APPENDIX 9
Memorandum by Nortel
1. INTRODUCTION
1.1 Nortel welcomes the opportunity provided
by the Trade and Industry Select Committee to comment on Ofcom's
Strategic Review of Telecommunications.
1.2 Nortel is a recognised leader in delivering
communications capabilities that enhance the human experience,
ignite and power global commerce, and secure and protect the world's
most critical information. Serving both service provider and enterprise
customers, Nortel delivers innovative technology solutions encompassing
end-to-end broadband, Voice over IP, multimedia services and applications,
and wireless broadband designed to help people solve the world's
greatest challenges. Nortel does business in more than 150 countries.
Nortel's Europe, Middle East and Africa Headquarters are located
in Maidenhead, Berkshire.
1.3 Communications is the vital foundation
stone in a knowledge economy. The transformational nature of communications
has impacted on the lives of people across the world for the better.
The next transformative phase of development in communications
is now upon us, the imminent deployment of so called Next Generation
Networks (NGNs). These NGNs are broadband service driven. They
usher in new ways of working and deliver new business opportunities
combined with real options of reduced business costs and yet increased
productivity. The residential consumer experience is radically
impacted through innovative entertainment choices, educational
support, valuable e-commerce opportunities and many yet unforeseen
developments. Deployment of NGNs will revolutionise the communications
environment. BT's 21st Century Network will almost certainly be
the most significant carrier class NGN deployment in the next
few years. However, BT is not alone in realising the potential
of such networks. Other operators are at the planning stages of
their own NGNs. It is in the context of understanding the profound
effects of telecommunications, and specifically the impact of
deployment of NGNs on the UK economy and society, that Nortel
contributes to this inquiry and comments on Ofcom's Telecoms Review.
In this response, Nortel will also provide its perspectives on
the future of broadband in the UK. Broadband access is essential
for NGNs and is therefore also fundamental to the success of the
UK knowledge economy in the competitive global economy.
2. NORTEL VIEW
OF OFCOM'S
STRATEGIC REVIEW
OF TELECOMMUNICATIONS—SUMMARY
2.1 Nortel has applauded Ofcom on producing
the Telecoms Review as a unique opportunity to assist in providing
much needed stability and regulatory certainty to the sector as
it moves forward and looks to create and deliver new innovative
technology. The regulator has provided some real options which
have focussed the debate. However, it is evident that the bulk
of the Telecoms Review has been focussed on the evolutionary telecommunications
regulatory environment, with in Nortel's view insufficient attention
paid in the Review itself to the imminent deployment of NGNs.
Ofcom launched the Telecoms Review in December 2003 before BT's
June 2004 announcement of the timeframe of their 21st Century
Network. Nortel believes that it was not Ofcom's intention to
sideline NGNs but that the Telecoms Review has simply been a victim
of the speed at which the communications sector moves. Nortel
acknowledge that Ofcom published a separate Next Generation Access
and Interconnection consultation over the late December 2004/early
January 2005 holiday period but argue that these questions should
have been part and parcel of the Review rather than as an apparent
add-on consultation. The detailed NGN consultation simply did
not allow sufficient time to tackle the complex 72 questions asked.
With this in mind, Nortel suggests the need for Ofcom to clearly
link the NGN consultation with the Telecoms Review perhaps in
the form of a public consultation meeting or stakeholders meeting.
2.2 Nortel has focussed its response to
the Telecoms Review on the regulation of NGNs. Nortel supports
the regulatory principles described in Ofcom's Phase Two Telecoms
Review consultation document and believes that Option 3, "real
equality of access", is the only viable way forward for the
regulation of NGNs. Nortel believes that simply relying on an
ex-post approach to the regulation of NGNs, such as the use of
the Competition Act to address problems after they have arisen
or making reference under the Enterprise Act once an NGN is in
place, will not be as effective as an ex ante approach, and would
also represent a missed opportunity.
