Moving towards the Next Generation Networks(NGN) (Technical, economic and regulatory study) Summary / October 2002

Study published by Arcome Office for l'Autorité de régulation des télécommunications

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Table of Contents

1 Preamble: context and objectives

2 Network intelligence and third-party services

3 Varying degrees of maturity and technological complexity

4 Several migration approaches

5 Deep evolution of market players relationship

6 Regulation Issues :

Figure 1: General principle of NGN architecture (Source: Arcome)


The move to NGN – Study summary


1  Preamble: context and objectives

The evolution of networks and services towards the Next Generation Networks or NGN is a major trend in telecoms, and of great interest to the market. We see manufacturers demonstrating their new products at trade shows and conferences, while debates on the move to all IP and on the conditions of implementing viable economic models for operators and service providers, in the framework of UMTS, fill the columns of the specialized press.

Regulatory authorities have to ensure that the market emerging from this evolution is equitable, open and competitive. They also have to be able to identify as quickly as possible future areas of interest related to their activity in order to best fulfil their missions. In the hope of better understanding the technical, economic and regulatory issues dealing with this evolution (which appears to be a long-term trend), ART held a study examining several areas:

  • A technological study to describe and understand all new concepts, which are globally known as NGN.
  • A qualitative study of next generation manufacturers and the NGN equipment market to understand the position of players and to measure the availability, maturity and cost of offers.
  • An economic study of NGN in order to determine the position of players already in place and of new entrants (operators and service and content providers) on French and European markets and their strategy regarding NGN, and to understand their migration approach and the new economic models resulting from this evolution.
  • An analysis of the areas of action for market regulation, to identify a number of possible routes for implementing an environment favourable to NGN, all with the perspective of the new European regulatory framework.
  • This prospective study, conducted by the telecommunications consulting firm Arcome, is based on major documentary searches and interviews held with a panel of 11 manufacturers and nine operators or service providers, who were chosen for their high degree of involvement in next generation solutions or for their significant influence on the telecommunications sector.

    The general conclusion of this study is that the move to NGN is still a relatively far-off concern, in particular for operators and service providers. Moreover, the current economic situation has a strong influence on their positions with respect to NGN: players have financing and durability concerns, putting them in a situation not suitable to technical evolutions and developing new business models.

    2   Network intelligence and third-party services

    The progressive migration of the telecommunications sector to next generation networks and services is a major trend generating interest among most players. It is the result of a combination of favourable and motivating factors:

  • Major structural changes to the telecoms market: deregulation of the local loop and long distance markets, network optimisation and cost reduction, outsourcing, etc.
  • Major changes in services and uses: explosion of data services, in particular Internet and multimedia, mobility and accessibility, needfor operators and service providers to develop new markets.
  • Major technological evolutions, in particular with the development of very high-speed access and transport networks, the generalisation and evolution of IP in favour of differing levels of quality of service.
  • This context has generated the need for—and technical feasibility of—a move to new networks and services model called NGN (Next Generation Networks). NGN is based on a progressive evolution to end-to-end "all IP" in order to adapt to major trends: convergence and flexible network evolution, distribution of network intelligence, and openness to third-party services.

    The NGN system will offer key convergent multimedia services using a shared network characterised by several essential elements:

  • A unique and shared core network for all types of access and services.
  • A core network architecture divided into three layers: Transport, Control and Services.
  • Development of packet mode transport (IP flow transport in native IP, or on ATM in the short term with a progressive convergence to IP).
  • Open and standardised interfaces between each layer, and in particular for the Control and Services layers in order to allow third parties to develop and create services independent of the network.
  • Support for multiple applications—multimedia, real-time, transactional, total mobility—adaptable to the user and growing and varied capacities of access networks and terminals.

  • Figure 1: General principle of NGN architecture (Source: Arcome)

    Traditional telecommunications networks will evolve to an open, distributed model, firmly based on IP and packet mode transmission, in general, which is transparent to users.

    NGN services, with strong potential for new uses, will be based on models for transparent network execution (the Internet "Web services" model) or with network contribution (Open Service Architecture model from telecoms). the complexity and diversity of new multimedia services will pull the market towards the software world . While associated technologies are mature or almost mature, uses must still be created.

