Post on 11-Aug-2020
HowtothinkaboutIXPsifyouareatelecomregulator
ENOGYerevan,ArmeniaOctober2016
WhatthispresentaGonisabout
• IXPsexisttosolvecertainproblems;• Theyarearemarkablesuccessstory;• They,liketheInternetitself,areembeddedinanolderworldoftelecommunicaGons,whichrunsondifferentinfrastructure,economicsandideas.
• ThispresentaGondealsinpartwiththeintersecGonoftheIXPandsomeofthoseolderconceptsandmaterialfacts.
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Whatthegoalsare• Thegoalsare– toencourageregulatorstoregulatewhereregulaGonisneeded;
– TopreventthemfromregulaGngwhereregulaGonisnotneeded;
– Toknowthedifferencebetweenthetwodomains• Ingeneral,theInternetisworkingfine;leaveitalone
• Intelecomcarrierpolicy,thereisseldomenoughcompeGGon.
• RegulaGonandoversightisneededatthatlevel.
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ThesuccessofInternetExchangePoints(IXPs)
• Asrecentlyas2013itwassaidthatIXPs“hadgoneunnoGced”.
• Fromfour‘networkaccesspoints’in1995to86inNorthAmericaasof2013.
• Therearenowapproximately350IXPs,halfofwhichareintheUSandEurope– accordingtoPCH– Thetotalisalwayssubjecttosomemeasureofdisagreement
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InEurope• Sincethe1990s,theEuropeanactors(telcosturnedISPs,andnewcompeGtors)realizedthatexchangingtheirtrafficlocallybroughtlargecostsavings.
• Thenotforprofit(NFP)modelbecamestandardinEurope.DE-CIX,AMS-IX,Ecix– ThesearetypicallywhollyownedbyanassociaGon;customersprovideadvicethroughanadvisoryboard.
– MostNFPspublishtheirdata,membership,serviceofferings,&detailedspecificaGonsoftheirinfrastructure
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WhatisanIXP?
• AMS-IXdefinesanISPas– “AnetworkinfrastructurewiththepurposetofacilitatetheexchangeofInternettrafficbetweenAutonomousSystems(ASes)andoperaGngbelowlayer3.ThenumberofASesconnectedshouldatleastbethreeandtheremustbeaclearanopenpolicyforotherstojoin.”
• ThevastmajorityrelyonanEthernetswitchingfabric
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ThestunningsuccessoftheInternetmarket
• AnOECDstudy(2013)showedthat– theInternethasallowedpricedfor
connecGvitytobefiveordersofmagnitudelowerthanwhatitisforitsTDMequivalent.
– Statedastheper-minutepriceforVoIPtraffic,thecombinedcosttocallerandrecipientisUSD0.0000008perminutethanwholesaleserviceprovidingcomparablefuncGonsinTDMmarkets.
– ThishasbeenachievedwithnodirectintervenGonbyregulators
• Whysocheap?– EfficiencyofpacketrouGng– CompeGGoninInternetmarkets– FlexibilityofrouGngarrangements
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Othersourcesconfirmloweredprices
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Stunningsuccess,conGnued
• TheInternethasdevelopedahighlyefficientmarketinconnecGvity,basedonvoluntarycontractualarrangements.
• Asurveyof142,000peeringarrangementsshowedthatthetermsandcondiGonsoftheInternetmodelaresogenerallyagreedonthat99.5%ofinterconnecGonagreementsareconcludedwithoutawrikencontract.– TransacGoncostsarelow– Eachpartyagreesthatthedealaddsvalue
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Cause:economicsandhands-offregulatoryapproach
• TheparGcipantsarefreetodeclinetodobusiness– Theabilitynottointerconnectwiththosewhofailtoobservestandardsdisciplinesthemarket
• AlternaGveroutesarefrequentlyavailable,andmarketpowerofanyplayerislimited;
• NooneintheISPworldisobligedtointerconnect.
• NoregulatorneedstopromotecompeGGonatthisleveloftheprotocolstack,inthesemarkets.
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OtherEuropeaninquiriesintotheInternet
• TheBodyofEuropeanRegulatorsforElectronicCommunicaGons(BEREC)issuedareportonIXPissues[6December2012]astheyarosefromnetneutralitydebates– BEREChashighlightedthefactthattheInternetconnecGvitymarketandhosGngserviceshavegrownfromzerotoamulG-billion-Eurobusinessinfipeenyearsonacommercialbasis.
