Multi-layered Convergence Process in the ICT Sector: Trends and Challenges

1. Multi-layered Convergence Process in the ICT Sector: Trends and Challenges Jaroslaw K. Ponder Strategy and Policy Unit International Telecommunication Union SPU Briefingorganized for the IMF University (http://www.itu.int/osg/spu/presentations) 29 May 2006, ITU Headquarters, Geneva, Switzerland Note: The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU. Jaroslaw K. Ponder can be contacted at Jaroslaw.Ponder@itu.int

2. Agenda • Trends in communication sector • IP-Enabled NGNs • Multi-layered convergence process • N-play economics • New Challenges • Telco operators • Policy makers • Customers Jaroslaw.Ponder@itu.int

3. Trends: ICT Sector • Progressing regulatory reform: • Pro-competitive policy / Universal service/access… • Expansion of the Internet • High innovation dynamics • Falling prices of the ICTs: • Hardware / Software / Services • New requirements: • Bandwidth • Generalized mobility • Convergent solutions • Open character Jaroslaw.Ponder@itu.int

4. Trends: Communication Sector • Fixed telecommunications • Regulatory reform • Liberalization • Privatization • Pro-competitive policy • Emerging competition • Infrastructure development • Modernization: Automatization  digitalization  co-existence with IP networks  transition to IP-based NGNs  Next Generation Access Networks Jaroslaw.Ponder@itu.int

5. Trends: Communication Sector T Jaroslaw.Ponder@itu.int

6. Trends: Communication Sector Broadband prices for the cheapest fifteen economies Jaroslaw.Ponder@itu.int

7. International voice traffic (in billions of minutes) 200 VoIP 175 PSTN 150 As % of total 125 15.5% 100 13.1% 75 11.8% 50 7.4% 25 4.8% 1.6% 0 0.2% Source: ITU. 1998 1999 2000 2001 2002 2003 2004 Jaroslaw.Ponder@itu.int Source: ITU

8. Trends: Communication Sector • Fixed telecom operators… • Restructurization • Employment… • Reduction of OPEX • Outsourcing • Stabilization of financial position • Repayment of the debts • New search for new solutions • Horizontal integration • Consolidation Jaroslaw.Ponder@itu.int

9. Trends: Communication Sector • Mobile telecommunications • From analog, through digital to IP • New worldwide standards for 2G, 3G, 4G • Rapid popularization: 2006 more than 2 billion users worldwide • Substitute or complement: Changes in course of the time • Fixed-mobile telecommunications • Efficient way to bridge digital divide • Wireless technologies • WiFi, WiMAX… Jaroslaw.Ponder@itu.int

10. Trends: Communication Sector Nomadic/Local Area Access Systems Digital Broadcast System Interconnection Jaroslaw.Ponder@itu.int

11. Trends: Communication Sector • Information Technologies • High R&D expenditures in IT sector • High innovation dynamics • Moore's law: Computing power doubles roughly every 18 months • New compression techniques • Progressing miniaturization • Falling prices for hardware equipment • Enabling technologies • RFID, sensors, smart technologies nanotechnologies Jaroslaw.Ponder@itu.int

12. Trends: Communication Sector • Impact of the Internet • Internet Protocol • Open, borderless and service provider friendly environment • Pro-competitive policy towards ISPs • Favorable public policy orientation • New forms of communication • New demand requirements: VoIP, VoB, IPTV • New network access requirements • From dial-up, through xDSL, to FTTx • Mobility: Ubiquitous Network Societies, the Internet of Things Jaroslaw.Ponder@itu.int

13. Trends: Communication Sector Jaroslaw.Ponder@itu.int

14. Tele-Communication Sector in Transition FMC? • Migration to the IP-environment • Fixed telecommunications • Incumbents: British Telecom, DT AG, KPN • Newcomers: Dialog, Metropolitan Networks • Wireless communications • Mobile telecommunications: from 2G to 4G • WiFi, MiMax • Cable TV • Broadcasting • Service and content providers • Strengthened process of convergence • Technology • Market • Services • Institutional Multi-facility competition Servicecompet. Regulatory Implications Jaroslaw.Ponder@itu.int

15. NGNs as a global issue Technical aspects ITU-T SG 13: Rec. Y.2001 A NGN is 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-relatedfunctions 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. Challenges • Multimedia • Generalized mobility • Convergence • Integrity • Multi-layer orientation • Open character Europe Africa ITUNGN America Asia FG NGN Jaroslaw.Ponder@itu.int SG: 11, 13, 19, 2, 12, 16, 17

16. Regulatory considerations Three background papers Rulling new and emerging marekts Interconnection in an IP-enabled NGN Environment Universal Service in an IP-enabled NGN Environment Regulatory proceedings National, Regional, International level IP-enabled NGNsA global issue Europe Africa ITUNGN Americas Asia • Tariff policies, tariff models and methods of determining the costs of services on national telecommunication networks, including next-generation networks • Regulatory impact of next generation networks on interconnection http://www.itu.int/osg/spu/ngn/ Study Group 1 Jaroslaw.Ponder@itu.int

