Interconnection arrangements for IP-enabled NGNs - Discussion in Germany

1. Interconnection arrangements for IP-enabled NGNs - Discussion in Germany Dr. Cara Schwarz-SchillingBundesnetzagentur ITU Workshop: What rules for IP-enabled NGN‘sGeneva, March 23-24, 2006 The opinion expressed in this presentation are the personal view of the author and do not prejudge any official position or decision that BNetzA might issue.

2. Definition of NGN No generic definition of the term, but a general understanding: • A broadband network that will be packet switched and IP based • Access, transport, control and services will be separate layers • Many separate networks converge to form a core NGN supporting a multitude of services • There will be open, standardised interfaces between the different layers

3. Agenda • NGN • Definition • Economic consequences • Strategies of operators • Network Structure • Cost drivers • IP Interconnection Regime – Food for thought • Billing systems at the wholesale level: Bill &Keep • Relationsship between wholesale and retail pricing • Advisory Group on Framework Conditions for IP-Based Network Interconnection”

4. NGN: Economic consequences? • Service-related functions and intelligence can be provided independently of the underlying transport technology • Traditional switch is split into media gateway to ensure transport and the softswitch for call control • Cost optimisation and deployment of new services • This will allow for more fine grained division of labour and faster provision of new services and greater opportunity for innovation • Different providers will be able to create value at the separate functional levels of access, transport, control and services • Customers will decide on the provision of services along the value chain: in a more decentralised manner using specialized services or via vertically integrated providers offering bundles of services

5. NGN strategies (1) • PSTN operators prefer managed IP networks using centralized intelligence within a controlled platform based on traditional standardisation processes of the ITU and ETSI • ISPs tend to rely on decentralized intelligence at the periphery (distributed in the end-user equipment) based on IETF standardization • The question to be answered is: which model will prevail – a centralized approach (control by network design) or a decentralized approach with open access allowing more service providers to offer services?

6. NGN strategies (2) • Operators might follow different migration strategies • Substitution of PSTN by IP network, starting at the core moving to the enduser migrating all services to IP • Overlay approach involving parallel running of PSTN and IP network • NGN strategies and different migration paths will impact on the nature of interconnection between the networks.

7. NGN: Network structure • Switching to NGNs may imply • changes in the number of network hierarchy levels • rearrangement of core network nodes, • therefore a geographic rearrangement of points of interconnect. • likely that the number of interconnection points at the lowest network level could be reduced • “Leaner” NGN structures may imply problems of sunk costs / stranded investments for both incumbents and competitors – how will this be dealt with?

8. NGN: Cost drivers • How does the cost structure of IP-networks differ from cost structure of PSTN? • What are the relevant cost drivers? • Volume? • Service characteristics? • Network topology (Router/infrastructure)? • Router hops?

9. IP-Interconnection Regime (1) • Cost determination according to LRIC determined by “efficient” network • Has the IP network to be considered the “efficient” network? • This implies that cost of IP networks might already be relevant for PSTN interconnection today • Migration phase – unified concept of cost of efficient service provision?

10. IP-Interconnection Regime (2) • Differentiated according to • Service (e.g. voice, data etc.)? • Quality of Service class (best effort, priority, guaranteed)? • PSTN vs. IP? • Core level vs. access level?

11. Billing systems at the wholesale level • Advent of Voice over IP leads to a clash of billing systems for voice services at the wholesale level • PSTN: Calling Party’s Network Pays • IP-network: Bill &Keep including Receiving Party paying for termination through the internet access charge • Arbitrage?

12. Bill&Keep Interconnection Regime (1) • No payment of origination and termination charges to other networks • Does not mean “Interconnection at zero price” • Barter between participating networks • Requires agreement on • topology of PoI → Emphasis on network planning of participating networks • depth of networks • Possibly transit payments in the core network, B&K in the access network only • Transition toward Bill&Keep?

13. Bill&Keep Interconnection Regime (2) • Advantages • No transactions costs for wholesale pricing and billing, no need for price regulation • No inevitable termination monopoly • No tariff arbitration • Internalization of (positive) network externalities • Very flexible end-user pricing, no price squeezes • Drawbacks • Topology of PoI and required network depth could increase market concentration. • Potentially inefficient investments in parallel networks • Tradeoff between hot potato problem and too many PoI

14. Relationship between wholesale and retail pricing • Does Bill&Keep necessarily lead to RPP at the retail level? • Depends on whether traffic is balanced and how strongly incoming and outgoing traffic are correlated • Tendency toward flat rates and buckets likely

15. “Advisory Group on Framework Conditions for IP-Based Network Interconnection” • BNetzA has been setting up a small Advisory Group • Experts with long standing experience of the market appointed by BNetzA • Purely advisory function • Work was taken up in August 2005 • Final report approximately after 1 year

16. Dr. Cara Schwarz-Schilling Head of Section Internet Economics, Federal Network Agency P.O. Box 8001, 53105 Bonn Tel+49(0)228 14-1190, Fax +49 (0) 1805 734870-1435 cara.schwarz-schilling@bnetza.de http://www.bnetza.de