2.3 Nortel would like to utilise the opportunity
of this Select Committee inquiry to draw attention to the need
for the regulatory framework for NGNs to be agreed with utmost
urgency. It is imperative that agreement is reached on how NGNs
will be regulated before they are deployed, as they are otherwise
unlikely to be built with ready access to the interfaces necessary
for effective regulation, potentially leading to significant problems
down stream. In a Review that is setting the regulatory framework
for the next 10 years, Ofcom must give sufficient focus to the
near future as well as those short term issues that take up most
regulatory debate at this time.
3. NORTEL VISION
3.1 Nortel's vision is to lead the way in
enhancing the human experience, powering global commerce, and
securing the world's most critical information. The way the next
generation of networking is implemented will determine success
or failure in eliminating technical and economic boundaries to
productivity and improving the security and dependability of communication.
3.2 In the past separate networks were deployed
to provide distinct communications services. Long established
Public Switched Telephone Networks (PSTNs) sat alongside those
that emerged to satisfy business data requirements. In the 1990s
there was an explosive growth in the Internet, the powerful interconnection
of distinct networks which enabled people to access servers all
over the world. However, these separate networks had little in
common as regards the technologies and infrastructures on which
they were based. They were disparate. The only significant commonality
was at the physical layer. Optical transport established itself
by the mid 1980s as the technology of choice for the physical
links within the cores of all communications networks. Although
the separate networks shared individual optical links, the networks
nevertheless remained logically separate at the optical layer
and physically separate at all other layers.
3.3 During the second half of the 1990s
the concept of NGNs emerged from R&D Laboratories. Such networks
have cores that convey Internet Protocol (IP) packets to provide
unified connectivity to enable the delivery of all the services
(voice, data, multimedia) previously provided by the disparate
networks. The intelligence associated with services that was previously
integrated with individual connectivity networks is unbundled
and moved to servers that can be accessed by these cores. NGNs
can straightforwardly offer new broadband services because data
rates are not limited by circuit switched structures. They can
deliver significant capital and operational expense savings in
comparison with the parallel deployment of separate, disparate
networks.
Nortel dedicated more than one third of the
organisation to R&D initiatives in 2003. With over 12,000
engineers, designers and scientists in more than 10 countries
around the world and more than 30,000 global employees, Nortel
brings significant experience to participate in this inquiry.
4. REGULATION
OF NEXT
GENERATION NETWORKS
4.1 The fundamental regulatory consideration
relating to a newly deployed carrier class NGN is the extent to
which it creates, perpetuates or removes economic bottlenecks.
It is such bottlenecks, if they exist, that will determine where
other operators will need regulated access to the network and
the nature and service levels of the interconnections that will
be required. Key transitional issues will arise in the move to
NGNs and they must be considered. If an NGN is being deployed
as a replacement for an existing network, issues will arise with
respect to changes in the location and topology of such interconnection
points, not least because NGNs have far less geographic dependence
than legacy networks. A careful balance has to be struck between
too rapid a transition to new arrangements, given the significant
investments made by service providers already accessing the network
being replaced, and too slow a transition requiring the NGN operator
to continue with arrangements that are uneconomic and therefore
preventing a fair return on the NGN investment. Rather than consider
these issues at length and as many directly impacted stakeholders
will devote extensive resources in this area, Nortel's response
to the Telecoms Review consultation focused on the regulatory
opportunity that NGNs present to agree on a set of generic interfaces
and "open" protocols which have the potential to enable
a service independent approach to regulation. It is Nortel's opinion
that such an approach will lead to the withdrawal of the requirements
for many of today's regulatory products.
4.2 In Nortel's response to the Telecoms
Review it has been argued that given the imminent introduction
of NGNs, the definition of a generic IP packet interface with
control over Quality of Service (QoS) addressing such issues as
packet loss and guaranteed data rates will be fundamental to the
establishment of any new regulatory regime. It will enable the
provision of leased connectivity across NGNs and provide direct
IP packet access to personal and business customers. With the
required ability to provide point-to-point and any-to-any connections,
it will enable the implementation of all forms of voice and data
networks. An IP packet interface will also enable multimedia calls
to be passed from one operator to another. Access to other forms
of an NGN's intelligence, such as that addressing the "mobility",
"location", "profile", "presence status"
and "connection characteristics" of end users, will
also increasingly become central to service provision. Whether
or not one operator should have regulated access to another's
knowledge in these areas is, of course, down to whether or not
there is an economic bottleneck or technical barrier to entry.
