ACCC 2004 Regulation Conference 29-30 July, 2004 Competition in a - PowerPoint PPT Presentation

ACCC 2004 Regulation Conference 29-30 July, 2004 Competition in a IP World Martin Cave Warwick Business School martin.cave@wbs.ac.uk mec1128 mec1128 1 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. mec1128 mec1128 2 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? mec1128 mec1128 3 3

PSTN – traditional circuit-switched voice Customer Customer Customer Customer Premises Premises Premises Premises Core Core Equipment Equipment Equipment Equipment Transit Transit Transit Transit Access Access Access Access (CPE) (CPE) (CPE) (CPE) Narrowband Narrowband DMSU DMSU Digital Main Digital Main DLE Digital DLE Digital Switching Switching Local Local Unit Unit Exchange Exchange Circuit mec1128 mec1128 4 4

PC-to-PC VoIP Core Core Transit Transit Transit Transit Access Access Access Access CPE CPE CPE CPE DSLAM DSLAM ISP ISP ISP ISP Broadband DSL or DSL or cable cable modem modem Internet Narrowband Narrowband Router Router DLE DLE Modem Modem Packets mec1128 mec1128 5 5

Phone-to-phone VoIP Core Core Transit Transit Transit Transit Access Access Access Access CPE CPE CPE CPE VSP VSP DSL or DSL or Broadband Cable Cable Modem Modem Internet Broadband VSP VSP VoIP ATA ATA Router user Router PSTN PSTN Narrowband Gateway Gateway PSTN user Circuit Packets mec1128 mec1128 6 6

VoIP in the PSTN Core Core Transit Transit Transit Transit Access Access Access Access CPE CPE CPE CPE Narrowband Narrowband DLE Digital DLE Digital Local Local Incumbent-owned Incumbent-owned Exchange Exchange private IP network private IP network Circuit Packets mec1128 mec1128 7 7

VoIP in the corporate network Voice over LAN Voice Data Office LAN Desks Circuit Packets mec1128 mec1128 8 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 mec1128 mec1128 9 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 mec1128 mec1128 10 1 0

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 mec1128 mec1128 11 1 1

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 mec1128 mec1128 12 1 2

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. mec1128 mec1128 13 1 3