Accounting for Digitisation, Revised Module Brings infoDev Toolkit up to Speed
Reacting to shifts in the global ICT landscape, infoDev and the International Telecommunication Union (ITU) regularly update their widely used ICT Regulation Toolkit for policymakers.
As part of their ongoing effort, John De Ridder now completed his revision of Module 2 on Competition and Price Regulation. The author puts the changes due to digitisation in historical context and explains what the transformation means for regulators and industry players. Earlier, a new version of Module 5 (Radio Spectrum Management) by Adrien Foster was published, while Module 7 (New Technologies and Impacts of Regulation) will be updated within the next weeks by Janet Hernandez. The toolkit is based on infoDev’s Telecommunications Regulation Handbook, available in an updated 10th Anniversary Edition. After a major overhaul in 2005, there are now 7 Modules in the toolkit.
The following summarizes the most important themes that De Ridder addresses:
Communications is undergoing the largest seismic shift since the move from the telegraph to the telephone. Some aspects of this transformation can be seen in VoIP and convergence – both are due to the digitisation of all networks , both fixed and mobile. Both regulators and operators will have to adapt to the new environment.
Digitisation allows every kind of material to be sent without distortion. It is fast and getting faster, making no digitised service beyond its reach. The common protocols are application-independent so that carriers have limited options to grow revenues beyond carriage. The new networks eliminate service bottlenecks, leaving the access line (fixed or mobile) as the focus of access regulation. Fixed access in particular will be increasingly regarded as a natural monopoly like water, gas and sewerage while mobile access is seen as competitive.
Many of those who have been in telecommunications for some years have intellectual capital invested in understanding the Public Switched Telephone Network. But nobody would build a circuit-switched network today  and existing networks are rapidly migrating to all IP (Internet Protocol) data ‘Next Generation Networks’.
The transition to broadband networks raises significant challenges for regulators. But, digitisation has a more profound effect; which is magnified by broadband networks.
Networks used to be built vertically around specific applications (e.g. voice or PayTV) but digitisation ‘de-layers’ networks so that content or applications are no longer network specific. Next Generation Networks can support all applications over a single all-IP data network. As the data protocols are application agnostic, they create a problem for traditional operator business models which use applications and content services (e.g. calls) to subsidise carriage (i.e. the line rental or mobile handset). Digitisation separates carriage and content services allowing ‘over-the-top’ (OTT) content and application services.
Voice over IP (VoIP) was the first outcome of ‘de-layering’ which was significant for both operators and regulators. Module 2 suggests that operators should meet the erosion of voice and text revenues due to third-party OTT providers by moving their revenue models towards data; rather than seeking regulatory protection. Regulators have a more complex task because of the many implications of VoIP for telephony regulation, numbering, emergency calls, security and consumer protection .
Digitisation makes some traditional regulatory remedies like carrier and call selection for long distance calls redundant. It also blurs the historical distinctions between radio communications, telecommunications, broadcasting and the internet and raises new issues such as ‘net neutrality’ .
We have been fortunate to squeeze broadband out of copper networks designed for voice traffic. But, as policy makers and regulators focus on getting more broadband, there has been a shift in access policy. Traditionally, the focus has been on opening legacy copper networks to competition from new entrants. Unsurprisingly, incumbents complained that cost-based access-pricing was too low. They claimed this made them reluctant to invest in fibre access networks to improve broadband services. That made it a policy issue.
There is no clear best practice yet. It is too early to say which approaches work best and how country-specific circumstances might affect outcomes. Some countries have allowed ‘regulatory holidays’ so that the terms of access are determined commercially (e.g., USA). Many more countries are determined to see ‘open access’ carried forward from copper to fibre networks; especially when they are supported by public investment.
Open access on fibre does not allow the same unbundling options that are available on copper networks (e.g. full or partial line-sharing). With the few exceptions where point-to-point fibre is deployed, the most common form of access will be bitstream.
Broadband networks displace switched interconnection with IP interconnection and make the regulator’s task lighter because the access bottle-neck is removed .
Access pricing for fibre based fixed access networks poses a dilemma for regulators. If they apply traditional cost based approaches (e.g. TSLRIC) to the large investments made in pushing fibre deeper into access networks, regulated prices will hinder the migration of customers from existing copper-based networks, which are largely written-down. Again, there is no clear best-practice on how to adapt existing costing methods and manage the transition.
Of course, entrants may not need to acquire access if all they want is to deliver content and services to end customers; IP interconnection will be sufficient .
IP interconnection has existed in the internet system for many years and has worked with no regulation of ‘peering and transit’ arrangements. This is very similar to the ‘bill and keep’ (also known as ‘sender-keeps-all’) arrangements that apply to Receiving Party Network Pays mobile regimes; so for them the transition is simple. For the more common situation in mobile and fixed networks, the transition is helped where termination rates are low. Again, the regulator’s task should become easier; once transitional issues are resolved.
Regulators are also fortunate that mobiles have made universal access to voice services feasible in most countries, that most markets can support mobile infrastructure competition (making regulation less necessary than for fixed networks) and mobiles can now also support (increasingly capable) broadband.
The biggest issues for policy and regulation are making spectrum available to support the growth of data on mobile networks and reducing termination rates (for Calling Party Network Pays mobile charging countries).
Reducing mobile voice and data roaming charges is an even more difficult issue because national regulators generally have little or no control over bi-lateral agreements between mobile operators in different countries.
The switched PSTN model is dying and there is divergence in regulatory approaches to the emerging world of next generation networks. Many regulators are (rightly) hesitant to act too swiftly as whatever they do will shape the market. Hopefully, the revised tool-kit will shed light on the transformation taking place and help policy-makers and regulators re-tool to meet the challenges ahead.
This article was originally published at http://www.infodev.org/en/Publication.1140.html.
 Digital networks have existed for some time (e.g. ATM, Frame Relay and ISDN) but the emerging standardisation around ‘connectionless’ data networks for all communications is transformational.
 Digital-switching may be employed to move bytes faster but traffic is still ‘connectionless’.
 See the updated Practice Note on ‘Regulatory Implications of VoIP’ at /en/PracticeNote.aspx?id=3289
 This is a new form of discrimination. See the revised Practice Note on ‘Network Neutrality’ /en/PracticeNote.aspx?id=3288
 See the discussion on IP interconnection in section 3.1.2 of Module 2
 Control of the access line was important when carriage and content were joint in supply and demand; but with de-layering any provider can supply content and application services. However, bitstream access may confer a quality advantage in delivering managed services (e.g. IPTV) relative to over-the-top ‘best efforts’ content and applications (e.g. internet television).