory interventions in the field of QoS on the Internet. One
reason is the very dynamic character of the Internet and the continuously changing technology solutions used. Another reason is that
the Internet environment is mostly competitive, and regulatory intervention should, accordingly, be light-handed.
REGULATION
The protocols for such prioritization systems are negotiated and decided upon in international organizations, primarily IETF (Internet
Engineering Task Force), and are implemented by operators acting in the markets. In that sense, there is nothing much different from the
former circuit-switched environment with ITU as the predominant international standardization organization. The technical parameters for
QoS are, indeed, different when comparing circuit-switching and the Internet. However, the real differences in terms of regulatory
implications are related – not only to the multi-service environment – but also to the multi-operator and fundamentally global character of the
Internet, where the multi-operator character is a horizontal as well as vertical phenomenon because of the many different horizontally
competing operators delivering Internet access and the vertically layered structure of Internet communications. The implementation of
packet-switching technology allows for a layering of communication systems and a market division of labor between operators on the
different layers. The relevant levels of QoS, therefore, have to be secured on all layers. The layering of communication systems provides a
greater degree of transparency of the different layers of communication processes but also creates a more complex environment with
different operators working on different levels. Furthermore, the truly global character of the Internet makes it difficult to secure QoS, as
communications go through routers located in different parts of the world depending on the availability of transmission capacity at the
particular moment of communication or information transfer.
The role of regulation must be adapted to these circumstances. Standards providing the basis for QoS communication are mostly developed
in international standardization organizations and are implemented by the market players in their international and national operations. The
role of regulators can be to promote these standards and even enforce them if necessary. But most often, market players will see it as
being in their best interest to implement the standards developed and no regulatory interventions will, therefore, be necessary with respect
to standards implementation.
The areas where regulation can have a role to play are, on the one hand, in connection with service level agreements (SLAs) in relation to
interconnection agreements between dominant market players and competitors depending on the quality of the interconnection services
delivered by the dominant operators. If, because of market dominance of an operator, it is difficult for competitors to obtain agreements
securing their customers a sufficient level of QoS, there may be a need for regulation of interconnection agreements obliging the dominant
operators to live up to certain requirements. Furthermore, QoS for end-users can be secured by way of regulatory provisions. Users will
often experience that the QoS delivered does not correspond to the promises made, for instance with respect to transmission speed or the
quality of VoIP services.
There are, however, good reasons to hesitate with respect to strict regulatory interventions in the field of QoS on the Internet. The reason
is the very dynamic character of the Internet and the continuously changing technology solutions used. The Internet environment is mostly
competitive, and regulatory intervention should, accordingly, be light-handed. If the markets for Internet services are not sufficiently
competitive – which is the situation in many developing countries – there is obviously a need for regulation. The criterion for competition
regulation must be the status on the markets and not the technology itself. Self-regulation is also a possible tool in the interconnection
between market players as well as in the relations between companies and end-users. With respect to end-users, one of the possibilities
is to facilitate a more competitive environment by publishing QoS service data for the services delivered by the different operators in the
market.
T R A N S I T I O N T O P A C K E T -SWITCHING
In a circuit-switched telephony environment, QoS refers to the call completion rate, downtime, noise etc. and the underlying technical
parameters securing a sufficient voice quality. In principle, QoS in a connection-less packet-switched Internet environment[1] is similar in
the sense that the quality as perceived by the users can be measured and the technical parameters to secure a sufficient quality can be
determined. However, circuit-switched PSTNs are optimized for voice service, while Internet is optimized for data transfer. When Internet is
used for other kinds of services, new problems also arise because of the differences in quality requirements of different services (e.g.
data files, voice or video). Internet is presently a ‘best effort’ network, which is not a big problem for most data communications, as smaller
delays are unimportant for the transmission of data files, and as packets can be re-transmitted, but it does constitute a problem for real-time
communication as telephony[2].
The problems encountered in a connection-less packet-switched network like Internet can be insufficient throughput, packet loss, latency
and jitter (variable delays) which may cause different problems for different services. Insufficient throughput, latency and jitter cause
problems for real time video; latency and jitter are problematic in relation to voice services; and packet loss may constitute a problem in
connection with the transmission of data files. There are two basic solutions to these problems. One is to have sufficient (or too much, i.e.
over-provisioning) capacity in the network, and the other one is to prioritize communications so that, for instance, real time communication
is given priority over less time-dependent services. Such prioritization is, presently, implemented in two different levels of quality, integrated
services (IntServ) and differentiated services (DiffServ), where IntServ is a finer grained prioritization while DiffServ is coarser grained.
The new IPv6 also includes functionalities allowing for prioritization of different kinds of communication.
ENDNOTES
[1] There are two basic types of packet-switched networks, connection-oriented and connection-less. In a connection-oriented network a
virtual circuit is established and the throughput of packet can be secured. Asynchronous Transfer Mode (ATM) is an example. In a
connection-less network packets will be transmitted via different paths. The present Internet is an example.
[2] QoS issues are, for instance, dealt with in Wikipedia: http://en.wikipedia.org/wiki/Quality_of_service
3.4 Policy Integration
This section on policy integration takes a broader view on telecom regulation. First, there is a presentation and examination of the different
types of public policy market intervention going from the least to the more interventionist modes. The aim of this is to analyze the
relationships between different types of public policy intervention emphasizing the importance of developing a coherent public policy. An
aspect of this is the promotion of innovativeness in the telecom sector. Innovation has not been the main focus of telecom policy, but has
come increasingly to the fore, as the necessity of continuous innovations has gained growing attention. Moreover, the issue of
standardization is taken up. Standardization in the telecom area has increasingly become a supra-national activity, and private interests
have gained growing influence. However, specific applications are often dealt with by national authorities, and the role of standardization
in the development of a coherent new telecom regulatory paradigm is examined. Furthermore, public-private partnerships are also dealt
with and, finally, security issues are examined. Security issues have always had a central position in communication regulations, but the
specific aspects change with technology and market developments.
RELATED INFORMATION
Information society technologies
This section presents the broader policy context, modes of intervention and respective key points and recommendations.
■ Communication regulation must be seen in the broader context of policy measures related to the development of ICT infrastructures
and services. However, the principle of independent regulation must be upheld in order to secure a reliable, stable and accountable
regulation.
■ Most regulatory provisions will be similar in the vast majority of countries. There will, however, be some differences, especially with
respect to the emphasis on the different areas of regulation. However, the mix of policy initiatives and the more specific features of
the different kinds of policy initiatives will vary.
MODES OF INTERVENTION
The most direct form of public market intervention or construction in the communication area is public ownership and, therefore, also
management of communications systems. Of course, publicly owned operators may act on market conditions in a liberalized market, which
is the situation in many countries. However, the strongest form of public market intervention is, nevertheless, when there are public funds
involved in the construction of communication systems. This still occurs, most often, in limited market segments, when states use public
funds to finance infrastructures in, for instance, underserved areas.
Apart from this direct form of market intervention, there are a number of other kinds of policy initiatives. In the following, six different modes
are listed, going from the lightest forms of intervention to the strongest at the end:
■ Strengthening and harmonization of the internal uses of ICT infrastructures and services in public institutions.
■ Construction of communication systems and structures in relation to the citizens and business enterprises, with influences on the
take-up and forms of communication used in the society at large.
■ Facilitation of the development of communication systems. This may include creating more transparency in the markets by way of
public information on qualities and prices of communication services, and it may include the setting up of forums for discussion of, for
instance, interconnection and frequency issues among the competing operators and the public authorities.
■ Regulation proper setting the ‘rules of the game’ in the markets and the enforcement of these rules.
■ Support for the demand for communication systems and services, which may be based on either the direct demand from public
institutions or support for the demand from private citizens and business enterprises. Included in this category can also be mentioned
education initiatives teaching people in using ICT equipment and services.
■ Support for the supply of ICT equipment and services, which may involve public funding of ICT companies, but which may also be of a
more indirect character involving public research and development and also public education of people whose labor power will be
used in business enterprises.
The list illustrates different modes of public policy intervention and market creation. Other kinds of sub-divisions of policy initiatives can be
made, but the list enumerates the most commonly used modes of intervention. Not only are they up for consideration for possible policy
initiatives, they are actually used in most countries. However, the mix of policy initiatives and the more specific features of the different
kinds of initiatives vary. The challenge of the individual countries lies in the best mix of initiatives in their specific contexts.
In connection with the liberalization of the telecoms area in the 1980s and 1990s, the primary emphasis in telecom policy and regulation in
most economically developed nations has been on establishing competition and lowering prices. In developing nations, focus has, first and
foremost, been on increasing take-up (penetration) on the basis of well-established technology solutions (PSTN) but also, and more
importantly, by means of mobile communications. During the past few years, however, there has been an increasing awareness of the
importance of promoting innovation in the sector[1]. This very much has to do with the emergence of new access technologies in the
wireless area, for instance wireless LAN and MAN (e.g. Wi-Fi and WiMAX), as well as wire-based solutions such as cable modems, fibers
and power lines. The increasing interest in promoting innovation is centered on the introduction of new access technology solutions.
However, innovation in new applications, services and content is as important and plays a major role in user demand and the demand for
new access facilities.
ENDNOTES
[1] A good example is a report prepared for the Swedish NRA, Post- och Telestyrelsen (PTS), by Erik Bohlin, Paola Garrone and Erik
Andersson: ’Investment, Innovation and Telecommunication Regulation: What is the Role of the NRA?’, PTS, September 2004.
Technology convergence is at the center of attention, as convergence developments constitute the basis for the development of new
access technologies, i.e. the linear innovations related to new mobile technologies as well as the non-linear wireless LAN and MAN
technologies and ad-hoc technology solutions. With the purpose of facilitating the use of the best of such different technology solutions, it
is important that regulation is as open as possible to all kinds of access, application and service contributions to the local, regional and
national ICT and telecom developments. This implies maximizing participation via open access, development of all technology advantages,
maximum opportunities for competing firms to achieve public interest goals, and stimulation to market development through private as well
as public participation[1].
It is important that communication regulation allows for the widest possible range of innovative activities in the sector. Regulation should
contribute to opening the sector for innovations, and regulation should also be seen as part of a broader national strategy for innovation of
the communication area. It is specifically important that regulation promotes the introduction of new technological possibilities for providing
access and also facilitates the entry of new operators and organizational innovations. New technology solutions as well as new kinds of
organizations in the area such as community organizations setting up telecom facilities require flexibility in the interconnection of networks
and interoperability of services. In contrast to a model with a limited number of technology solutions, a model with a wider range of
technologies in use and a larger degree of differentiation in the kinds of operators and organizations active in the field requires much
flexibility in regulations. The issue of innovation clearly illustrates that the relationship between technology change and regulation goes two
ways. It is not solely a question of adapting regulation to technology changes, but regulatory changes and flexibility are necessary in the
promotion of technology and organizational innovations in the area.
ENDNOTES
[1] For more information and discussion on this approach see the 3rd cycle of the research activities of the World Bank supported World
Dialogue on Regulation for Network Economies on ’Diversifying Participation in Network Development’, http://www.regulateonline.org
An important part of the discussions on innovation is the relationship between competition and innovation[1]. A competitive environment will
in most cases promote innovations. In discussions on innovation, the argument that monopoly rents are important for innovation often
surfaces. The argument is supposedly based on the writings of Joseph Schumpeter[2]. However, without going into a lengthy debate on
the works of Schumpeter, the interpretation that monopoly is a prerequisite for innovation is surely not true, and in the telecom area the
development of liberalization of the sector up until now has clearly demonstrated that competition has been beneficial to innovation.
The opposite argument that incumbents do not innovate is, however, not true either. The monopoly period in telecom has actually witnessed
many innovative developments. The point is that different kinds of operators innovate in different ways. An incumbent will most often seek
to introduce innovations which complement its existing portfolio of services. This applies in a monopoly situation as well as in a situation
where competitors have entered the market. New operators, on the other hand, will have a bigger incentive to introduce technologies
potentially substituting for existing solutions. This is a theme lately popularized in the discussions on sustaining vs. disruptive innovations[3],
where the new wireless technologies have been a case in point as presumably disruptive technologies. New wireless technologies will be
introduced in the markets as means to compete with the incumbent operators. However, it also turns out that incumbents are often able to
adopt new technologies even if they potentially substitute for some of the products in their existing portfolio. This happens, for instance,
when under pressure from new operators offering new technology solutions.
However, as a starting point there is no doubt that incumbents will have a tendency to implement new technology solutions which
complement their product portfolios, while new operators will have a greater incentive to market new technologies that will substitute for
the existing offers on the market. This also means that not only will competition enhance innovative market offerings; innovations will also
increase competition. There is thus a two-way interrelationship between competition and innovation.
ENDNOTES
[1] H. Gruber: ‘Competition and Innovation: The Diffusion of Mobile Telecommunications in Central and Eastern Europe’, Information
Economics and Policy 13, pp. 19-34, 2001.
