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Convergence and next generation regulation Dr. Alison Gillwald Adjunct Professor, University of Cape Town Management of Infrastructure Reform & Regulation Namibia Polytechnic ICTPRR, 2012

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Page 1: Convergence and next generation regulation · Convergence and next generation regulation ... Less investment in duplicate ... service providers have been able to customise their services

Convergence and next generation regulationDr. Alison Gillwald Adjunct Professor, University of Cape TownManagement of Infrastructure Reform & Regulation

Namibia Polytechnic ICTPRR, 2012

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Convergence?“...technological, market or legal/regulatory capability to integrate across previously separated technologies, markets or politically defined industry structures. Convergence also involves an important international component, as many services and information sources that were traditionally controlled on a domestic level are being provided on a global basis”.ITU (1999) Trends in Telecommunication Reform: Convergence and Regulation, Geneva, p.2

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Digitsation & efficiencyprocesses of compression and decompression of digital bits explain the technological efficiency inherent in convergence. allows for use of less bandwidth and the freeing up of greater parts of the medium for the transmission of increased bits. because with digital compression smaller bits are being transmitted, money is saved.

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1

Access and changes in

communications markets:

policy and regulatory challenges

David Souter

Strathclyde Universityict Development Associates

[email protected]

CRASA workshop, Johannesburg, June 2007

Outline

1. Convergence and customers

2. Access : basic concepts

3. Why do people use different ICTs?

4. The economics of access

5. Policy and regulatory challenges

Convergence and the

customer

CRASA workshop, Johannesburg, June 2007

The changing telecoms market

� Twenty-five years ago, telecoms meant:� one organisation

� owned by the state

� providing one main service� fixed telephony

� over one network

� within one country

� using a small range of technologies

� for a small group of organisations and individuals

� Today, telecoms means:� competing organisations

� many privately owned

� providing three main services� fixed, mobile, Internet

� and many niche services

� using multiple networks in different structures

� network, service, etc.

� often in many countries

� using a wide range of technologies

� for mass markets

CRASA workshop, Johannesburg, June 2007

Convergence and diversity� From the point of view of

companies and regulators, technology and economics, there has been and is ongoing convergence between� networks� platforms� communications businesses in

different markets� regulatory objectives

� Interchangeability between platforms is crucial to convergence

� From the point of view of consumers, there has been diversification of� services� terminal devices� communications businesses in

different markets� payment methods and tariff

options

� Greater choice between platforms represents diversity of choice

CRASA workshop, Johannesburg, June 2007

Broadcasting

Convergence and diversity

Fixedtelephony

Mobiletelephony Internet

Technological and economic convergence

Divergent customer perception and behaviour

Source: David Souter, CRASA , 2009

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Convergence Sectors Drivers of Convergence • Technology •  Industry-Supply •  Market-Demand •  Policies/Regulation

• Industry Specific • Convergent

Applications

•  Finance

•  Commerce

•  Education

•  Health

•  Publishing

•  Manufacturing

•  etc.

Content

Telecom

Computing

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Convergence or divergence?In addition for historical and circumstantial reasons, convergence is uneven, globally, nationally and within national ICT sectors. Currently there appears to be far more convergence between the traditionally distinct areas of telecommunications, IT, broadcasting and other media at the top end of the value chain where content production occurs. Convergence at the distribution level is most evident between broadcasting and telecommunications. Less investment in duplicate infrastructure frees capital for customer support, applications and content development and delivers greater dividends for further investment.

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9 Ibid at 7

Figure 2: Convergence / integration and divergence / disintegration

Source: Henten, Falch and Tadoyini (2000) at 4

Vertical integration has long been a characteristic of public networks within thebroadcasting and telecommunications sectors. In telecommunications thisoccurred traditionally between customers equipment, infrastructure and services.Integration of distribution of content has long been a practice in the broadcastingindustry. With proprietary technologies associated with broadcasting subscriptionsservices and new data services, this has been extended to customer equipment.Such vertical integration really only has convergence implications when it cutsacross traditionally separate sectors, such as Internet access from digital televisionor telephony or broadcasting over the Internet.

