modul 05. unbundling and internet interconnection

8/2/2019 Modul 05. Unbundling and Internet Interconnection

1/27

InterkoneksiModul-05

Unbundling &Internet Interconnection


2/27

What is Unbundling?

Maret 2011Interkoneksi

Semester Genap 2010-20112

Unbundling refers to the provision of components on a stand-alonebasis. Therefore, interconnecting carriers can obtain access to single

unbundled component without an obligation to buy other components

as part of an interconnection package

Unbundling is the mandatory offering by network operators of specificelements of their network to other operators, on terms approved by aregulator or sanctioned by a court

Unbundling of network elements allows competing operators to enter the

market and roll out services with considerably less sunk investment in some or

all components of a competing network. For example:

A new entrant might initially install switches in central business districts only, and

lease those components of the incumbent carriers network needed to directly servecustomers in other areas, or

An entrant might lease just those network elements needed to offer competing

retail services (such as DSL services). In this way the entrant can offer competing

services to customers without duplicating all components of the incumbent carriers

infrastructure, and without simply reselling the incumbents service offering


3/27

Why Require Unbundling? Some inputs are available only from certain network operators, and cannot

easily be duplicated. Unless those inputs are available at appropriate prices,

competition in downstream telecommunications markets would be difficult or

impossible

The emergence of competition from alternative technologiessuch as

wireless, cable telephony, and VoIPis eroding this rationale for mandatoryunbundling

Unbundling can be an enormous task for regulators. The administrative costs

of defining, and setting prices for, a range of network elements can be high. In

addition, unbundling can impose high compliance costs on incumbent carriers.

Regulators should carefully consider the merits of unbundling on a case-by-

case basis, with a thorough assessment of the likely costs and benefits

Maret 2011 InterkoneksiSemester Genap 2010-2011

3


4/27

Regulatory Approaches to Unbundling Given the potential disadvantages of a mandatory

unbundling policy, some regulators have adopted modified

approaches to such a policy.

These approaches are intended to achieve someadvantages and avoid some disadvantages of policies that

require unbundling of all network components. Some of

these approaches may be summarized as

Transitional Unbundling Requirements

Selective Unbundling Requirements


4


5/27

Transitional Unbundling Requirements Access to certain types of unbundled components may be required for a

limited period of time. This approach can apply, for example, to access lines

(loops) in urban areas.

Unbundling of access lines might be required for the first five years after a

market opening. Thus, competitors can use the incumbent's access lines to

"jumpstart" competition. However, they will have to construct their own accesslines by year five, in order to maintain network connections with their

customers.

In theory, this approach will encourage the development of competition in the

short term. At the same time it should promote development of complete

facilities-based competition over the mid to longer term.


5


6/27

Selective Unbundling Requirements Some unbundling policies distinguish between network components. They

require unbundling of some and not others.

Unbundled access may be required only for certain types of components. For

example, unbundled access may be required for network components in cases

where construction of duplicate components would cause environmental

damage or public inconvenience. Thus, incumbents might be required toprovide access to towers, poles, conduits, ducts, aerial access lines and inside

wiring, where a proliferation of such facilities would degrade the environment,

disrupt public roads, and/or otherwise inconvenience the public.

The same may be true of access lines or switching facilities in architecturally

or culturally important areas. Such access might be required over the long

term as well as the short term


6


7/27

Some Possible Unbundled NetworkComponent and Service

Network access line (local loop and related functions)

Local switching function

Tandem switching functions

Inter-exchange transmission

Access to STP (Signaling Transfer Point )

Access to call-related databases

Central office codes

Subscriber listing

Operators Services

Directory assistance functions Operating Support Systems


7


8/27

Local Loop Unbundling Local access markets are generally less competitive compared to long distance and

international markets

Wireless services currently provide an alternative means of local narrowband access in

many markets, and broadband competition is starting.

However, wireline services still provide the main means of local access around the world.

There, high entry costs and low margins have discourage competition.

Mandatory unbundling of local loops is increasingly being used as a regulatory tool to

accelerate competition in local access markets

Competition in local access is increasingly seen as an important policy objective. One

reason is the perceived need to provide more competition in high speed access markets

in order to roll out of Internet, e-commerce and video services.