17. Multi-layered convergence • Customer Convenience • From generalized to personalized communication manners • Device convergence: • Universality • Networks convergence • Interconnection and interoperability • Service convergence • New sell and price strategies • Sector and market convergence • Converged institutional bases Jaroslaw.Ponder@itu.int

18. New Challenges Telco Operators • Convergence • Service convergence • N-play services / N-play economics • Extends demand for broadband access • Market structure • Strategic alliances (Content, Media, etc.) • Mergers and acquisitions • Consolidation • New business models • Falling costs of traditional communication • Merger of customer base • Lower margins / New value-added services… • Costly investment programmes Jaroslaw.Ponder@itu.int

19. N-play economics… • NGNs facilitate product differentiation and bundling strategies • To be considered by service providers • first, find out which products are proper to be bundled and therefore answer the question if the bundled goods should be complementary, substitutive or neutral; • second, set the price for the new package taking into consideration the reservation prices for each product separately and package • third, decide if the introduction of bundle excludes the possibility of obtaining the bundled products separately i.e. pure versus mixed bundling strategy. Jaroslaw.Ponder@itu.int

20. N-play economics…Demand side related conditions • Products Complementarity • Bundling complementary goods - Reservation prices for such package become much more higher then for the separated products. In this way the willingness to pay increases and the company is able to benefit from this behavior (e.g. mobile telephone together with provision of mobile telecommunications services). • Reservation prices for the bundle products are negatively correlated- Putting together fixed access with mobile telephone contracts for young people - demonstrating the highest inclination to substitute this two communication technologies - is good example • The more products are combined into the package, the smaller is the probability, that the individual estimations of the value of the bundle will differ from the from the mean value. Through such reduction of the heterogeneity of customers the enterprise is able to sell more as in case of separated offerings. Jaroslaw.Ponder@itu.int

21. N-play economics…Supply side related conditions • Exclusion of rivals • The bundling strategy can be competition diminishing. In case the monopolistic company bundles the monopoly product with the product that is sold in the competitive markets the transfer of the market power from one market to the other occurs. • Cross-Selling • The putting different products into one packet allows the companies to sell under the new label also the products which did not found the interest of the customers. In this way the enterprises using out the existing differences in reference prices for the products A and B. Putting together product A and B and selling them in packages it becomes possible to transfer the possessing surplus from product B to A. • Product differentiation • Through applying of price bungling the enterprise differentiate its products in comparison to the rivals on the same market. The price can be maintained in a higher level than in case of the single products what can cause that the competitor will behave less aggressively. Jaroslaw.Ponder@itu.int

22. N-play economics…Supply side related conditions • Market barriers • Implementation of the bundling strategy can become one of the effective measures in creation of the market entrance barriers. From the perspective of competitors it can be quite complicated in financial, market power as well as first mover advantage terms to enter the market and to be able to compete with the similar offer. Especially in case of the strong asymmetric market structure, high vertical and horizontal integration as well as with significant market power the market (see ex-monopolistic telcom operators) the entrance of the newcomers can be out of the question. • Market Structure • From the strategic point of view tendency to use price bundling encourages the process of horizontal and vertical integration. It stimulates the market players to narrow cooperation or merging. Because of bundling the increase of mergers and acquisitions on the market is more often to expect. From the perspective of the sector of information and communication technologies the bundling strategy will encourage the process of convergence. Jaroslaw.Ponder@itu.int

23. N-play economics… • NGNs leads to n-play services • There is only one step from n-play to use of the bundling strategies • Bundling • reduces the costs • increases demand • locks in customers • improves product performance • differentiates the product offerings • What with regulation... Jaroslaw.Ponder@itu.int

24. New Challenges Regulators and Policy Makers • Pro-competitive policy in new converged ICT environment • New and emerging markets • Static versus dynamic efficiencies • Relevant markets / SMPs • Bundled offerings • Interconnection arrangements • Universal Service/Access • Customer protection Jaroslaw.Ponder@itu.int

25. New Challenges Customers • Innovation absorption capacity • Customer care / Transparency • Consumer emergency calls (E112/E911) • Unsolicited messaging: SPAM, SPIM • Quality of services • Authenticated caller or sender identification • Disability assistance • Data protection and privacy issues • Cybersecurity issues Jaroslaw.Ponder@itu.int

26. Thank you very much for your attention! Jaroslaw K. Ponder International Telecommunication Union Strategy and Policy Unit E-mail: Jaroslaw.Ponder@itu.int http://www.itu.int/spu Tel: 00 41 22 730 60 65 We all build the global knowledge-based information society! Jaroslaw.Ponder@itu.int

27. Resources • Up-dated version of this presentation and others focusing on convergence:www.itu.int/osg/spu/presentations/ • NGN regulatory and policy resources:http://www.itu.int/osg/spu/ngn/ngn-policy-regulatory-resources.html • ITU activities on NGN:www.itu.int/spu/ngn Jaroslaw.Ponder@itu.int