Henten et al. point out that other technical factors impacting on the convergenceprocess include network architecture, capacity requirements of the services, quality of service requirements and usage requirements of the services.9 Themain differences in network architecture relate to the differences in broadcastingand telecommunication networks. Broadcasting networks are traditionallydesigned for one-to-many transmission. The high capacity associated withbroadcasting for example enables downloading of data at rates several magnitudesof scale quicker and more cheaply than traditional telephony network design forpoint-to-point communication. The low capacity per user associated with broad-casting technologies, has been hampered however by having no return path forinteractive services. Interactive services using broadcasting technologies havehad to rely on other networks for the return path. The latest standards for digitalbroadcasting will allow, however, for an integrated radio return path.

The point-to-point network architecture of telecommunications means that service providers have been able to customise their services to meet the needs ofindividual users but generally at relatively high cost because the customer line inthe local loop is not shared and usually of relatively high maintenance, makingthe expansion of integrated services slow. While customised video services -video-conferencing, video-on-demand and the like – may be reasonably costeffectively offered over switched services, broadcasting in the more conventional

Preparing South Africa for Next Generation Networks, Services and Regulation 21

IT Telecom Broadcasting Other media

Content/ services Software basedcontent

Telecom basedservices and

content

Broadcast programs

Film, music, newspapers, etc.

Transport/ software Generic software Network services Transmission Cinemas, videorentals, etc.

Equipment/ hardware Hardware Telecom equipment Broadcast

equipmentReproduction of

films, printing, etc.

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Technological convergence• services sector restructuring enable by digitalisation. It is the transition

between two structural models for service delivery. The traditional model is dominated by analog or physical technologies favouring mass production, domestic market focus, and vertically and horizontally integrated corporate structures. Conversely, the new service delivery model uses digital programmable networks that favour mass customization, an international market focus and vertical separation between the services the users see and the underlying delivery platform.

• Australian Convergence Review (2000) p3 at www.noie.gov.au

• So traditionally the market structure has been vertically integrated, convergence drives and is stimulated by a structural separation between vertical layers: infrastructure, connectivity and applications and content

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Technological convergence 2 telecommunications utility traditional vertically integrated between customers equipment, services and infrastructure

Broadcasting traditionally integrated distribution of content and in subscription broadcasting been extended to customer equipment.

Disintegration of these to some degree through where use across platform but not uniform or even - traditional broadcasting transmission permits massive download speeds but no return path. Telco, much slower but return path

Challenges especially in last mile.

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convergence of content production is related to service convergence provision of news content across newspapers and, or television and on a website and services such as Internet offered over telecom networks or over DVB networks.

content development across different platforms however is not straight-forward and in order to be competitive requires extensive adaptation to the medium.

convergence of services and content means that there is likely to be greater competition, providing consumers with greater choice on price and quality between services offered across different platforms.

Market convergenceconvergence of content production is related to service convergence

provision of news content across newspapers and, or television and on a website and services such as Internet offered over telecom networks or over DVB networks.

content development across different platforms however is not straight-forward and in order to be competitive requires extensive adaptation to the medium. convergence of services and content means that there is likely to be greater competition, providing consumers with greater choice on price and quality between services offered across different platforms.

a convergence in equipment production is related to

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Market convergence 2convergence of distribution is related to network convergenceConvergence of distribution and transmission between broadcastingand telecommunications is perhaps best evidenced in the cable network.

Although many equipment producers have historically provided services across the different sectors both in production and consumer equipment, there is increasing evidence of convergence of equipment, especially end user terminals, the most advanced of which provide for multipurpose usage from Internet access to video storage

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13 Melody,W (2002) World Telecommunications Markets: International Handbook of Telecommunications Economics, Vol.11114 Ibid. p7

Figure 3 - ICT INFRASTRUCTURE for the E-economy13

Source: Melody, W (2002)

Melody points out that there are no clear correlations between the competitivenessof markets and market growth and identifies a number of other factors necessaryto transform national and international telecom networks into information infra-structures capable of providing the types of enhanced services needed in the network economy.These include:

• An expansion of the bandwidth capacity in national and internationalnetworks to reduce unit networking costs and provide for high capacityservices;

• Expansion of bandwidth for local connections to business and residenceusers to facilitate the increasing demands for high-speed services.

