The valuable comments and suggestions from various stakeholders are solicited by TRAI to arrive at the recommendations regarding the appropriate policy and regulatory steps towards NGN migration in the country. Your comments may be sent through e-mail at trai09@bol.net.in or through fax at 011-26191998 by 3rd February 2006. The paper has also been launched on TRAI’s website (www.trai.gov.in). For any clarification, the stakeholders may contact Mr. S. N. Gupta, Advisor (Converged Networks), TRAI at Tele: 011-26167914.
Thank-you for the opportunity to comment on this important matter.
Getting telecommunication regulations “right” in the 21st century is a critically important issue for developing countries, and is a specific interest of this author. I am delighted to be able to contribute to the dialog on this matter with regards to India.
By way of introduction let me say that I currently supply VOIP services to customers in Bangladesh, Brazil, Brunei Darussalam, Colombia, Côte d'Ivoire, Guinea, India, Israel, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, South Africa, Turkey, Uganda, Ukraine and the United Arab Emirates; and I have personally been involved in the development of telecommunications engineering (both Internet and mobile sectors) and regulatory matters in Micronesia and Nigeria (and the United States); therefore I speak with some degree of experience and authority.
One of the first observations I have on the subject document is that it approaches the whole matter from a perspective that assumes Regulatory Authority can, should, and will play a critical role in the evolution of telecommunications, and that due to dramatic changes in technology, the task of Regulatory Authority must be changed to respond to these new realities. The need for, and/or proper role of Regulatory Authority itself is never called into question within the framework of issues discussed.
The document holds a perspective common to many in our industry; the view that there is a changing market and technical landscape, undergoing an important transition, which necessitates some “response” on the part of Regulatory Authority. In this case the term used is “Next Generation Network” (NGN) but there are many other technologies mentioned, such as VOIP, IP networking, etc.; all which are introducing some type of “change” that theoretically motivates new or modified approaches to regulatory apparatus. It is my view that such technological change has been continuous for many years, and that there has been no sudden turn of events that justifies “new regulatory initiatives” in as much as there has been a steadily accruing portfolio of evidence that Regulatory Authority has created, and then protected, a series of barriers to market dynamism which have yielded a negative social cost, one that was recognized by developed countries some years ago. Unfortunately the task of regulatory restructuring has been carried out badly almost everywhere it has been tried. I would caution India and any other “developing” country to view regulatory models found in places like the United Kingdom and the United States with great skepticism. These can be fine models for what not to do, but they do not necessarily provide useful guidance. I believe that in many cases Regulatory Authority has “meant well” but efforts to ascribe to technological change the pain and inefficiency that exists in the marketplace today should be rejected. It is important for society as a whole to understand that it is the regulatory apparatus itself which must be held accountable for the dismal status quo.
In the following pages my goal is to thoughtfully challenge some of the “facts” and assumptions in this document. I start by extracting the substance of the document (often in my words, sometimes in quotes) and I have then commented on aspects of both the argument being made and the larger set of issues so raised. In a second section the document asks a series of specific questions, most of which I have attempted to “answer” thoughtfully from my perspective.
I hope this information is useful. The format is as follows:
Text which paraphrases, and sometimes quotes, material from the document looks like this.
My responses look like this.
Part I
The “next generation” of “networks” (so-called NGNs) will be IP based and application neutral. NGNs are good for operators because they are cheaper and better. NGN deployment in India is “in its infancy” and rollouts will depend on “plans of the major operators.”
NGN technologies (such as IP networking and VOIP to name but two) have for some time been deployed at the “edge” of the network by customers. Almost any corporation of large size today has a private internal network based on “NGN” technology. Other developments in low cost IP networking elements, such as 802.x wireless, are allowing “new forms” of service providers to emerge on individually small, but collectively widespread, scale. “Major operators” are under great competitive pressure from new modes of competition and from great dissatisfaction amongst their customer bases. New modes of communication, such as the substitution of email for fax and voice telephone calls, further erode traditional sources of revenue. Simply put, the “plans of the major operators” are largely focused on survival. Regulatory Authority, in attempting to protect the current industrial structure in the telecommunications industry, could negatively impact the “rollout” of NGNs, but without support from Regulatory Authority the “major operators” are no threat to the inevitable construction of a pervasive global Internet.
