Network Separation and Access Regulation – We make ICT strategies work
Introduction – Why now ?
The evolution of NGA requires a redefinition of technology neutral access regulation
including products and processes, and it may involve separation and business models.
NGA technology neutral access regulation

Technology neutral access regulation is related to
two meanings
1. Evolve regulation with technology
2. Regulate independent of technology
With the evolution of regulation, network separation models
and the related business cases have to be re-considered

With NGA technology, options for access and
unbundling obligations change

Regulatory principles for access provisioning, e.g.,
Equivalence of Outputs or Pinputs (EoO or EoI)

Structural separation for NGA business units

Related to the new regulatory realities, the optimal
response for operators might be different from the
status quo, requiring to re-calculate the current
business cases and re-adjust business models

Bottleneck definition and rationale for regulatory
intervention

Technology assessment

Wholesale product definition
– Local Loop Unbundling
– Bitstream access options / VULA
– Ducts and dark fiber

Technology neutrality involve further regulatory
instruments and policies

Potential Obligations such as unbundling and
bitstream but also multicast obligations

Benchmarks and recommendations
–2–
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VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
Network separation models and business cases
Overall Trend – Adjustment Areas
The adjustments in NGA regulation are related to regulated network access products,
processes, conditions and business models.
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX



Retail
FTTx and ultra-high speed DSL
and coax technologies such as
Vectoring VDSL and Hybrid
Fiber-Coax (HFC)
Wholesale
New access and transport
products reflecting retail service
and technology evolution such as
Virtual Unbundled Local Loop
(VULA) as well as passive
products
Regulated products
Revision of bottlenecks and
rationale for regulatory
intervention
Processes & conditions

Roll-out processes
Coordination, rights of way,
property rights in general

Retail processes
Provisioning, but also servicing
etc.

Wholesale processes
Provisioning, but also servicing
etc.

Joint retail and wholesale
processes with regard to
equivalence principles, i.e.
Equivalence of Outputs/Inputs
EoO/EoI
–3–
Business models and structure

Strategic focus
Re-Balancing weight and focus
on retail versus wholesale,
increased emphasis on
partnering approaches

Pricing innovation
New tariff models (e.g., including
risk sharing elements, QoS
pricing)
© Detecon
Technology & products
Challenges – New Technology Trend Vectoring in Fixed Access
On example for new technology is Vectoring VDSL as the next evolution of VDSL2
pushing coverage and bandwidth of standard VDSL.
VDSL50+
(VDSL80)

Sub-loop unbundling with different
systems needs to be prohibited in the
respective roll-out area, otherwise the
vectoring effect will be reduced to
almost zero. Regulator will most likely
allow only fist mover to roll-out VDSL
in an Central Office area.

As an alternative the regulator will
force the Vector VDSL operator to
offer bitstream access. An agreement
with other fixed line operators should
be negotiated offering a V-VDSL
wholesale product for a reasonable
price to avoid the roll-out of
competitive VDSL2 networks in
operators’ central offices

Increased power consumption
VDSL2 + Vectoring
80
+ Rate
50
(VDSL80)
+ Coverage
VDSL50
27
VDSL2
16
17 MHz-Profile
VDSL25
100 m
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Regulatory implications & risks
(VDSL50)
300 m
500 m
 1,000 m
Reach
Key benefits

Vectoring improves VDSL maximum speed and enlarges the VDSL
coverage by reducing the far-end and near-end crosstalk

Standardized by the ITU Standards Association as G.Vector

Vectoring improves possibilities for guaranteed bandwidth

The CAPEX needed for a Vector VDSL roll-out is much lower than FTTH
roll-out; the upgrade of an existing VDSL Network needs only swap the
DSL line cards and the CPE
–4–
© Detecon
Mbps
Proposed vectoring solution
Challenge and Solution
The regulatory solution to the current challenges with NGA evolution balances
adjustments against continuation and extension of regulation.
Network separation models and business cases
Adjust current regulation to incorporate
new technologies while minimizing
disruptive regulations
Relax physical unbundling obligations and
introduce substitute options such as Virtual
Unbundled Local Access (VULA), i.e. local
bitstream access in addition to national
and/or regional bistream access.
Continue to safeguard competition by
minimizing risk of stranded assets to
ensure maximum investment certainty
Implementation of new regulations, e.g.,
with regard to roll-out priorities, rights of
way, and exclusivity rules in a way that
balances existing assets and the incentives
to roll-out new technology.
Avoid new competition problems and
reduce potential for anti-competitive
behavior
Ensure that new technologies are strictly
regulated if new bottlenecks arise. With
persistent problems introduce appropriate
Equality Obligation to minimize need for
structural separation as this approach only
partially addresses competition issues.
–5–
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NGA technology neutral access regulation
Challenges – Regulatory Challenges of and Solutions for Vectoring VDSL
The regulatory changes from Vectoring VDSL include duct access, migration rules,
investment and competition protection, and may be extended to cable networks.
Vectoring VDSL challenges
Central office (CO)
Street cabinet (SC)
Distribution point
(street)
App 1
Customer
premises
App 2
DP
ADSL
VDSL
V-VDSL
LLU/SLU
DA+SLU
DA+VULA
Copper
Fibre
Copper
wiring
loom
Regulatory challenges