[2] A brief introduction to Joseph Schumpeter can be found on http://en.wikipedia.org/wiki/Joseph_Schumpeter.
[3] Discussions often centre on the writings of Clayton Christensen and especially his first book on the theme: ‘The Innovator’s Dilemma:
When New Technologies Cause Great Firms to Fail’, Harvard Business School Press, Boston, 1997.
Another important aspect of the issue of innovation in the communication area is the relationship between network innovation and
application, service and content innovation. What comes first, acting as a driver for the development of the other network capacity
expanding innovations, or applications, services and content? This has been a continuous debate in many countries. As illustrated in the
figure, the answer is that there is a two-way relationship between network and application, service and content development. Network
developments will lead to the implementation of new applications, services and content, and the demand for applications, services and
content will act as a driver for network capacity expanding initiatives.
■ Regulation should contribute to opening the sector for innovations and be seen as part of a broader national strategy for innovation of
the communication area.
■ The issue of innovation clearly illustrates that the relationship between technology change and regulation goes two ways. It is not
solely a question of adapting regulation to technology changes, but regulatory changes and flexibility are necessary in the promotion
of technology and organizational innovations in the area.
■ There is also a two-way interrelationship between competition and innovation. This means that not only will competition enhance
innovative market offerings; innovations will also increase competition.
■ There is, furthermore, a two-way relationship between network and application, service and content development. Network
developments will lead to the implementation of new applications, services and content, and the demand for applications, services and
content will act as a driver for network capacity expanding initiatives.
3.4.3 Standardization
Standardization is essential in a network context, as compatibility standards are the technical prerequisites for interconnection and
interoperability. Often a differentiation is made between de facto and de jure standardization, where de facto means that standards are
established in the market by market players ‘as a matter of fact’, while de jure standardization takes place in official standardization
organizations with some kind of public authority influence. The general development since liberalization started in the telecom area has
been that de facto standardization has gained strength at the expense of de jure standardization[1]. This is related to the liberalization and
privatization of the sector, but it is as much related to the internationalization of communications. Where communication systems formerly, to
a large extent, were national systems and met at the borders where standardization of interfaces were necessary, communication
systems are, at present, mostly international, and standards are negotiated between international manufacturers and operators, and less
so between national public authorities[2].
ENDNOTES
[1] See Richard Hawkins, Robin Mansell and Edward Steinmueller: ‘Liberalization and the Process and Implications of Standardization’, in
Robin Mansell and Edward Steinmueller: ‘Mobilizing the Information Society’, Oxford University Press, 2002.
[2] See, for instance, Philipp Genschell and Raymond Werle: ’From National Hierarchies to International Standardization: Modal Changes in
the Governance of Telecommunications’, Journal of Public Policy 13(3), 1993, pp. 203-225.
With the increasing convergence of telecom and IT, there is an important job in securing interoperability between applications and services.
This does not mean forcing private companies and citizens to use specific standards, but there is an important public task in promoting the
use of standards and specifically open standards in and between public institutions, thus influencing the use of standards not only
between public institutions and citizens and private enterprises but also among citizens and private enterprises.
These kinds of standardization activities at national but also international level, specifically regarding applications and services, should not
seek to restrain the use of new standards. The aim should be to facilitate the use of common standards, preferably open standards, and
the interoperability between different applications and services. The standardization activities should thus be seen as a way of smoothing
the internal workings and interrelationships between public institutions and as facilitation measures for market developments. In the practice
note on IT standardization, work in Denmark on developing standards to be used by public institutions is presented. The necessity of
developing such standards is generally accepted. However, an important discussion is whether such standards should be mandatory for
public institutions or should remain as recommendations.
I N T R A - AND INTER-S T A N D A R D C O M P E T I T I O N
A long-standing discussion in standardization strategies concerns the choice between intra- and inter-standard-competition. With intra-
standard competition, the different competing players on the market use the same standard and compete on other parameters than the
ones related to differences in standards. With inter-standard competition, market players use different standards, which thus become part
of the parameters on which competition is based.
In recent years, the discussion on intra- and inter-standard competition has been heated in the field of mobile communications. With the
development of the GSM standard, second generation (2G) mobile communications took off very quickly in European countries and
successfully spread to the rest of the world. In the US, on the other hand, there has been a preference for inter-standard competition in
mobile communications. Advantages and disadvantages of the two modes of competition have been debated. The main advantages of
intra-standard competition are related to the immediate network effects of standardized communication systems and, for the users, the
lowering of prices for terminals and services in a direct price competition between different providers. The primary advantage of inter-
standard competition is the greater push for innovativeness when different standards are competing and, consequently, less technology
lock-in as well as the possibility, on a longer term basis, for the promotion of more cost efficient systems.
Apart from these more ideal reasons, there is of course also a great deal of company strategic interest and national interests involved. The
choice of standards and the choice between intra- and inter-standard-competition is, therefore, very complex and there is no one right
answer. It depends on the specific technology area and the specific situation. However, there is presently a preference for
allowing/promoting more inter-standard competition, e.g. in relation to the uses of unlicensed radio frequencies and in relation to the trading
of radio frequency licenses.
■ Apart from the establishment of Internet specific organizations with responsibility for the development of the Internet including
standards, the most outstanding feature of the new standardization environment is the establishment of a wide range of specialized
forums for specific technologies with standardization as one of their major tasks.
■ One of the results is that the influence of smaller and/or economically less strong nation states is weakened and that national public
authorities in many countries only have very limited influence on standards for telecom networks. This, however, does not mean that
standardization activities are no longer relevant for national regulatory authorities, but it does mean that the focus and direct influence
of national authorities has shifted from the network aspects towards the application and service aspects.
■ There is an important public task in promoting the use of standards and specifically open standards in and between public institutions,
thus influencing the use of standards not only between public institutions and citizens and private enterprises but also among citizens
and private enterprises.
■ Another important area for public policy and regulation is the choice between intra- and inter-standard-competition. This choice is very
complex and there is no one right answer. It depends on the specific technology area and the specific situation. However, there is
presently a preference for allowing/promoting more inter-standard competition, e.g. in relation to the uses of unlicensed radio
frequencies and in relation to the trading of radio frequency licenses.
■ A further critical issue is the national character of type approval processes. This often creates very lengthy type approvals, which, in
addition, may be subject to corruption. One of the ways to speed up type approval and to limit the problems of corruption is to
implement a system of mutual recognition.
NETWORK STANDARDS
Standardization of a de jure character is one of the working areas of public authorities in the communication field and often involves
regulators as the national representatives in international standardization organizations. Formerly, there were fewer international
organizations in which standardization activities took place, with ITU (International Telecommunication Union) as the global organization for
telecom standardization. It is important to notice that standardization activities have changed significantly since liberalization started in the
telecom area. Different but parallel developments have affected the organized processes of standardization. In Europe, ETSI (European
Telecommunications Standards Institute) was created in 1988 and contributed to a regionalization of de jure standardization. Beginning in
the 1980s but speeding up in the 1990s, a large amount of so-called standardization forums or consortia have been created. At the same
time, Internet developed, and around it a number of specific Internet organizations with powers to take decisions on Internet standards.
In spite of the multifaceted character of the different standardization organization, differentiations can be made between, on the one hand,
between de jure organizations (e.g. ITU), Internet organizations (first and foremost IETF, Internet Engineering Task Force), industry forums
(for instance the WiMAX Forum), and professional organizations (with IEEE, Institute of Electrical and Electronics Engineers, as the most
prominent one)[1]. On the other hand, a differentiation can be made between national (e.g. TTC, Telecommunication Technology Committee,
in Japan), regional (for example ETSI in Europe), and international (e.g. the Internet organizations and most of the industry forums).
Apart from the establishment of Internet specific organizations such as the Internet Society and IETF with responsibility for the development
of the Internet including Internet standards, the most outstanding feature of the new standardization environment is the establishment of a
wide range of specialized forums for specific technologies with standardization as one of their major tasks. As noted in the sub-section on
internationalization, some of the implications of this development are that the relationships between the international and national aspects of
standardization have changed and that public interests have experienced a decreasing influence. One of the results is that the influence of
smaller and/or economically less strong nation states is weakened, and that national public authorities in many countries only have very
limited influence on standards for telecom networks. This, however, does not mean that standardization activities are no longer relevant for
national regulatory authorities. It is still important that national authorities support interconnection and interoperability and closely follow and
seek to influence the standardization processes.
Furthermore, national decisions regarding the implementation of network standards can be influenced via the licensing of operators using
specific technologies should this be desirable. One aspect of this is the decision to promote either intra- or inter-standard competition.
Furthermore, the focus and direct influence of national authorities has shifted from the network aspects towards the application and
service aspects. Lastly, type approval deserves mentioning, as this has traditionally been and still is one of the important activities of many
regulatory agencies. A critical issue here is the national character of approval processes. This often creates very lengthy type approvals,
which in addition may be subject to corruption. One of the ways to speed up type approval and to limit the problems of corruption is to
implement a system of mutual recognition. Such a system is implemented in the European context, so that the approval in one country
automatically leads to approval in the other countries participating in the mutual arrangement.
ENDNOTES
[1] It should be noted that mixes of these organisation types also exist as in the case of, for instance, 3GPP (3G Partnership Project) in
which an official standardisation organisation like ETSI is a participant.
3.4.4 Public-private partnership
Public-private partnership (PPP) involves the cooperation of two parties, the public sector and the private sector, and either refers to
private sector entities carrying out assignments on behalf of public sector entities or to fulfill public policy goals or public sector activities
helping private sector entities. Mostly, the term is used to denote that private sector entities, at different levels and scales, take care of
activities traditionally performed by public sector entities. The Canadian Council for Public-Private Partnerships, for instance, states that
PPPs are situated in the spectrum between direct provision by government departments and outright privatization[1]. The definition used by
the Canadian Council for Public-Private Partnerships is that PPP is ‘a cooperative venture between the public and private sectors, built on
the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and
awards'[2].
ENDNOTES
[1] See the website of the Canadian Council for Public-Private Partnerships (CCPPP): http://www.pppcouncil.ca/aboutPPP_definition.asp.
[2] Ibid. Introductions to public-private partnership concepts can also be found on, e.g., http://www.ppp.gov.ie/ (the official Irish website for
PPP) and http://ncppp.org/publications/books.shtml (a US website with publications on PPP).
■ PPP is often part of a privatization discourse. However, it can easily be disentangled from this discourse and made part of a
development of the potentials and problems in public-private cooperation in the build-up of infrastructures and the delivery of services.
The issue of public-private partnership should be seen in light of the aim of developing a coherent policy for the establishment of
national infrastructures and service provisions.
■ The fact that communication services increasingly are subject to mechanisms of supply and demand renders it more relevant to
examine the ways in which public sector initiatives can help build infrastructures, in the cases where private operators are unable to
develop a market, for instance in geographically peripheral or poor areas.
■ Instead of limiting the partnership arrangements to the public sector and private companies, there should be room for other individual
and collective actors, including civil society organizations, non-governmental organizations resulting in Multi-Stakeholder Partnerships
(MSPs).
PPP IN COMMUNICATIONS
The sectors mostly discussed in relation to PPP are, for instance, the infrastructural sectors of transportation and water supply, but health
and other care sectors are also often involved. In the telecom area, privatization has been part of the broader development towards a
liberalized market, and privatization continues to be an important tool in developing the market. In that sense, PPP is an important subject in
the communication field, where many different combinations of mixed public-private ownership and different kinds of cooperation between
public sector entities and private sector entities are used. However, communication services are decreasingly considered as public
services in the sense where public authorities are seen as responsible for the availability of such services. More and more, communication
services are considered as belonging to the large groups of goods and services which are subject to the supply and demand mechanisms
of the market, even though there is still a large degree of public ownership around the world in the communication area, and even though
universal access and service policies are expressions of public policy concerns in that area. Furthermore, traditional PPP arrangements
where private businesses build, operate and later on transfer the facilities to publicly owned operators can also still be found in settings
where communication operators are public enterprises.
However, the fact that communication services increasingly are subject to mechanisms of supply and demand makes it more relevant to
examine the ways in which public sector initiatives can help build infrastructures, where private operators are unable to develop a market,
instead of solely discussing how private sector initiatives can assist in fulfilling public policy goals. This may apply in geographically
peripheral or poor areas, i.e. in areas where private operators may not be able make a profitable business. It can also be that it is politically
decided to build out infrastructures and service provisions at a faster rate than is considered commercially profitable. This actually happens
in a number of economically developed countries in the deployment of broadband infrastructures. With the great emphasis that many
economically developed countries put on broadband development, initiatives are taken to put public funding into the building up of
broadband infrastructures. These infrastructures may eventually be taken over by private operators when they are able to run a profitable
business. These cases, therefore, illustrate the opposite development of traditional PPP arrangements, where private businesses build
infrastructures that later on are taken over by public sector entities.