• Internet services development which helps stimulate demand for newnext generation Internet services

• Development of innovative applications of new internet services throughout the economy and society to business, government, education entertainment etc.14

Preparing South Africa for Next Generation Networks, Services and Regulation 27

RegionalDevelopment

Finance/Banking

Disaster Management

Travel & Tourism Manufacturing Media & CulturalSectors

Health/Medical GovernmentServices

Education/Training

ApplicationsContentBroadcast

MediaFilm

LibrariesSoftware

etc

Interactivity(Instant &Delayed)

VoiceData

SoundGraphics

Video

TelecommunicationFacilities Network

(Broadband Superhighway)

Computing / InformationTechnology

TelecommunicationEquipment Manufacturing

Electronic Services(Pay TV, VAS, Internet)

Multimedia, etc.(Public, User group, Private)

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Infostructure required for e-economy

Expansion of the bandwidth capacity in national and international networks to reduce unit networking costs and provide for high capacity services; Expansion of bandwidth for local connections to business and residence users to facilitate the increasing demands for high-speed services. Internet services development which helps stimulate demand for new next generation Internet services Development of innovative applications of new internet services throughout the economy and society to business, government, education entertainment etc. Melody,W (2002) World Telecommunications Markets: International Handbook of Telecommunications Economics, Vol.111 14

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Regulation in age of convergenceConvergence has been a major driver of the merger of traditionally distinct regulatory institutions into single regulatory agencies. In some cases this has involved simply the physical merger of staff into a single ‘one-stop shop for industry’. In other case it is taking longer and involves the complete overhaul of policy and legislative arrangements for a converged environment. From a regulatory perspective, the higher the possibility of substitution of activity, the greater the likelihood that the term industry will be used over sector.

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Horizontal licensingThe regulatory environment includes generic provisions arising from the legislationwhich apply to all activities which fall under the Act. Certain standard licenceconditions apply to both individual and class licences. Certain further conditionswill apply to all individual licensees, and certain licensees will have special conditions and undertakings relating to their licences.

Source: Malaysian Communications and Multimedia Commission 2001

Malaysia has found that many service providers invest in similarinfrastructure to provide commodity type services which result incost inefficiencies which are passed on to customers and make theentire industry less competitive. A more flexible regulatory regimewill lower operating costs, allowing for more competitive tariffs.Less investment in duplicate infrastructure frees capital for customer support, applications and content development anddelivers greater dividends for further investment.

3.4 Convergence or divergence?The process of convergence, within and across sectors, is accompanied by diver-gence. What may initially appear as divergent markets though, such as mobileand Internet that have emerged as distinctive market segments may in time converge. New cost effective, easily deployable wireless technology, with potentialfor mobility, are increasingly being used in traditionally fixed line networks nullifying early regulatory distinctions between fixed and wireless mobile networks. With greater substitutability between mobile and fixed telephonyservices and the increasing potential of mobile networks to offer data and visualimages, and the potential of Internet to offer webcasting services, these servicesshould be viewed as part of the broader convergent market of services offeredseamlessly across complementary network components.

In addition for historical and circumstantial reasons, convergence is uneven,globally, nationally and within national ICT sectors. Currently there appears tobe far more convergence between the traditionally distinct areas of telecommu-nications, IT, broadcasting and other media at the top end of the value chainwhere content production occurs. Convergence at the distribution level is mostevident between broadcasting and telecommunications. On the equipment side

Preparing South Africa for Next Generation Networks, Services and Regulation 25

Less investment in duplicateinfrastructure frees capital forcustomer support, applicationsand content development anddelivers greater dividends forfurther investment.

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Institutional design - multi sector regulation• Rationale for merging traditionally distinct communication sectors has been further

extended to other traditional public utility areas with the concept of multi-sector regulation. This would result in a single agency that regulates multiple sectors of the economy such as telecommunications, energy, water and transportation.

• A number of justifications have been made in favour of the establishment of multi-sector regulators. The first is the existence of commonalities in the object of regulation.

• “rights of way”— Sectors such as telecommunications, energy and transport all require rights of way.

• a common use of regulatory skills as well as economics of regulation. With the liberalisation of various sectors - including telecommunications - and with this a concomitant global increase in regulatory activity, regulatory skills are a scarce commodity.

• A multi-sector agency would have economies of scale in administrative and support services, as well as technical expertise.

• Reduces the risk of “industry capture” and “political capture”. This it is argued is because a regulator with responsibility for numerous sectors will be less likely to fall under the influence of a single line ministry.

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This research is made possible through the support of