NGNs may bring about a “...complete change in the existing business models which is a cause of concern...” NGN can “overturn the existing regulatory framework and alter the competitive landscape, enable radical reductions in operating costs.”
Radical reductions in costs are coming from two drivers. First is NGN technology, which is globally pervasive and available to everyone except the very poor; second, the existence of competition across all aspects of the network and applications lowers prices to consumers. The “existing regulatory framework” is typically supportive of the status quo, creating network islands through competitive protection enforced by Regulatory Authority. It should be a goal of new regulatory initiatives to “overturn the existing regulatory framework.” A “complete change in the existing business models” should not be a concern of the Regulatory Authority per se. If a number of enterprises are allowed to operate telecommunications networks according to different business models this should be encouraged. Regulatory Authority should focus on insuring that the market is open and free for entrepreneurs to experiment with any business model that private capital thinks might be effective.
A number of regulators (around the world) are “evaluating the impact of NGN transition” and are “pushing industry led initiatives to regulate the transition to NGNs.” Globally, regulators seem to be “alike in their thought process” on regulating NGNs. Regulators fear that if NGN “decisions are left entirely to the market” then NGNs “could develop in such a way” as to have an “adverse impact” on the industry. Regulators fear that parastatal incumbents will “reap the most advantage from the transition to NGNs” with the opposite scenario, parastatal incumbents being crippled by nimble competitors armed with new technology, being of equal concern. A two tier market, where data transport (“pure access”) is provided by one set of companies and applications and content is provided by a different set of companies is considered in certain portions of the document to be a negative development (to be avoided), and in other portions of the document is viewed as a positive development (to be supported).
Around the world Regulatory Authority has historically had a symbiotic relationship with the parastatal incumbent telco. Regulatory Authority may have a vested interest in protecting the parastatal incumbent telco from outright destruction by competitive forces; or (in the case of a few countries) self-destruction through grossly negligent management. Regulatory Authority may promote various “doomsday” scenarios in support of the argument that the only thing standing between marketplace chaos and orderly competition is the Regulatory Authority itself. It is hardly surprising that there is “like thought process” amongst Regulatory Authorities around the world as these arguments are entirely self-serving artifacts of bureaucracy protecting itself, a phenomena which knows no geographic or cultural boundaries.
Market structure, be it two-tiers or n-tiers or something else entirely should be determined by what consumers want and what investors in businesses are willing to support, not centralized industrial policy managed by Regulatory Authority. It is an inconvenient fact that the two most important developments in telecommunications in the last century, the Internet and mobile telephony, were driven by private capital investment with no regulatory intervention other than (in the case of mobile telephony) very minor levels of “liberalization.” Both developments were met with outright hostility from parastatal incumbent telcos and Regulatory Authority has historically offered little protection from predatory behavior from that quarter.
Another “concern” is a theory that IP telephony may reduce investment in “rural telephony” and that alternative modes of addressing endpoints in a network (such as alternatives to E.164) could further erode teledensity.
IP telephony and other NGN technologies reduce the cost of telephony, rural or otherwise, so the only possible linkage between it and teledensity would be a favorable linkage. One of the traditional justifications for Regulatory Authority has been to intervene in the markets in order to force telecommunications operators to build network to serve customers that would not otherwise be profitable to serve based on free-market merits. This is a noble enterprise and can be directly addressed by proposals for government support for bringing telecommunications to those who can’t otherwise afford it. If it is understood that the underlying transaction is a government buying telecommunications for the poor, then the government is simply another customer in the market that will be seeking value for price, and a range of competitive offers. Tying obscure technology issues, such as the appropriate network addressing technology, to rural teledensity is characteristic of Regulatory Authority’s general pattern of trying to set forth complex technological arguments that citizens and legislators will not understand, in an effort to demonstrate that the forces at work are so complex only Regulatory Authority can properly envision what needs to be done. The justification for regulatory intervention can and must be made in plain and simple language based on economic arguments and principles of democracy; if regulatory intervention cannot be justified in those terms then society would be better left to deal with free market forces than to suffer markets micro-managed by a Regulatory Authority whose agenda can only be understood by insider technocrats.
