multi-layered convergence process in the ict sector: trends and challenges jaroslaw k. ponder...

Multi-layered Convergence Multi-layered Convergence Process in the ICT Sector: Process in the ICT Sector: Trends and ChallengesTrends and Challenges

Jaroslaw K. PonderJaroslaw K. PonderStrategy and Policy Unit

International Telecommunication Union

SPU BriefingSPU Briefingorganized for the IMF Universityorganized for the IMF University

(http://www.itu.int/osg/spu/presentations)Note: The views expressed in this presentation are those of the author and do not necessarily

reflect the opinions of the ITU. Jaroslaw K. Ponder can be contacted at [email protected]

29 May 2006, ITU Headquarters, Geneva, Switzerland

29 May 2006 [email protected] 2

AgendaAgenda

• Trends in communication sector• IP-Enabled NGNs • Multi-layered convergence

process• N-play economics • New Challenges

Telco operators Policy makers Customers


Trends: ICT SectorTrends: ICT Sector

• Progressing regulatory reform: Pro-competitive policy / Universal

service/access… • Expansion of the Internet • High innovation dynamics• Falling prices of the ICTs:

Hardware / Software / Services • New requirements:

Bandwidth Generalized mobility Convergent solutions Open character


Trends: Communication SectorTrends: Communication Sector

• Fixed telecommunications Regulatory reform Liberalization Privatization Pro-competitive policy Emerging competition Infrastructure development Modernization: Automatization

digitalization co-existence with IP networks transition to IP-based NGNs Next Generation Access Networks



Evolution in Pricing Strategy

133143

166

0

20

40

60

80

100

120

140

160

180

2004 2005 2006

Num

ber

of c

ount

ries

Data TimeBoth Flat-rate

75%68%

81%

Number of countries with broadband commercially available

81

113

133145

166

0

20

40

60

80

100

120

140

160

180

2002 2003 2004 2005 2006

T

Median price and speed, 2004-6

0

200

400

600

800

1'000

1'200

1'400

1'600

1'800

2004 2005 2006

Sp

ee

d (

kb

ps

)

0

2

4

6

8

10

12

14

16

Pri

ce

(U

SD

pe

r 1

00

kb

ps

)

Median speed

Median Price inUSD/100 kbps

Growth in max. broadband speeds

0

5

10

15

20

25

30

35

40

Speed (kbps)

2003 2005 2006

2005

2003

2006



Table 1: Broadband prices for the cheapest fifteen economies.

Speed Price per US$ per Change Economy Company kbit/s month US$ 100 kbit/s 2005-06

Japan Yahoo BB 51'200 14.2 0.07 -12.5%Korea (Rep.) Hanaro 51'200 40.59 0.08 --Netherlands Internet Access Ned. 20'480 27.97 0.14 -81.3%Taiwan, China Chunghwa 12'288 22.67 0.18 --Sweden Bredbandsbolaget 24'576 56.08 0.23 -6.5%Singapore StarHub 30'720 73.17 0.24 -85.0%Italy Libero 12'288 37.23 0.30 -73.8%Finland Elisa 24'576 85.64 0.36 -51.4%France Free 10'240 37.29 0.36 -90.1%United States Comcast 4'096 20.00 0.49 --Germany Freenet.de 6'016 30.95 0.52 --United Kingdom Pipex 8'128 50.89 0.63 -53.6%Hong Kong, China Netvigator 6'144 51.17 0.83 -0.1%Portugal Sapo 8'128 75.82 0.93 -0.8%Canada Bell 4'096 41.26 1.01 -3.93%Average 18'278 44.33 0.43 -45.5%Best practice (top 20%) 40'960 27.59 0.10 -46.9%

Broadband prices for the cheapest fifteen economies


International voice traffic International voice traffic (in billions of minutes)(in billions of minutes)

Source: ITU.

