Convergence: A mixed blessing?

Rethinking the basic tenets of telecommunication regulation, licensing and spectrum management

Convergence is finally here and shaping the future of communications, confirms ITU’s latest report: Trends in Telecommunication Reform 2004/2005. Aptly themed “Licensing in an Era of Convergence”, the report underlines that the information and communication technology (ICT) sector is undergoing a radical transformation from an industry based on the “plain old telephone service” (POTS) to one that provides voice, data, and multimedia applications on both wire-line and wireless networks. The report was published to coincide with the Global Symposium for Regulators (Geneva, 8–10 December 2004).

An industry that was once based on the “plain old telephone service” is being transformed into one that provides voice, data, and multimedia applications on both wire-line and wireless networks Philips

As a technological, market and regulatory trend, convergence is rasing a dizzying array of regulatory and legislative issues that policy-makers and regulators will have to address, particularly in the area of licensing. This sixth edition of Trends in Telecommunication Reform explores many of these issues in a bid to launch a global dialogue on licensing and convergence in the ICT sector. For example, can policy-makers and regulators completely deregulate the licensing of spectrum? How can they move to a converged licensing framework without unduly benefiting either incumbents or new market entrants? If new and existing participants in the market are less tightly licensed, how can regulators ensure that the public interest is served appropriately? Can governments pull back on licensing and still push operators to attain societal objectives such as universal access?

What is clear is that a number of pioneering governments are revamping their licensing and regulatory frameworks with the goal to better promote affordable access to the entire gamut of communication services from voice to high-speed Internet access. The Global Symposium for Regulators is expected to issue a statement of “Best Practice Guidelines for the Promotion of Low Cost Broadband and Internet Connectivity”.

Convergence: A rose by any other name

Wireless connectivity to online music: A broadband Internet audio system Philips

Historically, service providers have used different types of networks to deliver voice, video and data offerings. And end-users typically used different equipment to receive these services. But all of this has changed with technological developments now blurring the boundaries between different wire-line and wireless transmission technologies, including those using the Internet Protocol (IP). Old copper networks are being upgraded and re-fitted as digital subscriber line (DSL) broadband networks, enabling high-speed Internet access for multimedia applications such as video clips and music downloads. Increasingly, the voice traffic carried on these retooled networks is shifting to voice over IP, or VoIP and voice over broadband (VOB). As shown in Figure 1, there were just under 170 billion minutes of international voice traffic in 2003, of which 87 per cent travelled over traditional switched networks and 13.1 per cent (or 22 billion minutes) was routed using VoIP.

Sound technology for people on the move: An MP3-CD player

Cable television (CATV) systems, formerly used simply to convey broadcast content to subscribers, are also being re-fitted as interactive networks offering video-on-demand content, broadband Internet access and voice telephony. CATV operators now can compete head-to-head with telecommunication operators across a range of market segments. The new paradigm for service providers is to offer bundles of ICT services — a “triple play” of voice, broadband Internet access and broadcast services — all in one monthly price package.

So, with a full array of services and applications now available from multiple network operators and service providers, it is difficult to distinguish between voice, data and broadcast networks. From the consumer perspective, all of these previously different networks are beginning to look the same, because they can deliver virtually the same services and content. Manufacturers are beginning to respond with wireless devices that can transmit multimedia data around the house, so that video downloaded on a desktop computer may be viewed on the family television.

Figure 1 — What is happening to international voice traffic? Trends in international voice traffic on public switched telephone networks (PSTN) and voice over IP (VoIP) in billions of minutes (1997–2003)
Source: ITU/TeleGeography “Direction of Traffic” database, and ITU World Telecommunication Indicators Database. TeleGeography Inc. is now part of PriMetrica (see www.primetrica.com).

Add to this mix the rapid rise of mobile cellular voice services, the advent of third-generation mobile services (3G or IMT-2000), the emergence of new fixed wireless broadband technologies such as Wi-Fi and Wi-MAX, and it is not surprising that regulators and policy-makers in developed countries are in the process of completely re-thinking some of the basic tenets of telecommunications regulation, licensing and spectrum management.