In this technical context we note that a service provider whose
only access to a customer is via another operator's network may
well find knowledge of say, "location", difficult to
replicate.
4.3 The requirement that protocols defined
by recognised standards bodies should be used by a dominant NGN
operator, whenever these are available, would ensure that connecting
service providers will not be restricted in their choice of equipment
supplier, and hence suffer consequential cost implications. Care
must also be taken to ensure that an NGN deployed ahead of the
final agreement on such "open" protocols does not disadvantage
operators seeking to inter-work with it, by persisting to use
proprietary pre-standardisation versions of the protocols once
the "open" ones have become the established norm. In
those cases were there is no alternative to deploying a proprietary
protocol in the long term, it will be necessary to ensure that
the necessary interconnection equipment can be multi-sourced and
is readily available on the open market. It will also be important
to prevent a dominant operator from seeking to gain an unfair
advantage by bundling processes, thereby denying access to otherwise
"open" interfaces that, whilst of marginal value if
one controls the entire NGN, might disadvantage service providers
wishing to inter-work utilising only a sub-set of its functionality.
4.4 The need for some legacy interconnection
services will nevertheless persist with NGNs. An operator seeking
to exploit another's NGN network may find its ability to offer
some services compromised by the latter's IP architecture. However,
over time we envisage that most of these services will migrate
to using a QoS controlled IP interface.
4.5 In order to protect the integrity of
the networks on either side of such a QoS controlled IP interface,
some form of Border Gateway functionality will be needed which
incorporates an appropriate "firewall" capability. As
the ultimate destination of the IP connectivity is entirely separable
from its geographic origination, the location of the "IP
peering points" incorporating this functionality will be
key to whether a particular operator can utilise another's network
to gain access to remote customers cost effectively. In an environment
where one NGN operator has a dominant market position, the regulation
of the location of such "IP peering points" may well
prove to be a useful instrument. This is particularly so given
that the location of the legacy interconnection points are not
so easily separable from considerations of geographic origination,
being instead dictated to a large extent by the topology of the
network. There may therefore be value in some form of quid
pro quo arrangement, in which the connecting operators have
a major say in the location of the "IP peering points"
with the dominant operator, in order to relieve existing bottlenecks
and prevent the creation of new ones.
4.6 If each service provider connecting
to a given peering point were to deem it necessary to deploy its
own equipment to ensure network integrity, it would lead to equipment
duplication, and introduce unnecessary cost. Such duplication
would be redundant if all parties were confident that the peering
point provided adequate protection, for example by being under
the control of a trusted third party. Such issues, together with
that of who bears the cost of installing and managing such peering
points, will need to be carefully addressed to ensure that the
introduction of NGNs does not lead to new economic bottlenecks
and hence major regulatory issues in the future.
4.7 With connectivity extending all the
way to end users through an access network, it matters not whether
it is based on fixed, mobile or hot-spot technology. It is simply
the means by which service providers gain broadband access to
customers, to provide services and to enable them to communicate
with one another.
4.8 Nortel would also like to draw the Committee's
attention to the fact that NGNs will remove many of today's requirements
on "who does what" and "where". This is important
as it demonstrates why telecoms regulation should be harmonised
across the EU and wider if possible. NGNs enable "tunnels"
to be constructed to connect an end user to any server, enabling
services to be provided from anywhere in the network and anywhere
in the world. A server can be connected to a portion of the network
owned by a carrier or an enterprise. Indeed, the distinction between
carrier and enterprise solutions becomes a question of who owns
what network component and where it is located. An individual
teleworking from home or hotel or on the move and using mobile
or nomadic wireless access can receive service either from a carrier
or from his or her own company network. Regardless of who provides
the service, the server hosting it can be located in another country.
