The Technology Neutrality Concept Used to Perpetuate Regulation into NGN

1. The Technology Neutrality Concept Used to Perpetuate Regulation into NGN ITU NGN-Workshop Geneva, 23-24 March 2006 Hasan Alkas Deutsche Telekom AG

2. Agenda • Brief Notes on Deutsche Telekom • Industry and Technology Dynamics • NGN Migration Perspectives • Approaches to NGN-Interconnection • The Technology Neutrality Concept • Legacy versus New Infrastructure • Incentives for Infrastructure Investment • Potential Regulatory Issues of NGN

3. An integrated companyTop positions in important markets • Broadband/Fixed Network, Business Customers and Mobile Communications: these are the three essential growth areas of the international telecommunications markets. As an integrated TC company, Deutsche Telekom focuses on these three strategic business areas, thus enhancing its previous four-pillar strategy. • These three business areas will be maintained by five business units in the future: T-Com, T-Online, T-Systems Business Services, T-Systems Enterprise Services and T-Mobile

4. Realignment to three business areas The future course is set ==========! " § Deutsche Telekom Broadband/ Business Mobile Fixed Network Customers Communications Enterprise Services Business Services Systems Systems Mobile Online Com - - - - - T T T T T

5. Industry and Technology Dynamics Beside regulatory and industrial policy conditions market and technological drivers influences the industry structure and speed towards NGN Driver Network transformation Outcome • Architectural change from a circuit-switched, network optimized for voice to a packet-switched network for various traffic types (voice, data, video and multimedia) over broadband access New service opportunities Massive growth of data traffic Services Central Functions Services Application Plane Services Central Functions Control Central Functions Control Control Control Plane interdependent layers New competitive environment Flat growth of voice traffic Transport Plane Transport Transport Transport New network architecture Maturity of IP technology Narrowband Broadband Open standards and architectures New flexibility and operations Access competition New access possibilities Changing regulatory environment Industrial Policy setting

6. NGN Migration Perspectives Based on different starting points a variety of approaches (overlay or replacement) are attractive, here the overlay is explained in detail Overlay Approach Different Approaches • Approach I. Overlay Consumer • From operation and maintenance point of view no need to phase out circuit switched network • From Total-Cost-of-ownership point of view no need to phase out circuit switched network due to already optimized investments and optimisation efforts from the past • Implementation of a market driven NGN overlay network for the generation of first new voice/data integrated services • Approach II. Overlay Business • A national or international overlay NGN can be deployed to serve large enterprises and multi national businesses with IP based voice services • Approach III. Digitization • Cases where network is not totally digitalized yet • Competitive environment in voice and data area requiring to launch new innovative products • Migrate the remaining part of the analogue voice network directly to an NGN structure rather than to continue investing in circuit-switched technology Circuit Switched Network Other PSTN / PLMN Digital Transport LocalExchanges Transit Exchanges Existing Traditional Network VAS VoIP Overlay Network IMS IP BroadbandAccess Server Router IPPhone Packet Switched Domain

7. Approaches for NGN InterconnectionSeveral fundamental approaches for NGN Interconnection have to be considered NGN -Interconnection Networks • NGN-Interconnection will be based on standards voluntarily agreed. • Services will be highly competitive, which will put pressure on infrastructure providers itself to interconnect voluntarily. • The migration from PSTN towards IP-Networks may bring new charging models based on different business models. Service unaware = pure Transport Network Service aware= differentiated Network • QoS connected to NGN • Relevance for network efficiency • Cost orientated price differentiation • Best effort only • Functional Internet quality questionable Potential issues

8. Technology Neutrality Concept The danger of using technology neutrality to perpetuate regulation into new segments • As an result of convergence the technology neutrality concept is in general appropriate. • However, the concept is mainly inequitably used to leverage regulation from traditional telecommunications markets into newly emerging markets such as, to • Mobile or • VDSL in mass market • The technology neutrality concept needs to be redefined for more deregulation, in order to provide incentives for infrastructure investments • at market definition level • at remedies level. • The technology neutrality concept must ensure adequate and fair • safeguards for investments and • focus on infrastructure based competition.

9. Legacy versus New Infrastructure The history of infrastructure matters • The evolution of network development must play an essential role, when it comes to regulatory assessments. • Legacy networks, developed in a monopolistic environment need certain different treatment • However, with growing diversity of access forms it is questionable whether the local loop is still a fixed access “bottleneck”? • Technologies enabling multi-access to the end-user increase competition intensity by offering by-pass possibilities and thereby reduces market entry barriers. • Networks evolved in a completely competitive environment opens same opportunities to all market players in similar manner and therefore does not need to be regulated.

10. Incentives for New Infrastructure Investment There is a need for a favourable regulatory environment for investment and innovation in NGN • The main incentive to foster NGN-investment is to avoid regulation, as it is a nascent market (characterised by innovation, rapid market growth, volatile market shares) • The substitution-criteria seems to be key to differentiate between NGN-based services and current services • In addition, the difference between new and old infrastructure is essential • In theory, three regulatory instruments, which provides incentives for own Infrastructure investments, are possible • Access Holidays • Provides the right signal to make risky investments, especially if it is combined with the anticipation, that after the “holiday” there will be effective competition and no need for ex ante regulation any more… • Sunset Clauses • Provides the competitor the right signal not to rely on regulation for ever.. . • Real Options • Integrate real options into cost calculation (as risk adjustment factor) for access prices, to provide the right signal for make-or-buy decisions…

11. Potential Regulatory Issues on NGN • Status Quo in Germany • IP-Interconnection is currently not regulated, nor it is part of the 18 rel. markets of EU-COM, but • VoIP regulation is likely to appear soon, as it is already classified as PSTN voice, • The BNetzA is already discussing with telcos possible regimes of future IP-interconnection. • Future asymmetrical regulation • It is a common misconception that one of the main features of NGN would be that service related functions become completely independent from transport. • A divested approach appears not to be reasonable since many services will have a complementary character. • NGN might require special treatment of specific services (such as Voice, TV). Thus services are unlikely to be completely independent from transport. • The implementation of service classes as a means of differentiation seems to be appropriate. QoS seems to be the key parameter. • Whether network operators choose transit, peering, or a form of Requesting Network Pays should be the outcome of the market and not of regulation. • Future symmetrical regulation • Symmetric regulation will remain in force and apply (in the long run) to all network and/or service providers regardless of their market power, i.e. emergency calls, intercept, data retention, consumer protection etc.