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Multi-layered Convergence Process in the ICT Sector: Trends and Challenges Jaroslaw K. Ponder Strategy and Policy Unit International Telecommunication Union SPU Briefing organized for the IMF University 29 May 2006, ITU Headquarters, Geneva, Switzerland (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] Agenda • • • • • Trends in communication sector IP-Enabled NGNs Multi-layered convergence process N-play economics New Challenges Telco operators Policy makers Customers 29 May 2006 [email protected] 2 Trends: 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 29 May 2006 [email protected] 3 Trends: 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 29 May [email protected] 2006 Next Generation Access Networks 4 Trends: Communication Sector Number of countries with broadband commercially available 160 Number of countries 133 113 120 Data Both 180 145 140 100 Evolution in Pricing Strategy 166 81 80 60 40 20 160 Time Flat-rate 133 140 166 143 120 100 68% 80 81% 75% 60 40 20 0 0 2002 2003 2004 2005 2006 2004 2005 2006 T Speed (kbps) Median price and speed, 2004-6 1'800 16 1'600 14 1'400 12 1'200 10 1'000 8 800 6 600 400 200 29 May 2006 0 [email protected] 2004 2005 Median speed 4 Median Price in USD/100 kbps 2 2006 0 Price (USD per 100 kbps) 180 5 Trends: Communication Sector Table 1: Broadbandprices prices for for the cheapest fifteen economies. Broadband 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 40'960 27.59 0.10 -46.9% 29 practice May 2006(top 20%) [email protected] 6 International voice traffic (in billions of minutes) 200 175 VoIP 150 PSTN As % of total 125 100 13.1% 15.5% 75 11.8% 50 7.4% 25 0 Source: ITU. 0.2% 1998 29 May 2006 1.6% 1999 4.8% 2000 2001 2002 [email protected] 2003 2004 Source: ITU7 Trends: Communication Sector • Fixed telecom operators… Restructurization Employment… Reduction of OPEX Outsourcing Stabilization of financial position Repayment of the debts New search for new solutions Horizontal integration Consolidation 29 May 2006 [email protected] 8 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… 29 May 2006 [email protected] 9 Trends: Communication Sector Interconnection 29 May 2006 Nomadic/Local Area Access Systems [email protected] Digital Broadcast System 10 Trends: Communication Sector • 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 29 May 2006 [email protected] 11 Trends: Communication Sector • 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, 29 May 2006Internet of Things [email protected] 12 the Trends: Communication Sector The Internet Mobile Telecom. Wireless Technologies Fixed Telecom. Convergence Information Technologies Broadcasters Cable TV Others 29 May 2006 [email protected] 13 Tele-Communication Sector in Transition • Migration to the IP-environment Fixed telecommunications Incumbents: British Telecom, DT AG, KPN Newcomers: Dialog, Metropolitan Networks Multi-facility competition Wireless communications Mobile telecommunications: from 2G to 4G WiFi, MiMax Cable TV Broadcasting Service and content providers Service compet. • Strengthened process of convergence Technology Market Services 29 May Institutional 2006 Regulatory Implications [email protected] FMC? 14 NGNs as a global issue Technical aspects ITU-T SG 13: Rec. Y.2001 Europe Africa ITU NGN America Asia Challenges Multimedia Generalized mobility Convergence Integrity Multi-layer orientation Open character 29 May 2006 A NGN is a packet-based network able to provide telecommunication services and able to make use of multiple broadband, QoS-enabled transport technologies and in which service-related functions are independent from underlying transport-related technologies. It enables unfettered access for users to networks and to competing service providers and/or services of their choice. It supports generalized mobility which will allow consistent and ubiquitous provision of services to users. FG NGN [email protected] SG: 11, 13, 19, 2, 12, 16, 17 15 IP-enabled NGNs A 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 Europe Africa ITU NGN • Regulatory proceedings National, Regional, International level Americas Study Group 1 Asia • Tariff policies, tariff models and methods of determining the costs of services on national telecommunication networks, including nextgeneration networks • Regulatory impact of next generation networks on interconnection http://www.itu.int/osg/spu/ngn/ [email protected] 16 29 May 2006 Multi-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 29 May 2006 [email protected] bases 17 New Challenges Telco Operators • Convergence Service convergence N-play services / N-play economics Extends demand for broadband access Market structure Strategic alliances (Content, Media, etc.) Mergers and acquisitions Consolidation New business models Falling costs of traditional communication Merger of customer base Lower margins / New value-added services… 29 May 2006 [email protected] 18 Costly investment programmes N-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. 29 May 2006 [email protected] 19 N-play economics… 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 example The 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. 29 May 2006 [email protected] 20 N-play economics… Supply 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 29 May 2006 [email protected] 21 competitor will behave less aggressively. N-play economics… Supply 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. 29 May 2006 [email protected] 22 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... 29 May 2006 [email protected] 23 New Challenges 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 29 May 2006 [email protected] 24 New Challenges Customers • 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 29 May 2006 [email protected] 25 • Cybersecurity issues Thank you very much for your attention! Jaroslaw K. Ponder International Telecommunication Union Strategy and Policy Unit E-mail: [email protected] http://www.itu.int/spu Tel: 00 41 22 730 60 65 We all build the global knowledgebased information society! 29 May 2006 [email protected] 26 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 29 May 2006 [email protected] 27