Many regulators and policy makers see such competition as necessary to maintain or

increase the competitiveness of their national economies

Regulators have now mandated unbundled access to local loops in a range of different

economies


8


9/27

Types of Local Loop Unbundling1. Full Unbundling-Local Loop


9

MDFIncumbentLocal Switch

PSTN

To NewEntrantsSwitch

PSTN

Link re-routed from incumbentsswitch to new entrants


10/27

2. Full Unbundling-Two Local Loop


10

MDF

Incumbent

Local SwitchPSTN

New

EntrantsDSL Access

MUX

NewEntrant

XDSLModem

PC or other

CustomerEquipment.

FirstLocal Loop

SecondLocal Loop

Types of Local Loop Unbundling


11/27

3. Shared Use of Copper Local Using Splitter


11

M

DF

Incumbent

Local Switch PSTN

DSLAccessMUX

NewEntrant

ADSLModem

PC or OtherCustomerEquipment.

Local Loop

Data

Tel

Splitter



12/27

4. Provision of High Speed Bit Stream Access


12

MDF

PSTN

DSL AccessMUX OperatedBy Incumbent

High SpeedBit stream

serviceprovided to

One Or moreNew Entrants

Local Loop Splitter

Customer ofIncumbent

DataService

Customer ofNew entrant

Data

Service

Local Loop



13/27

How Much Unbundling

The extent of unbundling has significant effects on the developmentand nature of telecommunications competition.

If there is not enough unbundling, entry by efficient competitors may

be inhibited.

If there is too much unbundling:

Entrants may focus on arbitrage opportunities, by obtaining services atattractive wholesale prices and reselling them to customers, instead of

designing innovative product mixes that give customers greater choice

Entrants may delay investing in infrastructure and focus instead on

expanding re-bundled services as quickly as possible

Incumbents may have fewer incentives to invest in unbundled parts of the

network. This can lead to inadequate capacity, lower quality, and slower

development of new technology (such as high capacity broadband)

Some jurisdictions require incumbent operators to only unbundle

network components that are essential facilities


13


14/27

Essential Facilities Essential facilities are resources or facilities that have the following properties:

They are critical inputs to retail production. Essential facilities are located at the

wholesale level of the production chain, and are essential inputs in the production

or supply of the retail product or service

They are fully owned and controlled by vertically integrated incumbent firms. The

owner of the facility participates in the retail as well as the wholesale stage of the

market

They are a monopoly. Retail competitors can only acquire an essential facility from

the incumbent firm that owns and controls it

It is not feasible, either economically or technologically, for retail competitors to

duplicate the essential facility or develop a substitute for it

At the wholesale level the incumbent supplies other firms with a critical input,

and those firms are dependent on the incumbent for that input. At the retail level, the incumbent competes with those same firms. The owner

of an essential facility may seek to use its position to prevent or impede

competition, by implementing a price squeeze or even refusing to supply the

facility


14


15/27

Essential Facilities at Retail Level


15


16/27

Costs and Benefits of Unbundling

The magnitude of these costs and benefits will vary depending on:

The form of unbundling, and

Whether regulated prices for unbundled network elements reflect economic costs


16

Benefits Costs Increases, and brings forward, entry by

reducing entry costs

Increases competition in the provision

of services supported by the existing

network

Can bring forward the introduction of

new services that rely on the

incumbents network technology (such

as DSL services) and competition in

those services

Potentially high administrative and

compliance costs (costs increase with the

extent of unbundling)

May reduce incentives for incumbents to

invest in new infrastructure. Enables

incumbents to obtain legislative andregulatory relief, by making investment in next

generation networks contingent on such relief

May reduce incentives for entrants to invest in

new infrastructure. Entrants may focus on

reselling the incumbents services, instead of

designing innovative new service offerings


17/27

INTERNET INTERCONNECTION

I


17


18/27

Overview of the Internet The Internet is a world-wide collection of interconnected networks. It is

capable of switching, routing, and transmitting digital packets of information

corresponding to a variety of voice, data, text, audio, and video services.