Furthermore, instead of limiting the partnership arrangements solely to the public sector and private companies, there should be room for
other individual and collective actors, including civil society/non-governmental organizations. Consequently, it would be a multi-stakeholder
arrangement, also called Multi-Stakeholder Partnership (MSP), which would not only center on the private/public dichotomy. This extension
of the sphere of cooperation would be in line with the discussion in section IV.D.1 on the necessity of transcending the simplistic distinction
between market failures and policy failures and to take a more holistic view on the system failures and the possible remedies including
MSG arrangements.
THE PPP DISCOURSE
The Canadian Council for Public-Private Partnerships, furthermore, explains that while the terms PPP and privatization often are used
interchangeably in the US, privatization in the Canadian context refers to but one of the two extremities in the PPP spectrum (see practice
note for examples of different kinds of PPP arrangements). PPP is, however, often part of a privatization discourse. On the other hand, it
can easily be taken out of this discourse and made part of a development of the potentials, but also problems, in public-private cooperation
in the build-up of infrastructures and the delivery of services. Therefore, PPP should not only be seen in light of privatization developments
but also in light of situations where private interests have difficulties in developing the markets on an entirely private basis. The issue of
public-private partnership should thus be seen in light of the aforementioned aim of developing a coherent policy for the establishment of
national infrastructures and service provisions. In such a context, policies of liberalization and privatization can also be viewed as
instruments in reaching public policy goals and not only as negations of public policies as they often are considered to be.
During the past few years, telecom regulators have increasingly been approached by market players expecting regulators to be involved in
security issues. Indeed, network and information security has always been an important topic in telecom regulation, but the topic changes
character with changing technologies. The security issues related to the present communication systems, including Internet, are more
wide-reaching than security issues in the period where telephony was, if not the only, then by far the most dominant service. The reasons
that present information and communication technologies raise a larger range of questions than formerly are, for example, that Internet is a
more open environment than earlier communication systems; that wireless communication also raises new security problems; and that
networks and services increasingly are international, which constitutes new dimensions of security.
Societies today are far more dependent on technology mediated communication than before[1]. All processes of society depend on well-
functioning communication infrastructures and services. This applies to business transactions where business-to-business interactions
increasingly are conducted on networks and where business-to-consumer interactions also witness a growing number of network-based
applications. It also applies to residential and non-commercial communication. In general, it applies to a growing part of all spheres of life, as
societies and human activities are constructed in manners depending on mediated forms of communication. Seen in connection with the
more open and thus more insecure communication environments, this is a significant challenge, where regulation has a role to play.
ENDNOTES
[1] Lately, a book by Robin Mansell and Brian Collins has been published on ’Trust and Crime in Information Societies’, Edward Elgar,
Cheltenham, 2005, illustrating some of the security issues and dependencies f present day society on technology mediated
communications.
See Lawrence Lessig: ’Code and other Laws of Cyberspace’, Basic Books, 1999.
■ Societies today are far more dependent on technology mediated communication than before. Furthermore, the security issues related
to the present communication systems including Internet are more far-reaching than security issues in the period where telephony
was by far the most dominant service. This combination poses a significant challenge, where regulation has a role to play.
■ The important issue to be dealt with in connection with network and information security is to construct the appropriate combination of
technology and legal measures taking the broader market and norms environment into consideration.
■ Regulators are increasingly approached in security issues, but there are other organizations looking into these matters, for instance
the national Computer Emergency Response Teams (CERTs). There can be many models for the organization of security work, partly
or to a larger extent, involving communication regulators.
PROTECTION MEASURES
Regulations are not the only manner in which security is dealt with. Mostly, technology means are used, such as anti-virus software, smart
card readers, encryption software, firewall software, and electronic signature software. These are some of the responses of individuals
and individual organizations trying to protect their communication. However, they cannot stand on their own. Technical measures can only
partly deal with network and information security issues, as the functioning of technical means, to a large extent, relies on legal measures.
The security situation is affected by a combination of the architectures of systems, the laws, the norms and the markets in which network
and information security is in question. Most often, it is combinations of these different factors which determine the level of security, as in
the case of procedures, laws and technologies, e.g. for authorization, authentication, integrity and non-repudiation, which are essential
elements in a secure network and information system environment.
With respect to the issue of the organizational responsibilities and competences in relation to network and information security, there are
and will be differences among countries. Regulators are increasingly approached in security issues, as mentioned, but there are other
organizations looking into these matters, for instance the national Computer Emergency Response Teams (CERTs). There can be many
models for the organization of security work, partly or to a larger extent, involving communication regulators. However, with respect to the
large number of other issues which are related to security, for instance privacy and consumer protection, they are in most cases best
taken care of by other public authorities specialized in these fields. Many countries have agencies specialized in data and privacy
protection, and consumer protection is best dealt with by specialized consumer agencies or organizations, even if commerce takes place
on electronic platforms.
The important issue to be dealt with in connection with network and information security is to construct the appropriate combination of
technology and legal measures taking the broader environment of market and norms into consideration. This applies nationally as well as
internationally, as communication is increasingly international, and security issues are therefore also international. This implies participating
in or monitoring international negotiations and standardization initiatives on secure protocols and security systems.
This section includes a list of Hot Topics, which are of particular interest for telecom regulators. Basic information on the technology as
well as a description of regulatory issues and implications are described for each topic. In addition relevant links to other parts of the toolkit,
Practice Notes and Reference Documents are provided.
4.1 NGN
Technology
The concept Next Generation Networks (NGN) is used in two very distinctly different ways: 1) A broad concept encompassing the whole
development of new network technologies, new access infrastructures and even new services, and 2) A focused concept of specific
network architecture and related equipment, with one common IP core network deployed for the entire legacy, current and future access
networks. ITU defines NGN as: “a packet-based network able to provide telecommunication services and able to make use of multiple
broadband, QoS-enabled transport technologies and in which service-related functions are independent from underlying transport
related technologies. It enables unfettered access for users to networks and to competing service providers and/or services of their
choice. It supports generalized mobility which will allow consistent and ubiquitous provision of services to users”[1].
The first definition is a very broad descriptive reference covering all the current network technology trends. The second definition relates
more precisely to the transition path towards a converged IP based core and access network. In the ITU definition there is a major
emphasis on one of the main characteristics of IP platforms, namely the separation of network and service layers. The regulatory issues
identified below arise from the implications of the specific technological changes in the NGN that will require a reassessment of how some
traditional areas of regulation can best be implemented in the new environment.
Regulatory issues
■ Interconnection: The deployment of NGN networks will create a demand for new types of interconnection products offering
interconnecting packet switched services. These include interconnection between different types of networks and new types of
unbundled network components. Separation of network facilities and service facilities will eventually allow for a complete separation
of network and service interconnection. Measuring interconnection requirements in terms of minutes of traffic and leased lines will
need to be replaced by measures of communication capacity, e.g. gigabits to facilitate efficiency. Regulators will need to foster this
transition.
■ Licensing: Effective competition among different infrastructures offering NGN requires a technology neutral licensing regime. Unified
licensing will stimulate optimal use of technology options by operators and should be implemented at the earliest opportunity
■ Universal service: Most universal service funding schemes will be rendered obsolete by the NGN. There will be a need to
reformulate universal service obligations from being an obligation to offer a particular service (e.g. public voice) to an obligation to
offer network access with a specified minimum capacity and quality. Subsidy schemes for financing universal access/service will
have to be carefully designed so as not to distort market incentives to extend networks. Where subsidies are needed, competitive
bidding for subsidies has been shown to be an effective way to maximize network development for minimum subsidy costs.
■ Sector specific regulation: With networks carrying all kinds of services, both distributional (broadcast) and communicational,
telecom sector specific regulation is becoming increasingly obsolete. In many countries, the regulation of telecom networks has
therefore been extended to include all kinds of communication networks. NGN put this issue acutely on the agenda. Policy makers
must establish a comprehensive convergence regulation framework for regulation to be effective.
■ Infrastructure vs. service competition: The deployment of NGN involves an increasing separation between the core
infrastructure and the services provided over it. There can be increased market entry possibilities for new service providers in all
countries if regulators permit it, as the barriers to market entry are low. Infrastructure competition is more difficult given the large-scale
investment requirements, but it can still be an effective force, stimulating network and services development in most countries.
Regulation will affect the specific manner in which NGN is implemented and regulators should use this opportunity to foster
expanded participation in the sector.
■ QoS: As the NGN is based on Internet protocol, traditional QoS issues migrate from the former circuit-switched related issues to
Internet-related QoS issues. It will be important for regulators to monitor QoS on the NGN with a view to ensuring that consumers
understand the QoS associated with different service offerings, and consumer interests are protected.
ENDNOTES
[1] GLOBAL INFORMATION INFRASTRUCTURE, INTERNET PROTOCOL ASPECTS AND NEXT-GENERATION NETWORKS ITU-T
Recommendation Y.2001
RELATED INFORMATION
Interconnection
(Re) Licensing
Universal Service
Quality of service
4.2 Wi-Fi
Technology
The brand Wi-Fi is originally licensed by the Wi-Fi Alliance (http://www.wifi.org) to describe the underlying technology of Wireless Local
Area Networks (WLAN) based on the IEEE 802.11 specifications. The IEEE 802.11 standard was published by the Institute of Electrical and
Electronics Engineers (IEEE) in 1999. Several variations of the standard have been published since - the best known is IEEE 802.11(b).
The Wi-Fi standard uses the unlicensed Industrial, Science and Medical (ISM) band. In the absence of licensing barriers, and because of
the simplicity of the technology and its cost effectiveness, Wi-Fi networks have developed rapidly. Indoor coverage of 50 to 100 meters is
normal and, depending on the standard, capacity bit rates of 11 to 54 Mbps (in some proprietary versions even more) are possible.
In the point-to-point architecture, the Wi-Fi networks can have wider coverage (depending on the level of amplification in the antenna and
the mast size, up to about 30km), which enables the creation of wider area network infrastructures. This is very important in developing
countries, where no legacy telephony or cable networks exist.
In developed countries, Wi-Fi is mainly used as a complementary local area infrastructure to enable flexible connectivity to different access
networks for business as well as private users. In this case, Wi-Fi is the local extension of a broadband infrastructure. Furthermore,
specific businesses offer Wi-Fi as public and commercial hot spots. Some cities are planning to offer Wi-Fi zones where there will be
complete coverage within a specified area.
Regulatory issues
■ Licensing: Licensing rules for Wi-Fi must be defined as simply as possible, so that they enable flexible use of Wi-Fi by network
operators as well as end users.
■ Universal service: Wi-Fi can contribute to the extension of networks to provide universal service by providing a niche component in
networks provide local connections. Its application should be planned in association with WiMax technologies which provide longer
transmission capabilities.
■ Spectrum management: Wi-Fi requires access to unlicensed spectrum. This reduces licensing barriers, but the allocation of
spectrum resources may still be necessary to avoid spectrum scarcity. Regulators need to ensure that the spectrum requirements
for full exploitation of the benefits of Wi-Fi technology can be realized.
■ Infrastructure competition: Wi-Fi offers the possibility for low-cost wireless access. It can provide network access to unserved
areas, and can be used as a supplement or substitute for other types of access. Wi-Fi can therefore constitute a competing access
infrastructure, but is most often used as an extension of broadband access and a complement to other kinds of wireless access.
■ Business models: Most ISPs require that their broadband customers do not open their Wi-Fi access points to any other user,
believing they will realize higher revenue with this restriction. The business model of these ISPs is to view Wi-Fi as a wireless
extension of the DSL or cable modem connection. However, some companies or associations aim to make Wi-Fi access points
available to other users so as to share the access infrastructure. This raises a consumer rights issue. In most circumstances
consumers should be able to select whether or not they wish to share their Wi-Fi access points.
■ Network and information security: There are network and security issues at stake to the extent that Wi-Fi access is not
protected/blocked by encryption keys. Even if Wi-Fi access is protected or blocked by encryption, network and information security is
relatively low. However, detailed regulation of QoS could potentially undermine the benefits of this low-cost access possibility.
Regulators should ensure users are aware of the QoS provided, which will always be better than no service.
RELATED INFORMATION
(Re) Licensing
Universal Access
Spectrum management
4.3 WiMAX
Technology
WiMAX is the popular name for the IEEE802.16 standard, which is a high capacity and long range wireless broadband standard, and may
become the international FWA (Fixed Wireless Access) standard. Coverage of 50km and capacity of around 70 Mbps is possible using this
technology. It is, however, important to note that the capacity offered over long distances is only a fraction of the maximum capacity.
WiMAX, as access technology, is more typically offered for distances of 5 to 10km. A key point is that 70 Mbps will only be achieved if the
frequency bandwidth of 20 MHz is allocated and assigned by the spectrum management authorities. WiMAX is also being developed to
become mobile (IEEE802.16e); mobile implementation is likely to be available after 2008.
Regulatory issues
■ Licensing: In many countries, licensing rules must be updated in order to allow WiMAX operators to provide voice services and
Internet access, and take full advantage of the potential of the technology.