– [Peeringandtransit]interconnecGonarrangementsdevelopedwithoutanyregulatoryintervenGon,althoughtheobligaGontonegoGateforinterconnecGonappliestoIPnetworksaswell.TheseagreementshavebeenlargelyoutsidethescopeofacGvityofNaGonalRegulatoryAuthoriGes{NRAs}.ThisappearedjusGfiedinparGcularduetothecompeGGvenessofthetransitmarketonIPbackbones.
• TheBERECreportshowsconsiderableunderstandingoftheInternetmarketandIXPsgenerally.
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TheTDMworldisdifferent
• AssumpGonsandfactsrelevanttotheInternet(layer3)donotapplyintheolderTDMtelephoneworld(layer2and1).
• Maintainingtheruleoflaw,openmarketsandpromoGngcompeGGonisvital,butthewayithasbeendoneintelecommarketsiscondiGonedbytheoldereconomicsandphysicsofthetelephone(TDM)era.
• Solet’slookatthestricturesimposedbyolderwaysofcommunicaGng.
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DefiniGons• Inthiscontext,“transport”
signifiesmakerspertainingtolayers1and2oftheOSImodel.
• “transit”pertainstoOSIlayer3.
• ThereisplentyofcompeGGonatlayer3,andlimitedcompeGGonatlayers2and1,usually
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InterconnecGon
• IntheInternetmodel,norighthasbeengrantedbyregulatoryauthoriGestoacquireinterconnecGonwithanotherparty;– Proventobeahighlysuccessfulmodel
• IntheworldofTDM,arighttointerconnecGon,thatis,regulatedaccesstofaciliGes,isopentheunderpinningofcompeGGon–infacili6es.
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IntervenGonandnon-intervenGon• ThesuccessoftheInternetIPmarketfortrafficexchangeflowedfromabroadpolicyframeworkofliberalizaGonoftelecommarkets–thatis,infaciliGes(layers2and1).– TherehasbeenacloserelaGonshipbetweenliberalizedtelecompoliciesandthedevelopmentoftheInternet
• ThreatstotheInternetinclude– ExtendingregulatoryconceptsfromtheTDMworldintotheInternet
– extendingthelifeGmeofoldpolicygoals(e.g.equalgeographicaccess)
– Treaty-basedrevenueseklements
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SohowmuchcompeGGonisenough?
• HowmanyfaciliGesbasedcarriersisopGmal(fortransportatlayers1and2)?Whatisthenumberbelowwhichwerunintoproblems?
• HerewepassoutoftelecomandInternetideasintotherealmofcompeGGonpolicy.– WearenottalkingabouttheminimumnumberofinterconnecGngnetworksneededforanIXP,whichhasbeensetatthree.
– WearetalkingabouttransportfaciliGes.
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ConceptsfromcompeGGonpolicy
• Itisgenerallyagreedthatamonopolist(solesupplier)hasincenGvestorestrictoutputandraiseprices.
• CompeGGonregulatorsconsiderthatduopolies(2suppliers)reachcozy,unspokenaccommodaGons.– CokeandPepsi
• At3suppliers,somerealcompeGGonbegins– CompeGtor#3isseldomaslargeas#1and#2– PriceandfeaturecompeGGonbegininearnest
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HowdoyoumeasurecompeGGon?• TheUSemploystheHerfindahl-Hirschmannindex.– ItisarrivedatbythesumofthesquaresoftheparGcipants.Ascoreof.25ormoreindicatesstrongconcentraGon.
• CanadausesMergerEnforcementGuidelines.Ifthe4largestplayersinamarketwouldcollecGvelyhave>45%ofthemarket,nomergerofthemwouldbeallowed.MarketconcentraGonof35-45%wouldputthemergerintothecauGonzone.
• ThedefiniGonoftheproductandgeographicmarketisalwaysdecisive.TheeasieritistosubsGtute,theeasiertogetyourmergerapproved.
