Implementation of Bill and Keep and Transitioning to it

Transcription

1 Implementation of Bill and Keep and Transitioning to it Ingo Vogelsang, Boston University WIK Conference on Bill and Keep: A New Model for Intercarrier Compensation Arrangements? 1 Königswinter, April 5, 2006

2 B&K: Yes, but how? B&K is elegant and simple. It has nice efficiency properties. Yet, it may be hard to implement: The FCC has been sitting on a proceeding for B&K for five years already. Why is it hard? Rent transfers: Asymmetric traffic and asymmetric networks Uncertainty of large institutional change Opportunity and Challenge: VoIP has been creating a mess through arbitrage caused by inconsistent interconnection regimes. IP networks are often interconnected on B&K basis (between core network and clients). Will this differ for NGN? Standardization problem: Regulation or voluntary transition? 2

3 B&K as an Interconnection Regime Characterization No payment of origination and termination charges to other networks Does not mean Interconnection at zero price Barter between participating networks, but not necessarily balanced traffic Requires agreement on topology of PoI Emphasis on network planning of participating networks depth of networks quality aspects (protocols etc.) Advantages No inevitable termination monopoly No transactions costs for wholesale pricing and billing, no need for price regulation No tariff arbitration Internalization of (positive) call externalities Very flexible end-user pricing, no price squeezes Drawbacks Topology of PoI and required network depth could increase market concentration. Potentially inefficient investments in parallel networks Tradeoff between hot potato problem and too many PoI 3

4 Overview Implementation Issues PoI and Network Properties B&K: CPP vs. RPP Service and Quality Differentiation (VoIP) Transitioning to B&K Dual Regimes Sliding Path Conclusions 4

5 Should B&K hold PoI and Network Properties only for local exchange carriers or also for pre-selection carriers? What about call-by-call carriers? only for termination or also for origination? Where should the relevant PoI be located? In Deutsche Telekom s network, there are about 8,000 concentrators, 1,622 central offices and 474 local PoI with call-by-call and pre-selection carriers. There are substantially fewer (about 70) interconnection points with IP-networks. The same will hold for NGN. Thus, B&K could start on the user side of 474 or fewer PoI. Inefficient network duplication Hot potato problem QoS problem 5

6 Overview Implementation Issues PoI and Network Properties B&K: CPP vs. RPP Service and Quality Differentiation (VoIP) Transitioning to B&K Dual Regimes Sliding Path Conclusions 6

7 B&K: CPP vs. RPP CPNP CPP and B&K RPP? More specifically: Does B&K imply a move from CPP to RPP? There exist no clear cut causalities between interconnection regimes and payment systems for end-users. Small differences in market situations can have large effects on outcomes and The same market situations can yield a large range of outcomes ( Folk Theorem ). Nevertheless, the long-run limits to market outcomes are determined by the firms costs and the consumers willingness to pay. Special issues of interconnection 2-sided utilities: Caller demand and receiver demand Correlation between outgoing and incoming calls: Number and composition of users drive traffic and size of access networks. 7

8 B&K: CPP vs. RPP Compatibility between interconnection regimes and enduser payment systems Interconnection regimes End-user payment systems EBC (element based charging CBC (capacity based charging) B&K Who pays? CPP () RPP (caller pays for origination) - - For which quantities? Minutes Bits () Call attempts () Flat Rates (-) 8

9 B&K: CPP vs. RPP Introduction of B&K does not require switch from CPP to RPP if traffic is sufficiently balanced incoming and outgoing calls are highly correlated Likely move to higher monthly charges and lower call charges (buckets and flat rates) Nevertheless, at least some competitors will want to move to RPP, because B&K increases pricing flexibility. Regulators resist RPP, because they fear that consumer have an aversion to it. This is not an issue if regulators allow but not prescribe RPP. In that case competitors will only be successful with RPP if consumers accept that payment system. Having parallel systems can be cumbersome, though. 9

10 Overview Implementation Issues PoI and Network Properties B&K: CPP vs. RPP Service and Quality Differentiation (VoIP) Transitioning to B&K Dual Regimes Sliding Path Conclusions 10

11 Service and Quality Differentiation (VoIP) 11 Two types of quality are relevant for interconnection: Type 1: QoS A B = min{qos Network A, QoS Network B} Examples: Security, privacy, emergency calling Interconnection can only reduce this QoS. No free riding, because Network A cannot benefit from higher QoS of Network B Could enhance market power Type 2: QoS A B = Ø{QoS Network A, QoS Network B} or QoS A B = max{qos Network A, QoS Network B} Examples: Latency, clarity and error rates Interconnection can increase this QoS. Free riding an issue