■ Universal service: WiMAX offers a unique opportunity for cost effective provision of rural access by new entrants, in many cases
without a subsidy requirement. Where subsidy is required, WiMAX will frequently be the technology of choice, and barriers to its
use should be minimized.
■ Spectrum management: Adequate spectrum resources for WiMAX must be ensured. The refarming of spectrum resources may
be desirable and in some circumstances necessary. The use of unlicensed bands lowers costs and barriers of entry, whereas the
use of licensed bands enables better quality services. Spectrum licenses must be carefully designed to suit the particular needs of
WiMAX operators if licensed bands are used.
■ Infrastructure vs. service competition: WiMAX is one of the new technologies allowing for alternative operators to enter the
market for broadband access provision. WiMAX may thus contribute to infrastructure competition. Regulators should consider how
the new possibilities for broadband access and for enhancing competition in the broadband access market can best be developed
using WiMax as well as other technologies.
■ QoS: A significant issue regarding WiMAX is the actual quality of the network access offered, including the stability of the connection.
As with Wi-Fi, QoS is likely to be lower than that provided with other technologies. Regulators should ensure users are aware of the
QoS provided, recognizing that reduced quality service will always be better than no service.
RELATED INFORMATION
(Re) Licensing
Universal Access
Spectrum Management
Quality of service
4.4 VoIP
Technology
Voice over Internet Protocol (VoIP) refers to the transmission of voice telephony over IP networks. VoIP can be delivered over the Internet
and over the managed IP networks. The Internet is a ‘best effort’ medium, whereas in the managed IP networks it is possible to maintain
specified levels of QoS. Furthermore, gateways can be used to interconnect VoIP to the PSTN or mobile networks. This results in three
main deployment scenarios for VoIP:
■ Pure IP: Here the VoIP services are implemented using Computers (or other IP terminals) as end devices. In some deployments, the
regular PSTN terminal is connected to an IP converter. The communication takes place over the Internet or over managed IP networks.
Skype is an example of VoIP over the Internet.
■ IP => PSTN/mobile: In this scenario, there is a gateway between the IP and the PSTN or mobile networks, such that one can call from
the IP terminal to legacy PSTN or mobile networks. Skype-out is an example of this service type.
■ IP <=> PSTN/Mobile: In this scenario, it is possible to call from an IP terminal to the PSTN/mobile AND from a PSTN/mobile terminal to an
IP terminal. Skype-in is an example of this service type.
Regulatory issues
■ Interconnection. Interconnection to the legacy PSTN networks is essential for the success of VoIP services. This interconnection is
implemented by using gateways and contractual agreements between VoIP providers and PSTN operators. These interconnection
arrangements should be monitored by regulators. If fair and non-discriminatory conditions for interconnection are not established in
a timely fashion in the marketplace, regulators should intervene following traditional interconnection principles, as reasonable
interconnection is a precondition for the successful development of VoIP.
■ Universal Service. In rural areas the new wireless technologies will play an important role, where a combination of VoIP services
and wireless infrastructures can enable a more efficient development of all communications services, including basic voice services.
A particular problem related to use of VoIP for the provision of universal service is In-line powering of terminals. Traditional telephony
service is designed with back-up power, and so it continues to work in case of electricity power failure. The current VoIP
services/terminals are dependent on a functioning power supply. A requirement for in-line powering of terminals could put an
enormous burden on the VoIP operators and slow development of service to un-served rural areas. Regulators should facilitate
VoIP growth as a driver for network extension. For the longer term, the requirements for emergency communication standards and
services can best be addressed by considering all the new technologies and services in the NGN, and most particularly VoIP and
mobile.
■ Numbering. VoIP services will co-exist with traditional public telephony for many years before the transition to all VoIP is completed.
The rate of growth of VoIP will depend on its access to the national E.164 number plans. Any regulatory obstacles in accessing
numbers can impede or slow down VoIP development. One model is to assign a new number series for VoIP services, although this
would create confusion among consumers. The best model would be to assign numbers similar to the current PSTN numbers and
to require number portability, so people are not forced to change their phone numbers when they want to change to a competitor
offering VoIP services.
■ Emergency call and positioning. The possibility to perform emergency calls and to route the call to the nearest authority (fire
department, police, hospitals etc.) has been defined as a core element of Publicly Available Telephony Services in Europe[1]. Similar
requirements are part of regulation in other countries. Location information is also more frequently becoming a requirement for both
fixed and mobile telephony. In VoIP it is possible to maintain positioning and routing information for emergency calls. However this
requires use of VoIP services from fixed locations. However, one of the promising characteristics of VoIP services is nomadic use. In
nomadic use at the current level of technological development, the position information cannot be connected to the emergency call.
This is a challenge both to the market players and to the regulatory framework. Regulators should take a lead in facilitating the
resolution of these important emergency issues in future networks.
■ QoS. With POTS, there are detailed recommendations on QoS from the ITU and in many national regulations. In managed VoIP services
it is possible to provide measurable QoS, but this is more difficult in best effort services. Another important issue is the willingness of
facility based operators to offer access to QoS provision to non-facility based operators. For example, a major debate in Europe and
other regions is the lack of QoS provision in the wholesale Bit stream access products offered by the PSTN incumbents. Regulators
will need to take the lead in ensuring consumer protection with respect to QoS.
■ Interoperability & Standardization. Different technical standards are used to establish VoIP services. It is important to establish
interoperability between these standards. The interoperability may be implemented at the technology or market levels. Also new
numbering schemes like global Dialing System and ENUM may require standardization and interoperability. These developments
should be monitored by regulators, and if the market players do not find adequate solutions for interoperability, regulatory measures
may be necessary.
■ Security and consumer protection. In regular telephony services the security and consumer protection standards have been
defined and are generally found adequate.
Endnotes
[1] For a more detailed outline of the European discussion see e.g. Communication staff working document on the treatment of Voice over
Internet Protocol (VoIP) under the EU regulatory framework, Brussels, June 2004
RELATED MATERIALS
For information about the competition and price regulation aspects of VoIP, please see Module 2, section 4.2, "About VoIP"
Interconnection
Universal Access
Numbering
Standardization
Quality of service
4.5 IPTV
This section defines IPTV and examines its classification in various jurisdictions. It also addresses the issue of whether regulations and
obligations typically related to broadcasters should be extended to IPTV. In addition, this section addresses the manner in which different
countries are licensing IPTV as well as the impact on IPTV of network unbundling.
The term IPTV can cause some confusion. In narrow terms, IPTV is defined as the provision of video services (for example, live television
channels, near video-on-demand (VOD) or pay-per-view) through an IP platform. However, some define IPTV services to encompass all
the possible functionalities that can be provided over an IP platform. For example, some equate IPTV services with multimedia services, a
category that can include television, video, audio, text, graphics, and data.[1]
This encompasses not only one-way video broadcasting services but also ancillary interactive video and data services, such as VOD,
web browsing, advanced email, and messaging services. The interactive services associated with IPTV allow the viewer to determine
what and when to watch, and also allow the user to “teleshop” or order movie tickets. IPTV providers now commonly include in their
commercial packages a personal video recorder (PVR) through a hard disk in the set-top-box (STB) or on the network, allowing “time-
shifted” or “catch-up” viewing of TV broadcasts.[2] With an IP-based managed network, the service provider is able to offer a high quality
of service (QoS) level and high “Quality of Experience” (QoE), as well as security, interactivity and reliability.
IPTV providers are signing content agreements and developing innovative applications in order to compete with cable and satellite
television. This includes striking deals for special viewing packages such as sports. Several IPTV providers have also launched High
Definition (HD) television services. In Hong Kong, China PCCW recently introduced stock trading on its “Now” IPTV service. In France,
Iliad’s “TV Perso Freebox” lets subscribers post their own videos for view by others.
IPTV can be confused with Internet video or Internet TV, but those services are quite different. Internet video and Internet TV are both
offered over the public Internet. Internet video is an unmanaged service that offers the streaming of video through the public Internet.
Internet video companies include user-generated video websites like YouTube or Metacafe where users can upload and view others’
videos. Today, these services tend to lack a QoS standard and are without any real control over production quality.[3]
Internet TV companies, like Joost, Babelgum, and Zattoo, tend to operate on peer-to-peer networks rather than on managed networks, and
they typically offer free, ad-based services. However, their offerings are similar or identical to IPTV in several key areas. First, like IPTV,
Internet TV provides professionally produced and copyright-protected video. Internet TV companies also tend to use MPEG 4, the same
encoding technology used by IPTV providers, for high video quality and offer near-TV quality picture resolution. While IPTV allows
subscribers to more easily switch from television to computer mode, users are increasingly able to view all kinds of video on their television
sets with Internet TV.[4]
For Internet TV providers like Joost that offer VOD, users can rewind and fast-forward videos, much like IPTV users that rewind and fast
forward with PVR. However, Internet TV providers that stream live television, such as Zattoo, do not yet have this capability. Although
limited in their service areas, both the U.S.-based Joost and European-based Zattoo have negotiated digital rights management (DRM)
agreements, requiring operators to prevent end users from copying or converting copyrighted materials. DRM deals are considered a
necessary component of offering IPTV.
Users Subscribers only; closed network Free, ad-based service Free, ad-based service
Services Live TV VOD and/or live TV and Internet in multi- Video clips only
VOD task environment
Interactive services
Network IP-based platform; Managed network Public Internet; Peer-to-Peer Public Internet
Video Production Professional video only Professional video only Amateur/user-generated
video only
Video Quality Managed QoS Managed QoS Unmanaged QoS
MPEG 2 to MPEG 4, MSVCI High – MPEG 4 Low, but improving
Receiver device STB with TV or PC PC PC
Resolution Full TV display Near full TV display QCIF/CIF
Copyright Content is protected through DRM Content is protected through DRM No copyright protections
Status of roll-out Deployed in limited geographic areas in Trial stages only Fully accessible
various countries
Source: Based on IPTV – Market Regulatory Trends and Policy Option in Europe, Background Material, ITU-T IPTV Global Technical
Workshop: Driving The Future Of IPTV, Document: IPTV/01, 1 November 2006, Seoul, 12-13 October 2006, at p. 7 and Telecommunications
Management Group, Inc. research
An IPTV operation has four components: the content source, the core network, the access network, and the end user (see figure below).
[4] The content source is the video provider that owns or is licensed to sell live television programming, VOD, or other downloaded
content. Live television is typically received via satellite or through fiber networks, while VOD content is stored by the network operator.
Content passes through an encoder, or headend, which prepares the content for transmission on the network. The core network encodes
the video streams using MPEG-2, although the use of MPEG-4 (H.264 AVC[5], Windows Media VC-1) is on the rise. Once encoded, the
content is encapsulated into IP packets, and is then ready for delivery to subscribers.
Live television is delivered via multicast, which allows many end users to receive content from one packet through efficient use of the IP
network. Channels are essentially IP multicast group addresses that subscribers request to join. Unlike a cable system or an over-the-air
television that “tunes” to a channel, the IPTV set-top box (STB) acts only as an IP receiver. The STB changes channels by using the
protocol to join a new multicast group. When the local switch office obtains the channel change request, it confirms that the subscriber is
authorized to view the content and adds the user to the channel distribution list. Therefore, only signals being watched are sent from the
local office, through a digital subscriber line access multiplexer (DSLAM), if necessary, and finally to the user.
Rather than a “one-to-many” transmission like multicast, VOD is unicast, or “one-to-one.” When an end user requests a VOD product, the
servers pull pre-compressed video streams and transmit them as IP packets. Typically, the local switch office uses a VOD server to
stream from the server to a particular subscriber’s location. The stream is generally controlled by real time streaming protocol (RTSP),
which allows the user to play, pause, and stop the program.
If the video stream is delivered over a copper local loop, the IPTV provider must use DSLAM equipment to deliver IP packets to the
subscriber after the content is encoded. DSLAMs are located either along the core network or access network.
At the customer premises, the STB allows subscribers to select the content they want to watch and provides user control over
functionalities such as rewind, fast-forward, and pause over non-live programs. The two-way functionality of IPTV services not only
allows subscribers to choose their services with the press of a button, it also offers interactive capabilities, which allow a user to easily
manage multimedia sessions and personalize preferences.
Newcomers include Iliad in France, Fastweb in Italy and Hanaro in the Republic of Korea. These new market players have often been
successful by offering IPTV as part of a basic ADSL subscription. IPTV service typically offers from 40 up to 300 TV channels, as well as
VOD, High Definition (HD), and PVRs. Coverage and deployment vary widely. For instance, AT&T currently only offers their “U-verse”
service in select cities in a dozen U.S. states. However some deployments are having an impact. In Hong Kong, China, PCCW’s “Now”
IPTV service had 560,000 subscribers in June 2007 and accounted for almost 40 per cent of all television subscribers. IPTV has also been
successful in Italy and France, where conventional subscription television penetration is not as developed as in other Western European
nations.
