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Introduction

1.1 In June 2005 Ofcom published a consultation (“Next Generation Networks: Further Consultation”) which proposed a number of policy principles and processes to support the development of NGNs in the UK. One of our priorities was to ensure that the deployment of BT’s Next Generation Network (NGN) did not foreclose competition, either through disrupting existing competitive businesses or through preventing equality of access being provided in the future.

1.2 In September 2005, BT agreed to undertakings to support these aims , including commitments to provide unbundled network access, to do so on an ‘Equivalence of Inputs’ basis, and not to make design decisions which would foreclose specific product options without adequate consultation.

1.3 There are now two important areas that need to be addressed to support the deployment of NGNs:

• First, for consumers to fully benefit from NGNs, we need to help NGN based competition become a reality. This will require both market led commercial engagement as well as development of the ex ante competition framework so that it reflects convergence and new services such VoIP. Addressing these issues inevitably raises quite complex questions about the structure of markets and the nature of interconnection between communications providers.
• Second, whilst ultimately beneficial to consumers, the move to NGNs may lead to new or different consumer concerns for which an effective approach is needed.

1.4 This document sets out how we see those challenges being addressed.

Taking forward NGN competition issues

1.5 The key challenge in taking forward NGN competition issues is establishing an appropriate balance between Ofcom’s role in providing certainty as to the regulatory framework and the role of the market in determining the commercial outcome of NGN-based competition. Regulatory intervention which is too early or too prescriptive could pre-empt the role of the market in determining the nature of NGN-based competition, whilst regulatory intervention which is too late or which is ineffective could result in there being no competition at all. In order to maintain an appropriate balance we propose two parallel and complementary strands of work:

• An improved framework for industry engagement
• Greater certainty as to the application of the ex ante competition regime

An improved framework for industry engagement

A new industry body

1.6 Following the suggestion in our consultation for a new NGN industry body, there has been significant work to refine this concept, and we will now be launching ‘NGN UK’ (as it is now known) later this month. Its purpose will be to ensure that the UK telecoms industry moves forward in step on NGN development. Ofcom firmly supports this initiative and welcomes the commitment that has already been made by several stakeholders to take it forward. We hope and anticipate that others will follow.

1.7 Ofcom will continue to facilitate the start-up process, and in particular has today announced the appointment of Peter Black as Executive Chairman. Peter's task will be to translate the current industry commitment into an effective and independent organisation. Peter will undertake this in parallel with his role of Telecommunications Adjudicator and ongoing commitment to local loop unbundling.

1.8 We propose that the new body initially focus on three issues for which a clearer commercial vision is urgently required, specifically:

• IP interconnect architecture
• IP interconnect commercial model
• Network intelligence interoperability

1.9 The body would not provide a substitute for Ofcom’s regulatory functions. As discussed below, Ofcom is proposing an ambitious programme of work to develop the ex ante competition framework, and will still have responsibility for resolving disputes and setting charges in cases where commercial agreement cannot be reached. In order to ensure that any intervention that is required is both timely and effective, Ofcom expects to participate as an observer on the executive committee of the new body.

Operational dispute adjudicator

1.10 In our previous consultation we also suggested that operational disputes arising from the planning or implementation of any communication provider’s NGN transition could be referred to an operational dispute adjudicator. Ofcom does not plan to establish a formal adjudication scheme at this stage, but will revisit this issue if a substantial volume of minor operational disputes arise.

Network Interoperability Consultative Committee (NICC)

1.11 NICC has an essential role in relation to technical aspects of network interoperability, and this will be critical to the success of NGN-based competition. However, Ofcom has had concerns about NICC’s current governance arrangements in which it is formally an advisory body to Ofcom. Ofcom has been in discussion with NICC to find an arrangement which would give a greater degree of industry ownership. We are currently considering specific proposals to achieve this and expect to be able to make an announcement shortly.

Greater certainty as to the application of the ex ante competition regime

1.12 Alongside the commercial process discussed above, Ofcom acknowledges the need to provide greater clarity as to the nature of the ex ante competition framework which applies to NGNs. There are four aspects we address: initial continuity of existing products; clarity on issues related to current industry negotiations; issues to be addressed this year; and identification of more fundamental long term changes.

1.13 First, as set out in our June 2005 consultation, there is an initial need for continuity of existing SMP products. This requires no further ex ante regulation from Ofcom, as the obligation to provide these is enshrined in the existing set of ex ante competition regulation. However, we do not expect all products to continue indefinitely and will review obligations to supply as they are replaced by future products. One of the first to be reviewed is likely to be Flat Rate Internet Access Call Origination (FRIACO).

