Assessing the impact of NGNs on interconnection tariffs’ distance gradients

23 March 2006

A DotEcon report for Ofcom

Ofcom’s statement published on 7 March 2005 (“Next Generation Networks: Developing the regulatory framework”) set out the work we intend to undertake to provide greater clarity about the ex ante competition framework that would apply to NGNs.

One of the important issues we identified was the distance dependence of NGN-based interconnection charges (their ‘distance gradient’). The approach taken to distance gradients is likely to be a fundamental factor for the future model of NGN competition and the viability of different types of interconnect product (eg MSAN verses metro node interconnect), and therefore important to all communication providers and the business models they pursue. Because of the significance of this question, Ofcom commissioned independent economic research to study the effect of NGNs on distance gradients.

This independent research does not necessarily reflect the views of Ofcom. However, we believe it could provide an important input to the further development of NGNs. First, it should be of interest and relevance to the new industry body “NGN UK” in its task of developing a commercial model for NGN interconnection. Second, Ofcom will consider these findings as part of the converged backhaul market review we intend to start later this spring.