Equipment manufacturers are increasingly introducing an element of IP into their STBs.[6] It is estimated that by 2010, about half of the 30
million IPTV STBs deployed in the world will be hybrid (IPTV combined with some form of digital cable, terrestrial, or satellite front end). In
addition, some established subscription TV operators are combining IPTV technology and services with their existing channel packages to
offer enhanced functionality, such as on-demand content.[7] For example, Premiere in Germany is planning to offer a combined satellite
and IPTV service in partnership with Deutsche Telekom (DT), allowing access to DT’s IPTV offering and to its own satellite subscription
service. In Japan, subscription television satellite operator Sky PerfecTV has rolled out an IPTV offering. In the UK, BT has launched a
combined IPTV/DTT service (“BT Vision”) that provides traditional broadcast-based channels over DTT, alongside additional content over an
IP connection.
Market potential
According to the DSL Forum, there were some 8.2 million IPTV subscribers worldwide in June 2007.[8] This marked an increase of 127 per
cent from a year earlier. Europe leads in deployment, accounting for more than half of the world’s IPTV subscribers (see figure below).
Indeed, measuring IPTV penetration as a percentage of total pay TV subscribers, four out of the top five countries are European. But IPTV
has been most successful in Hong Kong, China, where it accounts for about two out of every five pay television subscriptions.
Several forecasts of IPTV evolution predict subscribership ranging from 41 million to 73 million by 2011.[9] Given that IPTV is at an initial
stage of market development, however, these figures should be treated with caution. Some jurisdictions such as France and Hong Kong,
China have been extremely successful with IPTV, and if these experiences can be replicated elsewhere, then the figures could be much
higher. Also, most major deployments have so far been limited to developed economies. The potential for IPTV in developing nations could
be significant in markets lacking traditional subscription television access through cable or satellite systems. However, the attraction of
IPTV has to be balanced against the high investment costs of installing broadband infrastructure.
IPTV presents an opportunity for traditional telecommunication providers to offer triple play services. In addition, unlike new entrants, most
major operators launching IPTV operations have the financial resources available to upgrade their networks and an existing customer base
for marketing purposes. But they do face some bottlenecks that impact IPTV strategy. First, coverage is far from ubiquitous. In order to
receive IPTV, high-speed broadband access is required. While many operators have launched broadband network rollouts, they have not
reached nationwide coverage in most markets. Meanwhile, even some broadband systems operate at speeds too slow to support IPTV,
which requires a downstream connection of at least 4 megabits per second (Mbit/s). A second issue is that some telecommunication
operators already provide television service through cable or satellite ownership or partnership agreements. So they are reluctant to
“cannibalize” those services.
Distribution of IPTV subscribers, by region; Leading IPTV countries, by percentage of total subscribers, June 2007
Source: Adapted from DSL Forum and regulator and operator reports.
ENDNOTES
[2] ITU IPTV Global Technical Workshop, Driving The Future Of IPTV 13 (2006), available at www.itu.int/osg/spu/stn/digitalcontent/4.9.pdf.
[3] Mark Rooney, Pace Micro Technology: IPTV White Paper 3 (2006), available at http://www.iptv-
news.com/__data/assets/word_doc/0016/51145/2006_IPTV_White_Paper_Pace.doc.
[4] Wei Li, Hong Liu, and Yiyan Wu, Communications Research Centre Canada, IEEE: Introduction to IPTV, available at
www.ieee.org/organizations/society/bt/iptv1.pdf.
[5] H.264 generally provides a 40 percent saving in bandwidth over MPEG-2 encoded content, allowing IPTV providers to offer high
definition (HD) television to the home.
[7] Off. of Comms. (Ofcom), The International Communications Market 2006 99 (2006), available at
www.ofcom.org.uk/research/cm/icmr06/icmr.pdf.
[8] Press Release, DSL Forum, “IPTV Deployments More Than Double in a Year as Broadband Continues to Achieve Strong” (Oct. 8, 2007)
www.dslforum.org/dslnews/pdfs/pr_bwfeurope100807.pdf.
[9] Martin Olausson, Strategy Analytics, Strategy Analytics Forecast 41 Million IPTV Subscribers by 2011, available at
www.strategyanalytics.net/default.aspx?mod=ReportAbstractViewer&a0=3259, Press Release, Gartner, Gartner Projects 49 Million by
2010, available at www.gartner.com/it/page.jsp?id=496291, and Press Release, Multimedia Research Group, MRG 73 Million by 2011,
available at www.mrgco.com/press_releases.html#GF1007.
Countries are taking various approaches to classifying IPTV. These approaches range from simply not addressing classification − instead
focusing on competitive market entry into the video market − to denoting IPTV and its related functionalities as a regulated broadcasting
service. Some countries are also developing a broad middle ground, where some services offered over IPTV platforms are considered
broadcasting while others, such as VOD, are not.
In the United States, for example, IPTV has yet to be classified. The Federal Communications Commission (FCC) initiated a proceeding on IP-
enabled services in 2004, in which it made certain determinations about VoIP and other IP services but did not decide anything on IPTV
services.[1] This has not precluded FCC, however, from addressing certain perceived barriers to the deployment of IPTV services. FCC
has:
■ Declined to require incumbent local exchange carriers to provide unbundled access to their hybrid or FTTH loops for the provision of
broadband services;
■ Relaxed the process for issuing cable franchises (a licensing process) to facilitate entry into the video market; and
■ Found that clauses granting cable providers exclusive access for the provision of video services to multiple dwelling units and other
real estate developments harm competition and broadband deployment and were therefore illegal.[2]
On the other end of the spectrum, some countries have adopted a technology-neutral approach to classifying IPTV. For example, the
Canadian Radio-television and Telecommunications Commission (CRTC), considers IPTV one of the broadcast distribution technologies
available for television programming.[3] Services offered over this platform, including VOD, are deemed to be broadcasting services. IPTV
providers fall within the category of broadcasting distribution companies, and are licensed accordingly.
Another approach is taken by the Republic of Korea, Singapore, and Pakistan, where IPTV has not only been specifically classified as a
broadcasting service, but new categories of broadcasting licences have been established. In Singapore, for example, “broadcasting”
includes the IP transmission of any television programming − either full scheduled channels or VOD − to households via a broadband
connection.[4] The Republic of Korea has enacted a new law that classifies IPTV as an “Internet multimedia broadcasting” service. This is
defined as a “type of broadcasting whereby various types of content, including real-time broadcasting programmes, are provided to users
through television sets by way of Internet protocol that allows interactivity using fixed-line telecommunications facilities.”[5]
Some jurisdictions are basing their regulatory classification of IPTV services on the degree of interactivity they allow. On this basis, many
countries are distinguishing between broadcast and VoD elements of IPTV. For instance, the EU countries and New Zealand differentiate
between transmission that is linear (transmitted at a scheduled time) or non-linear (content that is selected by the user and viewed when
the viewer wishes). Linear programming is generally subject to broadcasting and content regulations. Non-linear content may be exempt
from those regulations, as in New Zealand, or subject to some of them but not others, as in the EU.
ENDNOTES
[1] In the Matter of IP-Enabled Services, 19 FCC Rcd 4863, 4878 (2004).
[2] In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers; Implementation of the Local
Competition Provisions of the Telecommunications Act of 1996; Deployment of Wireline Services Offering Advanced
Telecommunications Capability, 18 FCC Rcd 16978, 17103-04, 17149, paras 200, 288 (2003). These rules were upheld by the D.C. Circuit
Court of Appeals on Mar. 2, 2004, in United States Telecom Ass’n v. FCC, 359 F.3d 554, 564-76 (2004) (“USTA II”); In the Matter of
Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer
Protection and Competition Act of 1992, 20 FCC Rcd 18581 (2006); In the Matter of Exclusive Service Contracts for Provision of Video
Services in Multiple Dwelling Units and Other Real Estate Developments, 22 FCC Rcd 20235 (2007).
[3] Can. Radio-television and Telecomms. Comm’n (CRTC), The Future Environment Facing the Canadian Broadcasting System: A Report
Prepared Pursuant to Section 15 of the Broadcasting Act (2006), available at
www.crtc.gc.ca/eng/publications/reports/broadcast/rep061214.htm?Print=True. (“There are four broadcast distribution technologies
available for television programming: conventional over-the-air (OTA) transmission, cable distribution, DTH satellite distribution and Internet
Protocol Television (IPTV)”).
[4] See Media Dev. Auth. (MDA), Licence Framework for Broadcasting IPTV Services, available at
www.mda.gov.sg/wms.www/devnpolicies.aspx?sid=88.
[5] Internet Multimedia Broadcasting Business Act (Republic of Korea), approved by National Assembly in 2007, and implemented in April
2008.
Many countries have only recently started to grapple with whether IPTV providers should comply with content regulations. In the EU, for
example, the European Commission recently decided to amend the Television without Frontiers Directive (“TWF”), last revised in 1997, to
address the new scope of audiovisual services. In December 2007, the EC approved the Audiovisual Media Service Directive (“AVMS
Directive”), which will apply to all “audiovisual media services” (that is, services providing moving images with or without sound). This
includes traditional television broadcasts (termed “linear” audiovisual media services) as well as on-demand services (termed “non-
linear”). Under the AVMS Directive, both of these services are subject to a baseline set of rules (for example, rules protecting minors and
promoting European productions), but traditional television services will be subject to certain additional obligations. IPTV providers will be
subject to the baseline rules when they offer television broadcasting and on-demand services. But they will not have to adhere to the
content regulations if they are merely retransmitting television or on-demand programming without altering the content.
In certain jurisdictions, regulators have decided that IPTV providers should be subject to the same content regulation imposed on
subscription television providers. For example, IPTV providers in Singapore are subject to the programming code imposed on subscription
television providers. In addition, must-carry obligations apply to fixed IPTV operators in numerous EU countries, such as Belgium (in the
French-speaking community), France, Sweden, and the UK (although in practice, the parties have negotiated commercial arrangements).
The U.S. Federal Communications Commission, however, has yet to rule on what the regulatory status of IPTV will be and whether the
must-carry rules will apply to such services.
As in the EU, the Telecom Regulatory Authority of India (TRAI) has recommended not subjecting telecommunication providers offering IPTV
services to content regulation for unaltered content obtained from television broadcasters.[1] TRAI did recommend, however, that IPTV
providers be required to comply with the programme and advertisement code under the Cable Television Network (Regulation) Act 1995 if
they obtain “broadcasting content, Internet-related content or VOD including movie related content.” Examples of this would include music-
on-demand, games, or locally developed content. In addition, telecommunication service providers offering IPTV services may only show
news channels that have been approved by the Ministry of Information and Broadcasting.
ENDNOTES
[1] Telecomm. Reg. Auth. of India (TRAI), Recommendations on Provision of IPTV Services, at 25-26 (Nov. 28 2007).
Regulators are taking different approaches to licensing IPTV providers. Sometimes the licensing requirement is based on the service being
offered rather than the particular platform used to offer it – in other words, a technology-neutral approach. To the extent an IPTV provider
is offering live television, for example, it may subject to the same licensing requirements imposed on television broadcasters. Europeans
are following a technology-neutral approach that considers any television service − provided over any platform (cable, satellite Internet,
ASDL, or mobile network) − a broadcasting service. In France, for example, an IPTV operator must submit a declaration to the Conseil
Superieur de l’Audiovisuel (CSA), although small operators with annual programming budgets of less than EUR 150,000 are exempted from
this mandate.[1] Similarly, Canada requires any television service, including VOD, provided over a managed IP network to have a
“Broadcast Distribution Undertakings” licence. In Europe, however, VOD is not considered a television service due to its interactivity.
Majority of shares cannot be owned or controlled by foreign nationals or any entity whose management control is
vested in foreign nationals
Coverage Per Zone: Two Categories, A and B (Category A – 4 zones including Karachi and Islamabad; Category B – 10 zones)
Fee Structure Application Processing Fee: Rs 20,000 (approx. USD 320)
Category A licences: Rs 1,000,000 (approx. USD 16,000) per zone
Category B licences: Rs 500,000 (approx. USD 8000) per zone
Security Deposit 10 per cent of licence fee (refundable after 1 year after satisfactory operation)
Licensing Term 5 years
Annual Renewal 30 per cent of the licence fee plus 5 per cent of the annual gross revenues
Fee
Source: Pakistan Electronic Media Regulatory Authority, Guidelines for Submission of Statement of Qualifications for IPTV Channel
Distribution Service Licence
In countries such as the Republic of Korea, Pakistan, and Singapore, the broadcasting authority has developed new licences to IPTV
services. Under the Republic of Korea’s new Internet Multimedia Broadcasting Business Act, IPTV providers must get an “Internet
multimedia broadcasting” licence from the Minister of Information and Communications. In Pakistan, IPTV providers must not only obtain an
“IPTV Channel Distribution Service” licence from the Electronic Media Regulatory Authority to provide service, they must also hold a Fixed
Local Loop licence for the same areas (see figure above).
