Dennis Weller Chief Economist Verizon WIK

Transcription

1 Neutrality in NGN markets Dennis Weller Chief Economist Verizon WIK 3 December 2007

2 Verizon: Profile Verizon Wireless 63.7 million subscribers Joint venture with Vodafone Verizon Telecom 42.3 million voice lines 8 million broadband customers: 1.3 million FiOS Internet 717,000 FiOS TV Verizon Business Operations in 150 countries Serves es 97% of Fortune 500 World s most connected IP network 2

3 Verizon Wireline Footprint in US 3

4 Verizon Wireless Footprint in US 4

5 Neutrality as a Market Outcome Broadband customers should be able to: Go wherever they wish on the Net Reach any content or service Attach any device Use any software Subject to the usual asterisks: Limits of the service chosen Harm to others Needs of law enforcement Principles proposed by US industry in 2003, adopted by FCC in 2005 This is the outcome we actually observe in the market 5

6 NGN Fiber Deployment Verizon FTTP Architecture e Small Businesses Office Parks Residential Copper Distribution FTTP Overlay Small Businesses FTTP Full Build SAI Splitter Hub Splitter Circuit Switch Copper Feeder OLT Connected Communities 4 2 x 4 POTS Ethernet Enet Video 6

7 FTTP Abundance of Capacity in the End-User Connection Broadcast Video Data / Telephony / VOD FTTP Network Bandwidths & Services Upstream Downstream Voice and 1.2 Gbps 2.4 Gbps 42 MHz Analog TV Broadcast Video 860 MHz Digital TV & HDTV 7

8 Network Platforms: FTTH (BPON) Video Hub Office Super Head End Internet Interactive Services Broadcast Services POTS Verizon Broadband Network SER OLT Data Voice Network Local CO (Video Serving Office) Transport Switching/Routing Power & Battery Video 8

9 Links in the Value Chain 9

10 Links in the Value Chain The Net has never been neutral, or free A interlinked chain of two-sided markets Payment can flow in either direction 10

11 Links in the Value Chain Operating systems Devices Broadband provider ISP Networks Nexus for eyeballs/portal/search Content/applications providers 11

12 Dimensions of the markets Capacity in various networks Integration Content Security and privacy 12

13 Service Control IM SMS Messaging VM Alert VM Retrieval iobi End User Portal Broadsoft Application Server Outlook Conferencing And Collaboration Web Sharing L1 Gateway EPG PSTN/VoIP Call Control Addr book Calendar Content Directories Internet ISCP MSC MGC MSC VM SSP SSP TG 13

14 Management of Network Resources Network capacity shared/constrained at points of concentration Some applications generate a very large proportion of traffic Other applications are sensitive to latency or jitter Traffic management has been used to prioritize sensitive applications Necessary to ensure good experience for customers 14

15 Pricing of Network Resources Strong customer preference for flat pricing Simple, unlimited offers Better uptake and usage Experience in markets for wireline, Internet, wireless Challenge to provide economic incentives without disturbing this model One side of the market or both? Can unaffiliated service providers buy resources to produce desired quality for their offers? 15

16 Peer-to-Peer Effectively substitutes resources: Organizer of the P2P network (server, host) Members of the P2P network Can be a very efficient method of organization If choices reflect effective pricing of the different resources 16

17 Excerpt from Speech by Vice-Minister Mori of Japan 17

18 Cap-Ex of US Companies and OECD Telecoms Capital Expenditures (in $billions) $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 NTT 16.8 Verizon 13.3 GE $13.1 WlM Wal Mart $12.9 Exxon Mobil $12.0 Conoco Phillips $9.5 $11.6 Deutsche Telekom $7.3 $8.8 GM $7.8 $8.2 Ford $9.2 $7.5 AIG $5.8 $8.2 France Telekom $6.4 $7.1 AT&T $5.1 $5.6 $8.3 British Telecom $4.9 $5.7 $5.1 Intel $3.8 $5.8 $5.8 $5.0 $5.2 $5.1 Telefonica $3.5 $4.4 $6.9 Vodafone $4.5 $5.0 $5.2 IBM $4.4 $3.8 $4.4 Comcast $3.7 $3.6 $4.4 Home Depot $3.9 $3.9 $3.5 Citigroup $3.0 $3.7 $4.0 Korea Telecom $2.6 $3.0 $2.3 Johnson & Johnson $2.2 $2.6 $2.7 Procter & Gamble $2.0 $2.2 $2.7 Pfizer $2.6 $2.1 $2.1 Hewlett-Packard $2.1 $2.0 $2.5 Time Warner (cable) $1.7 $2.0 $2.8 Walt Disney $1.4 $1.8 $1.3 Boeing $1.5 $1.7 DuPont $1.2$1.3$1.5 Microsoft $1.6 Google $1.9 3m United Cablevision $7.1 $ $14.4 $14.6 $13.8 $9.5 $7.9 $ $15.6 Year Ending Sept./Dec. $ $16.7 $15.7 $15.5 Telecom Italia Source: Yahoo Finance data Page 18 18

19 STM-1 IP Transit Prices in London 19

20 What Has Actually Happened? Neutrality principles have been observed Competition has been sufficient to ensure good outcomes all along the value chain Wholesale market for quality has not yet developed Some applications less sensitive Increased bandwidth Cheap, abundant memory large buffers 20

21 A New Direction for the US Mobile Market On November 28, Verizon announced a new open network model All handsets that meet Verizon s technical standards will be accepted on its network Customers can choose the model they yprefer A managed service, with subsidized handsets Third-party handsets, applications Paves the way for a varied 4G marketplace 21

22 Policy Toward Neutrality Ex-ante regulation holds great risks What definition of neutrality should be imposed? Presumption about market structure Preemption of market development Ex-post remedies if needed Focus on actual outcomes for consumers, not on arbitrary market structure 22

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