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Looking to the future May 3, 2007

Posted by Jasper in broadband, NGN, Technology.
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CA-net news has some interesting references to the future of the internet and broadband technologies.

FTTH Council Video: A FTTH Council provides a very high level perspective of the Internet and its current challenges and provides evidence of the tsunami of data that will fill networks with the distribution of video. Their point is of course that the surge in data requires update of the last mile (amoung other things).

Jon Crowcroft Interview, Article on the challenges of P2P running on today’s networks, Article on why IPTV is doomed to fail: Jon Crowcroft claims that heat loading at data centers will make distribution of video through traditional client server models impossible, and that P2P will be the only practical way of distributing such content. This is why many argue that the traditional telco NGN architecture with IPTV is doomed to failure.

Japan: The need for speed October 2, 2006

Posted by Jasper in broadband, Costing, NGN, Regulation.
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Japanese incumbent NTT Group plans to build a 10-Tbit/s optical backbone network to cope with the capacity demands of a growing FTTH and high-speed DSL customer base. The carrier’s growth in high-speed broadband connections is putting its current 1-Tbit/s backbone under strain. NTT says it needs to step up from its current DWDM backbone, which multiplexes 10-Gbit/s signals, to a 10-Tbit/s network that can support multiple 100-Gbit/s channels because “data traffic has been doubling every year due to the rapid spread of broadband access.” Most of NTT’s broadband customers have at least 50-Mbit/s connections. See article in Lightreading for more information.

With greater and greater bandwidth and increasingly more greedy data applications the core network backbone must adapt. From a cost modelling perspective this can only mean one thing: the relative cost of a voice interconnect must be declining. This is particularly the case when considering the cost of a forward-looking network, where voice and data services are fully integrated.

Germany: EC endorses access to DT VDSL network August 23, 2006

Posted by Jasper in broadband, NGN, Regulation.
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Not unsurprisingly the EC has in a letter sent (21 August) to the German telecom regulator Bundesnetzagentur (“BNetzA”), required Deutsche Telekom to provide access to its broadband infrastructure through bitstream access “without further delay.” However, the German cabinet has still approved a new telecommunications bill that, in principle, would protect VDSL from regulation. The bill is expected to pass parliament either later this year or early next. The EC, however, has clearly indicated that it will challenge the legislation. The following is an edited version of EC press release.

The EC endorses, with comments, the regulatory measure proposed by BNetzA that will give competitors access to Deutsche Telekom’s broadband infrastructure. The remedy proposed will allow competitors to purchase a high speed access link to the customer premises from Deutsche Telekom with transmission capacity for broadband data in both direction, thus enabling entrants to offer their own, value-added services to end users. The price for such bitstream access needs to be approved in advance by BNetzA. Bitstream access will also be required of Deutsche Telekom to its new VDSL infrastructure. In its letter the EC makes clear that this access obligation should apply when this new infrastructure is in place. The EC notes that at present, there is no indication of a lack of substitution between VDSL-based access and other bistream products, and recalls that a mere upgrade of an existing service (such as an offering with a higher bandwidth) is not considered in itself to lead to new products or services. In any event, a finding of non-substitutability of a particular product or service by BNetzA and consequently an exclusion of a certain product from the remedies imposed would require an amendment of the market analysis and the remedy in force and thus would need to be notified again to the Commission.

The EC also asks the German regulator to ensure that the remedy is applied without further delay, in line with EU law, and that final clarifications are made in the interest of legal certainty on the German broadband market.

The text of the letter sentby the EC the German regulator will be published on 25 August here

Gemany: Deutsche Telekom urged to seek deal on access to VDSL network August 18, 2006

Posted by Jasper in NGN, Regulation.
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[From Global Insight] Germany telecoms regulator Bundesnetzagentur has raised the stakes in the ongoing saga over Deutsche Telekom’s new VDSL network, urging the telco to seek an amicable deal with rivals in order to avoid intervention from regulators. In an interview with Financial Times Deutschland, Bundesnetzagentur president Matthias Kurth said that Deutsche Telekom cannot prove that the products on offer on the VDSL network constitute a new market—an argument that could have exempted the network from regulation. The regulator is torn between the threat of legal action from the European Union (EU) and the need to give Deutsche Telekom room to recoup the 3 billion euro (US$3.9 billion) that it is investing in the network.

Commentary: This move is similar to that of the French regulator earlier this week (see earlier post). In both cases it would appear that the EC has the upper hand.

This battle between incumbents, regualtors and entrants (which also is being played out in Australia, see another recent post), is classic.

On the one hand we have those that will argue the the pro-regulation view. That is, all loops that exibit bottleneck characteristics and are non-replicable, whether copper, fibre, or hybrids should be regulated as such. Most entrants will argue this view. Regulators will also favour this view, but may be reluctant to regulate if they can be convinced that the market (both infrastructure and services) is emerging or new (this is what Matthias Kurth is saying DT cannot prove).

Then there is the anti-regulation view: imposing regulation on the fibre loop will significantly increase investment risks and reduce and delay that investment. The incumbent will argue this view.