In 2007, Singapore’s Media Development Authority (MDA) developed a technology-neutral licensing framework to facilitate the introduction
of new media services like IPTV. All media service operators seeking to offer IPTV services (or any form of subscription television
services) now require a licence from MDA. That agency defines IPTV as the transmission of television programming, in the form of either
full scheduled channels or video-on-demand, to households via a broadband, IP connection. Using the IPTV network, service providers
can also offer rich interactivity and services such as television commerce, VoIP, video conferencing, and gaming (see figure below).
Singapore’s new framework, however, applied ownership restrictions under the Broadcasting Act to nationwide licensees with more than
100,000 subscribers − but not to niche licensees with fewer than 100,000 subscribers. The disadvantage of this two-tier distinction is that
as licensees grow their subscriber base, they may find themselves forced to divest foreign ownership, since the Broadcasting Act
prohibits a foreign entity from holding more than a 49 per cent interest. MDA is proposing a similar two-tier ownership approach for mobile
TV providers.
Advertising 14 minutes per hour advertising time limit applies for channels with scheduled programming (not applicable for VOD
time limit content and interactive advertising services.
Content Subscription TV programme code applies if scheduled programmes are offered. VOD programme code applies if on-
guidelines demand programmes are offered.
Source: Media Development Authority of Singapore, www.mda.gov.sg/wms.www/devnpolicies.aspx?sid=88#3
Hong Kong, China has not established a special licence category for IPTV providers. Instead, it regulates IPTV providers in the same
manner as a subscription television provider, requiring them to obtain a domestic subscription television programme licence. However, as
in Pakistan, such licences can only be obtained if the operator already holds a fixed network licence.
India’s regulator, TRAI, has recommended that IPTV telecommunication providers be regulated under the terms of their telecommunication
licence, and that cable operators be regulated under the terms of the Cable Television Network (Regulation) Act, 1995. TRAI has
indicated that IPTV services provided by telecommunication operators are not the same as a cable service. This judgment was based on
the technical aspects of the services and the manner in which the content is delivered to the user (cable channels are pushed to the user
whereas IPTV channels are pulled by the user).
TRAI recommended that telecommunication service providers holding a “Unified Access Service” or “Cellular Mobile Telephony
Service” (CMTS) licence be allowed to provide IPTV services under their licences, without any further approval.[2] ISPs with a net worth
of more than a billion Rupees (approximately USD 25 million) would be allowed to provide IPTV services after obtaining permission from the
regulator. Similarly, cable television operators could offer IPTV services under their current authorizations.
ENDNOTES
[1] OECD, IPTV: Market Developments and Regulatory Treatment, DSTI/ICCP/CISP(2006)5/FINAL, at 24 (Dec. 17, 2007), available at
www.oecd.org/dataoecd/11/23/39869088.pdf.
[2] Telecomm. Reg. Auth. of India (TRAI), Recommendations on Provision of IPTV Services, at 18-20 (Nov. 28 2007).
Unbundling access to local loops allows new market entrants to employ the fixed infrastructure of incumbents and provide advanced
services, including IPTV and ancillary interactive services. It also expands new entrants’ potential market reach and increases IPTV
service competition.[1] Several countries have required local loop unbundling, including all of OECD countries except Mexico. Many
developing countries, such as Colombia, Peru, and South Africa, have introduced or proposed mandated local loop unbundling into their
regulatory frameworks.[2]
In many countries where IPTV already has a high market penetration (such as France, Italy and Spain), unbundling has been a key factor
allowing new entrants to develop competing offers and increase IPTV penetration. In Japan, the main broadband competitor, Yahoo! BB,
offers an IPTV service based on unbundled infrastructure that competes with the incumbent’s IPTV service.
As incumbents plan network upgrades and build fiber-based, next-generation networks, regulators are considering whether to modify
unbundling rules in order to avoid disrupting the broadband Internet and IPTV services of incumbents. For instance, European countries
such as the UK have conducted public consultations to adapt their existing unbundling rules to the new fiber network architectures.
Among the issues being considered is the feasibility of unbundling the last mile of fiber network architecture. The consultation also has
addressed whether or not to introduce access obligations for additional local loop network elements, such as street cabinets, ducts, and
the fiber itself.[3]
ENDNOTES
[1] OECD, IPTV: Market Developments and Regulatory Treatment, DSTI/ICCP/CISP(2006)5/FINAL, at 15 (Dec. 17, 2007), available at
www.oecd.org/dataoecd/11/23/39869088.pdf.
[3] See Off. of Comms. (Ofcom), Regulatory Challenges Posed by Next Generation Access Networks (Nov. 23, 2006), available at
www.ofcom.org.uk/research/telecoms/reports/nga/nga.pdf.
4.6 Mobile TV
This section defines mobile TV and analyzes its classification in various jurisdictions. It also addresses the issue of whether regulations
and obligations typically related to broadcasters should be extended to mobile TV. In addition, this section addresses the manner in which
different countries are licensing mobile TV as well as the spectrum issues surrounding mobile TV.
Mobile TV is the wireless transmission and reception of television content – video and voice – to platforms that are either moving or capable
of moving. Mobile TV allows viewers to enjoy personalized, interactive television with content specifically adapted to the mobile medium.
The features of mobility and personalized consumption distinguish mobile TV from traditional television services. The experience of viewing
TV over mobile platforms differs in a variety of ways from traditional television viewing, most notably in the size of the viewing screen.
The technologies used to provide mobile TV services are digitally based, and much of the terminology used in describing mobile TV reflects
Internet phraseology. For example, the terms unicast and multicast are used in the same way they are used for IPTV. That is, unicasting
is transmission to a single subscriber, while multicasting sends content to multiple users. These definitions also correspond to those given
for similar Internet-based applications.[1]
Technical aspects
There are currently two main ways of delivering mobile TV. The first is via a two-way cellular network, and the second is through a one-
way, dedicated broadcast network. Each approach has its own advantages and disadvantages. Delivery over an existing cellular
network has the advantage of using an established infrastructure, inherently reducing deployment costs. At the same time, the operator
has ready-made market access to current cellular subscribers, who can be induced to add mobile TV to the services they buy.
The main disadvantage of using cellular networks (2G or 3G) is that mobile TV competes with voice and data services for bandwidth,
which can decrease the overall quality of the mobile operator’s services. The high data rates that mobile TV demands can severely tax an
already capacity-limited cellular system. Also, one cannot assume that existing mobile handsets can receive mobile TV applications
without major redesign and replacement. Issues such as screen size, received signal strength, battery power, and processing capability
may well drive the mobile TV market to design hand-held receivers that provide a higher quality of voice and video than is available on most
current cellular handsets.
Many 2G mobile service operators and most 3G mobile service providers are providing VOD or streaming video. These services are mainly
unicast, with limited transmission capacity. They are built upon the underlying technologies used in the mobile cellular system itself – GSM,
WCDMA, or CDMA2000.[2] An example of a technology designed to work on a 3G network is Multimedia Broadcast Multicast Service
(MBMS), a multicast distribution system that can operate in a unicast or multicast mode.[3] MBMS has been designed by the 3rd Generation
Partnership Project (3GPP) to provide mobile TV services over existing GSM and WCDMA cellular networks. It operates in the 5 MHz
WCDMA bandwidth, and it supports six parallel, real-time broadcast streaming services of 128 kbit/s each, per 5 MHz radio channel.
Status of roll-out Relatively wide availability—service is available to Limited availability in certain countries; trial stages elsewhere
any 3G subscriber on a network offering mobile TV
Relative 3G network may not be able to support mobile TV Cost of building a dedicated network
Limitations traffic as the number of 3G voice and data users
grow
Source: TMG, Inc. research
Dedicated mobile TV systems, however, can be designed to optimize the delivery of mobile TV. These systems are either totally
terrestrially based, completely satellite based, or a combination of both. One of the major advantages of a dedicated mobile TV delivery
system lies in the relative ease with which mobile TV content can be multicast to numerous users simultaneously. On the other hand, the
disadvantages include the large capital investments in infrastructure that are required and the limited content options that are currently
available, although that issue should dissolve significantly as the mobile TV market grows.
There have been significant advances in the development of standards used to support mobile TV transmissions and mobile multimedia by
dedicated delivery systems. These include standards for:
These standards employ advanced modulation techniques such as orthogonal frequency division multiplexing (OFDM) and are
interoperable with mobile telecommunication networks.[4]
DVB-H has been identified as the mobile TV standard in most of Europe, due to its compatibility with GSM and WCDMA mobile standards. T-
DMB is being used in the Republic of Korea, Indonesia and parts of Europe, and a satellite version of the technology (S-DMB) is operating in
the Republic of Korea. ISDB-T was developed in Japan to provide mobile TV services. MediaFLO technology is being extensively deployed
in the United States for mobile TV applications.
In addition to the above standards – which form the basis for Recommendation ITU-R BT.1833 − there are other mobile TV transmission
technologies in various stages of standardization or deployment in countries around the world. These include DAB-IP mobile TV
technology, Advanced-VSB technology, and the China Mobile Multimedia Broadcasting (CMMB) system.
Mobile TV Standards
ENDNOTES
[2] Comms. and Tech. Branch, Com., Industry and Tech. Bureau, Hong Kong Consultation on Digital Broadcasting: Mobile Television and
Related Issues 7 (2007), available at www.cedb.gov.hk/ctb/eng/paper/doc/mobile_TV.pdf.
[3] ITU, Recommendation ITU-R BT.1833: Broadcasting of Multimedia and Data Applications For Mobile Reception by Handheld Receivers
app. 1 (2007).
[4] ITU-R BT.1833: Broadcasting of Multimedia and Data Applications For Mobile Reception by Handheld Receivers app. 1 (2007) and
ITU-R Report BT.2049-1: Broadcasting of Multimedia and Data Applications for Mobile Reception (2005) provide further detailed
information on these standards.
Given that mobile TV has only recently started being deployed, regulators have only begun to consider the possible regulatory classification
of these services. Nevertheless, specific trends can be distinguished. Some jurisdictions have opted for a light-handed approach,
classifying mobile TV as an information service, while others regulate it, or are proposing to regulate it, as a broadcasting service.
In the United States, mobile TV services (both second generation and 3G, as well as dedicated mobile systems offering live television
channels) are classified as information services and are not subject to broadcasting rules and regulations.[1]
Singapore’s broadcasting regulator, the Media Development Authority (MDA), is proposing to classify mobile TV services and cellular mobile
TV services (point-to-point video distribution services) as broadcasting services. MDA determined that a technology-neutral approach
should mean that both types of mobile TV services would be regulated in the same manner, independent of the transmission platform.[2]
3G mobile providers in Singapore strongly oppose this determination and its regulatory implications. They believe their current licences
allow them to offer such services, and they should not be regulated as broadcasters.[3]
Other jurisdictions have found that existing broadcasting regulations are not applicable to mobile TV services.[4] For example, in Hong
Kong, China, the Broadcasting Ordinance was drafted in the context of television reception at a specified location, rather than for an
audience with mobility. Given this, Hong Kong, China is proposing two alternative approaches. The first option would provide for a self-
regulatory approach. Mobile TV would not be classified as a television programming service. Instead, mobile content would be regulated in
the same manner as content provided over the Internet and providers would be required to draw up and comply with codes of practice.[5]
The second proposed approach would amend the Broadcasting Ordinance to include mobile TV as a new category of service (both over
mobile networks and as dedicated systems).[6]
Other governments have amended existing broadcasting regulation to cover mobile TV. For instance, in 2006 the Italian regulator, AGCOM,
amended the 2001 digital terrestrial television regulations to extend their coverage to mobile TV services delivered over broadcasting
networks (i.e., in the case of Italy’s DVB-H networks).[7] AGCOM has classified these mobile TV services as broadcasting services.
Similarly, in the Republic of Korea amendments were introduced to the broadcasting regulations to include mobile TV services over
broadcasting networks, in effect creating new “mobile multimedia broadcasting services” (both terrestrial and satellite).[8]
By contrast, regulators in other countries have chosen to tread more lightly. The Canadian regulator, CRTC, exempted mobile TV service
over the public Internet from licensing or other requirements of the Broadcasting Act of 1999 and 2006.[9] The exemption applies to
operators that use point-to-point technology to deliver the service, meaning that the operator transmits a separate stream of broadcast
video and audio to each end user. The CRTC determined that a variety of factors made it unnecessary − and potentially detrimental to the
development of mobile broadcasting − to impose more stringent broadcasting conditions on these operators. CRTC found that point-to-point
mobile TV will not have a significant impact on traditional broadcasters because of the inherent limitations of the wireless technology
employed, battery life, screen size of the handset, and the type and range of programming choices offered by the mobile broadcasters.
[10] But CRTC has yet to make a determination regarding the regulation of dedicated point-to-multipoint mobile TV systems.
ENDNOTES
[1] Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005).
[2] Cable & Sat. Broad. Ass’n of Asis (CASBAA), MDA Public Consultation on the Policy and Regulatory Framework for Mobile
Broadcasting Services in Singapore (2007), available at www.mda.gov.sg/wms.file/mobj/mobj.1180.Casbaa.pdf.