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EuropeanApproachestoTelecomsMergers
• “Thereisnomagicnumber,”ofmobileoperatorsinamarket,statedtheEuropeanCommissionerMargretheVestagerinearlyOctober2015– Afewyearsago,thenumber“three”seemedtohavemagicalpowers,whentheSwissCompeGGonCommissionblockedthemergerbetweenthesecondandthethirdlargestmobileoperatorsin2010,whichwouldhavecreatedaMNOduopoly
– effecGvecompeGGonintheretailmarketisthecriterion– areducGonofthenumberofplayersfromfour-to-threeinanaGonalmobilemarketintheEUcanleadtohigherpricesforconsumers…butnotthatitleadstomoreinvestmentpersubscriber,”Ms.Vestagersaid.
– mergerswhichreducedoperatorsfrom4to3hadpreviouslybeenapprovedinIreland,Austria,andGermany
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Whatistheproblemmergershelptosolve?
• Carriersfaceenormouscosts,thinprofitmargins,customersdis-intermediaGng,andnewbusinessmodelsthatcanmovethemoneyawayfromthem.
• Thewayoutistomerge– verGcalmergerstointegratefixedandmobilebusinessestoachievecostssynergiesandbringnewproductstomarket,
– networksharingagreements,and– horizontalmergersbetweenmobileoperatorstoreducecostsandfinancenewinfrastructureinvestments.
• Thepressureisonregulatorstofindthe‘best’numberofcarriers,withnofixedanswertotheproblem.
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Sowhyatleastthreetransportproviders?
• FromtheperspecGveoftheIXP,indeed,anyone,theexistenceofatleast3transportproviders(faciliGes,circuits)isaboutasgoodasitgets.– PracGcallimitaGons,suchascapitalinvestments,tendtolimitthenumberofcarriers;
– Morewouldbedesirable,butfewerthan3producesalltheproblemsassociatedwithunspokencollaboraGonbetween2,andmonopolywith1.
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LessonsforPolicyMakers• LiberalizedtelecommunicaGonspolicieshavesupportedthesuccessoftheInternet,parGcularlyIXPs– Ahands-offapproachhasletmarketparGcipantsdisciplinethemarket,attheIPlayer.
– InsufficientcompeGGoninfaciliGes(layers1and2)keepstransportpriceshighandretardsthespreadoftheInternet
– Byrequiringplayerstoholdgovernmentlicences,andrestricGngthem,regulatorscanupholdinsufficientcompeGGon
– Findingthe“right”numberoftransportcarriersatlayers1and2isnoeasytask;countervailingpressuresfavourmergersofcarriers
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Sources1• Chatzis,N.,Feldmann,A.,SmaragdisG.,Willinger,W.2013Onthe
importanceofInternetexchangepointsfortoday’sInternetecosystem.Availableathkp://arxiv.org/abs/1307.5264
• HaithamEl-Nakhal,Implementa6onandManagementofInternetExchangePoints(IXP),Feb2014ITU-TSG3RG-AFRReg.andEcon.Forum
• NSFImplementaGonPlanforInteragencyInterimNREN,Aiken,Braun,Ford,Claffy.May1992
• OECDDigitalEconomyPapers,No.207.InternetTrafficExchange:MarketDevelopmentsandPolicyChallenges,DennisWeller,BillWoodcock,2013
• OECDDigitalEconomyPapersNo.232,InternaGonalCables,Gateways,BackhaulandInternaGonalExchangePoints,RudolphvanderBerg,2013
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Sources2• hkps://ec.europa.eu/commission/2014-2019/vestager/
announcements/compeGGon-telecom-markets_en• hkps://www.compeGGonpolicyinternaGonal.com/magic-
numbers-and-merger-control-in-the-telecommunicaGons-sector/
• hkp://www.wsj.com/arGcles/eu-anGtrust-chief-cauGons-against-4-to-3-mobile-telecom-mergers-1443789301
• hkp://www.nortonrosefulbright.com/files/gcr-the-european-anGtrust-review-2016-uk-telecoms-130445.pdf
• hkp://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32004R0139&from=EN
• DrapBERECReportonOligopolyAnalysisandRegulaGon
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Acknowledgements
TheauthorwishestothankGeoffHustonofAPNIC,MikeLeberofHurricaneElectric,JohnCurranofARIN,andKonradvonFinckenstein,formerDirectorofCanada’sBureauofCompeGGonPolicy,andGernotKofler,oftheBureauofCompeGGonPolicy,forclarifyingconversions.AllmistakesofinterpretaGonaremyown-TMD
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