Final Report for OSIPTEL Design of optimal policies in a communications and media convergence environment Final report and recommendations 28 August 2009 Ref: 13896-164 Contents 1 Executive summary 1 1.1 Network convergence 3 1.2 Service convergence 6 1.3 Device convergence 7 1.4 Conclusions 7 2 Introduction 10 3 Convergence defined 12 4 Technology analysis of convergence 19 4.1 Network convergence 19 4.2 Service convergence 78 4.3 Device convergence 88 4.4 Other key technology issues 93 5 Competition and convergence 100 5.1 General assessment of competition trends in Peruvian telecommunications market 100 5.2 Competition between converged network operators 103 5.3 Competition in the provision of converged services 135 5.4 Competitive supply of converged devices 148 5.5 Product and market strategies for converged services 151 5.6 Other competition issues for emerging markets in the context of convergence 156 6 Policy recommendations under convergence in Peru 162 6.1 Relevant market analysis 164 6.2 Policy recommendations at the network level 170 6.3 Policy recommendations at the service level 199 6.4 Policy recommendations at the device level 212 6.5 Other specific policy recommendations in relation to convergence 213 7 Conclusion 232 7.1 Policy recommendations and impact on the Peruvian market 232 7.2 Policy recommendations in OSIPTEL’s regulatory framework 238 Annex A: Case studies on service bundling worldwide Annex B: Transcripts of interviews with industry stakeholders Annex C: Glossary of terms Ref: 13896-164 Design of optimal policies in a communications and media convergence environment Confidentiality Notice: This document and the information contained herein are strictly private and confidential, and are solely for the use of OSIPTEL. Copyright © 2009. The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not be reproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished. Analysys Mason Limited 818 Connecticut Avenue NW Suite 300 Washington DC 20006 USA Tel: (202) 331 3080 Fax (202) 331 3083 [email protected] www.analysysmason.com Ref: 13896-164 Design of optimal policies in a communications and media convergence environment | 1 1 Executive summary OSIPTEL commissioned Analysys Mason Limited (‘Analysys Mason’) to analyze in detail the challenges and implications presented by convergent telecommunications services and technologies in Peru from three primary standpoints, namely technology, competition and regulation. The overall outcome of this project is an optimal set of policy recommendations to modify the current telecommunications regulatory framework in Peru. These recommendations will ensure that the process of convergence in Peru provides the maximum benefit for consumers and the economy at large, whilst serving OSIPTEL’s primary objectives such as increasing access and network coverage, and improving key performance indicators (KPIs) of the wider industry. Traditionally, the type of services or content delivered over a particular network have been intimately tied to the nature of the communications network, as shown in Figure 1.1 below. TELECOMS REGULATOR BROADCASTING REGULATOR Fixed Mobile TV Radio Desk phone, Mobile Satellite Cable box Antenna Radios computer phone dish/box DEVICES Voice, basic Radio Mobile voice TV programs data programs SERVICES GSM/ TDM NTSC, PAL,SECAM FM/AM CDMA Copper Cellular Satellite Broadcast Radio Coax PSTN spectrum spectrum spectrum spectrum NETWORKS Figure 1.1: Telecommunications, radio-communications and media industries before convergence [Source: Analysys Mason] However, the development of methods to provide various services using a common protocol – the Internet Protocol (IP) – motivated network operators to begin widening their service portfolios both as a means of generating further revenue, as well as shoring up existing revenue streams imperiled by such developments as product commoditization. The set of actions and consequences arising from this form the basis of convergence. Briefly: Convergence is the ongoing development and provision of voice, video and data services, either singly or in combination, over IP-enabled networks using a variety of fixed and mobile devices . Ref: 13896-164 Design of optimal policies in a communications and media convergence environment | 2 The process of convergence can be distilled under three broad headings: • convergence of networks – the increasing ability of different types of networks to carry IP- packaged content • convergence of services – the increasing ability to offer any subset of voice, data or video services over a particular IP-enabled network • convergence of devices – the increasing ability to offer either multiple services over a single network using the same device or a single service over multiple networks using a single device. Figure 1.2 below illustrates the structure of the communications and media industry as a result of convergence along these three dimensions. Note that as a result of this process, there is acceptance and support for the idea of converged regulatory frameworks as being the most efficient and optimal structure for governing the industry. CONVERGED REGULATOR CONVERGED DEVICES Fixed devices Portable/mobile devices Desktop computers, game consoles, Laptops, handsets, iPods/music players desktop phones, servers CONVERGED SERVICES Advanced video Voice services Advanced data services services Voice calls, enhanced Internet data access, Live TV streaming, VoD, voice services games, Internet radio video conferencing IP CONVERGED NETWORKS Wireline access networks Wireless access networks Copper, fiber, hybrid fiber coaxial 3G/4G, WiFi, WiMAX, satellite (HFC), powerline Figure 1.2: Communications and media industry after convergence [Source: Analysys Mason, 2008] Ref: 13896-164 Design of optimal policies in a communications and media convergence environment | 3 Developing and emerging markets have a unique opportunity in this convergent climate to rapidly close the advanced services gap with the most technologically developed countries. The very swift process of convergence means that network and service providers in emerging markets do not have to go down the same developmental path followed by those in more developed countries – instead, the ability to leapfrog certain steps and deploy the most optimal advanced technologies provides a means to close the gap quicker than would otherwise be possible, and allow the populace a chance to join in the benefits being enjoyed by consumers in more technologically developed countries. 1.1 Network convergence The key to promoting convergence is to promote broadband Internet access, based on IP. In order to do this, investments will need to be made in upgrading or deploying infrastructure ranging from core or access network equipment to access devices: There is a massive infrastructure investment required to deploy FTTx architecture, but currently in Peru there is relatively low current demand for bandwidth. Additionally, the fixed subsidiary of Telefónica, Telefónica del Perú (‘TdP’) owns both the main cable and the DSL infrastructure (which reduces the impetus for network upgrades from competition), although there is another significant hybrid fiber coaxial (HFC) infrastructure owned by Telmex. • In terms of wireless access networks, the best candidates to offer wireless broadband will be 3GPP and WiMAX-based networks. A significant factor in the choice of operators between each of these technologies will be the spectrum made available to each operator. However, as both technology options become standardized in more bands, more flexibility will be available to each operator in choosing the most appropriate technology for a viable business model. • Core next-generation networks (NGNs) are being widely implemented worldwide due to the cost savings resulting from advanced technologies, and are generally the result of commercial decisions by operators. Implementation can range from complete overhauls (such as that of BT’s core network in the UK) to more gradual implementations on an exchange-by-exchange basis as the need arises (an approach adopted by Telefónica). Wireline networks have a completely different fixed/variable cost profile compared to wireless networks. Wireline operators in Peru face a significant variable cost of extending their networks to reach each additional subscriber, as they have to deploy last-mile loops. Without subsidies, connection charges would have to be significant for each new subscriber to the wireline network, as incremental revenues are not likely to be sufficient to cover costs, particularly for low-income callers with low call volumes. As such, regulatory recommendations focus on promoting the deployment of wireless access networks as the most efficient means of providing voice services, as well as increasingly fast broadband services. In this regard, universal access funds will be key for addressing underserved Ref: 13896-164 Design of optimal policies in a communications and media convergence environment | 4 and unserved areas. For wireline networks, in order to maximize their potential, the focus is on wholesale access to essential facilities, e.g. through bitstream access for DSL competition. Operators deploying networks require affordable access to capacity and leased lines, infrastructure for international traffic and Internet exchange points (IXPs). Our analysis