[3] See Singapore Telecom Mobile PTE LTD, Submission to the Media Development Authority of Singapore, Policy & Regulatory Framework
for Mobile Broadcasting Services in Singapore (2008), available at www.mda.gov.sg/wms.file/mobj/mobj.1196.SingTel.pdf. See also,
StarHub Mobile PTE LTD, Response to MDA Consultation Paper, Policy and Regulatory Framework for Mobile Broadcasting Services in
Singapore (2008) available at www.mda.gov.sg/wms.file/mobj/mobj.1200.StarHub.pdf.
[4] After an initial public consultation in early 2007, regulatory authorities in Hong Kong, China have noted that mobile TV services provided
over 2.5G/3G mobile networks and broadcasting networks currently do not fall within the purview of the Broadcasting Ordinance.
Nevertheless, authorities have found that some form of regulation for the public good should be applicable to these services (e.g.,
protection of public moral and children). See Comms. and Tech. Branch, Com., Industry and Tech. Bureau, Hong Kong Consultation on
Digital Broadcasting: Mobile Television and Related Issues 7 (2007), available at www.cedb.gov.hk/ctb/eng/paper/doc/mobile_TV.pdf.
See also Comms. and Tech Branch, Com. and Econ. Dev. Bureau and Of. of the Telecomms. Auth., Second Consultation on Development
of Mobile Television Services, paras 6.2, 6.4 (2008) (“Hong Kong Second Mobile TV Consultation”).
[7] Comms. Reg. Auth. (AGCOM), Delibera n. 266/06/CONS, Modifiche al regolamento relativo alla radiodiffusione terrestre in tecnica digitale
di cui alla delibera n. 435/01/CONS. Disciplina della fase di avvio delle trasmissioni digitali terrestri verso terminali mobili, available at
www.agcom.it/provv/d_266_06_CONS.htm.
[8] Enforcement Decree of the Broadcasting Act, art. 1-2(3) (2007) (Republic of Korea), available at
http://www.moleg.go.kr/FileDownload.mo?flSeq=26454.
[9] Can. Radio-television and Telecomms. Comm’n (CRTC), Canada Broadcasting Public Notice CRTC 2007-13, Feb. 7, 2007, available at
http://www.crtc.gc.ca/eng/archive/2007/pb2007-13.htm.
[10] Id. at para 42. The CRTC further noted that it would initiate a further proceeding to examine whether mobile TV services not delivered
and accessed over the Internet would be exempt from the broadcasting conditions. It found that, at the time, much remained unknown
about the potential impact of the broadcast-based or point-to-multipoint mobile technologies, particularly if they could become a substitute
for conventional television. Id. at para 27.
Many countries are applying television content regulations to mobile TV providers. The EU, for example, imposed the same restrictions on
mobile TV advertising that apply to television broadcast advertising. In Singapore, the Media Development Authority (MDA), which is
responsible for mobile broadcasting, conducted a public consultation in which it proposed subjecting mobile TV service providers, as well
as cellular mobile TV providers, to broadcasting regulation. This would put them under MDA’s programming codes for free over-the-air
content, subscription content, VOD and other kinds of content.[1] Singapore also proposed applying to mobile TV the existing framework
for advertising regulation.
In Australia, regulation restricting minors’ access to certain content was applied to mobile premium services, including mobile portal and
premium rate SMS/MMS services.[2] This regulation removed content-related provisions regarding mobile phones from the
Telecommunications Service Provider (Mobile Premium Services) Determination of 2005. Meanwhile the Restricted Access System
Declaration, enacted in accordance with the new Schedule 7 of the Broadcasting Service Act 1992, was applied to mobile premium
services such as mobile TV.
ENDNOTES
[1] Media Dev. Auth. (MDA), Public Consultation on Policy and Regulatory Framework for Mobile Broadcasting Services in Singapore, at
18 (Nov. 21, 2007), available at: www.mda.gov.sg/wms.file/mobj/mobj.1167.Mobile%20TV%20Consultation.pdf.
[2] Ausli. Comms. & Media Auth. (ACMA), Restricted Access System Declaration 2007, (Dec. 20, 2007). This new rule for restricting
access to age restricted content becomes effective on Jan. 20 2008.
In the United States, however, a licensee operating under one of the C block (710-716/740-746 MHz) or D block (716-722 MHz) licences in
the UHF band can provide “flexible fixed, mobile, and broadcast uses, including mobile and other digital new broadcast operations, fixed
and mobile wireless commercial services (including FDD- and TDD-based services). . .[that] could also include two-way interactive,
cellular, and mobile TV broadcasting services.”[2]
In January 2008, Hong Kong, China issued a consultation paper on mobile TV, proposing to licence mobile TV services under a new
category of television programme service provided in the Broadcasting Ordinance. Or, mobile TV could be regulated through general laws
(as currently is the case), if industry implemented a code of practice for self-regulation.[3] Currently, mobile TV providers offering
streaming-type mobile TV services (already available on 2.5 GHz and 3 GHz mobile networks) are not subject to broadcasting regulation
and can offer services if they hold a mobile carrier licence.
In January 2008, TRAI in India issued recommendations on mobile TV. Since cellular licensees were already allowed to deliver video
content over their networks, the recommendations primarily addressed mobile TV licensing for dedicated broadcast networks.[4] TRAI
proposed a tender process to award mobile broadcast licences in the 582-806 MHz band for Digital Terrestrial Television (DTT) and in the
2520-2670 MHz band for satellite transmission. TRAI further recommended that mobile TV operators not be made responsible for following
content codes if they simply retransmitted channels without altering content.
ENDNOTES
[1] Media Dev. Auth. (MDA), Public Consultation on Policy and Regulatory Framework for Mobile Broadcasting Services in Singapore, at
8 (Nov. 21, 2007), available at: www.mda.gov.sg/wms.file/mobj/mobj.1167.Mobile%20TV%20Consultation.pdf.
[2] FCC, FCC Auction 49: Lower 700 MHz Band Fact Sheet, available at: http://wireless.fcc.gov/auctions/default.htm?
job=auction_factsheet&id=49.
[3] Comms. and Tech Branch, Com. and Econ. Dev. Bureau and Of. of the Telecomms. Auth., Second Consultation on Development of
Mobile Television Services, paras 6.2, 6.4 (2008).
[4] TRAI, India, Recommendations on Issues Relating to Mobile Television Service, (Jan. 23, 2008).
The major issue facing the deployment of any mobile TV system is access to the spectrum needed to support the services. The availability
and cost of spectrum will largely dictate the technology deployment options available to the operator. For example, if a potential operator
wishes to deploy a satellite-based mobile TV system, there must be a satellite broadcasting allocation for the desired spectrum band in that
country. If there is no spectrum available for a dedicated terrestrial mobile TV network, then the mobile operator must provide mobile TV
service in bands that are already being used for more traditional mobile services. This will limit the mobile provider’s options and may affect
QoS. As countries move to identify spectrum for dedicated mobile TV networks, government should consider compatibility between new
and existing services. The choice of mobile TV technology should be left to the operator, as long as that technology conforms to national
and international frequency allocations.
ENDNOTES
[1] For example, in the ongoing Public Consultation on Policy and Regulatory Framework for Mobile Broadcasting Services in Singapore,
Media Development Authority (MDA) has proposed not to mandate a single standard for mobile television service in Singapore as the MDA
found it premature for a small market like Singapore to set a “particular standard when there is no obvious global champion,” as well as no
need for the MDA to depart from its policy of technology neutrality. Media Dev. Auth. (MDA), Public Consultation on Policy and Regulatory
Framework for Mobile Broadcasting Services in Singapore, at 6 (Nov. 21, 2007), available at:
www.mda.gov.sg/wms.file/mobj/mobj.1167.Mobile%20TV%20Consultation.pdf.
4.7 Other legal and regulatory issues impacting IPTV and mobile TV
IPTV and Mobile TV face common legal and regulatory issues. This section addresses legal issues related to acquiring content, vertical
integration in content markets, standards, quality of service issues, and ownership issues. It also looks at the regulatory authorities
responsible for IPTV and mobile TV and provides a checklist for regulators introducing IPTV and mobile TV.
IPTV and mobile TV providers need to offer desirable content if they want to attract viewers. But it’s a difficult task to locate and contract
with every individual content provider, ensure that the provider has the necessary rights to distribute the material, and then manage those
relationships. IPTV and mobile TV providers may also find themselves in a difficult negotiating position as movie studios and other content
providers demand the largest possible audiences for maximum exposure. Content generators also seek guarantees of a secure
distribution chain that will safeguard their intellectual property rights, as well as guarantees of high-quality transmission. Start-ups may find
it difficult to compete with the more established media entities that deliver programming over traditional media (broadcast, cable, and
satellite). The media giants have more resources, experience, and viewers.
A new breed of business — the content aggregator — has sprung up to fill the gap between retail providers (that is, IPTV and mobile TV
providers) and the content providers. Content aggregators act as middlemen in order to obtain the rights to content and then facilitate its
distribution through their clients. Also, they typically offer security enhancements and due-diligence services, ensuring that the content
provider has legitimate rights to distribute the content. IPTV and mobile TV providers get one-stop-shopping for content, as well as
assistance in negotiating licence agreements and help in understanding the contours of their distribution rights. Content providers, in turn,
get wider exposure for their material via outlets that otherwise may have gone untapped.
Vertical integration gives the entity controlling both the content or programming rights and the distribution platform the ability to discriminate
in favor of its affiliated video distributor (e.g., cable or satellite) to the detriment of competitors in the downstream market. Although there
may be economic efficiencies that benefit consumers, such discrimination may also lessen competition and diversity in the distribution of
video programming, ultimately harming consumers. In India, for example, concerns arose about having centralized control over content
production and distribution, services, and platforms across different sectors. That concern led to a proposed bill, the Broadcasting
Services Regulation Act of 2007, which would impose a 20 per cent cross-holding restriction between any "content broadcasting service
provider" and any "broadcasting network service provider."
In the United States, exclusive contracts for satellite cable programming or satellite broadcast programming are prohibited between
vertically integrated content vendors and cable operators. These “Program Access Rules” were introduced to address the concern that
potential competitors to incumbent cable operators, particularly satellite television providers, would be unable to gain access to the
programming offered by vertically integrated cable operators.
In countries such as Australia, Spain, and the United Kingdom, regulators have also imposed restrictions on exclusive content agreements
between vertically integrated video programmers and distributors. These restrictions, however, have been adopted on a case-by-case
basis in the context of mergers and other transactions. In Singapore, meanwhile, the lack of vertical integration between video
programmers and cable distributors was a determining factor for the Ministry of Information, Communications and the Arts (MICA) to allow
StarHub Cable Vision’s exclusive carriage agreements.
4.7.3 Standards
Governments need to consider which mobile TV and IPTV standards should be authorized in their country, or whether they will leave the
choice of standards up to the network operators. Several standards are available for IPTV, such as Microsoft or DVB-based standards.
But these are not interoperable, and they can create difficulties for consumers who may want to change service providers, a process that
may require new hardware and new user interfaces. The challenge for the industry and regulators is to create open standards and
facilitate interoperability. With the development of multi-platform set-top boxes, the industry can help create more choices and better use of
resources. Regulations should encourage this process.
In addition, regulators need to consider whether current laws and regulations on equipment certification may impose barriers to rolling out
IPTV or mobile TV. For example, in India, concerns have been raised about whether cable operators’ use of IPTV set-top boxes would
violate the Cable Television Networks (Regulation) Act, 1995, which bars cable equipment that does not use Indian-developed standards.
Since there is, in fact, no Indian standard for an IPTV set-top box, TRAI has issued an opinion that the Act has not been violated – but it also
recommended that the Bureau of Indian Standards expedite IPTV standards development.
Quality of service (QoS) is likely to be an issue regulators will consider. With services provided over the Internet, QoS amounts to a “best
effort” standard. But with IPTV and mobile TV offerings, a provider can control QoS because it uses a privately managed network. In
addition, given the importance of better picture quality with IPTV and mobile TV, it is in the operator’s interest to provide high-quality service
or the consumer will go elsewhere.
In Singapore, MDA was considering whether to impose QoS requirements on mobile TV, but it proposed not to mandate picture quality or
performance indicators for customer service. MDA indicated that it believes imposing picture quality requirements would limit the mobile TV
providers’ flexibility to determine an optimal mix of formats, and customer service mandates are not necessary in a competitive
environment. However, MDA did propose minimum network coverage requirements to ensure that (1) mobile TV services are offered
throughout Singapore, and (2) outdoor coverage meets a 95 per cent threshold.[1]
ENDNOTES
[1] Media Development Authority (MDA), Public Consultation on Policy and Regulatory Framework for Mobile Broadcasting Services in
Singapore, at 6 (Nov. 21, 2007), available at: www.mda.gov.sg/wms.file/mobj/mobj.1167.Mobile%20TV%20Consultation.pdf.