The following “trends” are “visible” globally:
Regulators are pushing for separate regulatory conditions to be imposed on “IP telephony” versus “PC originated” phone calls.
I see no clear evidence of this. The only obvious motivation for preserving in law some distinction between computers and phones would be to erect regulatory apparatus that “protected” one industry from the other. It is unclear who needs protection and why it would be justified. However, at the dawn of the 21st Century it is obvious that no law that is based on drawing distinctions between phones, computers, voice and data telecommunications will be enforceable or even comprehensible; much less justified.
Regulators in “developed markets” are mandating VoIP-PSTN interconnection.
I see no evidence of this at all. In most “developed markets” all forms of interconnection are based on unregulated private contracts between the parties involved, motivated entirely by market forces. Mandated “interconnection”, where it exists, is invariably a matter of forcing a dominant parastatal incumbent telco to interconnect with other operators. The need for such regulation of interconnection is entirely an artifact of the privileged and dominant position that the historical monopoly gained by the original regulatory intervention (the granting of monopoly). This has nothing to do with VOIP or any other specific technology. It has to do with the need to force a dominant parastatal incumbent telco to offer services (interconnection, rural telephony, digital service, support for modems, etc.) they might otherwise not offer “willingly.” Historically dominant parastatal incumbent telcos have optimized their service offerings according to what is best for the telco bureaucracy and workforce, not what the marketplace demands. This posture is entirely an artifact of the protections from economic reality provided by Regulatory Authority.
An NGN is a “perfect platform for a reseller” and will enable the creation of resellers or non-facility based service providers who can “easily offer innovative services” by buying capacity from incumbents. A reseller can “buy capacity with much greater ease, flexibility and affordability than is currently the case” and this can “increase the competition in the market place”.
This line of reasoning stems from a market scenario where the dominant parastatal incumbent telco remains dominant (through regulatory support for its privileged position), and remains under the “management” of Regulatory Authority (which would be essential if the incumbent telco remains dominant). Under such circumstances the dominant telco builds a single national NGN and is forced to sell services to “resellers” who provide the creativity and entrepreneurial drive to deliver telecommunications services into the market. This view is attractive on a theoretical level and has a fairly poor track record in history. When a “wholesale” operator of an NGN network really does sell wholesale only, and has a business optimized for selling wholesale to resellers, then this model works well. Where Regulatory Authority forces an essentially “retail” incumbent telco to sell wholesale as well, this model has not worked at all. It is very attractive for developing countries to avoid multiple investments in backbone and access networks. Even the United States has had a very difficult time supporting multiple access networks. It is almost impossible to make this work if, at the same time, there is a goal and desire to privatize the incumbent telco. One reason is that most jobs at incumbent telcos would be eliminated if the network were to be operated on a wholesale basis. While a genuine renaissance in the marketplace created by the successful transition to such a “two tier” model would undoubtedly create many new jobs, the massive level of corruption intrinsic to a large parastatal incumbent telco employing thousands of voters has, the world over, been an impediment to “creative destruction” strategies. Unfortunately the initiatives of Regulators have often enough simply made matters worse in the short term.
“Some operators have suggested that access to incumbent’s network is critical for rural migration. This will avoid duplication of investment, which is considered hugely wasteful, and allow operators to push teledensity by concentrating on serving new unconnected areas.”
Access to “the incumbent’s network” will not “push” rural teledensity if, in fact, the incumbent has no rural network to access; and this is typically the case. Unfortunately when “duplication” of investment is avoided, the creation of new completion is avoided as well. Due to technological progress the cost of “duplication” goes down every day. Regulators would do well to understand the real reasons why a rural area might not be served. Often the Regulatory requirements to start a “telephone company” present extremely high hurdles to potential investors who may be based in the rural community of interest. Secondly, the rural economy in question may in fact be living in poverty. It is the job of telecommunications policy to make it possible for a network to be built in a rural area. If in fact the reason a network can’t be supported in a rural area is due to poverty then that is a matter of economic policy. Telecommunications policy should not be drastically complicated in a misguided effort to “solve” a “related” problem.
