All next generation networks (NGNs) will be digital and existing fixed and mobile switched networks are migrating quickly to digital networks. So, switched interconnection is giving way to IP interconnection as networks become digital. The paradigms ruling each of these currently are very different (Table 3.4).
Table 3.4: Comparison of Legacy (PSTN) and Next Generation (IP) Networks
The good news for regulators is that IP interconnection removes the bottleneck in access. With switched networks, the access provider has a monopoly over the origination/termination of calls from/to customers on its fixed or mobile access network. With peering and transit, the access network does not have such control and there is no need to regulate; as shown in Poland (Box 3.5). Access regimes for switched telephony (PSTN) networks have been highly regulated while the peering and transit arrangements associated with the highly successful development of the internet are unregulated.
Box 3.5: Poland and IP interconnection.
In 2010, the European Commission determined that peering and transit arrangements are demand side substitutes which should consequently be viewed as part of the same market. The case involved the Polish regulatory authority’s proposal to regulate these services as separate markets.
The incumbent (TP) does not peer with any ISP in Poland and is the only provider of transit into the global internet for half of the country where no competitor has coverage. However, small ISPs can indirectly convey traffic to both TP and the global internet via international Tier 1 carriers present at public internet exchange points in Poland. The different options used by local ISPs persuaded the EC that direct and indirect traffic to TP are functionally substitutable on the demand side.
Source: European Commission, Commission Decision of 3 March 2010
Peering, also known as ‘Sender Keep All’ or ‘Bill and Keep’ is a zero compensation arrangement by which two ISPs agree to exchange traffic at no charge. Transit is an arrangement in which larger ISPs sell access to their networks, their customers, and other ISP networks with which they had negotiated access agreements.
Some argue that the peering and transit settlement regimes associated with the internet will not necessarily apply to all IP networks. They point out that although (managed) next generation networks (NGNs) and the (best-efforts) internet use IP as a common technology and are converging in the marketplace by offering similar or substitute services , they are organized differently and so remain separate and distinct, even though they share the same transmission infrastructure (such as fibre networks) . That is, NGNs are a collection of ‘closed’ networks (i.e., packets are not allowed across the interconnection point unless they are authorized).
To ‘authorise’ packets requires ‘deep packet inspection’ which may violate network neutrality . For example, mobile operators who enjoy high termination rates for voice calls from fixed networks have blocked VoIP calls for which they receive no incremental revenue. This practice may become prohibited (see Box 2.10 on KPN). This does not mean that with IP interconnection, a byte is a byte whatever it contains. It would not violate net neutrality to offer QOS on different types of traffic  and this would advantage carrier-grade IP networks over ‘best efforts’, ‘over-the-top’ internet applications.
There is a regulatory issue with the transition from switched interconnection to IP interconnection because the different regimes offer arbitrage opportunities. But the arbitrage window between, say, fixed-to-mobile termination and VoIP closes as the difference in costs narrows . Some other transitional issues include:
· Where there are service providers relying on call selection, they would get a windfall from not having to pay termination fees while network operators would lose termination revenue; unless fees for originating access are increased.
· If there is significant traffic with countries that continue to use CPNP, the operators in those countries will continue to enjoy termination revenues while the operators in BAK regimes do not; which means BAK provides a subsidy to the CPNP country.
· The speed at which terminating rates can be reduced under the CPNP regime before the step to BAK is made.
Since network operators cannot expect to make money from switched interconnection when they move to IP Interconnection, they have to remove cross-subsidy between high margin calls and low margin line rentals and move towards volume based charging (probably implemented as monthly data caps).
 For example, IPTV and internet television are not the same; see section 5.2.
 See the TMG’s Broadband Strategies Handbook, 2011report for the ITU
 NBN Co. the Australian wholesale broadband network offers four traffic classes: 1 (voice), 2 (interactive video), 3 (transactional data) and 4 (best-efforts). Table 7, NBN Co. Product and Pricing Overview for Access Seekers, Dec 2011 http://www.nbnco.com.au/getting-connected/service-providers/product-components/product-and-pricing-overview.html
 Theoretically, BAK could be subject to a variant of refiling if the calling party rings a service provider’s call-back number and then is connected to the called party so that the service provider does not pay terminating fees at either end of the call. This does not seem to be an issue in countries like the USA where BAK exists because the (called) Receiving Party Pays. In the IP Interconnection context, the called party pays only retail broadband charges.