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ACCC 2004 Regulation Conference 29-30 July, 2004 Competition in a IP World Martin Cave Warwick Business School [email protected] 1 mec1128 mec1128 1 The question: What is the scope for competition in a post-PSTN/first generation broadband world? The (UK) starting point: Dominant PSTN operator extending dominance into burgeoning broadband markets (subject to cable modem competition); little or no access competition; limited unbundling; rival networks principally serving business data needs. 2 mec1128 mec1128 2 Issues in voice What is the degree of fixed (mobile subscription)? Fixed and mobile found to be in different markets in Europe Transition to VoIP technologies in both will affect this. How does VoIP operate? 3 mec1128 mec1128 3 PSTN – traditional circuit-switched voice Customer Premises Equipment (CPE) Transit Access Core Transit Access Narrowband Digital Local Exchange Customer Premises Equipment (CPE) Narrowband DMSU Digital Main Switching Unit DLE Circuit 4 mec1128 mec1128 4 PC-to-PC VoIP CPE Core Transit Access Transit Access CPE DSLAM ISP DSL or cable modem ISP Broadband Internet Narrowband Modem DLE Narrowband Router Packets 5 mec1128 mec1128 5 Phone-to-phone VoIP CPE Access Transit Core Transit Access CPE VSP DSL or Cable Modem Broadband Internet Broadband VSP ATA Router PSTN Gateway Circuit 6 Packets mec1128 mec1128 VoIP user Narrowband PSTN user 6 VoIP in the PSTN CPE Transit Access Core Transit Access Narrowband Narrowband DLE Digital Local Exchange Incumbent-owned private IP network Circuit 7 CPE Packets mec1128 mec1128 7 VoIP in the corporate network Voice Office LAN Data Voice over LAN Desks Circuit 8 Packets mec1128 mec1128 8 Implications for competitive process Existing operators can migrate their customers to VoIP at will; they may not notice. Winning new customers to be achieved by selling broadband access and offering VoIP as an additional service 9 mec1128 mec1128 9 Importance of promoting ADSL competition Sought via ‘ladder theory of investment’ First make intermediate wholesale broadband access – bitstream - available Then increase price of / withdraw WBA and lower price of (high frequency) unbundled loops Apply severe margin squeeze tests ex ante to prevent deterrent to further investment 10 mec1128 mec1128 10 The cost structure of PSTN and of IP There is evidence that Minimum efficient scale of IP network much smaller percentage of market than mes of PSTN as percentage of (declining) fixed voice market This creates scope for competition – in core networks 11 mec1128 mec1128 11 However, the scope for competition is backhaul is limited, especially is less densely populated geographies this creates an argument for geographically differentiated markets – again directed at encouraging investment 12 mec1128 mec1128 12 Access Competition No apparent silver bullet providing country-wide competition to incumbent’s copper wire Instead likely to be a patchwork quilt of (primarily) wireless technologies, UMTS, WiMax etc. 13 mec1128 mec1128 13