Line unbundling (LLU and SLU)
rendered technically infeasible
Necessity to drive the complete
wiring loom by one DSLAM means
only one operator for whole loom
Investment and competition
protection (stranded assets)
Regulatory solutions



Substitution of Local Loop/Subloop
Unbundling (LLU/SLU) by Virtual
Unbundled Local Access (VULA)
With VULA as substitute for SLU,
duct access between CO and SC
required
Vectoring register and compensation
Side conditions



Migration of existing LLU requires
adaption at access-takers, too
First mover SC registration must be
carefully designed (incl. roll-out
obligation) to avoid strategic
reservation
Fair access to SCs for roll-out for
equal chances for first mover effects
VULA follows concept to mandate the provision of the highest-quality access product at the lowest possible level.
The “Local Bitstream Access” approach provides a path to extend access regulation to Coax networks, too.
–6–
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In order to realize the potential of V-VDSL, the complete
wiring loom has to be driven by one vectoring DSLAM.
Challenge and Solution – Snapshot of Equivalence Concepts
Source: Oxera based on Ellare
EoO: The concept in which, in respect of a particular retail product or service, the wholesale input supplied to the
incumbent’s own retail arm is equivalent to the comparable wholesale product or service supplied to other
communications providers but not necessarily supplied in an identical manner.
EoI: The concept established by the BT/Openreach undertakings in which the incumbent provides, in respect of a
particular retail product or service, the same wholesale product or service (input) to all communications providers
(including its own retail arm) on the same timescales, terms and conditions (including price and service levels), and
by means of the same systems and processes.
–7–
© Detecon
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Independent of the particular network type and technology of a given NGA network, any
access regime has to consider some separation.
Challenge and Solution – Equivalence Concepts in Detail
With regard to the implementation complexity, the main step is between EoO and EoI,
whereas the latter requires significant changes at the regulated entity.

The Equivalence of Output principle implies a parallel usage of WS CRM for external wholesale customers and of a
separated CRM for “internal” retail customers.

In Equivalence of input the WS CRM must be used by retail unit in the same way as by ISPS, i.e. the usage of WS CRM
will not be parallel, but cascaded and used after the orders will come to RT CRM.
EoO
EoI
EoO retail process
EoI processes
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
Ordering &
provisioning
Retail
Competitors
EoO wholesale process
Competitors
Comp.
CRM
WS
gateway
Wholesale
CRM
Retail
CRM
WS
gateway
Wholesale
CRM
Ordering &
provisioning
Comp.
CRM
Ordering &
provisioning

–8–
Requirement that same systems and processes shall be
used for provision of identical products and services to
external and internal customers.
© Detecon
Retail
CRM
Retail
Challenge and Solution – Equivalence of Inputs Concept
With Equivalence of Inputs, the network unit shall provide exactly the same products
and services to all operators (including own retail arm).
EoI concept
products and services
information about
products, services,
systems, processes
Available to other
operators:
Same…
systems
terms & conditions
(including prices and
timescales)
(including ordering, provisioning, fault
clearance)
The Equivalence of Input concept leads to far-reaching consequences and high cost and thus
should only be applied where significant problems have been identified or where new access
regimes are to be designed.
–9–
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
processes
(including reliability &
performance)
Equivalence of Inputs – Same Products, same Prices
EoI is suited to solve competition problems at the passive and active input product level
simultaneously, and without the requirement of legal separation.
Same products and services
Access
Aggregation
ULL
ULL
Same terms & conditions (prices & payments)
EoI
Access
BSA
EoI
Aggregation
ULL
BSA–ULL
BSA
EoI
Retail

Competitors
Retail
ULL and BSA serving as illustrations for all passive and
active products.
– 10 –
Competitors

A transfer pricing system might support transparency,
however it might not be strictly required with margin
squeeze testing.

