Digitization – the Killer Enabler

by John de Ridder
In the never ending quest for the “killer apps” that drive the uptake of broadband, one that we seem to have overlooked is digitization – which I’d call the ‘killer enabler’ of applications that undermines traditional carrier and regulatory models.

The following are some key insights on how digitization has changed the rules of the telecommunications industry. The impact the roll-out of broadband networks has had on key stakeholders is detailed in my update of the regulatory tool-kit for infoDev and the International Telecommunication Union (ITU) [1].

Digitization
Networks used to be built vertically around specific applications (e.g. voice or PayTV) but digitization ‘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 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). Digitization separates carriage and content services allowing ‘over-the-top’ (OTT) content and application services (e.g. Skype and Netflix).

Broadband
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 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 which makes the regulator’s task lighter because the access bottle-neck is removed.

Access Pricing
Access pricing for fibre based fixed access networks poses a dilemma for regulators. If they apply traditional cost based approaches 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, with digitization service providers can go ‘over the top’ to deliver content and services to end customers. IP interconnection will be sufficient [2].

IP interconnection has existed in the internet system for many years with no regulation of ‘peering and transit’ arrangements. Many of these are similar to the ‘bill and keep’ (also known as ‘sender-keeps-all’) arrangements that apply to Receiving Party Network Pays mobile regimes; so for RPNP 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.

The switched PSTN model is dying and there is divergence in regulatory approaches to the emerging world of next generation networks. Many regulators (rightly) hesitate to act too swiftly as whatever they do will shape the market. Operators of broadband networks will have to move swiftly to shift their business models towards charging for traffic.

End Notes
[1] Digitization is a key theme in the update of Module 2 (Competition and Pricing) of the infoDev/ITU tool kit for regulators at http://www.infodev.org/en/Publication.1140.html

[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).