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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, 2006The 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.

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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

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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”

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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

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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?

NGN strategies (1)

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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.

NGN strategies (2)

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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?

NGN: Network structure

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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?

NGN: Cost drivers

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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?

IP-Interconnection Regime (1)

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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?

IP-Interconnection Regime (2)

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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?

Billing systems at the wholesale level

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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?

Bill&Keep Interconnection Regime (1)

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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

Bill&Keep Interconnection Regime (2)

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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

Relationship between wholesale and retail pricing

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“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

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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