Home EuropeEurope I 2007 Principles of regulation in a converging world

Principles of regulation in a converging world

by david.nunes
Tomas BarakauskasIssue:Europe I 2007
Article no.:3
Topic:Principles of regulation in a converging world
Author:Tomas Barakauskas
Organisation:The Communications Regulatory Authority (CRA), Republic of Lithuania
PDF size:520KB

About author

Mr Tomas Barakauskas has been the Director of the Communications Regulatory Authority (CRA) of the Republic of Lithuania since its inception in 2001. Mr Barakauskas participated in, and guided, the drafting of the main items of the national legal system – the Law Amending the Law on Telecommunications of the Republic of Lithuania of 2002, and the Law on Electronic Communications of 2003, among others. Mr Barakauskas has led the CRA during the challenging liberalization period. Since then, he has been working towards the country’s transition to the new regulatory framework and the opening of the Lithuanian ICT market to new players and new technologies. Prior to joining the government, Mr Barakauskas served as the Vice President of Fima, the Director of Lucent Technologies office for the Baltic countries, and as Director General of Precizika. Tomas Barakauskas earned a Master of Science degree in Applied Mathematics from the Vilnius University, Faculty of Mathematics.

Article abstract

Technology, especially Internet Protocol-driven broadband networks, is changing the face of the world’s communications markets and driving new forms of competition. Using IP-based converged networks, traditional service providers – fixed telephony, mobile telephony, broadcasting, cable TV, data transmission, etc. – can now provide almost any other communications service and compete outside their original markets. Regulation of converged networks and the services they provide, whilst protecting the sector and service users alike, presents the world’s regulators with a complex challenge.