15.5%13.1%

11.8%

7.4%

4.8%1.6%0.2%0

25

50

75

100

125

150

175

200

1998 1999 2000 2001 2002 2003 2004

VoIP

PSTN

As % of total

Source: ITU



• Fixed telecom operators… Restructurization

Employment…Reduction of OPEXOutsourcing

Stabilization of financial position Repayment of the debts New search for new solutions Horizontal integration Consolidation


Trends: Communication Sector Trends: Communication Sector

• Mobile telecommunications From analog, through digital to IP New worldwide standards for 2G, 3G, 4G Rapid popularization: 2006 more than 2

billion users worldwide Substitute or complement: Changes in

course of the time • Fixed-mobile telecommunications

Efficient way to bridge digital divide • Wireless technologies

WiFi, WiMAX…



InterconnectionNomadic/Local Area Access Systems

Digital Broadcast System



• Information Technologies High R&D expenditures in IT sector High innovation dynamics

Moore's law: Computing power doubles roughly every 18 months

New compression techniques Progressing miniaturization Falling prices for hardware equipment

Enabling technologies RFID, sensors, smart technologies

nanotechnologies



• Impact of the Internet Internet Protocol Open, borderless and service provider

friendly environment Pro-competitive policy towards ISPs Favorable public policy orientation New forms of communication

New demand requirements: VoIP, VoB, IPTV New network access requirements

From dial-up, through xDSL, to FTTx Mobility: Ubiquitous Network Societies,

the Internet of Things



The InternetThe InternetFixedFixed

Telecom. Telecom.

BroadcastersBroadcasters

Cable TVCable TV

OthersOthers

Information Information TechnologiesTechnologies

WirelessWirelessTechnologiesTechnologies

MobileMobileTelecom.Telecom.

ConvergenceConvergence


Tele-Communication Sector in Tele-Communication Sector in Transition Transition

• Migration to the IP-environment Fixed telecommunications

Incumbents: British Telecom, DT AG, KPN Newcomers: Dialog, Metropolitan Networks

Wireless communications Mobile telecommunications: from 2G to 4G WiFi, MiMax

Cable TV Broadcasting Service and content providers

• Strengthened process of convergence Technology Market Services Institutional

FMC?Regulatory Implications

Mul

ti-fa

cilit

y co

mpe

titio

n

Servicecompet.


NGNs as a global issue NGNs as a global issue Technical aspects Technical aspects

ITU-T SG 13: Rec. Y.2001ITU-T SG 13: Rec. Y.2001A NGN is a packet-based networkpacket-based network able to provide telecommunication services and able to make use of multiple broadbandmultiple broadband, QoS-QoS-enabledenabled transport technologies and in which service-relatedservice-related functionsfunctions are independentindependent from underlying transport-related technologiestransport-related technologies. It enables unfettered accessunfettered access for users to networks and to competing service providers and/or services of their choice. It supports generalized mobilitygeneralized mobility which will allow consistent and ubiquitous provision of services to users.

ChallengesChallenges Multimedia Generalized mobility Convergence Integrity Multi-layer orientation Open character

FG NGN

SG: 11, 13, 19, 2, 12, 16, 17

AsiaAmerica

Europe

ITUNGN

Africa


IP-enabled NGNsIP-enabled NGNsA global issueA global issue

Regulatory considerations • Three background papers

Rulling new and emerging marekts Interconnection in an IP-enabled NGN

Environment Universal Service in an IP-enabled NGN

Environment

• Regulatory proceedings National, Regional, International level

http://www.itu.int/osg/spu/ngn/http://www.itu.int/osg/spu/ngn/

AsiaAmericas

Europe

ITUNGN

Africa

Study Group 1

• Tariff policies, tariff models and methods of determining the costs of services on national telecommunication networks, including next-generation networks

• Regulatory impact of next generation networks on interconnection


Multi-layered convergenceMulti-layered convergence

• Customer Convenience From generalized to personalized

communication manners• Device convergence:

Universality • Networks convergence

Interconnection and interoperability • Service convergence

New sell and price strategies • Sector and market convergence • Converged institutional bases


New Challenges New Challenges Telco OperatorsTelco Operators

• Convergence Service convergence

N-play services / N-play economicsExtends demand for broadband access

Market structure Strategic alliances (Content, Media, etc.)Mergers and acquisitions Consolidation

New business modelsFalling costs of traditional communicationMerger of customer baseLower margins / New value-added services… Costly investment programmes


N-play economicsN-play economics……

• NGNs facilitate product differentiation and bundling strategies

• To be considered by service providers first, find out which products are proper to be bundled

and therefore answer the question if the bundled goods should be complementary, substitutive or neutral;

second, set the price for the new package taking into consideration the reservation prices for each product separately and package

third, decide if the introduction of bundle excludes the possibility of obtaining the bundled products separately i.e. pure versus mixed bundling strategy.