There is a need for Regulatory Authority to drive a public conversation involving all and “varied players” in a “consultation process” prior to changing the regulatory environment because involving all stakeholders can “help develop consumer services” which will shorten time to ‘next generation service’ revenues “to the benefit of the entire sector.”
This is simply nonsense. All over the world telecommunications companies have no idea what services consumers find attractive, or why; they only discover new services through luck, and frequent marketplace experiments, which occur only in a complex competitive ecosystem. Regulatory Authority cannot accelerate any of these processes. We already know NGN is needed; the Internet has already delivered knowledge and applications which have great value in the marketplace. There is no need at this time to “find more applications” and the job of Regulatory Authority should simply be to deliver the Internet, as broadly as possible. Telecommunications customers can figure the rest out on their own.
Another justification for the Regulatory Authority to be activist with regards to NGN is the view that while “...major telecom operators are known to understand” the concept of an NGN, there “may be concerns” that smaller service providers in the industry are “less aware of the implications.” It is pointed out that “...a number of incumbents in developed telecom markets have taken the lead to build awareness.”
This too is utter nonsense. Major telecom operators have historically been the last to understand and act on new opportunities. Furthermore there is no reason that a “smaller” service provider cannot have equal access to the infinitude of information regarding the industry, technology and opportunities which is today freely available. There is no need whatsoever to believe Regulatory Authority has access to any unique knowledge or industry perspective that the industry does not already fully understand.
Conversely it is claimed “...The situation in India appears to be very different. The large operators are known to be embarking on NGN migration projects without involving any other parties. There has been minimal discussion with regards to NGN viz. its benefits and risks among the parties concerned. There seems to have been no discussion on Consumer and National benefits.” This seems to contradict another view elsewhere that many operators wish Regulatory Authority to “provide regulatory clarity on key issues before significant capex is sunk in NGN investment...”
All over the world telecommunications companies are able to act on various technologically based initiatives and market based opportunities without the “help” of Regulatory Authority. To the degree that private companies, investing private capital, are involved in the market (a sign of market health), there are good reasons why “plans” might not be shared with the “parties concerned.” The “discussion” on consumer benefits is, for the most part, taking place in the marketplace where insight is best obtained. It is also true that across the world there are capital investments that are not being made because of negative regulatory environments. Regulatory Authorities should address the issues which make new capital investment unattractive; that would be the most valuable contribution they could make to the telecom ecosystem.
The paper further explains: “In the Indian context, NGN offers scope for meeting an important National objective of rural connectivity. It may be possible that with optimal network planning and innovative applications, NGN access could provide affordable converged services (multimedia including voice, e-education, employment, e-health, e-governance) in small towns & rural areas at lower costs.”
NGN technologies are constantly becoming more affordable. The “digital divide” is partly a statistical artifact due to the rapid increase in bandwidth and services at continuously dropping prices available to the urban middle class. It is unlikely that teledensity has actually fallen in the last decade anywhere, even the poorest of countries. Many digital divide issues are not based in a lack of telecommunications as much as they are based in poverty, illiteracy, and even a simple lack of reliable electric power. The telecommunications industry should not be asked to solve all of these problems merely to drive up a teledensity statistic. The computer and telecommunications industries have collectively performed brilliantly over the past two decades when it comes to lowering the price of technology and making it more accessible to non-technical people; progress continues to be steady. Regulatory Authorities which are focused on these metrics as areas for which government intervention (in the form of regulations) might be helpful are doing so at the expense of a more useful focus on the tasks governments could take that would contribute to real progress. If regulatory barriers to capital investment, and regulatory barriers to the access of rights-of-way were eliminated, and telecommunications companies could obtain reliable electric power without building their own power plants, then rural teledensity would be a problem that would take care of itself in short order.
Part II
The paper next poses a series of specific questions. The following is a sub-set of the questions (in some cases I have combined related questions) where I feel I have something to contribute.
Has NGN become relevant for India , at present? Which are the service providers for whom NGN has relevance?
Certainly it is relevant in the sense that no telecommunications company anywhere in the world should be building networks using anything other than the cheapest and most advanced technologies (which are almost always the same). However, I do not believe that the actions of Regulatory Authority need to be changed because of NGN technology; they need to be changed because the status quo is counterproductive to a strong telecommunications sector.