Several countries maintain ownership restrictions that may impede the development of IPTV and mobile TV services. Joint-provisioning
prohibitions may bar a telecommunication provider from operating a cable subscription service. For example, Argentina forbids a
telecommunication provider from offering of any type of broadcasting services over any platform, whether it is subscription-based or not.
In Brazil, incumbent telecommunication providers are banned from providing cable broadcasting services in areas where they offer
telecommunication services. They are permitted, however, to provide VOD after obtaining a direct-to-home licence, and they may also
offer satellite television.
Countries also may have cross-ownership restrictions that prevent telecommunication providers from owning cable networks and vice
versa. Unlike joint-provisioning restrictions, cross-ownership restrictions do not necessarily prevent the affected firm from entering a
specific market, provided its entry strategy does not involve acquiring an existing player in that market. In the context of public switched
telecommunication networks and cable television services, cross-ownership limitations generally are directed at safeguarding the
independence of competing service providers and fostering facilities-based competition. In India, for example, broadcasters and cable
operators may own only up to 20 per cent of any satellite television company. In January 2007, TRAI issued recommendations to the
Ministry of Information and Broadcasting proposing to extend the 20 per cent cap to mobile TV providers.
In response to convergence, however, some governments have pursued legislation to eliminate or modify these restrictions. For example,
the Mexican government introduced a “convergence agreement” that eliminated the joint-provision restrictions barring incumbent Telefonos
de Mexico (Telmex) from providing television services. The government did, however, attach conditions to the agreement, requiring clear
interconnection rules and number portability processes. The agreement, however, was affected by competition concerns related to joint
ownership in Mexico. As a result, the Communications and Transport Secretariat and the Federal Competition Commission established a
presumption that joint ownership would stifle inter-modal competition in Mexico. If an interested party can rebut this presumption and
present evidence of efficiencies derived from the potential joint ownership, the Competition Commission may grant a waiver of the
restrictions.[1]
The Brazilian Congress also began working on a comprehensive law to eliminate the joint provisioning restriction.[2] But in other countries,
cable operators have mounted strong efforts to oppose lifting bans on joint provisioning. For example, in an attempt to prevent
telecommunication providers from offering IPTV, the Argentine Cable Television Association filed an appeal with the Federal Administrative
Court (affirmed by the Supreme Court), which upheld the constitutionality of a law barring telecommunication companies from entering the
broadcasting services market.[3]
Traditionally, there has been great sensitivity regarding broadcasting services and foreign ownership. As a result, while foreign
ownership restrictions have been eliminated in many countries for telecommunication companies, they often remain in place for traditional
broadcasting companies. In India, for example, the foreign ownership cap for telecommunication providers is 74 per cent – but just 49 per
cent for cable operators.[4] Similarly, the Republic of Korea has different foreign ownership restrictions for the broadcasting and
telecommunication sector.[5]
ENDNOTES
[1] See Fed. Competition Comm’n, OF. No. PRES-10-096-2005-117, Opinion Twelve (Oct. 31, 2005); Fed. Competition Comm’n, OF. No. PRES-
10-096-2006-102, Opinion Eleven (Jul. 7, 2006); Commns. and Transport Secretariat, Convergence Agreement, Second Accord (Oct. 3,
2006).
[2] The draft law nº 29 establishes that the concessionaires operating at the switched fixed line services would be allowed to offer cable
TV; except in localities where a cable TV provider launched its operations less than one year before the issuance of the new law (draft
29). In those localities, the concessionaires would need to wait one year after the issuance of the law in order to acquire a cable TV
licence.
[3] Cooperativa Telefonica de Libertador General San Martin before the Supreme Court of the Nation (interpreting article 45 of
Broadcasting Act 22.285, as amended by Law 26.053 of Sept. 14, 2005).
[4] Telecomm. Reg. Auth. of India (TRAI), Recommendations on Provision of IPTV Services, at 28 (Nov. 28 2007).
[5] Foreign equity cap for broadcasters and backbone telecommunications service providers is capped at 49 percent. However, the
method of calculating foreign equity different under the Telecommunications Business Act (calculation is based only on stocks with a voting
right) and the Broadcasting Act (calculation is based on all stocks). Int’l Telecomms. Union (ITU), IPTV Case Study of Korean Digital
Convergence, Study Group 1, ITU-D/E/57-E, at 10 (Nov. 4, 2007).
By 2009, more than 150 countries have established independent regulatory authorities. Among these are several converged regulators,
such as those in Australia, Finland, Italy, Malaysia, South Africa, Singapore, the United States, and the United Kingdom.[1] Nearly 30
converged regulatory agencies have opened their doors in past seven years.[2] The rationale for this accelerating trend is that a
converged regulator is better suited to respond to an environment where distinctions based on service and network platform are becoming
blurred. A converged regulator establishes a single government entity to oversee all matters involving the communication sector.
Despite this trend, most OECD countries still have separate regulators for broadcasting and for telecommunications.[3] In addition, content
regulation is typically addressed by a separate ministry or government authority (such as in India and Saudi Arabia) or by the broadcasting
authority (Botswana, Chile, and Colombia). In India, there are two entities responsible for content regulation. The Ministry of Information
and Broadcasting monitors content related to broadcasting and film, and the Ministry of Information Technology regulates content related to
the Internet.[4] As noted in the figure below, many countries retain multiple government authorities responsible for the functions of
broadcasting licensing, telecommunication licensing, spectrum allocation, and content regulation.
Heading
Telecoms Broadcast
Country Telecoms Carriage Spectrum Broadcast Carriage Spectrum Content
Argentina TextNational Communications CNC Federal Broadcasting CNC COMFER
Commission (CNC); Communications Committee (COMFER)
Secretariat (SECOM)
Botswana Ministry of Communications, Science BTA National Broadcasting NBB NBB; BTA
and Technology (MoCST); Botswana Board (NBB)
Telecommunications Authority (BTA)
Egypt National Telecommunication NTRA Egyptian Radio and ERTU Ministry of Interior (Internet
Regulatory Authority (NTRA); Ministry Television Union security); ERTU
of Communications and Information [ERTU] (Broadcasting)
Technology (MCIT)
France Regulatory Authority for Electronic National Higher Council for ANFR; CSA ARCEP; CSA
Communications and Postal Service Spectrum Radio and Television
(ARCEP) Agency (CSA)
(ANFR)
Hong Kong, Office of the Telecommunications OFTA Broadcasting Authority BA; OFTA BA
China Authority (OFTA) (BA) andOFTA
Mexico Communications and Transportation SCT SCT; Secretariat of SCT SEP; General Directorate for
Secretariat (SCT) and Federal Public Education Radio, Television and
Telecommunications Commission (SEP) Cinemato-graphy (RTC)
(COFETEL) within Executive Secretariat
Uganda Uganda Communications Commission UCC Uganda Broadcasting UBC; UCC UBC
(UCC) Council (UBC)
United Office of Communications (Ofcom) Ofcom Ofcom; Department for Ofcom Ofcom
Kingdom Culture, Media, and
Sport
United Federal Communications Commission FCC FCC; local government FCC FCC, Federal Trade
States [FCC], plus for cable TV franchises Commission (FTC)
Various state-level public utility
commissions (PUCs)
Source: Based upon Telecommunications Management Group, Inc. research and Telecommunication Regulatory Institutional Structures and
Responsibilities, OECD Paper, DSTI/ICCP/TISP(2005)6/Final, at p. 31, 32.
Operators are exposed to multiple sets of regulations and regulators, often delaying the rollout of IPTV and mobile TV services. Regulators
often become embroiled in jurisdictional disputes over where their authority begins and another agency’s ends. In the Republic of Korea,
for example, the Republic of Korea’s Broadcasting Commission considered converged service providers to be broadcasting companies,
but the Ministry of Information and Communication argued that they were providing “value-added services.” Similar debates have arisen in
Colombia between the National Television Commission (CNTV) and the Ministry of Communications over which body should regulate IPTV
services. A common result of such bureaucratic infighting is that telecommunication operators cannot obtain IPTV authorizations, while
their cable television rivals are free to begin offering them.
In China, the Ministry of Information Industry (MII) and the State Administration of Radio, Film and Television (SARFT) share broadcast
licensing responsibilities − resulting in confusion over which agency will regulate converging services like IPTV.[5] SARFT has interpreted
a 1999 law as barring telecommunication operators from offering video services and has twice blocked operators from doing so. Since
telecommunication operators are prohibited from controlling IPTV networks, they must enter into joint arrangements with broadcasters. For
example, China Telecom, the country’s leading telecommunication operator, partnered with Shanghai Media Group, one of just four
broadcasters granted an IPTV licence.[6]
As governments look at how to promote new services such as IPTV and mobile TV, they should consider whether their institutional
frameworks need updating. The Republic of Korea, for example, had four government authorities responsible for regulating the
communication sector:
ENDNOTES
[2] A “converged” agency can be defined as one that regulates multiple, previously separate regulated industries or sectors, reflecting the
convergence of those sectors themselves (e.g., telecommunications, broadcasting and IT sectors). Some of these agencies may have
existed for decades, but the majority were created in recent years, often through the combination of previously separate agencies.
[3] OECD, Policy Considerations for Audio-Visual Content Distribution in a Multiplatform Environment, DSTI/ICCP/TISP(2006)3/FINAL, Jan.
12, 2007.
[4] Telecomm. Reg. Auth. of India (TRAI), Recommendations on Provision of IPTV Services, at 20 (Nov. 28 2007).
[5] MII coordinates the deployment of the public telecommunications network, the television and radio broadcasting networks. However, the
State Administration of Radio, Film, and Television (SARFT) regulates broadcast content transmitted via radio, TV, satellite, cable, and the
Internet and has authority to award or revoke licences to produce, distribute, and broadcast films, TV, and radio programs.
[6] China Telecom provides the equipment and broadband network while the broadcaster holds the IPTV licence and contributes video
content.
[7] Farewell to the Ministry of Information and Communication, Telecom Korea News Service, Jan. 16, 2008.
The deployment of IPTV and mobile TV changes traditional perceptions and challenges existing laws and regulations. Both services offer
enormous opportunities to provide consumers new platforms for multimedia content, enhancing competition and boosting broadband
deployment.
For regulators, there are a variety of factors to consider in relation to these new services. In the case of IPTV, such factors are potentially
broader due to the fact that incumbent telecommunications providers are subject to legacy regulation. Because of this, regulators need to
consider the following questions:
■ What is the impact of legacy regulation on providers’ ability to offer services and on providers’ incentives to incur the significant
investments and high risks associated with deploying/upgrading infrastructure to allow for the provision of IPTV services?
■ In the case of IPTV, are there any legal or regulatory restrictions to incumbent telephone providers’ ability to provide video services
within their markets (joint provision restrictions or cross-ownership restrictions)?
■ If incumbents are not restricted from entering the video market, does the application of existing regulation, specifically issues such as
access obligations to dominant providers’ network, skew the incentives for investment in deployment/upgrading of networks to support
IPTV services?
Having performed this initial review, regulators might look at how, if at all, IPTV and mobile TV fall within the existing regulatory framework
for broadcasting services.
■ Do the services offered by the IPTV or mobile provider fall within the definition of television broadcasting included in a country’s laws or
regulations? If so, what type of regulation would be imposed on such providers?
■ Does a mobile TV provider require multiple licences under the existing legal framework (telecommunications, broadcasting, and
content)?
■ Does your regulatory framework provide for a technology neutral approach for granting licences?
■ How many regulatory entities claim jurisdiction over IPTV and mobile TV services? If not, can one entity be given the authority to
regulate IPTV? Or mobile TV?
■ Should laws and regulations relating to content be applicable to IPTV and mobile TV services?
■ Are there legal restrictions that impede investment in IPTV and mobile TV services (e.g., foreign ownership restrictions)?
■ Is extending existing broadcasting regulation to these services the best mechanism to foster their deployment?
Source: Telecommunications Management Group, Inc.
As noted in the box above, however, governments need to look at their regulatory frameworks and institutional structures, and determine
how best to facilitate the deployment of these services. Recognizing this, some countries have initiated consultations to address the
regulatory issues related to these services. In addition, governments are considering whether to alter legal or regulatory restrictions that
now prevent telecommunication and video service providers from competing in each others’ markets. Hindering the development of a multi-
platform, multi-service environment may result in limiting choices and benefits for consumers.
In addition, governments are looking at how IPTV and mobile TV services should be regulated, including the appropriate licensing
requirements and regulatory obligations. In some countries, regulators are opting to treat the offering of any television programming as
broadcasting, leading them to regulate IPTV and mobile TV providers in the same manner as traditional broadcasters. However, other
countries may, for policy reasons, choose to subject these new services to lighter regulation, at least for a certain period of time until the
market develops.
For regulators, there is no right or wrong approach. What is important is to give IPTV and mobile TV service providers some certainty about
how they will be regulated. It is also important to minimize or eliminate jurisdictional debates among government agencies, as well as any
onerous regulatory hurdles and cumbersome licensing requirements that may delay the deployment of new services.
Abbreviations