Proposing a concept for regulating Triple Play bundling of services

Proposing a concept for regulating Triple Play bundling of

services

Tomas Lamanauskas

Deputy Director

Communications Regulatory Authority LITHUANIA

CONTENT

1.

Historic overview or where do we come from?

2.

Convergence: the concept

3.

“Triple play” within converged environment

4.

Business models in converged environment

5.

Converging is real: Lithuanian market case

6.

Impact of convergence

7.

Convergence & regulation: revision needed?

Conclusions

Historic variety of networks

• Voice optimized

• Main features – two way, low capacity, real time

• Optimized for audiovisual content

– eg. Terrestrial TV/Radio broadcasting networks, CaTV

• Main features – one way, high capacity, real time

• Emerging data optimized

– eg. Ethernet, Frame Relay, RPR

• Main features – two way, low but increasing capacity, not real time

Historic variety of devices

•

Intended for reception of one

type of services:

–

Simple phones

–

Simple radios

–

Simple TV sets

–

Earlier generation of personal

computers

Historic variety of services

• Subsequent diversity of clear distinct services:

– Voice calls at fixed location

– Voice calls mobile

– Radio listening

– TV watching

– Text typing, calculation

Drivers for change (1)

• DIVERSE DEVELOPMENT IN TECHNOLOGIES

– Increasing computing capacity – Miniaturisation of chips

– Innovations in computing and transmission technologies, incl.:

• Digitalisation of all types of signals • Innovative compression techniques

• More efficient use of older technologies (copper wire, coaxial cables etc.)

– Decreasing costs

• for computing capacity and transmission links • of infrastructure

– Subsequent:

• Digitalization & computerization of various devices (incl. phones, TV-sets) • Increasing speed of data networks

• Decreasing cost of data networks

• GENERAL MARKET TRENDS

– Decreasing revenue from traditional services – significantly shortened product life cycle

– innovative materials and applications – economic globalization

– concentration of players

• MANAGERIAL CREATIVITY

– unconventional ways to create innovative products for niche markets applied by small start-up companies

• GOVERNMENTAL LIBERALIZATION AND DEREGULATION

– 1984 in USA, a decade later in EU

Historic overview or where do we come from?

Drivers for change (2)

• The technologic convergence could be understood as:

– a process by which the telecommunications, broadcasting and information

technologies merge, including the merge of fixed, mobile, terrestrial and satellite communications and including the merge of location systems and systems of establishment of places and liaisons – technology convergence;

• Is it only technology ?

– Technological convergence from the other side is meant that any type of terminal can access any type of data (which in turn can be transmitted through any kind of a pipe), and this side of technological convergence might be called a terminal

equipment convergence or convergence of devices and

– while an existing network, one optimized to provide a single service, can now be upgraded to carry multiple services, there is convergence of networks.

– … if the same services are delivered, transmitted and so on over the any of

networks – mobile, fixed, telecommunications lines, cable TV networks, terrestrial and satellite networks and the same devices, we should talk about service

convergence;

– …if any of the existing networks could provide any of the information and

communication services, that are not within limits of one separate traditional market or a distinct industry of an economy, we are talking about convergence of markets.

Convergence: the concept

The system of convergence areas

Convergence of services

“Triple play” within converged environment

• … devices

• … networks

• … services

Convergence to be discussed:

Convergence of devices – the most visible

• Mobile phones turn into mobile multifunctional devices:

– Integrated FM radio – Camera

– DVB-H on mobile phones

• PCMCIA and other devices for computers

– TV cards

• Interactive TV-sets

– display a TV signal & computer data simultaneously, watching TV and surfing Internet at the same time

• Final stage – service / network neutral devices

– Emphasis on programming equipment

Convergence of networks – as a prerequisite (1)

• More efficient use and evolution of traditional

service-optimized networks:

– Voice optimized

• xDSL on non-voice band on PSTN networks besides voice • GPRS/EDGE on GSM networks besides voice

– Optimized for audiovisual content

• Broadband data on coaxial Cable-TV besides TVR services • Data on DVB-T networks besides TV services

“Triple play” within converged environment

Convergence of networks – as a prerequisite (2)

• Service-neutral networks

– Fast broadband data networks …

• eg., Data networks on FTTx, WiMAX, Satellite, etc.

– … characterized as

• Efficient in terms of bandwidth

• Designed for multiple services provision while increase of number of services is easy

• Easily managed • High resilient • Well scalable

Technology development CTV - audiovisual service provider CTV – audiovisual and data transmission service provider “TRIPLE PLAY” : case of Cable operator Time CTV – audiovisual, data

transmission-and voice service provider

“Triple play” within converged environment

Triple play services on converged networks via

converged devices – as a result (1)

Audiovisual network Internet via cable

modem Voice over IP

+ +

Technology development PSTN - voice service provider PSTN/DSL – voice and data transmission service provider “TRIPLE PLAY” : case of PSTN incumbent Time PSTN/VDSL – voice, data transmission and audiovisual service

provider

“Triple play” within converged environment

Triple play services on converged networks via

converged devices – as a result (2)

Analog SL + +

Internet via xDSL TV via xDSL

Technology development 2GSM - voice service provider 2.5GSM – voice and data transmission service provider “TRIPLE PLAY” : case of GSM/UMTS operator Time 3GSM/UMTS – voice, data transmission and audiovisual service

provider

Triple play services on converged networks via

converged devices – as a result (3)

GSM GPRS TV on mobile

+

+

Implications of network convergence (1)

• The same network is used to provide all triple play services

– Voice

– Audiovisual – Data

• Original service is provided separately

– in case of voice optimized networks

– in case of audiovisual optimized networks

• Additional services are provided over service neutral part

– Neutral part is data part of the network

• Additional services compete against original ones

– VoIP over xDSL

– TV over Broadband via Cable Modem

Network level (bulk transport)

Access and server-router operators

Application level

(voice, video, banking, e-government)

Access operators or Independent Service Providers

Layers of converged networks

Implications of network convergence (2)

“Triple play” within converged environment

• Blurring distinct boundaries

separating transport and

content related services:

• Transport related – Voice-over-IP – Electronic mail • Content related – Audiovisual services – Information society services » Internet banking, information services (e-newspapers etc.)

• All of them - on the same technical level

• Truly converged services

– New interactive content, combining real-time video with

real time interactivity and two-way communication

• Enabled by service-neutral broadband networks

• Could be achieved using combination of different networks (e.g., one way TV broadcasting + reverse communication over voice or data networks)

“Triple play” within converged environment

• Integration of various services on devices

– Integrated FM/T-DAB receiver v.

• audio streaming on mobile device

• audio streaming via Internet

– Integrated DVB-H receiver v.

• video streaming on mobile device

– Internet applications integrated to TV-set v.

• Internet over DVB-T network

Business models in converged environment

• Network centric model

– Integration of access, network services and services (content) provided over networks

– Services provided are controlled by the access operator – Better quality control

• Use of managed IP services

– Less choice of services

– Bundled “triple play” from one hands

• “One-stop-shopping” for consumer

– single contracting, settling of the accounts etc.

Business models in converged environment

Telco -> full operator control

Internet ->

nobody’s

control + unlimited choice

• Application centric model

– Free environment where access, network services and content are freely mixed and could be freely separated – Access operator provides bulk access without services

– Services could be chosen freely from Independent Service Providers

– Less possibilities of quality-control

• Importance of this factor is diminishing with the development of technologies

– More choice together with more confusion for a customer

Which business model will dominate? (1)

• Most likely all models will cohabitate

– Access operators naturally try to increase ARPU through bundle of services

• Benefits for the user:

– higher quality of real time services (audiovisual, voice) – “one-stop-shopping” (incl. Integrated billing)

– Better customer care – less skills required

– Innovation brings better quality unmanaged IP services; that makes it difficult to exercise control over the user and provides possibilities for Independent Service Providers

– eg. Skype, Net2phone, Google, Yahoo

• Brings more choice but also requires more skills

– Therefore it will not inhibit bundled service business model in the near future but will have a significant impact in a longer term

Which business model will dominate? (2)

– Devices integrate services of various providers

• Of different nature

– Audiovisual, voice, other data services • Of the same nature

– eg., GSM and VoIP over WiFi possibilities in PDA

Technological structure

of the broadband market

in Lithuania indicates,

that major part (64%) of

the market is dominated

by cable network

operators and the

incumbent…

… i.e. broadband is

delivered as add-on

service on voice (PSTN)

or audiovisual (Cable

TV) networks.

