Subject: [Speermint] Background Reading on NGN Interconnect

From: "Stastny Richard" <[email-masked]>
Date: Fri, 31 Mar 2006 22:58:57 +0200

Folks,
 
Weekend reading
 
Since we obviosly are dealing more with NGN Interconnect in Speermint,
I recommend everybody on this this list to read the excellent Background Paper
from Scott Marcus - Interconnection in an IP-based NGN Environment
http://www.itu.int/osg/spu/ngn/documents/Papers/Marcus-060323-Fin-v2.1.pdf
 
to his presentation 
http://www.itu.int/osg/spu/ngn/documents/presentations/marcus-23-march-2006.ppt
given at the ITU-T Workshop last week
What Rules for Ip-eneabled NGNs?
http://www.itu.int/osg/spu/ngn/event-march-2006.phtml
 
The agenda and some other excellent presentations can be downloaded from
here:
http://www.itu.int/osg/spu/ngn/presentations.html
 
In addition I would also like to point to a CEPT ECC Draft Report
on the Future on Numbering, tabled for the next ITU-T SG2 Meeting
as TD 198-GEN. 
https://mail.oefeg.at/exchweb/bin/redir.asp?URL=http://www.ero.dk/2713222D-C8AF-4407-BE53-131EA2EED278?frames=no%26
The document is in public consultation and not final yet.
It contains also some statements regarding termination rates.
 
The paper from Scott is on-topic regarding the current discussion here
and dealing with both the European and US situation

Scott Marcus is currently living in Europe, but in his former life
he was Senior Advisor to the FCC and also CTO for GTE Interworking,
so his knowledge is not only theoretical.
 
In the document also contains a definition on peering and transit from the FCC is given:
 
The two most prevalent forms of Internet interconnection are peering and transit. For a definition of these 
terms, we turn to a publication of the Network Reliability and Interoperability Council (NRIC), an industry 
advisory panel to the U.S. FCC: 
 
Peering is an agreement between ISPs to carry traffic for each other and for their respective 
customers. Peering does not include the obligation to carry traffic to third parties. Peering is usually a 
bilateral business and technical arrangement, where two providers agree to accept traffic from one 
another, and from one another's customers (and thus from their customers' customers). ... 
 
Transit is an agreement where an ISP agrees to carry traffic on behalf of another ISP or end user. In 
most cases transit will include an obligation to carry traffic to third parties. Transit is usually a 
bilateral business and technical arrangement, where one provider (the transit provider) agrees to carry 
traffic to third parties on behalf of another provider or an end user (the customer).  In most cases, the 
transit provider carries traffic to and from its other customers, and to and from every destination on 
the Internet, as part of the transit arrangement.  In a transit agreement, the ISP often also provides 
ancillary services, such as Service Level Agreements, installation support, local telecom provisioning, 
and Network Operations Center (NOC) support. 
 
Peering thus offers a provider access only to a single provider's customers. Transit, by contrast, 
usually provides access at a predictable price to the entire Internet. ... Historically, peering has often 
been done on a bill-and-keep basis, without cash payments. Peering where there is no explicit 
exchange of money between parties, and where each party supports part of the cost of the 
interconnect, ... is typically used where both parties perceive a roughly equal exchange of value. 
Peering therefore is fundamentally a barter relationship
 
Here the Executive Summary of the paper:
 
This report considers the likely evolution of interconnection arrangements in the context of IP-based Next 
Generation Networks (NGNs). 

The NGN represents a synthesis of existing world of the "traditional" Public Switched Telephone Network 
(PSTN) with the world of the Internet. The economic and regulatory arrangements for the two have 
historically been very different. What should happen when these two worlds collide? 

Many of the networks created over the past ten years contain most of the key elements of an NGN. Most, if 
not all, of the technology necessary for IP-based NGN interconnection has been available for five to ten 
years. Advanced approaches to interconnection have been slow to deploy, even where the technology has 
been mature or within hailing distance of maturity. 

The NGN interconnection problem is best understood, not as a problem of technology, but rather as a 
problem in economics. With that in mind, this report seeks to review what is known about interconnection 
from an economic perspective, in order to reach conclusions about the prospects for deployment going 
forward and the corresponding implications for policymakers. 

A substantial body of economic theory has been developed over the past decade as regards interconnection in 
the traditional PSTN. A smaller body of solid economic research has emerged in regard to interconnection of 
IP-based networks. At the level of economic theory, the PSTN and the Internet are not worlds apart. 
Economics provides the necessary bridge between the two worlds, illuminating both the similarities and the 
differences in these two environments. 

This report begins by laying out, for the most part at a non-technical level, the established theory of 
interconnection, for both the PSTN and the Internet. Wholesale and retail arrangements are considered 
separately. Most of the observed behavior of these economic networks can be explained in terms of a 
constellation of known economic effects: market power, the termination monopoly, demand elasticity, 
network exernalities, transaction costs, service differentiation, price discrimination, and the Coase theorem 
(which says that private parties can often negotiate arrangements more efficiently than government 
regulators, provided that necessary preconditions have been met). 
 
With this theory in hand, the report considers the implications for the deployment of differentiated Quality of 
Service, and of universal service. We also consider the implications of IP-based technology - with the 
layering, and the changes in industry structure that it implies - service providers become independent of the 
network, but neither is well equipped to measure or to charge for the other's resource consumption. 
 The last section of the report represents a hypothetical scenario, a "thought experiment", where the historic 
wired and mobile incumbent of European country upgrades its networks to an IP-based NGN. We consider 
the likely results in terms of regulation of the access network, and of interconnection; likely domestic and 
international interconnection arrangements; and the implications for ubiquitous support of QoS. Key findings 
include: 
*  Provided that markets for Internet transit and for consumer broadband Internet access are effectively 
competitive, a "Coasian" interconnection regime is likely to be more efficient, and more consistent 
with consumer welfare, than a regulated regime. 
*  Conversely, where these markets are not effectively competitive, mandates for interconnection at the 
IP level may prove to be unavoidable, particularly once existing PSTN interconnection is withdrawn. 
The migration to NGN potentially creates new sources of market power, at the same time that it 
creates new possibilities for competition. 
*  Policymakers might consequently be well advised  to focus their attention first on ensuring 
competitive markets, and only secondarily on interconnection. 

Current Calling Party's Network Pays (CPNP) arrangements contain a number of implicit subsidies. In the 
world of the NGN, where services providers and networks operators may be different entities, these 
subsidies need major re-thinking - call termination payments that were intended to finance the terminating 
network would, by default, flow to independent VoIP service provides who have no network to support. In 
the absence of termination fees, independent VoIP providers would tend to compete price levels for 
telephony service, independent of the network, down to levels not greatly above cost, which would appear to 
be a societally desirable outcome.
 
The thought experiment does not flatly preclude the possibility that governments might somehow erect a 
new system of subsidies to replace the old, but it suggests that any subsidy system will be difficult to sustain 
over time in the face of new forms of competition enabled by the IP-based NGN - all provided, once again, 
that underlying markets (especially for wholesale Internet transit and for retail Internet broadband access) 
remain effectively competitive. A system of Coasian private arrangements, in the absence of vertically 
integrated competitive bottlenecks, seems likely to lead to unsubsidized arrangements at wholesale and retail 
price levels not greatly in excess of cost. 

cheer
Richard

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