1.14 Second, there are three specific issues on which greater clarity is needed now as industry negotiations are currently in progress:

• At present Ofcom regulates the provision of Datastream and the margin between Datastream and IPStream. There has been substantial debate as to what types of bitstream remedies will be supported by BT’s NGN, and in particular whether the current distinction between IPStream and DataStream, and the associated margin squeeze test, is still appropriate in an NGN era. Ofcom can see benefits in focusing future regulation on a single bitstream product, designed to be complementary to LLU, which combines the service control capabilities of DataStream with the traffic aggregation capabilities of IPStream. We are currently discussing the practicality of this approach with stakeholders. If it does prove to be practical, then we will take this into account when looking at what remedies should be imposed in our forthcoming broadband market review, assuming that a communications provider is found to have SMP in the relevant market.
• There has also been substantial debate as to how the existing ‘Wholesale Line Rental’ (WLR), ‘Carrier Pre-Selection’ (CPS) and ‘Indirect Access’ (IA) remedies will be supported by BT’s NGN. An ‘MSAN voice access’ product has been proposed which would allow an alternative provider to take over a BT line, as with the current WLR product, and control the origination of calls on that line via their own call server. If such a product were introduced, a separate CPS remedy, and possibly a separate IA remedy, may no longer be necessary. A potential benefit of this approach is that it could greatly increase the potential for service providers to differentiate their retail services. If this approach does prove to be practical, then we will take this into account when looking at what remedies should be imposed in our forthcoming ‘voice access and origination’ market review, assuming that a communications provider is found to have SMP in the relevant market.
• There are current industry discussions about a new NGN interconnect call conveyance product which would provide PSTN emulation services over BT’s 21CN. Our early thinking is that there are benefits in adopting an initial commercial model where charges are broadly derived from the Network Charge Control (NCC), but only as an interim position until a future NGN interconnect model is agreed. The details of that future model are likely to be worked out over the next year, therefore we anticipate this interim model may have a relatively limited life span.

1.15 Third, there are a number of backhaul related issues which we expect to crystallise this year:

• Negotiations are underway as to future models of local interconnection. But the desirability of local interconnection depends critically on the distance dependence of NGN-based backhaul interconnection charges (their ‘distance gradient’). We will soon be publishing an independent study into the implications of NGNs for distance gradients.
• BT has committed to delivering ‘Equivalence of Inputs’ in relation to Ethernet-based backhaul products by September 2006. These products are expected to be used by BT for 21CN backhaul, and may also be used as the backhaul element of other NGNs.
• There is potential for market and service convergence in backhaul, so that it becomes independent of the services (eg narrowband or broadband) being carried.

1.16 We will start work on a converged backhaul market review this Spring to consider these issues and develop the ex ante framework for NGN based backhaul.

1.17 Fourth, in the slightly longer term we anticipate more fundamental changes in wholesale, (and possibly retail) market structures and remedies, including:

• As noted above, a new voice access product could allow the call control elements of call origination, which is currently a ‘bottleneck’ service, to become replicable by alternative providers. Arrangements for call termination might also evolve if this product allows alternative providers to control termination of calls on BT lines. In addition, a more sophisticated ‘call-by-call’ remedy than Indirect Access could be possible in the future (if one is still necessary).
• For wholesale broadband, backhaul convergence could mean that the same quality of service is available for broadband applications (eg voice over broadband) as for PSTN emulation services. Future broadband services might allow providers greater control over the configuration of the broadband line, and allow greater innovation in the packaging of broadband and narrowband services (such as ‘broadband dial-tone’ or ‘pay-as-you-go’ broadband).
• At the retail level we expect increased competition between NGN-based VoIP services and broadband-based VoIP services. This may be accompanied by greater take-up of bundles comprising voice and broadband services.

1.18 Our work programme for the market analysis required to address these issues is summarised in Figure 1 below.

Taking forward NGN consumer issues

1.19 Whilst NGNs create the potential for significant benefits to consumers, our June 2005 consultation also recognised a number of potential consumer issues relating to the move to NGNs. These included the future of text relay services, maintaining quality of service, and provision of information about the migration process.

1.20 In considering how best to take forward these issues, we recognise there is a balance between those aspects of consumer protection which ought to be in providers’ interest to handle effectively, those where improved consumer protection ought to be a natural consequence of a well-designed NGN, and those where there may be a case for greater Ofcom involvement, and perhaps more formal intervention.

1.21 We intend wherever practical to adopt a co-regulatory approach to these issues, in the expectation that Ofcom and industry do have a common interest in addressing them. Ofcom is however aware that there may be some areas where interests may not be aligned. In such cases Ofcom may need to intervene more formally, and we will consider these cases as part of a review of the General Conditions of Entitlement currently planned for Autumn 2006.

1.22 Where Ofcom does formally intervene, we will try to avoid specifying how a particular consumer protection issue should be resolved. Instead we will specify the overall objective, and provide industry with the flexibility to determine how best to fulfil this objective.

Summary of future work

1.23 Our planned next steps for each of the issues discussed above are summarised in Figure 1 below.

Figure 1: Ofcom’s future work to support the introduction of NGNs

Issue	Next Steps
A new NGN industry body	Ofcom will support and facilitate the rapid establishment of this body (March 2006)
Future broadband remedies	Wholesale Broadband Access market review (2006)
Convergence of backhaul services	Converged backhaul market review (starting Spring 2006)
Evolution of voice markets and remedies	Voice access and origination review (starting towards the end of 2006)
Convergence of access services	Converged access review (2007)
NGN related consumer issues	Co-regulatory approach to be reviewed in our Review of General Conditions (Autumn 2006)

• Next Generation Networks: Developing the regulatory framework [pdf]
  Full Print Version
• Assessing the impact of NGNs on interconnection tariffs’ distance gradients
  A report for Ofcom

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