Source: Lithuanian communications sector, RRT, 2005 .

Cable TV 23,52% LAN 22,52% xDSL 40,25% Other (satellite, PLC) 0,04% Fibre optics lines 5,07% Leased lines 0,80% Wireless communicat ions 7,80%

Converging is real: Lithuanian market case

Lithuanian broadband market by technology, 2005 I Q

Traditional segments are still very important, but ….

… changes are here

Converging is real: Lithuanian market case

Traditional parts of market segments are shrinking but new

ones are appearing: fixed (1)

Lithuanian fixed voice market: revenues, mln.LTL, and lines, thousands, 1991-2004

0 300 600 900 1200 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 Lines, thousands Revenue, mln.LTL

Converging is real: Lithuanian market case

Traditional parts of market segments are shrinking but new

ones are appearing: fixed (2)

2003 2005

Live reality broadcasting over IP – dedicated to special projects ATM 1998 Privatization 1999 1998 1996

Frame Relay Internet dial-up “Takas” ISDN Centrex 1999 xDSL 2001 MPLS VPN over IP 2002 2003 WLAN 2005 DVBT broadcasting: license 2000 PSTN network Since 1896

Converging is real: Lithuanian market case

Traditional parts of market segments are shrinking but new

ones are appearing: cable and terrestrial operators

2004 Fixed IP-telephony 2004 Digital broadcasting 1989 First Cable TV network 2002 Internet via cable modem 2001 Internet via broadcasting network 2003 Fixed telephony Terrestrial broadcasting network Since 1945

Traditional parts of market segments are shrinking but new

ones are appearing: mobile (1)

Converging is real: Lithuanian market case

Lithuanian mobile market: ARPU and penetration, 2000-2005

Source: Lithuanian communications sector, RRT, 2005 .

0 10 20 30 40 50 60 70 80 '9 6 I I H '9 7 I I H '9 8 I I H '9 9 I I H '0 0 I H '0 0 I I H '0 1 I H '0 1 I I H '0 2 I H '0 2 I I H '0 3 I H '0 3 I I H '0 4 I H '0 4 I I H '0 5 I H 0% 20% 40% 60% 80% 100% 120% 140%

Converging is real: Lithuanian market case

Traditional parts of market segments are shrinking but new

ones are appearing: mobile (2)

1994-10 GSM 900 Omnitel Commercial GSM services Omnitel 1995-03 1995-05 GSM 900 Bite GSM Commercial GSM services Bite GSM 1995-10 1998-09 DCS 1800 Bite GSM DCS 1800 Omnitel DCS 1800 Tele2 GSM 900 Tele2 2001-01 Commercial GSM services Tele2 2000-05 GPRS services 2001-02 GPRS flat rate 2002-07 2005-09 Live TV broadcas ting EDGE services 2003-12 Live TV broadcas ting 2005-09 EGDE services 2003-12 GPRS services 2001-10 Mobile 2005-03 GPRS flat rate 2002-10 MMS MMS 2002-09 Mobile internet 2005-02 GPRS services 2004-07 TV via mobile 2005-04 3G trial 2004-10

Converging is real: Lithuanian market case

Traditional parts of market segments are shrinking but new

ones are appearing: mobile (3)

No activation fee No monthly fee

Price for data amount only: 1.158 EUR/1Mb

Converging is real: Lithuanian market case

Traditional parts of market segments are shrinking but new

ones are appearing: mobile (3)

No activation fee No monthly fee

Converging is real: Lithuanian market case

Traditional parts of market segments are shrinking but new

ones are appearing: genuine data networks evolution

SkyNet – Optical fiber network, offering: • Internet 10 Gbps

• Videos of stereo quality • Radiocasting over IP

• Audio- and video- conferences

• VoIP

• VPN

• TV on the Internet

– www.tv.lt

• Radio on the internet

– www.lrt.lt

– www.m-1.fm

– www.rc.lt

– www.lietus.fm

– and many more…

• @radijas – on the Internet only

• new project IPTV – on its way

Converging is real: Lithuanian market case

Impact on markets…

• Convergence brings intermodal competition that I characterize as

– Various networks, devices and services compete in horizontal direction as successfully as in vertical one