In cases such as the provision of new voice services using IP
(Voice over IP—VoIP) it is therefore crucial that regulation
is harmonised across Europe. Country specific regulatory variants
will only increase cost and hold back the benefits of a future
network. Nortel firmly supports Ofcom's participation in regulatory
policy discussions held at the international level amongst National
Regulatory Authorities and the European Commission not least Ofcom's
active participation in the VoIP sub-group of the European Regulators
Group.
5. BROADBAND
5.1 Broadband has been the fastest taken-up
mass-market technology in history, ahead of the CD player, video
game and even mobile phone. However, even with more than six million
people in the UK now connected via broadband the UK cannot afford
be complacent. The UK's place in the global competitive economy
rests on the challenge of how to build on such previous success
and move to the next stage of development, tackling the demand
for increasing bandwidth, the threat of a "broadband fixed
access bottleneck" and the subsequent need for investment
in services and infrastructure. In order to meet future demand
and roll out new applications and services, deployment of fibre
closer to the end user is crucial. Failure to create the right
framework to realise this deployment will put at risk the UK's
position as an attractive market for future economic investment
as the communications infrastructure required for a world leading
economy would not be in place.
5.2 Nortel expects the take-up of broadband
to continue to grow as the citizen-consumer becomes increasingly
aware of the benefits to both their work and home life. As take-up
increases, demand for services that require broaderband networks
will emerge. NGNs have the potential to transform the operating
model of enterprises. With sufficient fixed access bandwidth,
multi site enterprises will be able to reduce their operating
costs by centralising servers and storage. They will be able to
gain the financial advantages of networks with elements placed
with productivity and resilience in mind, rather than having to
accept the operational costs of architectures dictated by the
need to accommodate access bandwidth restrictions. To gain these
advantages the fixed access networks deployed to large office
locations must have sufficient bandwidth to eliminate the bottleneck
between the networks deployed in such offices and the core networks.
It is certain that data rates will increase with time, which means
that enterprise access networks must be capable of being straightforwardly
upgraded to support ever increasing data rates with time. Deployment
of Fibre all the way to large offices is the only solution that
can remove the "broadband bottleneck" today, let alone
tomorrow.
5.3 It is Nortel's view that broadband penetration
in the home will not be limited to the PC which is already heavily
utilised for entertainment, information and education in many
family homes or to the increasing numbers of teleworkers, but
as we have witnessed with games consoles, other home appliances
will become broadband enabled. What is evident is that the Asymmetric
Digital Subscriber Loop (ADSL) and today's generation of cable
modems which deliver equivalent bandwidths, will not be able to
cope with the bandwidth requirements of such innovation in the
home. We are already beginning to witness a residential "broadband
bottleneck" with the potential for many PCs per residence
and access requirements measured in units of 10s of Megabit/sec.
As services per customer are defined which work at bandwidths
progressively higher than today's copper loop, serving multiple
consumers in the household will clearly require multiples of this
bandwidth. Similar access rates will probably satisfy the requirements
of small offices. On this basis, it is clear that the UK is currently
using network infrastructure that cannot cope with 21st century
needs. In order to roll-out the anticipated applications and services,
deployment of "broaderband" to the home is essential.
5.4 There are a number of next generation
"broaderband" technologies that can be utilised to provide
the final drop to users. These technologies include high speed
variants of Digital Subscriber Loop (DSL) operating over short
reach twisted pairs, wireless, co-axial cable and fibre itself.
In this context the Cable Television (CATV) networks already deployed
in many countries, such as that by NTL and Telewest in the UK,
represent substantial investments in next generation access.
5.5 All next generation access deployments
have one thing in common. They require a high capacity backhaul
from the drop point to the network core that can only be implemented
using fibre or wireless technology. As it is doubtful that there
will ever be sufficient spectrum to satisfy the requirement of
mass market wireless backhaul, the majority of such new access
networks will be dependent on the deployment of further fibre.