The Internet allows any computer (or other device) with an Internet connection

to communicate with any other device that is connected to the Internet


18

Internet

Network Surfer Digital Subscriber Link, Cable Modem, orWireless Network

ISP


19/27

Evolution of the InternetPhase 1 Active Government Stewardship (1980s1995)Government administration first through the United States Defense

Department, and later through the United States National Science

Foundation and universities and research institutes around the world


19

Phase 2 Entry Leads to Network Expansion (1995-1998)Privatization of government financed networks and the ascendancy of

former government contractors and other major carriers

Phase 3 Dotcom Boom Stimulates Overinvestment (1998-2001)The dotcom boom, which triggered irrational, excessive investment and

overcapacity

Phase 4 Retrenchment (2001-present)The dotcom bust, followed by market re-entrenchment and resumed

growth


20/27

Hierarchical Structure of the InternetThe Internet today operates as a

hierarchy

Thousands of small, local, regional and small

country ISPs operate at the bottom of an

Internet pyramid. These operators typically

have to pay for access to the networks and

customers operated by larger ISPs.

At the middle of the pyramid are several

dozen Tier-2 ISPs that typically pay to transit

the networks of the largest ISPs. Tier-2 ISPs

seek to interconnect on a "peering"basis with

other, Tier-2 ISPs.

At the top of the pyramid are a handful of

Tier-1 ISPs that typically peer with other

Tier-1 ISPs


20


21/27


21

Internet Exchange Point Internet Exchange Point (IXP): Point that interconnect ISP with each

other and with Internet Backbone Provider and some times call asNetwork Access Points (NAPs)

IXPs provide Switching and Routers that permit interconnection of variousinternet networks

Due to the rapid development of internet provider, IXPs provide also :Collocation services, providing services as well as equipment for internet

routing, transmission, web hosting and other service. Each ISP pays for its own cost of transmission, routing, and other

equipment, or shares the cost on a negotiates basis

Larger ISP orInternet Backbone

Provider

IXP

ISPISP

ISP

ISP

ISP


22/27

Models for Internet InterconnectionInternet Service Providers (ISPs) use different

models for interconnection pricing, depending on

the specific characteristics of the ISPs concerned.

Broadly, ISPs can either: Enter into peering arrangements, or Enter into a transit arrangement


22


23/27

Peering Peering, also known as Sender Keep All or Bill and Keep, is a zero

compensation arrangement by which two ISPs agree to exchange

traffic at no charge.

This kind of arrangement makes sense where the two ISPs have

roughly the same characteristics and traffic volumes, such that net

financial burden from traffic flows between them is likely to be small

The process by which an ISP qualifies for peering remains private. ISPs

negotiate terms and conditions privately. They only rarely publicly

disclose the criteria they use to qualify for peering.


23


24/27

Transit Transit is an arrangement in which larger ISPs sell access to their networks,

their customers, and other ISP networks with which they had negotiated accessagreements.

Under a transit arrangement, the sender pays the full cost of interconnection.

Transit charges are set by commercial negotiation, and are generally not

disclosed.

Internet transit access arrangements provide a much greater geographical

access than telecommunications transit arrangements. In telecommunications,

transit arrangements typically secure an indirect link to one carrier in one

location (primarily because a small carrier is unable to secure a direct link).

Internet transit arrangements typically provide access to a vast array of

networks, not limited to one country.


24

Large ISP IXP Small ISP

Charges

Pays


25/27

Charging Variables Internet interconnection charges are typically based on one or more of

the following variables:

Traffics flow or usage, based on the increasing capacity of internet routers

and other equipment to measure traffic

Imbalance of traffic flows between ISPs

Distance or geographical coverage

Number of point of interconnection; and

Other cost-based interconnection charges

The trend toward cost-based interconnection charges is consistent with

development in other telecommunication services

US is the leader of internet industry, so many ISPs in other countryhave paid US ISPs for transportation to and from the US to their home

country


25


26/27

International Internet Interconnections Noting the rapid growth of internet and internet protocol-based

international services : It is recommended that administrationsinvolved in the provision of international internet connection negotiate

and agree bilateral commercial arrangements applying to direct

international internet connections where each administration will be

compensated for the cost that it incurs in carrying traffic that is

generated by the other administration. (Rec. D.iii adopted by ITU SG 3)

The recommendation has been opposed by the US and Canada. They

argue that the North American bias of Internet routing will decrease

over time, as competition and market development reduce costs andincrease Internet facilities in other regions.

Local Interconnection charges are also important to the viability (able

to exist) of ISPs, Local internet access providers will be principal

beneficiaries of the move to unbundling of local loop


26


27/27

THANK YOU

Maret 2011 InterkoneksiSemester Genap 2010 2011

27

modul 05. unbundling and internet interconnection

Documents