– Strong potential to leverage end-user (“last mile”) control in access services to provision of new services in the mean time

• therefore initial market position is important…

– PSTN (xDSL) and CableTV operators have the strongest position

• … but cooperation among transport and content industries is essential in order to employ the best expertise

– The “last mile” control will become less relevant, as technologies develop and users acquire more skills

• … and they are to receive services from different providers onto the same device

• …so, more space is unclosing for Independent Service (content) providers and start-ups

– Specialization, expertise & innovation are vitally important (Skype – $4,1billion total value)

• … but the “first mover advantage” does not disappear (or the position gained at the initial stage of market cycle is important due to inertia of consumers)

– Competition of content providers increases

• Content, incl. audiovisual, could be provided by different networks

Impact on customer relations…

• Wider specialisation and support for consumers

• Therefore it is necessary to make services more user friendly • And develop consumer skills

– Wider knowledge is needed on untraditional parts of “triple play”

• Experience from Lithuanian mobile operators:

– Automatic configuration of mobile devices for GPRS, MMS, mobile TV and other non-traditional services using settings sent by SMS

– Easy-configurable computer applications for mobile data services – Interactive Subscription management (via Internet), for instance,

order/resign additional services

Challenges for regulatory regimes

• Regulatory regimes shall be reviewed in

order to:

– Remove provisions directly hindering

convergence

• eg., network specific broadcasting licences

– Streamline other provisions to reflect

convergence

• and it is happening…

– …sufficiently?

Global level review

• ITU Radio Regulations:

– Review of traditionally distinct allocation of

radio spectrum to different radio services is

needed:

• Broadcasting • Mobile

• Fixed • Etc…

EU level review (1)

• Convergence of devices

– Radio and telecommunications terminal equipment

directive (99/5/EC) should be reviewed

• Coherent market entry conditions to be applicable to all e-comm. devices

• Convergence of networks and services

– Review of Television without Frontiers Directive (97/36/EC)

• Commission proposal foreseen by the end of the year

• TV broadcasting services -> technology & network neutral audiovisual ones

Convergence & regulation: revision needed?

• Convergence of networks and services

– Technologically neutral harmonisation of spectrum rights and

coordinated introduction of flexibility in spectrum management and use (two EC Communicates)

• Forthcoming review of E-communications regulatory framework in 2006

• Emphasis on technologically & service neutral radio spectrum management • Remove of artificial restrictions in spectrum allocation (mobile, broadcasting) • “Pooling” frequencies together

• Convergence of markets

– Reconsidering market definitions

• Short-run and long-run implications should be taken into account

– Reconsidering inclusion of services markets into regulated markets

• These should be periodically reassessed - to reflect realistic but perspective view on the present status of convergence and its’ impact on markets

National level review

• Improvements in management of radio spectrum in order to allow

for more flexibility in use of spectrum

– More flexible allocation of radio spectrum

– More flexible rules and permits on use of radio spectrum

• Review of broadcasting licensing system

– Right to broadcast should not be tied to specific broadcasting media but rather to specific content that could be transmitted over any electronic network

– Review of rigid licensing rules for audiovisual media • General authorisation could be considered

• Institutional regulatory systems should reflect converged

environment

• Information Society and Media Directorate (EC) • OfCom, Ficora, RTR, AGCOM, MTC, etc.

1. Convergence brings intermodal competition where different

networks and devices are able to compete for being the provider of the whole variety of services (triple play).

2. Despite “last mile” control remains important in a short-run, access operators should not overestimate their abilities to retain user

control. Widening and innovating the package of services’ offerings is their chance to stay competitive.

3. Impact of competition will increase over time with technological development and improved user skills. However, we should stay realistic about users – skills are not build in one night time.

4. Technological development and its outcome on markets’ shifts require adaptation of regulatory system on global, regional as well as national levels so as resulting:

– regulatory framework to be even more technologically neutral, flexible, and capable to integrate ongoing developments of the markets,

– institutional system to incorporate the tremendous variety of changing electronic reality in non-discriminate manner and with

Tomas Lamanauskas

Communications Regulatory Authority,

Algirdo 27, Vilnius, Lithuania

Phone: +370 5 210 5627

e-mail: [email protected]