1.1 Investment in next generation access (NGA) networks continues to gather pace internationally, with announced deployments from both operators and public sector organisations. Ofcom considers now is the appropriate time to revisit the issues raised by next generation access investments. These investments are distinct from next generation core networks which focus on replacing multiple legacy core networks with a single IP-based network.
1.2 In considering the appropriate regulatory regime for next generation access (including options for no regulatory intervention) there are many important and complex issues to be addressed. This document is not a formal consultation document seeking views on alternative proposals. Instead, this paper seeks to outline the issues and prompt discussion of them.
1.3 Recently, the UK has displayed a good outcome with respect to the availability, take-up of and bandwidths supported by current generation broadband networks. At the same time, the UK is not witnessing the same level of investment in next generation access networks as displayed in some countries like the US, Japan, Korea and the Netherlands. We believe this is mainly due to the specific characteristics of the UK, particularly: a copper access network capable of supporting higher bandwidths over DSL; a mature pay TV market which influences the potential for IPTV business models; less competition in end-to-end infrastructure provision; and a focus in the UK on core next generation network upgrades at this time.
1.4 Some stakeholders consider the availability of higher speed access infrastructure as critical for the UK. These stakeholders consider there would be powerful benefits from the deployment of next generation access in the UK through development of new services, increased productivity and competitiveness, and to society, for example through greater access to information and public services. However, many commercial communications providers consider that the case for investment in next generation access infrastructure continues to be weak in the UK, or that the need for future network upgrades is likely to arise at a later time in the UK than for some other countries.
1.5 However, despite the lack of announced deployments, Ofcom considers that it is important that we start to provide clarity on the regulatory regime for next generation access networks in a timely manner, so that any lack of regulatory clarity is not a contributory factor in the timing of future investments.
1.6 In considering regulatory approaches to next generation access, it is important to define what these services comprise. Ofcom prefers a broad definition of next generation access, which covers a number of technologies that can be used to deliver next generation access services, including both wired and wireless solutions. However, we consider that wireline network deployments may provide greater regulatory challenges following the migration to next generation access networks.
1.7 As we discussed within the Strategic Review of Telecoms, wireline access networks have historically been an enduring economic bottleneck – it is critical to the approach to regulation to establish whether this will be the case in the future. This depends on:
1.8 It may be that the deployment of wireless access technologies will provide a competitive alternative to wireline next generation access deployments. This could result in increased infrastructure competition for next generation access. We are interested in stakeholders’ views on the prospects for such wireless technologies. However, this paper seeks to explore the implications from a regulatory perspective if widespread deployment of new wireless technologies did not emerge.
1.9 Regulators are most concerned with issues arising from enduring economic bottlenecks, where the economies of scale and scope within communications networks and the advantages of incumbency may limit market entry by new communications providers. Given the barriers to contestability that are inherent in wireline network deployments, it is likely that deployments of wireline next generation access infrastructure may represent an enduring economic bottleneck at least in some parts of the UK. As a result, we focus this discussion paper on the challenges to regulation arising from wireline next generation access deployments.
1.10 In this paper we consider the policy issues that may arise from the emergence of new, or reinforcement of existing, enduring economic bottlenecks as a result of a step-change in access network investment associated with next generation access deployment. There are two main policy challenges posed by next generation access:
1.11 Prior to adopting any ex ante regulatory policy, Ofcom is required to conduct a thorough market review under the EU Framework Directive. Such a market review would require Ofcom to define the relevant market for next generation access services. Ex ante regulation is not applied to infrastructure, but to the services delivered over that infrastructure. Next generation access deployments could be used to deliver a range of services, including: existing services; higher quality versions of existing services; and new services that are unique to next generation access networks. This discussion paper does not include a formal market definition as, at this time, it is not clear what services that would be provided over next generation access networks might constitute a separate market. Instead, it focuses on the principles of regulation that may be applied to next generation access networks that are enduring economic bottlenecks.
1.12 Faced with the deployment of new bottleneck assets, one of the key decisions for regulators is the most appropriate regulatory policy to adopt. At the highest level, this is a choice between forbearance versus the promotion of downstream competition through mandated access. Forbearance may be a suitable approach to regulating next generation access investments where there are significant prospects for wide scale, competing access infrastructure deployments which will provide a competitive constraint to the potential for incumbent operators leveraging any position of market power. Ofcom considers that, given the UK’s market structure and characteristics, the prospect for wide scale competitive access infrastructure is relatively low. Forbearance is therefore not likely to be an appropriate policy for the UK.
1.13 As discussed in the Strategic Review of Telecoms, we consider that promotion of competition through equality of access is the most appropriate approach to assets that are enduring economic bottlenecks. Ofcom continues to favour this approach with respect to next generation access investments, but with returns that are reflective of the level of risk at the time of investment. These new infrastructure investments may display a number of unique characteristics that mean the current approach to regulation is not appropriate. For example, historically, current generation local access network investments have faced low demand uncertainty and were considered a sunk cost for bottleneck asset owners – this may not be the case for next generation access investments.
1.14 It is not the role of Ofcom to provide operators with incentives to make particular investments. Rather, we should endeavour to ensure that the incentives for efficient investment are not distorted, particularly as a result of disproportionate regulation. In determining the most appropriate approach to regulation for investment in any risky bottleneck asset, and its implications on incentives, it is important to reflect adequately the level of risk incurred at the time of investment.
1.15 The level in the network where regulatory remedies may be applied to next generation access networks may differ substantially from the current copper local access network. Therefore, one key consideration for any next generation access regulatory policy is the correct level in the network to mandate access to promote downstream competition. This will, in part, depend on technology choices made by industry. The levels may vary for different technology deployments, but could include: access to ducts; unbundling options, including sub-loop or fibre unbundling; or access to a wholesale bitstream product.
1.16 Deployment of next generation access infrastructure is likely to have an impact on current regulation, including the wholesale products currently defined by regulation. Ofcom must consider the appropriate level of, and period for, support for legacy wholesale products as operators move to using next generation access networks. In determining the appropriate level and timescales for the support of legacy regulatory products, it is important to consider the full costs and benefits of both continued support versus removal of these products.
1.17 It is not the role of the regulator to protect investments made by competitive communications providers against market risks. These risks may include the emergence of new technology developments, such as next generation access that superseded operators’ current market propositions. However, it is appropriate for Ofcom to consider the interests of existing competitive operators in ensuring the continued availability of and terms for current wholesale inputs to their products, during the lifetime of the assets in which they have invested. We also need to ensure that a suitable migration path for existing infrastructure investments is allowed for following the deployment of new technologies.
1.18 In order to progress the debate on next generation access, Ofcom is interested in stakeholders’ views and opinions. Whilst we are not conducting a formal consultation process at this time, we are keen to receive any views in writing, and to use these to promote further public discussion of the issues. We also intend to organise a number of seminars in early 2007 to meet with stakeholders and discuss the challenges and issues posed by next generation access.
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