12 Service and Quality Differentiation (VoIP) QoS is possible under B&K, but there may be free rider problems 12 Type 1 QoS is achieved by standardization agreements and by the type of interconnection. Type 2 QoS is hard to guarantee and monitor. This could suggest a restriction of B&K to access networks (like COBAK), while leaving transit networks to the market. Competition between transit networks should be sufficient to guarantee QoS. If a network wants to guarantee type 1 and type 2 QoS to its customers it would have to provide its own origination and transit (possibly via a transit agreement), and the terminating carrier has to provide type 1 QoS. If the terminating carrier cannot do this the guarantee breaks down (VoIP call). This is not just a problem of B&K!

13 Overview Implementation Issues PoI and Network Properties B&K: CPP vs. RPP Service and Quality Differentiation (VoIP) Transitioning to B&K Dual Regimes Sliding Path Conclusions 13

14 Dual Interconnection Regimes Three Types of Dual Regimes: 1. Different regimes for different services on the same network level in the same type of network Example: EBC for voice and B&K for data services 2. Different regimes on the same network level in different networks Example: The current VoIP Dilemma with EBC in the traditional network and B&K for broadband access (origination and termination) 3. Different regimes on different network levels (Two-level regime) B&K between Meet Point and user, EBC for transit between two Meet Points Can facilitate introduction of B&K and prevent duplicative investments. 14

15 Dual Interconnection Regimes: Type 1 Dual regime B&K for low-quality VoIP and EBC for highquality POTS in IP-based networks Major adjustments for EBC in IP-based networks Adverse Selection und Moral Hazard Problems: Arbitrage and freeriding opportunities Avoidance of arbitrage through separate tunnels at high costs } Dual Regimes on the same network level appropriate only if arbitrage can be prevented 15

16 Dual Interconnection Regimes: Type 2 Dual regime of EBC in PSTN and B&K in NGN during transition No major adjustments for IP-based networks on the way to NGN Large compatibility and arbitrage problems between PSTN and IP-based networks on the way there Gradual replacement of old regime through decreasing demand and vanishing SMP Incompatibilities and Arbitrage Starting point PSTN: EBC Starting point IP networks: B&K Gradual replacement of PSTN by NGN with B&K in NGN replacing EBC Change to RPP for all telephony (?) 16

17 Dual Interconnection Regimes: Type 3 Dual two-level regime of EBC und B&K (Type 3 regime) B&K for access networks EBC for transit (core) networks Enables phasing out of regulation Implementing dual two-level regime In NGN only Already in PSTN Incompatibilities and Arbitrage Starting point PSTN: EBC Starting point IP: B&K Replacement of PSTN by NGN, creation of two-level regime for NGN 17

18 Overview Implementation Issues PoI and Network Properties B&K: CPP vs. RPP Service and Quality Differentiation (VoIP) Transitioning to B&K Dual Regimes Sliding Path Conclusions 18

19 Sliding Path Implementing B&K in PSTN before completion of NGN Potentially disruptive change Transactions costs of regime change in PSTN may be high if NGN comes quickly. Sliding path as alternative ( holistic approach by Ofcom) Incompatibilities and Arbitrage Starting Point PSTN: EBC Starting Point IP: B&K Incompatibilities less likely Intermediate Step: Switch from EBC to B&K in PSTN access network Replacement of PSTN by NGN, B&K im NGN 19

20 Sliding Path Linear combination of EBC and B&K EBC with interconnection charges that move towards B&K over time Gains properties of B&K over time at the expense of additional transactions costs No need to adjust network structures and PoI in PSTN In Germany question of compatibility with legal standards (efficient LRAIC) Justification with Sunk costs of PSTN with no replacement planned Replacement of PSTN by NGN Holistic approach by Ofcom Based on EBC only 20

21 Overview Introduction B&K: CPP vs. RPP Service and Quality Differentiation (VoIP) Transitioning to B&K Dual Regimes Sliding Path Conclusions 21

22 Conclusions Which is going to be the best interconnection regime for NGNs? In the absence of costs of regime change, B&K dominates EBC and CBC What steps are necessary for implementing B&K? Agreement on topology of PoI and on scope of B&K Agreement on QoS differentiation No agreement on end-user pricing necessary Are intermediate steps needed for the PSTN? How can the costs of a regime change from EBC to B&K in the PSTN be lowered? 22