Regulating for Tomorrow: an International Perspective

1. Regulating for Tomorrow: an International Perspective Matthew Howett Practice Leader, Regulation & Policy matthew.howett@ovum.com May 16, 2012 The 8th Korea Communications Conference, Seoul

2. Profound changes are happening to the industry Broadband capacity/users • A transition from the old world of conventional telephony to a new environment • Broadband connectivity has made new services, applications (and associated revenues) possible • New and emerging players are challenging the traditional business models of telcos • Regulators have to adapt and respond to the challenges these present Time TODAY

3. Consumer behaviour is changing the market Average download speed evolution in Europe (Mbps) Traffic Source: Telefonica Costs Broadband prices evolution (€/Month/Mbps) Revenues Time Voice dominant Data dominant Source: Telefonica

4. 2020 2025 2010 100% 2017 2020 90% 80% 2014 70% 60% 2015 2020 50% 40% 50 24 Mbps 30% Mbps 100 100 50 100 Mbps 20% Mbps Very Mbps Mbps high 10% speed 100 Mbps 0% Denmark France Germany Italy Portugal Spain Sweden UK NGA coverage target (%) Current NGA coverage (%) Operators are being asked to ‘build for the future’ EU’s Digital Agenda Targets • 100% current generation broadband coverage for all by 2013 • 100% coverage of 30Mbps or faster by 2020 • 50% of households subscribed to 100Mbps connections or faster by 2020

5. Sustainability of the current model • Network owners would argue there is a fundamental structural problem in that pricing on both sides of the market doesn’t currently incentivise efficient network usage OTT player End user Traffic Traffic Weak price signal linked with traffic generation Increasingly no price signal linked with traffic generation Traffic delivery charge Internet access charge Time Time

6. Proposal for a “new Internet model” 1. Managed services • Requires rethinking 3 elements • No one action alone will provide a real and comprehensive solution • Only a combination will help to make things more sustainable New Internet Model Differentiated end-to-end guaranteed QoS 3. Interconnection model 2. Retail pricing model Flexible retail pricing Termination charge for traffic

7. Where will regulators draw the line? Best efforts: a lack of traffic management, no charging for tiered QoS A total lack of traffic management Key questions that must be answered • What forms of discrimination are fair and reasonable? • In what instances might intervention by an NRA be justified? • What form of intervention, if any, would be appropriate? Traffic management only applied during periods of high congestion Priority is given to most vulnerable types of services – voice, video streaming Throttling/degrading of some types of traffic e.g. P2P Priority is given to some service providers’ content or applications over others (perhaps for a fee. Potential revenue steam for ISPs) Blocking rivals’ content or applications e.g. IPTV service Complete freedom in use of traffic management techniques

8. What is the role of the regulator here? • Overall aim must be to ensure that consumers continue to benefit from both innovation in services and investment in networks. • Most regulators seem to be primarily concerned about two things: • Preventing anti-competitive discrimination • Risk that traffic management could be used anti-competitively and in particular hurt innovation • Limited examples so far requiring regulatory intervention (BEREC) • Regulators are well equipped to deal with abuse of dominance using existing tools. • Increasing transparency for consumers • Challenging for consumers to understand impact of traffic management on their Internet use • Potential for consumer harm could increase as traffic management becomes more complex and more widely used

9. What is the situation in Europe? Strictly imposed net neutrality Rules/principles have been implemented UK Consultation/debate but no outcome yet Experimentation with new business models allowed. Ofcom permits experimentation with new business models that rely on certain forms of traffic management, so that the “best-efforts” Internet is protected. Through a transparency obligation, customers should be made aware of average speeds, the impact of any traffic management on specific types of service, and whether any services are blocked. Germany There has been no specific policy developed yet. The German Parliament published a paper which stated that ministers believed existing competition will ensure the neutral transmission of data on the Internet and other new media. They committed to observing the situation closely and, if necessary, taking countermeasures to preserve net neutrality. It was recommended that a vote take place to develop a position; however, the vote was postponed several times. Netherlands The Senate of the Netherlands adopted a new Telecommunications Act to put net neutrality into law, making the country the first in Europe to do so. The new law specifies that no service provider can impose fees or special terms and conditions for any internet service, nor can they determine what sites end users can visit. However, court-ordered site blocking can still take place. Italy AGCOM has not intervened with regulatory measures. The NRA completed a consultation to seek stakeholders’ views. It concluded that traffic management doesn’t represent in itself a form of market failure, and intervention has to be considered to ensure more transparency towards end users. The consultation also endorsed the monitoring of Internet service pricing and levels of competition. Spain France There has been no policy developed yet. The CMT initially discussed net neutrality in 2007 in an NGA consultation. The CMT was interested in the implications that ex-ante regulation on net neutrality could have on wholesale and retail broadband access prices. Non-binding recommendations.ARCEP published 10 proposals including freedom and quality of Internet access, non-discrimination between Internet data streams, a framework to govern traffic management, and increased transparency for end users.

10. Transparency as “the remedy” • Big emphasis on transparency and competition to prevent the more serious concerns being realised • Ofcom (UK) have identified 6 principles that ISPs should adhere to when communicating information to consumers about their Internet subscription • Appropriate - ISPs should disclose all information, and only such information, that a consumer needs to make an informed decision. • Accessible - Basic information should be available at the point of purchase, and more detailed technical information should be readily accessible online or on request. • Understandable - should be simple enough for consumers to be able to understand the practical impact of traffic management policies on the way they may use the internet service. • Verifiable - Consumers or third parties (e.g. intermediaries such as price comparison websites) should be able to verify any information provided. • Comparable - Consumers should be able to compare information provided by different providers. • Current - The information available to consumers should be up-to-date, both at the point of sale and subsequently.

11. An enhanced European Regulatory Framework • Article 8(4)(g) of the Framework Directive now includes an objective for regulators to promote the interests of citizens of the EU by • "promoting the ability of end-users to access and distribute information or run applications and services of their choice” • Articles 20 & 21 of the Universal Service Directive strengthens the minimum contractual protections for consumers and improves transparency around traffic management techniques used • “Consumer transparency of traffic management is ‘non-negotiable’” • Article 22(3) of the Universal Service Directive sets out a new provision which enables regulators to impose minimum quality of service obligations on providers.

12. In summary • If current trends continue, then current model could quickly become unsustainable – regulators and policy makers need to consider their role in facilitating change • Regulators have mostly taken a “hands-off” approach so far to action from the industry since they are aware of the demands being placed on them to invest • Transparency increasingly being relied upon as a remedy but remains largely untested • A strengthened common regulatory framework is in place to tackle these challenges as they develop

13. Thank you!