A new era in licensing

In the early days of telecommunication sector reform in the 1980s and 1990s, many countries initially used licensing as a vehicle to control market entry and to impose regulatory obligations. But even after the initial stage of market liberalization, the licensing process in some countries still provides a means of gatekeeping to control market entry. Nevertherless, in this new era of convergence, more and more policy-makers are questioning the utility of licensing and demanding that licences be adapted to achieve policy goals without hindering market development and technological advancement. These concerns have been translated into two significant trends: an expansion in the number of services subject to minimal or even no licensing and the development of converged licensing frameworks that break down traditional service and technology-based licensing distinctions. Some examples of the various forms of converged licensing regimes being implemented around the world are shown in Table 1.

Is licensing really necessary?

Licences do not have the same importance in all countries. In a few countries where monopoly operators have been privately owned — particularly in the United States and Canada — telecommunication licensing is not widely used as a regulatory instrument. Instead, regulatory rules are enacted through the regulations, codes, decisions or orders made by the regulator.

Given the widespread availability of alternative regulatory instruments to regulate the behaviour and activities of operators in the market, the need to impose licensing requirements in general has been questioned. One example of reduced licensing can be found, nearly worldwide, in the growth of Internet service providers (ISP). Typically, ISPs do not own extensive transmission facilities and instead rely upon lines leased from underlying network providers. The economic barriers to entry into the ISP market are low, and robust competition is possible even in smaller geographic markets. Consequently, some countries have established “open entry” policies for ISPs. New providers do not need to obtain individual licences or other formal approvals from the government before entering the market — nor do they even have to notify the regulator before beginning operation. Other countries require notification, but not before operations begin. Research suggests that countries requiring formal regulatory approval for ISPs have fewer Internet users and hosts than countries that do not require such approval. Even with open-entry or simple notification policies, ISPs may still be subject to government oversight in areas such as consumer protection. They often come under general business regulation that applies to all commercial entities — or at least a certain group or “class” of companies. Specific groups or classes may be singled out for general authorization requirements or “class licences.” Or, specific rules or regulations may be applied to that narrow group.

Spectrum for licence-exempt use

The allocation of spectrum for licence-exempt use is increasingly viewed as a catalyst for the development of more efficient and cost-effective wireless technologies. By late 2004, 55 countries had allocated spectrum for unlicensed use. The United States is one of the countries that allows unlicensed spectrum to be used for any lawful purpose, including broadband access to the Internet. In such an environment, companies and organizations have emerged to provide broadband Internet access in areas not served previously. One example that is often cited is the Southern California Tribal Digital Village, which uses the unlicensed Wi-Fi (wireless fidelity) technology to provide broadband access to more than 12 000 Native Americans in 17 different tribal communities spread over an isolated and vast geographic area.

Towards a converged licensing framework

From individual licensing to general authorizations

With the emergence of new fixed wireless broadband technologies such as Wi-Fi and Wi-MAX, regulators and policy-makers are rethinking some of the basic tenets of telecommunication regulation, licensing and spectrum management 040107/Photos.com

In a number of countries today, licensing requirements for many services are being eased in order to remove barriers to market entry and boost competition. Instead of requiring individual licensing and lengthy application procedures, general authorizations are increasingly used for a growing number of services. A prime example of this trend can be found in the Member States of the European Union (EU), which has taken a major step to create a single licensing classification for all electronic communications. Through its Authorization Directive, the EU wants to create more consistent licensing throughout its 25 Member States.

With the exception of assigning radio frequencies and numbers, the EU has replaced individual licences with a general authorization to provide all electronic communication networks and services under a new regulatory framework for electronic communications. This new regulatory framework that entered into force in July 2003 is also technology neutral, and aims to be sufficiently flexible to deal with converging markets. The authorization rules lay down an administratively simple, “light-touch” procedure allowing companies to enter markets quickly. But despite its flexibility, the new regulatory framework still requires constant evaluation and review. The European Commission must conduct such a review not later than 2006 to discuss issues related to authorization and convergence.

From service-specific to generic licences

Malaysia’s Communications and Multimedia Act (CMA), enacted in 1999, has established a regulatory framework designed explicitly to reflect and accommodate convergence. In particular, the CMA introduced a technology- and service-neutral licensing regime for telecommunications and broadcasting that reduced that country’s thirty-one service-specific licences to four generic categories of licences as follows:

• Network facility providers: Infrastructure including satellite earth stations, fibre-optic cables, communication lines and exchanges, radio communication and transmission equipment, mobile communication base stations and broadcasting towers and equipment.

• Network service providers: Basic connectivity and bandwidth to support a variety of applications and connect different networks. This includes cellular, broadcasting distribution and mobile satellite services.

• Application service providers: This category is for licensees that provide specific functions such as voice, data and electronic commerce services. It also includes Internet access, IP telephony, radio paging and audiotext.

• Content applications service providers: This classification covers a special subset of applications and includes traditional broad-cast services, online publishing and information services.

The Malaysian Commission for Multimedia and Communications, the national regulatory authority, began migrating telecommunication and broadcasting providers to the new licensing regime in 1999. Under the previous licensing regime, 220 licences had been granted (of which 180 were active) in the 31 service categories. Licensees were encouraged to migrate to the new regime, and 135 of them agreed to obtain new lincences. The others had either gone out of business, were no longer interested in providing service or were offering services that no longer required a lincence. This migration process was completed in 2002, and could offer some lessons.

Unified licensing framework

Going a step further, some countries have begun to introduce measures to create a unified licensing model. India’s move towards a unified licensing regime provides some insights into this trend. In a consultation paper issued in March 2004, the Telecommunications Regulatory Authority of India (TRAI) proposed several unified licensing models. Already, in October 2003, TRAI had recommended implementing a unified licensing regime in a two-stage process. And as a first step, a unified access regime for basic (fixed) and cellular services was established in November 2003. Under the unified access licensing regime, both fixed and mobile service providers are free to offer their services using any technology.

The next stage was to define guidelines and rules for a comprehensive, fully unified licensing regime for all services. On 6 August 2004, TRAI issued detailed draft recommendations on this new regime (www.trai.gov.in), following a consultation process.

The creation of a simplified, single licensing classification has been touted as ideal in terms of simplicity and neutrality. However, it is important to note that there are limits to such an approach. Spectrum management, in particular, presents a challenge to the implementation of a single licensing classification. Under the present approach to spectrum management, frequencies are divided into bands and then allocated to specific services on a global and national level. The aims of this process are to minimize interference and promote harmonization and economies of scale in equipment manufacturing. Consequently, most countries assign spectrum usage rights on a technology- or service-specific basis. Notable exceptions include Australia, New Zealand and Guatemala, where flexibility of spectrum use is allowed.

Technology and service neutrality

One of the key goals in moving to a converged licensing framework is to achieve technology neutrality. This term is intended to convey the meaning that a licensee retains the ability to choose the technology and equipment he or she will use to provide the licensed service. So, for example, a rural universal access project that subsidizes a pay-phone service can be considered technology neutral if the operator is left to choose which technology or architecture is economically optimal to deliver the service. That choice could be a VSAT (very small aperture terminal) system, use of a mobile cellular architecture or spectrum, or a fibre network — or, in fact, a combination of all those approaches.

Yet technology-neutral licensing is not necessarily synonymous with a single, umbrella licence that covers all ICT services. Perhaps the best example of technology neutrality without service neutrality is when a government issues mobile service licences but allows the operators to choose whether to employ GSM or CDMA technology.

A technology-neutral licensing regime provides a fair and predictable regulatory regime flexible enough to embrace technological and market developments.

In addition to experimenting with technology neutrality, governments are increasingly moving to service-neutral licensing. This allows licence holders to take cues from the market as to which services are most in demand or most cost-effective. A generic licence then empowers operators to offer a variety of different services and applications, tailored to fluctuations in market demand. Converged licensing frameworks that incorporate technology and service neutrality increase the scope of applications and services that any operator can provide, using its choice of technologies. Many countries such as Australia, the EU Member States and Malaysia have adopted converged licensing regimes (see Table 1 above for more examples).

Conclusion

While the introduction of more flexible and straightforward licensing regimes is clearly the trend today, regulators are nevertheless confronted with a large number of challenges and choices in their progress towards this ideal. Beyond the adoption of a converged licensing model, issues such as spectrum management, the setting of licence fees, ensuring a level playing field and the pursuit of public policy goals, including universal access also have to be dealt with as part of the process. Left unchanged, the licensing process can be an obstacle to the development of a telecommunication market.