Tuesday, January 15, 2008

Visions for Telecom Regulation

The opening plenary at PTC'08 offered an interesting perspective from regulators about what they expect for the future. The plenary included regulatory officials from Germany, Japan, Singapore and an ITU representative.

To summarize, they all believe that the forces of network effects and economies of scale will drive more consolidation and that telecom regulation will be more important than ever in the future. What a vision - what else would you expect from regulators? In general, I heard the concern that network services are a commodity and there is declining incentive for carriers to build more infrastructure. Therefore, they argue, some regulatory policy must help shape an industry model that encourages infrastructure investment. Everyone agrees there has been limited network infrastructure investment in the last few years. But, this is healthy result of the bandwidth glut hangover from the telecom boom in the late 1990's, not a problem that needs to be fixed by regulators.

Fortunately, the plenary panel also included Paul Twomey, the CEO of ICANN, who was persausive in his counter arguments that the model of the future should be based on the Internet model. When the network is free from regulatory constriants, or the overbearing market power of a few carriers, innovation flourishes. He rightly noted that telecom operators narrowly think of convergence as the transport of multiple media over the same network. Internet entreprenuers, in contrast, see convergence beyond the network and all about taking money from other industries (i.e. advertising, retailing, travel).

Below are some of the interesting points from the PTC'08 opening plenary:
- There are 1.72 billion fixed telecom lines, 2.68 billion wireless subscribers and only about 250 million broadband connections.

- Singapore has a goal of 100% broadband penetration by 2015. To accomplish this public policy goal, the telecom industry will be divided into three parts:
1. Netco which provides dark fiber and is open to all network operators. The government will provide over $500 million USD to fund Netco.
2. Opcos which are competitive operators using Netco facilities.
3. Service Providers who sell Opco services.

In Japan:
- 36% of all broadband customers are served by fiber to the home.
- NTT has only 38% of the DSL market
- IP traffic grew by 40% in 2006
- 1% of the users consume 60% of the bandwidth.

My conclusions from the PTC'08 plenary are:
1) It was a excellent panel discussion with different perspectives and data from very qualified folks.
2) Bandwidth demand is outrunning supply and soon market forces will encouraging new infrastructure investment if the regulators resist the call from incumbent carriers to create regulatory barriers to entry.
3) The IP industry needs better cost accounting and billing mechanisms. IP infrastructure will be built if a return can be earned from the investment. Unfortunately, most IP network usage is based on a simple access charge for all you can use. The result is that a few heavy users are subsidized by the majority of low users. A vast amount of network value (return on investment) is left unrealized. If there is a role of regulators in the future, it should be focused on driving standards and practices that make the market for buying and selling of network interconnects and utilization more efficient.

No comments: