Post on 03-Mar-2019
Overview
� The need for flat rate
� Network costs & interconnection models�Per-user pricing
� capacity-based pricing
� Local and regional interconnection
� Non-discrimination: is it any use?
The need for flat rate
� Increases Internet penetration 30%
� Address the usage gap:�EU: 30% of households for 15 mins a day
�US: 50% of households for 70 mins a day
� Increases "e-confidence" and thus boosts e-commerce
� Reaches the entire country today
� Provides an affordable "taste" of theInternet – stimulates demand forbroadband (fixed & mobile)
"Local access pricing and e-commerce", OECD 1H00
Sw eden
Aus tralia
Czech Rep.France
Germany
Iceland
Ireland
New Zealand
Norw ay
Portugal
Sw itzerland
United Kingdom
United States
0
5
10
15
20
25
30
35
0 100 200 300 400 500 600 700
Secure Servers per 100 000 inhabitants, November 2000
Average Online Time per Month multiplied Internet Subscriber Penetration rate (1999)
A "taste" of the future
0
10
20
30
40
50
60
70
1998 1999 2000 2001
Traditionalmetered
Launch ofAOL UK ‘Off-Peak All The
Time’metered
Launch ofAOL UKflat rate
Averagemembermins/day
+1hour/day
3 months!!!
Narrowband flat-rateredundant?
� Household budgets: 90% of onlinehouseholds use narrowband,70% of EU households not yet online
Consumer expenditure on free ISPs, unmetered ISPs and broadband
0
10
20
30
40
50
60
70
UKFra
nce
Portu
gal
Belgium
Nethe
rland
sSpa
in*Ger
man
y
Italy US
"Free" ISP
Flat rate
B’band
* off-peak only
Narrowband flat-rateredundant?
Per-userprice
Time
Early adopters
Mass market
Broadband
FRIACO based narrowband"Heavy users"mean limitedcircuit sharing
Remaininglighter userspermit greatercircuit sharing
Network costs and pricing
Fixed costs:line rental or
LLU
Costs driven by number ofsimultaneous callers,
but charged by the minute!
Costs driven bysimultaneousdata volumes
PSTN IP
ISPPoint of
interconnect
Local loop Mo
dem
s
Unmetered PSTNinterconnection models
Consumers: ability to makeunlimited calls
�"per-user" pricing
ISPs: ability to receive unlimited calls�FRIACO / capacity based pricing
�UK, NL, France, (Germany)
www.oftel.gov.uk/publications/internet/fria0500.htm
www.oftel.gov.uk/publications/internet/fria0201.htm
PSTN shared network
Point ofinterconnectLocal loop
Per-user pricing
� Lump sum interconnection charge�Termination model: Spain
�Origination model: Portugal, Japan ISDN
� Per-call (’set-up’) charge�Australia
� Unlimited call service� Japan analogue, Brazil
� "Free" – included in line rental�US, Canada
�Mexico: 100 calls�New Zealand: residential only
Per-user pricing &capacity management
� “Flat rate pricing means people will stayonline all day and blow up incumbents’network”
� Consumers pay for PSTN usage directlyto incumbent
� ISPs - running IP networks - are largelyindifferent to when, and for how long,consumers are online
� Trouble brewing…? Maybe not!
Capacity based pricingFlat Rate Internet Access Call Origination
� ISPs buy capacity to receive calls, andmust use it efficiently
�The more users share a circuit, the lower the per-user cost
� ISPs’ scope to stagger demand�Price
�Content�Quality of service!
� Political benefit: privatise the "evening-peak" problem
Endorsements
"In an ideal situation … capacity basedcharging would be the most efficientinterconnect pricing rule."
(Commission Recommendation, 1997)
"Daher eigne sich internetverkehr besser fürkapazitätsbezogene Preise"
(RegTP, November 2000)
00:00 02:00 04:00 06:00 08:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00
Volume FRIACO per-min
The "evening peak" problem
Traditionalpricing
exacerbatespeak usage
Incumbent’scost drivers
fullyreflected inISPs’ costs
Interconnect benchmarks
0200400600800
100012001400160018002000
( p
er y
ear)
BT FT
KPN DTTele
fonic
a* PTPer user IC
Regional FRIACO
Local FRIACO
* Telefonica is off-peak only
Local/regional interconnect
� ISP innovation depends on calltermination competition
�Kickbacks�Call & access bundled offers�Carrier selection + Internet access bundle, etc
� Liberalisation just 3 years’ old�OLOs interconnected at regional level
� Variety of origination products used�Retail minus termination outpayment� Indirect access�0800�Special Internet pre-fix, and…�… FRIACO
Policy balance
� "Internet call origination traffic should betaken off the PSTN as early as possible"
�Strategic advantage for incumbent, as they are inevery local exchange already
- Need modem co-location at LEX
�Higher OLO termination costs- Potentially inefficient investment in digging to LEX
� Preserve call termination competition�OFTEL "Single Tandem FRIACO", Feb 2001
� "IP interconnect"�Could extend local access dominance to modems
and backhaul
A vicious circle?
Backhaul
Affordableflat rate
Broadband
Competitiveopportunities offer longterm returns oninvestment
Adequate inter-connect at lowerlevels in the network
Develops a "taste" forthe Intenet, thusstimulating demand
Non-discrimination
� WTO commitments
� Anti-trust obligation on dominantcompanies
� EU interconnection Directive�Basis for German RegTP action
� "Reasonable request"�Basis for action in UK and NL
- OFTEL prodded into faster action because of BT flatrate
Non-discrimination
� BT and DT offered retail flat rates, butclaimed they used per-minute transfercharges, so no discrimination?
� The Regulators said: "no"�"21 […] the Director does not accept BT’s
argument that it faces the same risk as an OLObecause its retail business will also be"purchasing" metered call origination. TheDirector takes the view that BT does not facesimilar risks when its position is assessed on anend-to-end basis. Any losses incurred by BT’sretail operation would be purely notional andoffset by notional profits in its network business."
Levelling the risk playing field
Costs drivenby busy hourcircuitsneeded
/min
Incumbents’ ISP
Incumbent
/min
Independent ISP
Incumbent
Costs drivenby minutes oftraffic
Non-discrimination
� TOL withdrew its flat-rate prices, andjudge threw out RegTP’s decision
�RegTP had linked need for flat rate interconnectprices from DT to TOL flat rate retail prices
� Incumbents’ costs are inherently capacitybased, irrespective of transfer and/orretail prices
�option of capacity based interconnection prices isalways necessary
�Failure to provide is implicit discrimination
Other shared networks
� Costs driven by simultaneous usage
� Local access network�SMS, GPRS, UMTS
�Cable TV networks
�NOT DSL
� All IP backbones
� Main issue is vertical integration, and alazy carry-over of retail models intowholesale pricing
Conclusions
� Flat rate is key stepping stone tobroadband on the demand side
� PSTN traditionally mis-priced – what willhappen to off-peak pricing?
� FRIACO�Key ingredient for flat-rate consumer prices
�Addresses congestion issues head-on�Both regional and local interconnection needed
� Capacity-based pricing needed to ensurereal non-discrimination