Home EuropeEurope II 2008 The challenge of NGNs

The challenge of NGNs

by david.nunes
Mathias KurthIssue:Europe II 2008
Article no.:3
Topic:The challenge of NGNs
Author:Mathias Kurth
Organisation:Federal Network Agency, for Electricity, Gas, Telecommunications, Post and Railway, Germany
PDF size:328KB

About author

Mathias Kurth is the President of Germany’s Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railway, having previuosly been its Vice President. During his career, Mr Kurth has been Director of Business Development, Law and Regulation for COLT Telekom GmbH, Chairman of the Conference of Heads of administration of the Ministers of Economics, at ferderal and state level, and a Member of the Supervisory Board of the Deutsche Ausgleichsbank. Mr Kurth has also been Representative of the State of Hesse in the Committee of the Regions of the European Union, Representative of the State of Hesse, in the Regulatory Council for Posts and Telecommunications, State Secretary in the Hesse Ministry of Eeconomics, Transport and Urban and Regional Development, Head of Administration and Permanent Deputy of the Minister, Parliamentary Secretary and Deputy Chairman of the SPD Group in the Land Parliament, and a Member of the Presidium of the Hesse Land Parliament and judge at the Darmstadt Regional Court. Mathias Kurth studied Law and Economics at Frankfurt am Main University, and was a postgraduate legal trainee in the Administration of Justice of the State of Hesse.

Article abstract

The move from traditional POTS (plain old telephony systems) to next generation networks – NGNs – networks involves a series of technological, economic and regulatory challenges. NGNs are more efficient, and offer both operators and subscribers a much greater variety of options and lower costs than traditional networks. The facilities, structure and cost of the new networks challenge the ingenuity of the regulators that must reconcile existing legal requirements based upon the older technologies with the realities of the new technologies and markets.

Full Article

We have come a long way from the aptly named ‘plain old telephony system’ (POTS) in the last few years. The Internet has proven to be more than hype on the transmission side. Packet-based connections are the future of telecommunications – and this future has just begun. Public switched networks are migrating to so called next generation networks in Germany (and the rest of Europe) right now. In Germany, especially, there are different paths for this migration. The incumbent, Deutsche Telekom AG, has chosen a fibre to the cabinet (FTTCab) approach with its VDSL (Very High Speed Digital Subscriber Line) rollout. Competitive operators have chosen a different route, and are deploying fibre to the home (FTTH) networks in some areas. The migration from public switched networks to IP-based networks is a big change, and that does not apply solely to the technical side. Access regulation has been moulded on the old technology because there was nothing else, when the European telecom markets were opened for competition. Now the regulators have to adapt their methods to encompass the new ways things are done. In Germany, the national regulatory authority called Bundesnetzagentur, early on, started a discussion process with the market players. A national project group was established to study the ‘framework for the interconnection of IP-based networks’. On a European scale, that discussion is also in progress. The Independent Regulators Group (IRG), the European Regulators Group (ERG) have made great progress in tackling the task and have published a report on Interconnection and an ERG Opinion on Regulatory Principles of NGA. From the change in network infrastructure follows the need to adapt the existing wholesale products. There is also a need to evaluate if, and in what way, NGNs impact on the market definitions and findings on significant market power that are part of the regulatory framework of the European Union, and rates approval procedures. For multi-service networks, it is even more difficult than for a PSTN to allocate the infrastructure costs to specific services and wholesale products. With the switch toward NGN, there can be changes in regard to the size and reach advantages and the need for interconnection. As the last mile will still be the NGN access bottleneck, access to these infrastructures will continue to play a central role. In its findings on a future NGN regime, the Bundesnetzagentur identified several points that are vital for the success of NGN. The first point is that the transport and service layers should be differentiated. Technically, there is no longer any need to bind certain services to certain technical preconditions, which is what network voice service providers plan. Such an artificial link between transport and service in an NGN, whose definition assumes the lack of such links, might well hinder the realisation of the NGN concept as a whole – or at least make it harder to take advantage of the potential of NGN to spread innovative services. Thus, the Bundesnetzagentur can only accept such behaviour as a temporary measure in the early stages of the switch over to NGN. After the switch to NGN, one thing will not change – the incumbent will still own most of the last mile. A direct consequence of this fact is the need for ongoing regulation of interconnection pricing. The long-run incremental costs of efficient service provision (LRIC) serves as the basis for tariff regulation in Germany. One of the main reasons for migration to NGNs is that they cost less to maintain than PSTN networks. If NGNs cost less than PSTNs, it is obvious that NGN should be the benchmark for the cost of providing efficient service. Using a different cost basis for each technology used is not permitted under the current German telecommunications act (TKG). Nevertheless, an abrupt change in the basis of cost accounting would tend to disrupt the market. It is impossible for any network provider with a telecommunications network that is more than a few years old to make the migration from PSTN to NGN in a single day. It is not the Bundesnetzagentur’s intent to make operators suffer for not being able to do the impossible. Instead, it appears reasonable to implement a glide path – a cost index based partly upon the costs for PSTN networks and partly upon those for NGN. While, in the beginning, the weight of PSTN costs in that equation would be higher, it would fall as the NGN rollout progresses. With this solution, though, interconnection costs would be higher for some time than the costs of efficient NGN service provision – a situation that is difficult to reconcile with the TKG regulatory regime. Another foundation of the current interconnection regime is the structuring of interconnection services into local, single transit and double transit categories. With NGNs, the number of interconnection points will fall, making the old categories redundant. There is no definite answer yet to the question – “How many interconnection points will still be needed?” – the estimates range from 1 to 100. Accordingly, many interconnection points will disappear, which means stranded investments especially for those network operators connected to many points. In order to compensate for that unfortunate effect, a glide path should be implemented – that is a phased reduction in the number of interconnection points needed. As the worlds of traditional telephony networks and Internet collide with migration to NGN, two incompatible billing philosophies will also collide; PSTN networks work with termination fees, but the Internet is governed by ‘bill and keep’. Bill and keep is a pricing method for network interconnection whereby there is no termination charge for calls; each network terminates calls from the other at no charge – they keep whatever they charge their own customers. When the old telephony networks become packet switched networks – NGNs – it will be feasible to charge for them on a bill and keep basis. Bill and keep goes hand in hand with the increasingly popular flat rates, not only for Internet access, but also for voice services. Switching over to a bill and keep would simply implement a billing system that end-users prefer. NGNs are already becoming reality. The technical and economical questions involved in the migration are largely understood and operators are making large investments in the switch to NGNs. What we do not know is when and where the deployment will take place. That can cause unnecessary friction in the deployment of the new technology. When the incumbent’s rollout plans are unknown it is difficult for other carriers, who need to interconnect with the incumbent, to plan their network with any degree of long-term efficiency, raising the probability of lost investments. Although the secrecy of rollout plans may be understandable from a business point of view, it is a problem for the market as a whole. NGN migration should not be seen as a way to hurt competitors, but as a road to more efficient networks. Accordingly, the Bundesnetzagentur encourages open and constructive dialogue between market players. The path and milestones for network migrations should be freely modelled and set through dialogues between the market’s players.

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