What could be the likely time frame for the country to achieve complete migration to NGN core? In what time frame the migration in other layers like access and service layer is likely to be achieved? What could be the NGN migration time frames in urban and rural areas?
It is not really possible to answer such questions and not terribly useful to try. Unless a “country” wants to (re)nationalize telecom and have a single network operator, there is no “core.” In most countries there are many networks operated by many different companies and these will migrate to different technologies on the time and budget scale their owners prefer. Regulatory Authority may wish to mandate the use of NGN technology and may care to know what is a “reasonable” time scale for force upon industry by the force of law. I believe that such an action would be an egregious error and contemplating what would be a “reasonable” timetable is not an interesting exercise.
Is there a need for regulatory initiatives within the NGN context?
No. There is a great need for regulatory initiatives to reduce barriers to entry and capital investment and barriers to the use of new technologies. These barriers are counterproductive regardless of whether or not there is a set of technologies available that one cares to characterize as “NGN”. In some developing countries today regulatory barriers are still so high they would not support the birth of a new telecommunications enterprise based on the use of Morse Code, much less NGN.
Does a ‘light touch’ regulation regime makes sense within the NGN environment?
“Light touch” is a code word for a regulatory regime which does not attempt to micro-manage the telecommunications sector. Again this “makes sense” regardless of whether the “environment” is NGN or not. Likely there will be no NGN at all if Regulatory Authority does not change substantially in the direction of “light touch.”
Is there a need to encourage service-based competition in core and access networks or both?
Around the world there have been a number of “experiments” in deregulating telecom; most of these demonstrate the only form of competition that matters is facilities based. There is a great deal of innovation in services, and these innovations tend to drive increased use of the network, but they do not increase the competitive ecosystem in ways that lower the cost-per-bit. When facilities are offered to multiple service providers in a truly wholesale market, such as is common in the dark fiber market, then a number of competitors and their customers can enjoy the benefits of facilities based competition without actually having to construct multiple physical networks. There are policies that Regulatory Authority could promote which would increase investment in facilities and perhaps promote more open wholesale markets. However, I do not think it is useful for Regulatory Authority to intervene in what are already relatively free markets for services or concern itself with what the “proper” layering and structuring of those markets should be.
What possible regulatory actions could TRAI consider at this initial stage of the migration to NGN to help the industry in general and to reduce risks associated with migration?
I don’t think it is proper for Regulatory Authority to worry about “reducing risk” except for the “risk” which the Regulatory Authority itself is guilty of creating through counterproductive regulations. Nor should Regulatory Authority be focused on a perceived “migration” to a new technology platform; as has already been stated, said migrations are continuous and inevitable and Regulatory Authority can exert virtually no control over them. The actions any Regulatory Authority should explore are actions that would “unwind” the following commonplace, but highly counterproductive, regulatory distortions:
1. Regulations that protect certain telecommunications operators from competition.
2. Favorable financing or regulatory treatment promised to certain investors (or companies or consortia) at the expense of other (future) investors (or companies or consortia).
3. Creation of artificial scarcity by limiting access to rights-of-way, radio spectrum, numbering systems, etc.
4. Special, incremental taxes on the industry; typically referred to as “licenses.”
5. Imposition of operational obligations (such as interconnection obligations, 911 support, or offering service to rural areas) that impose costs which then eliminate whole classes of network operators that cannot afford to make the necessary investments or don’t wish to develop the expertise they require because they have a different view of the business opportunity.
What are your views on the effect of NGN migration on the gap between urban and rural tele-densities? Should TRAI propose incentives for NGN roll-out in rural areas? If yes what regulatory incentives beyond the ones already recommended can help push benefits of NGN to rural India?