N-play economicsN-play economics……Demand side related conditions Demand side related conditions

•Products Complementarity Bundling complementary goods - Reservation prices for such package become much more higher then for the separated products. In this way the willingness to pay increases and the company is able to benefit from this behavior (e.g. mobile telephone together with provision of mobile telecommunications services).Reservation prices for the bundle products are negatively correlated - Putting together fixed access with mobile telephone contracts for young people - demonstrating the highest inclination to substitute this two communication technologies - is good exampleThe more products are combined into the package, the smaller is the probability, that the individual estimations of the value of the bundle will differ from the from the mean value. Through such reduction of the heterogeneity of customers the enterprise is able to sell more as in case of separated offerings.


N-play economicsN-play economics……Supply Supply side related conditions side related conditions

• Exclusion of rivals The bundling strategy can be competition diminishing. In case

the monopolistic company bundles the monopoly product with the product that is sold in the competitive markets the transfer of the market power from one market to the other occurs.

• Cross-Selling The putting different products into one packet allows the

companies to sell under the new label also the products which did not found the interest of the customers. In this way the enterprises using out the existing differences in reference prices for the products A and B. Putting together product A and B and selling them in packages it becomes possible to transfer the possessing surplus from product B to A.

• Product differentiation Through applying of price bungling the enterprise differentiate

its products in comparison to the rivals on the same market. The price can be maintained in a higher level than in case of the single products what can cause that the competitor will behave less aggressively.


N-play economicsN-play economics……Supply Supply side related conditions side related conditions

• Market barriers Implementation of the bundling strategy can become one of

the effective measures in creation of the market entrance barriers. From the perspective of competitors it can be quite complicated in financial, market power as well as first mover advantage terms to enter the market and to be able to compete with the similar offer. Especially in case of the strong asymmetric market structure, high vertical and horizontal integration as well as with significant market power the market (see ex-monopolistic telcom operators) the entrance of the newcomers can be out of the question.

• Market Structure From the strategic point of view tendency to use price

bundling encourages the process of horizontal and vertical integration. It stimulates the market players to narrow cooperation or merging. Because of bundling the increase of mergers and acquisitions on the market is more often to expect. From the perspective of the sector of information and communication technologies the bundling strategy will encourage the process of convergence.


N-play economics… N-play economics…

• NGNs leads to n-play services There is only one step from n-play to use of

the bundling strategies

• Bundling reduces the costs increases demand locks in customers improves product performance differentiates the product offerings

• What with regulation...


New Challenges New Challenges Regulators and Policy Makers Regulators and Policy Makers

• Pro-competitive policy in new converged ICT environment

• New and emerging markets Static versus dynamic efficiencies Relevant markets / SMPs Bundled offerings

• Interconnection arrangements• Universal Service/Access • Customer protection


New Challenges New Challenges CustomersCustomers

• Innovation absorption capacity• Customer care / Transparency• Consumer emergency calls

(E112/E911)• Unsolicited messaging: SPAM, SPIM • Quality of services• Authenticated caller or sender

identification• Disability assistance• Data protection and privacy issues • Cybersecurity issues


Thank you very much Thank you very much for your attention!for your attention!

Jaroslaw K. Ponder International Telecommunication UnionStrategy and Policy Unit E-mail: [email protected] http://www.itu.int/spu Tel: 00 41 22 730 60 65

We all build the global knowledge-We all build the global knowledge-based information society!based information society!


Resources Resources

• Up-dated version of this presentation and others focusing on convergence: www.itu.int/osg/spu/presentations/

• NGN regulatory and policy resources:http://www.itu.int/osg/spu/ngn/ngn-policy-regulatory-resources.html

• ITU activities on NGN:www.itu.int/spu/ngn

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