Full Article

The liberal market regulatory paradigm for the communications sector is currently being challenged by dramatic global technological changes. These changes disregard borderlines and governmental jurisdictions; they affect all countries, continents and regions without distinction. Technological development, competition and the politics of deregulation create conditions for the transformation of the communications market from one comprised of distinct sectors to a converging market without boundaries. The telecommunications market is no longer a closed club; today, even TV and Internet providers, as well as independent content suppliers, are members. Broadcasting and data transmission networks have started to offer traditional telecommunication services. This trend is also seen in Lithuania (Fig.1). ICT systems are increasingly designed as a combination of different access technologies that complement each other for different service requirements. By using overlapping, converged, fixed and mobile technologies, network operators can offer the most appropriate connection for a given situation. How are these trends reflected in the Lithuanian market? In recent years, the Lithuanian communications market has become competitive and dynamic (Fig.2). The market has seen the arrival of new entrants whose market share has been increasing annually, both in terms of communications service revenues and in terms of new subscribers, but growing competition has lead to decreasing ARPU, average revenues per user. (Fig.3). Although traditional services like fixed and mobile voice communications still generate a significant share of revenues, they are already close to saturation in their markets (Fig.4). New technologies, especially broadband access technologies, on the contrary, are rapidly developing. In June 2006, there were 286,100 broadband users, an increase of 67.6 per cent in one year (Fig.5), and broadband communication was available to most Lithuanian residents and organisations. The regulatory and market structure of broadband communication in Lithuania is competitive and future market development-friendly. Lithuania is among the few European Union member states in which the broadband communication provided by xDSL, digital subscriber line, amounts to less than 50 per cent of the market. Nonetheless, market saturation tendencies and reduced ARPU have created new challenges for market participants trying to survive the competition. To overcome the challenges, and to take advantage of convergence, market participants are taking advantage of convergence to offer a variety of previously separate and distinct communications services. For example, market participants, engaged in two or more different communications markets, grew from nine at the end of 2003 to 58 at the end of 2005, representing ten and 36 per cent, respectively, of market participants. Fixed, mobile and CaTV operators now offer triple-play services. This is convergence – the boundaries between technologies, services and end-user devices, formerly clear and visible, are blurring. Broadband-based convergence also creates preconditions for mutual integration of services and generally allows higher transmission speed, unlicensed low-cost local access networks, cheaper calling rates, large file downloading from home or office using scarcer, more expensive, licensed spectrum. However convergence is not an objective in its own right; it is a technologically driven trend in the process of defining a new environment to accommodate the needs and objectives of public and private institutions. Observing latest market trends shows that fixed/mobile convergence is driven by nothing more than the traditional market forces of supply and demand. This is strongly backed up by evidence that the ICT world is moving from a network-centric market view to a subscriber-demand-driven view. In the past, subscriber choices were based upon what the network could do. Now, subscribers demand increasingly more content and services, forcing new network designs to support myriad capabilities and content. Convergence: • is happening and it is driven by consumers, demand for products and services; • is defined by users, who seek reliability, simplicity and cost-effectiveness, i.e. solutions that improve life and work quality, better communications management, moderate risk, new technology-based wireline and wireless communication solutions; • is leading to a surge of company mergers and acquisitions. Old and new players, seeking to broaden their spectrum of converging communications services, tend to acquire or merge with others acting in diverse areas; • drives the development of next generation networks, NGN, which allow telecommunications operators to provide TV, voice calls and broadband Internet access and other services over the same network; • makes triple-play a tangible reality, quadruple-play and multi-play will probably be seen in the not-too-distant future; and; • removes the demarcations between wireline and wireless, despite increasing demands upon the available spectrum. The development of convergence affects traditional regulatory strategies. It raises questions about how to deal with growing pressure to adopt a regulatory regime compatible with a converged market and how to realize successfully the potential of alternative network infrastructures. The regulator’s challenge is to adjust to the new converging world by changing the span of regulation – to move from regulating separate markets to regulating the sector holistically. The holistic approach to regulating the converging ICT sector implies regulating – as necessary – services, but not particular technologies or separate markets, because in a convergent environment the same service can be provided by different means. Indeed, the evolution of ICT technologies has had a decisive impact on current regulatory design, and continually calls for changes and re-designs. As a result, regulators and policy-makers must keep track of new technologies and respond ‘just-in-time’ by adjusting their frameworks and legislation. Moreover, regulators may take advantage of the unique situation created by technological change to provide access to un-served areas, and to leverage information and communications infrastructures as tools for economic growth and competitiveness. So what are the implications for regulation? What happens to carrier regulation and concepts like Universal Service Obligation, USO, and quality of service, QoS, when private networks are linked to public carrier networks? Technology changes also raise concerns about communications security. How will the movement from an industry with a few major players to one with an enormous number of diverse service providers change the definition of the communications sector? Will the new players in the communications market, coming from diverse industries, have an adequate appreciation of regulatory requirements? Do the regulators need to keep track of who’s doing what and, if so, how? What, generally speaking, does the regulator need: fundamental change of the entire regulatory philosophy and structure or just a few strategic but relatively trivial changes? Do the challenges to regulatory environment require an immediate shift of the regulatory paradigm or will an evolutionary approach to change be sufficient? The rapid convergence between wireline and wireless technologies, services and markets requires an urgent review of existing regulatory frameworks. Regulators face a major challenge anticipating new regulatory and policy models, to deal with the issues and opportunities related to new technologies, particularly regarding the ongoing migration to IP-based packet-switched networks. The main regulatory challenges I see in this converging communications market are: • to develop a simple way to authorize new types of communication services or activities; • ensuring the consistent and neutral regulation of communications technologies and means of transport and fostering natural competitive market processes; • the popular perception of the availability of an unlimited number of communications channels, the irrelevance of state borderlines, and developing a systematic attitude towards convergence-led processes; • promoting interoperability among networks and electronic markets and the compatibility of technologies, equipment and devices; • applying modern and effective radio frequency management regimes; • to anticipate the regulatory models needed to deal with convergence related issues and opportunities and lead the move towards unified core networks and the innovative services they bring; • effectively dealing with the competition problems that arise as market players move massively into neighbouring markets; and, • to proactively create regulatory conditions that enable market players to make long-term, proactive decisions regarding markets, technologies, networks and services. Market changes won’t wait until the regulator deals with them; service providers will respond to the challenges. Accordingly, to promote development of the communications market, to facilitate the arrival of new market participants and changes to existing market players, regulatory policy must be revised today. Regulation has no option other than to be proactive, future oriented and in line with the changing landscape of the communications market. Nevertheless, the guiding principle should be minimum intervention in the market. The regulatory framework as I see it should be: • technologically neutral, flexible and capable of absorbing the ongoing development of the market; • future oriented and realistic; • not tied to including all possible technologies into legal acts, but flexible enough to incorporate whatever new regulatory and policy models are needed to deal with future issues; and, • capable of dealing with the tremendous variety and variability of electronic reality in a non-discriminatory manner by utilising the high-profile expertise that exists within the institutional system.

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