* WS may receive share of one-off fees for handling as
one option.
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
*
Wholesale
„Classical“ Structural Separation – AccessCo Example
„Classical“ structural separation should be stricly separated from Equality principles,
as separation variants focus network elements rather than products and processes.
Fixed
NetCo(s) demarcation (Cu passive only)
Cu
Metallic access
C
P
E*
N
T
O
N
T
P
O
D
P
Services
D
S
L
A
M
M
D
F
ST’s
service
platforms
Aggregation
ring(s)
Fiber access
C
P
E*
Core
Core
network
O
L
T
Dark fiber P2P WS
Competitors
service
platforms
Competitors
Bitstream access (Eth., local)
Bitstream access (Ethernet and IP, national)




I
C
O
D
F
NetCo products
Act. WS

Duct access**
ULL and SLU**
TLL***
Dark fiber P2P,
e.g., for mobile
backhaul
VULA
(BSA local)
If BSA Multicast
is introduced,
MC option has to
be added to all
BSA products of
NetCo and ServCo!
Mobile (only shared elements of relevance)
Mobile
Radio access
B
T
S
* CPE includes Splitter,
Modems, HAGs etc.
** Where feasible
*** Termination Leased Lines
Source: DTC project
B
S
C
– 11 –
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
FTTx
C
C
C
Aggregation
„Classical“ Structural Separation vs. Equivalence of Inputs
Contrarily to EoI, with a separation in two entities, only one possible “problem level” is
solved “really” structurally, while the other is solved through separation of accounts.
Objections and value chain
Margin
squeeze
Retail / resale
competitors
Depending on the allocation of products to the
separated entity, the stronger remedy is
either on ULL or BSA related objections:
ULL
!
ULL
%
~
!
=
%
!
=
=
BSA
BSA
%
%
!
=
~
=
Active products (“BSA”)
%
%
RT
!
=
%
Vertically integrated Telco
Explanations
– 12 –
separated
%
Rem. risk
Passive upstream products (“ULL”)
RT
Competitors
%
!
=
Solved:
Nondisc.
supply
~
=
Softened:
Contract/
transfer p.
© Detecon
Competitors
Rem. risk
WS broadband
access market
WS infrastructure
access market
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
Retail
market
End users
Retail products
Solution focus
Equivalence of Inputs – Same Products, same Prices
However, from a systems and processes perspective, the implementation of EoI might
come very close to a separation scenario, as both, retail and wholesale are affected.
Retail
Comp.
CRM
PGW**
New 2nd
“WS CRM”
Old (path)
New (path)
x
Ordering +
provisioning
Network

Which systems have to be split/duplicated (partially)?

What would be the estimated cost and duration?

How would bundles affect the feasibility/complexity of
such an approach?

What would be the information to be shared by WS
with the competitors, and what impact would that
have?

Should the implementation only focus the regulated
products, or should this approach be a business
architecture modification in general?

What organizational changes are required to
implement the concept?
* Illustrative – other systems to be adjusted, too.
** Provisioning/partner gateway PGW might not necessarily be required.
WS information available to retail arm has also be available to competitors.
– 13 –
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
EoI
CRM
WS service provision
Competitors
Questions
Packaging & distribution
Same systems, processes and information*
Separation and Equivalence Approaches – Efficiency of Intervention
Accordingly, to ensure efficient regulation, (non-discrimination-) benefits and cost have
to be balanced taking the actual shape of the cost curve into consideration.
Stylized (BEREC) view

Actual cost curve
By the regulatory bodies it is assumed that different
behavior of incumbents (x-axis) can directly be linked
to different levels of separation (intrusiveness of the
remedy; y-axis).*

The cost to improve the assured level of nondiscrimination (x-axis) increase massively with
separation (expensiveness of the remedy; y-axis).

This is especially true, as cost are largely independent
of operator and country size.
Very
expensive
Very
intrusive
6 Ownership
separation
5 Legal separation
Cost of intervention
Level of intervention
5 Legal separation
4 Functional separation +
incentives/governance
3 Functional separation
2 Virtual separation
1 Creation of a Wholesale Division
4 Functional separation +
incentives/governance
3 Functional separation
2 Equivalence of Inputs
(Virtual separation)
0 Accounting separation
Least
intrusive
Discriminatory
practices are very likely
Level of nondiscrimination
Least
expensive
Discriminatory
practices are very rare
1 Creation of a Wholesale Division (and
Equivalence of Output)
0 Accounting separation
Level of nondiscrimination
*Source: DT; based on BEREC Guidance on functional separation under Articles 13a and
13b of the revised Access Directive and national experiences, February 2011, p.7.
– 14 –
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
6 Ownership
separation
Implementation Cost Estimation – Cost Composition
IT CAPEX and FTE increases from necessary duplications are the main drivers of the
implementation cost of Equivalence of Inputs as well as functional and legal separation.
Implementation cost composition (cumulated payments, m EUR)
200.0
3.0
Realistic example figures
290.0
54.0
3.0
6.0
84.0
4.0
2.0
3.0
0.0
1.0
40.0
2.0
35.0
3.0
Access-toaggregation
Functional
separation*
Functionalto-legal
(NPV 160.0)
* The cost of implementation of Equivalence of Inputs comes very close to the implementation of Functional Separation.
IT OPEX*
IT CAPEX
NT CAPEX
Restructuring including FTE increases
– 15 –
General OPEX
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
140.0
Options and Solutions
A unified access regime such as requiring VULA for all networks would yield really
technology-independent regulation which could then be SMP-dependent only.
International trend

Focus on Equivalence of Outputs or Inputs
rather than on (partial) network separation

Focus on access products at lowest possible level (ULL, VULA)

Especially VULA as local bitstream access would allow to require
symmetric access obligations independent of underlying network
technology, i.e., VULA is possible for xDSL including Vectoring DSL,
HFC and FTTx networks.