Many of the “regulatory incentives” discussed are counterproductive. Rural teledensity is not an NGN issue. Regulatory Authority can promote rural teledensity indirectly by helping to create an environment where entrepreneurial telecommunications ventures are free to attract capital, build networks, and succeed or fail in the marketplace with consumers. When the ecosystem is sufficiently rich, the “rural” market will become relatively attractive to entrepreneurs who do not care to, and/or cannot afford to, compete in mature and competitive urban markets. If the time frame in which this takes is deemed to be socially unacceptable for “rural teledensity advocates” then there are various means of artificially supporting direct investment in rural projects. In my option this more honest and more likely to succeed than other “clever” maneuvers to “force” the entire industry to take the needs of the rural market into consideration. When the industry consisted of one company that did everything, then such an approach was probably neutral (if still intellectually dishonest). In today’s world the industry is filled with niche elements that have nothing to offer the rural market and regulations which pretend otherwise are not likely to succeed and are likely to be unfair.
Should TRAI set in place a QOS regulation for the minimum level of quality to be provided by the facility based operators to their competitors?
No. Regulatory Authority should not be involved in any operational details. In today’s world it is possible to achieve a level of competition in the marketplace where minor product distinctions such as quality take care of themselves. Thanks to technology it is becoming progressively easier and cheaper to offer good service; there is no justification for Regulatory Authority to be involved in QOS. The question, as phrased, is also specific to the issue of interconnection between “competitive” service providers. This is a contractual matter which, in the end, is best addressed by the existence of competition. If Regulatory Authority cannot provide competition it probably can’t provide useful intervention in a contract dispute either.
Is there a need to have a detailed consultation on the various interconnection issues in NGN context? Should regulators look to mandate interconnection? How should TRAI regulate existing interconnection regime while facilitating the transition towards NGN?
Regulatory Authority should not mandate interconnection except in the case of dominant carriers which have benefited from regulatory support at the expense of their competitors. Regulatory Authority can however lower the cost of interconnection for parties which wish to interconnect. For example, many developing countries lack widespread “carrier hotel” collocation facilities, richly connected by fiber and wireless networks, that provide “homes” for competitive telecommunications enterprises. Such facilities are commonplace where telecommunications has been highly deregulated and it is reasonable to suggest there is a linkage between the regulatory climate, the investment climate, and the availability of such facilities which can directly lower the cost of interconnection between willing parties. The exact terms of an interconnection are a very dynamic market driven aspect of the business which is best left to individual carriers to negotiate.
What role should the regulator play in technical specifications for NGN? Should a cross-industry body be set-up to plan and oversee transition? Should regulatory bodies specify technical specifications on security related issues for NGN or is it too early? Should the access to emergency services be made mandatory for an NGN based operator?
It is not possible for Regulatory Authority to play a role in technical specifications and any attempt to do so could only raise costs. The steadily dropping cost of NGN equipment and the hyper-competitive global market in which it is sold guarantees that the global free market will lower costs to the lowest level feasible at any given time. Regulatory Authority cannot improve on these market forces. “Emergency Services” which purport to deliver help to people in times of crisis may need to be regulated by some Regulatory Authority; it is rather unclear if this should be a Telecommunications Regulatory Authority. Unfortunately there is a history of Regulatory Authority using such “issues” to create barriers to competition. For example, making it impossible to offer telephone service where 911 does not work. This serves to deny consumers options they might otherwise have because someone has decided this “911” service is “essential.” The regulatory burden should be on the “911” service itself to interconnect with all relevant services since it is the “911” service which has created expectations in the marketplace. In general such situations should be avoided; they should not be used as an excuse for regulations that continue to favor one competitor over another.
Conclusion
I appreciate the opportunity to comment. India has a uniquely capable information technology economy that needs the best telecommunications network possible. I encourage India to seek its own way and not assume there are other countries that have useful models of telecommunications regulation worthy of emulation. I would prefer to see any country start with a first principles examination of why telecommunications needs any special regulation at all; most of the historical arguments for Regulatory Authority are based on bad science and bad economic theories and the real drivers behind today’s regulatory regimes tend to be the defense of a parastatal incumbent telco that has been given privileges by government and then turned around and sold equity in that portfolio of privileges to private global investors. The resulting house of cards is held together by a shared belief on the part of all parties that the enterprise has great value, even as it frustrates the rest of the economy with high prices and bad service. The harm to an economy that needs global competitive telecommunications to thrive is probably incalculable. I would encourage India to try to calculate what is at stake, and let the interests of citizens and customers drive policy.