Prima facie, neither viewpoint is convincing. The anti-regulation viewpoint does not deal with the problem of foreclosure of competition, while the pro-regulation viewpoint does not explicitly address the issue of investment incentives. The attempt to bring all the parties together would appear to be an attempt to close the gap and solve the deadlock.

HK: Share outlook for Hutchison August 15, 2006

Posted by Jasper in Mobile, NGN.
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[From cellular-news.com] Analysts are speculating whether this will be the year Hong Kong conglomerate Hutchison Whampoa finally gets a payoff on its $25 billion bet on 3G mobile-phone technology. Based on the scant value the markets assign Hutchison’s loss-making 3G operation, investors aren’t counting on it. But maybe there is some good news nevertheless.

Shares of Hutchison, which has ports, energy, property and retail interests, in addition to its telecom units, have fallen 2% this year to HK$72.35 (US$9.31) last Thursday. That means the stock (also trades as an ADR in New York under symbol HUWHY) is selling at a big discount to its net asset value, which Merrill Lynch estimates could be as high as HK$114.80. The discount is mainly due to the perceived drag on the company’s performance from 3G.

Merrill isn’t alone in seeing value. Mark Simpson, an analyst with Macquarie Securities (Asia), pegs Hutchison’s net asset value at HK$93 a share, which includes just HK$6 per share for its 3G operations in Britain, Italy and several smaller markets like Denmark. That’s in line with the low valuation skeptical fund managers gave Hutchison’s 3 Italia unit early this year; that was enough to force the parent to cancel the public offering of its Italian operator’s shares.

Hutchison is due to report first-half earnings on Aug. 24, and cash flows at the 3G businesses should look better now that networks have been built and costs to build 3G handsets have fallen, says Simpson.

Read the full article here

Australia: Is it time to apply the stick? August 9, 2006

Posted by Jasper in NGN, Regulation.
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Monday evening this week Telstra announced that it had ditched its plans to build their proposed fibre to the node network (FTTN). The main arguments for this move were:

  • the inability to reach an agreement with the Australian Competition and Consumer Commission (ACCC) regarding the price competitors should have to pay for access to their network; and
  • the existence of inconsistencies in government pricing requirements.

Obviously this is a bold and highly controversial move by Telstra. However, Telstra has been playing hardball with the Government and ACCC ever since Sol Truiljo was appointed chief executive. In that respect it is less of a surprise that it might come to this, rather it is the timing and way it is has happened that caught me by surprise.

The ACCC was perplexed by the move:

The ACCC last received documentation from Telstra on a FTTN access service and its pricing for this new service in late June, and was awaiting details on a transition plan for access seekers from current unconditioned local loop arrangement. Given that Telstra only recently said that the discussions between it and the ACCC were ’98 per cent’ complete, the ACCC is perplexed that Telstra has now chosen to discontinue these discussions and withdraw its proposed fibre roll out.

It is our view that it would have been preferable for Telstra to place details of its proposal on the table for public examination, but Telstra appeared unwilling to do so.

The ACCC would be concerned if Telstra’s decision not to proceed at this time were as a consequence of the ACCC’s call last week to lay the FTTN plans open for public scrutiny. We are perplexed as to why Telstra would not want to do this.

So is this end of the line for Telstra. Can they credibly afford not to invest in a FTTN network? In my opinion the answer to this question is no – there is simply too much at stake. Telstra has a unique position in the Australian market and should be expected to fully exploit this possibility.

As long as Telstra is required to provide access to their network based on cost (including a reasonable return on investment) incentives to invest should be preserved. Competitors benefit from access according to their market share and compensate Telstra accordingly, while Telstra retains compensation for the remaining investment. I struggle to imagine that the ACCC are offering returns to Telstra that are below what they have been receiving historically – returns that to my knowledge are in line with those incumbents receive in other jurisdictions and who importantly are willing to upgrade their network. That said, the business case for FTTN must neccessarily be built on long-term demand forecasts of broadband-based services, that are uncertain and difficult to quantify.

However, if Telstra is requiring benefits that imply an exploitation of market power then it will get nowhere with the ACCC because such benefits are economically unjustified. In fact, Telstra may be provided with over-incentives to invest with the existence of monopoly power.

Maybe the move has more to do with creating uncertainty for its competitors and delay tactics? It is certainly difficult to second-guess Telstra’s motives. Nevertheless, the main question to ask now is: what will happen next?

A group of companies dubbed G9 has proposed sharing the cost of a AU$4.1 billion FTTN. The group includes amoung others Optus, Macquarie Telecom, PowerTel, Primus and AAPT. They believe that under Telstra’s plans, there would be no way of unbundling the FTTN infrastructure, thus leaving the incumbent with a monopoly in fiber-based access. However, their FTTN plan hinges critically on access to the Telstra network so there is still considerable uncertainty as to its viability in the current regulatory environment. But it does pose a welcome and interesting alternative that has gained renewed weight with the recent Telstra decision.

As an alternative the Government could force Telstra to invest. Clearly, Telstra is not swayed by the regulatory carrot, so maybe it is time for the Government to apply the stick and give renewed thought to the privatisation decision. But surely there must be other avenues to pursue before it comes to this.