The European Commission accepted
the introduction of Vectoring DSL in
combination with VULA despite the
fact that ULL then would be rendered
technically infeasible.

As VULA comes very close to
physical network element unbundling
(with regard to the control over
network parameters), it is a suitable
substitute if offered at reasonable
terms and conditions.

With the decision of the European
Commission, a single access form
now became available for two types
of networks (xDSL and FTTx,
especially PON).

Consequently, VULA would be a
natural candidate for an obligation for
HFC operators, as then FVNOs could
source their inputs from the fastest
available network in a given region.
EU members and European Commission
– 16 –
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
Solution
Why Detecon
Having Detecon as partner means optimizing NGA regulation tailored to the specific
country conditions while avoiding mistakes made by other players.
A dedicated project team brings together all regulatory,
technical, commercial and financial expertise and
experience related to NGA access regulation in
accordance with Client’s business strategy

One experienced and competent
partner regarding NGA regulation

Regulation of NGA is optimized in the
light of Client’s policy imperatives

Based on sound regulatory strategy, Detecon’s solutions
have been implemented in practice for many Clients
worldwide


Tangible solutions ready for implementation
Benefit from hands-on strategic
expertise while avoiding mistakes made
by other regulatory authorities and
operators worldwide

Integration of NGA regulatory strategy within Client’s
overall regulatory strategy

Coherence of regulatory approach to
NGA with overall strategy

Understanding of NGA challenges from NRA’s and
operator’s perspective and staff involvement

Ownership over regulatory solution

Full understanding of Client’s reality of targets, business
and local market challenges


Project team knows Client’s environment
Regulatory solutions designed for NGA
and tailored to the specific country are
relevant to Client’s actual policy goals
and business needs

Presence with a local office in Client’s region of operation

Holistic
Team of experts
from all disciplines
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Practical
Real-world solutions
instead of “theory”
Impact
Solutions with lasting
value
Customized
International
experience adapted
Client Benefit
– 17 –
© Detecon
Detecon Leverage
Regulatory experience & references
Since more than 30 years, Detecon successfully supports regulatory authorities,
governments, operators and investors in regulatory affairs all over the world.
References and clients of our regulatory projects worldwide




VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX








Sector liberalization and privatization
Regulatory instruments
Licensing and authorization regime
Access and interconnection regulation
Spectrum management & monitoring
Interconnection regulation
Price regulation (retail & wholesale)
Market analysis, definition and SMP assessment
Universal services & access
Dispute resolution & consumers‘ complaint
Regulatory enforcement
Promoting broadband development
…
– 18 –
© Detecon

Selected References
The Client leverages Detecon’s lessons learned from similar assignments in regulatory
strategy for Next Generation Access and regulation.
Client
European Commission Competition Case
Elaboration and analysis of different regulatory options including network separation and equivalence of output
and equivalence of input models. Economic assessment and quantification of options.
UAE
Development of FTTX cooperation models
Detecon defined complimentary FTTx rollout strategies and developed regulation friendly cooperation models
with competitors to facilitate CAPEX efficient rollout.
UAE
NGA BSA, ULL, dark fiber reference offer
Detecon developed a successful, optimal and sustainable access regime that enabled the operator (“du) to
grow its customer base while protecting its current revenues.
Slovak Republic
Turkey
Development of Reference Bitstream Access Offer
Defined wholesale reference broadband access portfolio and setup a regulatory negotiation strategy based on
state of the art costing and pricing strategies
BSA, LLU regulatory scenarios for Turk Telekom
Benchmarking of tariff regulation regime and regulatory decisions in selected EU member states.
Recommendations for Turk Telecom on rebalancing and retail tariff regulation. In-house cabling strategy
– 19 –
© Detecon
VP_NETWORK SEPARATION AND ACCESS REGULATION FINAL_NEU.PPTX
Slovak Republic
Reference Case
Your Contact Persons
Dr. Arnulf Heuermann
Phone:
Mobile:
Fax:
+49 221 91611550
+49 171 225 42 17
+49 221 91614630
Dr. Olaf Nielinger
Phone:
Mobile:
Fax:
+49 221 91611512
+49 151 17456395
+49 221 91614882
e-Mail: [email protected]
– 20 –
© Detecon
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e-Mail: [email protected]