The deployment cost of such fibre is the gating factor in the
roll-out of NGNs to enterprises and residences. More precisely,
the gating factor is the cost of the civil works required to install
ducting. These approach 85% of the total network installation
cost as the fibre gets closer to individual residences. The very
high costs of digging to deploy new fibre could make the rapid
roll out of more fibre prohibitively expensive for any individual
operator, particularly given the risk that an operator could at
some stage be forced to open up access to that infrastructure
to other competitors. Other countries are addressing this barrier
either through public ownership, subsidies or regulatory incentives
in order to stimulate investment ahead of the demand curve. Only
in those countries where there is existing widespread Hybrid Fibre
Coax (HFC) coverage for CATV is there likely to be a sufficient
market driven incentive for other operators to invest in costly,
and potentially risky, competitive new next generation access
deployments. Given that there is no such market driven incentive
in the UK, it is imperative that lateral ideas are aggressively
investigated. The UK plc needs to consider the implications of
international competitors being one or two generations ahead in
terms of broadband deployment. It is not evident that the UK government
would be willing or able to subsidise on the scale of Korea, Japan,
or even Sweden and therefore a third way is required.
5.6 The Civil Infrastructure Utility (CIU)
concept has been considered as the third way. By decoupling the
cost of civil infrastructure from the cost of technology it may
be possible to find a more efficient way of financing the deployment
of NGNs in a pro-competitive way, which could allow for their
timely widespread deployment across the UK, without the public
sector having to bear a significant proportion of the risk. The
concept could be established as a fully private venture or a public-private
partnership with the relevant public authorities. In either case,
the third party is prevented from providing telecommunications
services to end customers. To the contrary, it is restricted to
being a "real estate owner" that leases capacity to
businesses, in this case telecom operators. However, the CIU concept
still presents threats and opportunities for all operators with
most remaining appropriately sceptical at this stage of the case
for a CIU approach, viewing it as an unwelcome intrusion in the
competitive landscape. Nevertheless, a third way is still required.
The CIU concept provides one potential approach to the challenge
of financing the deployment of next generation broadband services
in the UK. The advantages for the potential investor rely on low
risk and would include a very long life cycle. In contrast the
disadvantages include that it would be a very big investment with
low return and a long payback period.
5.7 The fundamental background remains the
same, as demand for bandwidth continues to grow, investment in
the deployment of fibre closer to the home, and all the way to
the large office is crucial. Nortel welcomes that Ofcom's Annual
Plan for 2005-06 details that Ofcom will be undertaking a review
of second-generation broadband as one element of one of its priorities
that of "Understanding future developments". It is welcome
that one of the elements to be looked at in this review is the
business climate for investment in new networks.
6. CONCLUSION
6.1 The introduction of Next Generation
Networks (NGNs) presents an excellent opportunity to develop a
new approach to regulation. Nortel believes that since the Telecoms
Review outlines the regulatory framework for the next 10 years
more emphasis should have been placed on NGNs rather than today's
immediate short-term problems. Despite this criticism, Nortel
recognises the innovative work carried out by Ofcom and interested
stakeholders to get to the point the Review and industry positioning
has reached today. Such outcomes would surely have been doubted
only one year ago. Nortel also welcomes Ofcom's understanding
of the importance of the international stage and the need for
more harmonised telecoms regulation across the EU. Therefore,
Nortel again welcomes news that international engagement will
be one of Ofcom's seven priorities for the year 2005-06.
6.2 The Ofcom Telecoms Review has been very
welcome and has provided industry and all stakeholders with real
regulatory options. The consultation process has been well handled.
In addressing the options laid out in the Phase Two document,
it is Nortel's view that real "equality of access" to
an NGN entails the definition of a generic IP packet interface
with control of Quality of Service, together with access to other
forms of an NGN's intelligence. Such access will enable a service
independent approach to regulation to be developed, and will lead
to the withdrawal of the requirements for many of today's regulatory
products. Given that the deployment of NGNs is imminent, it is
imperative that the nature and regulation of such interfaces are
agreed without delay. Nortel would welcome the opportunity to
provide the Committee with additional information on any specific
points of interest.
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