    3  Varying degrees of maturity and technological complexity

    Currently available NGN offers are of a varying degree of maturity:

  • a number of NGN equipment still have not reached full maturity or stability, and special attention must be paid the quality of service management which is seen as a key technological challenge, to the initial capacities of NGN switching solutions, and to transition solutions based on proprietary protocols or those which would disappear in the medium term.
  • In the short term, this still low degree of maturity of solutions will most likely require the use of single-manufacturer solutions (at least by NGN type of equipment).
  • While the mobile field shows more visible signs of a move towards the NGN (high visibility on the development of terminals and networks, since UMTS, in its second phase, is the first complete system using an NGN architecture), the first effective deployments of NGN solutions are in the of fixed networks domain (voice transit, voice on IP, xDSL).
  • These new converging and ever changing technologies highlight the essential role of standardisation. Indeed, the openness of networks and services require the use of standardised and interoperable solutions and interfaces. What’s more, in the short term, the NGN implementation of will result in the appearance of architecture variants and successive generations of protocols, which creates interoperability issues and divergence risks. In this context :

  • Internet standardisation bodies (in particular IETF) will play a dominant role in setting the specifications of protocols and technological blocks of NGN.
  • standardisation bodies (ETSI and ITU) will have a role to play in this movement, in federating these initiatives, establishing a common general architecture, ensuring accessibility and sharing of applicable standards, and consolidating interoperability test suites.
  • In a time of accelerating technological development where operators and service providers tend to depend on manufacturers to set the specifications of future solutions, the regulator will have a leadership role to play in coordinating the interests and advances of all players at the national level.
  • One of the issues would be how to resolve the paradox of a network and services model which is supposed to be open, but whose technological complexity could prevent the effective implementation of this openness, thereby impeding the freedom of choice of the end user, especially in terms of services. This difficulty is added to that of adopting new economic models, which requires an upheaval of relations among the players of the entire electronic communications sector.

    4  Several migration approaches

    Migration towards the NGN appears to be an inevitable evolution due to the dual convergence of voice/data/image and fixed/mobile. It has already been initiated due to a number of players in France, Europe and on other continents, and its impacts will therefore have to be analysed. Still, it will likely be long (a timetable of 10 to 20 years seems reasonable), incomplete (inevitable coexistence with so-called traditional architectures) and difficult in the short term because of the existence of competing solutions with different features and maturity, and end-to-end interoperability issues.

    The pertinence of NGN solutions varies according to the players :

  • Operators and service providers for which the NGN solutions seem the most pertinent are future new players (not yet established), data players wanting to diversify their activities (in particular ISPs), operators anticipating strong growth and/or a rapid diversification of their activities (e.g.: WLL or xDSL operators), operators expecting a strong decrease in their voice traffic because of data traffic, and mobile operators.
  • The players who seem the furthest behind with respect to NGN solutions are those having recently invested heavily in traditional TDM voice switching infrastructures, and operators already having low-speed local loop access and access switches.
  • It is also interesting to note that the move to NGN is not mandatory, despite the opinion to the contrary expressed by some players.

    Even though players see new form of uses and value creation (introduction of new services and markets) as major incentives to move to NGN, immediate arguments put forward in the framework of the migration of operators and service providers to NGN are strongly influenced by the current economic situation:

  • Technical (convergence of voice and data networks, optimisation of networks) and economic arguments (improved acquisition and operating costs, with a quick return on investment) take precedence over the marketing argument of moving to new multimedia services, which is emphasized by manufacturers, but which is secondary for operators.
  • The weight of existing infrastructures and return on investment concerns are at the heart of their upgrading decisions.
  • The dilemma players face is how to develop their services offering when customers have a relatively constant global expenditure budget. This means that they have to save on network technical costs in order to maximise services revenues.
  • These financial constraints are in theory less important for companies than for the general public, and companies’ needs for services change more quickly. Major account users could push operator networks towards the NGN.
  • Finally, it is important to note that some services layer players (in particular ISPs diversifying to "voice" activities and pure content/services suppliers) consider that their current networks are already NGN.
  • The expected financial savings of NGN offers must also be balanced in the short term:

  • While in the medium/long term, everyone expects a major decline in the purchase costs of NGN solutions, in the short term these amounts will depend strongly on operators’ existing infrastructures and on their commercial relations with manufacturers. Investment savings induced by NGN are only effective for initial deployment with no pre-existing network.
  • As for recurring costs related to NGN solutions, although manufacturers almost unanimously say that NGN solutions would produce major immediate savings, operators and service providers are less enthusiastic and more divided, in particular because of the possible indirect surcharges linked to migration.
  • The migration towards the NGN of well-established operators having a large network will be even longer and more progressive. Most of those interviewed agree that already established operators favour a slow migration based on ATM transport, although new operators are more "all NGN" oriented and favour native IP infrastructures.

    5  Deep evolution of market players relationship.

    NGN Development T will permit network opennessand content and services development :

  • These activities represent major potential for new specialised players, in particular in outsourcing (ASP, MVNO, Centrex, network administration, etc.). This potential must be encouraged through favourable economic and regulatory conditions. We can also expect to see the emergence and growing role of trusted third parties (authentication, payment, kiosque and portal services, etc.).
  • With services increasingly linked to new terminal capacities and with commercial visibility important, the control of client operating systems and software applications will be a major advantage in the positioning of major software publishers as NGN service providers.
  • Despite a foreseeable initial growthof new small players, this phase will probably be followed by groupings to improve customer visibility. These legitimate the recent positioning of major software publishers as NGN service providers, and lead us to expect a key role for portals and content aggregators.
  • The modification of relations among players will make interconnection, revenue redistribution and cross billing concerns, etc. increasingly sensitive.
  • NGN will be opportunity for far-reaching transformation of players relationship, and in particular among operators and service providers:

  • The key element for success in an NGN context is customers control. This is an historic strength of operators, but also the source of legitimacy in the potential positioning of certain players from the software field, or service and content providers.
  • Competition on access networks is still a real priority in the short term for most players: there is still strong demand for a move to high speed, for extending the unbundling offer, etc. which will have to be resolved in relation with regional development issues. However, this focus on access concerns is not linked solely to NGN, and may very well be concealing the current absence of openness among networks and services.
  • The redistribution of revenues among players is the key to success: consumers’ global communications budgets do not expand sufficiently to allow players to avoid having to change revenue models. Nor will it prevent a redistribution of revenues among all players along the chain, all the way up to the service provider.
  • This medium-term redistribution along the value chain (from access to services) is a trend identified by all. However, its implementation will depend on the willingness of operators, although it seems inevitable in the medium term in order to guarantee the long-term loyalty of customers and the durability of revenues.
  • Another problem to be overcome is finding suitable ways to price content, and implement new billing modes suited to customers’ uses, all in an environment of converging voice/data, even though these two worlds use very different methods on this point.

  • The openness of services to third party suppliers raises various technical, operational, strategic and economic concerns:

  • New economic models will have to be found. The closed "no door" / portal model is foreseeable, but will it be sufficient? The applicability of open kiosque models will have to be evaluated with respect to the difficulty of pricing new services. Payment dependent on generated traffic would be the easiest model to understand, but operators strenuously avoid this subject. The market will therefore likely evolve towards combined economic models. In parallel with these models, service provider direct billing could be combined with operator billing of third parties.
  • The impacts of these new partnerships on information systems (billing, provisioning, process automation, micro-payments, repayments, trusted third parties, customer relations, partnership management, interconnection, etc.) are a problem that is underestimated at the technical level (and dealt with very little in standardisation) and at the economic and operational level.
  • However, we note a major difference between the theoretical sharing of roles in the framework of NGN, and reality: established players (operators) support this open model in principle, but in reality, they still exhibit a certain degree of procrastination and protectionism which lead us to expect implementation problems. What’s worse, operators have a de facto hold over the future of all players, in particular service and content providers.
  • Thus, the openness of networks to third-party service providers seems to be more a problem of willingness and business model rather than a technical obstacle. This is why the regulator could try to encourage openness right away, without necessarily waiting for the implementation of standardised multi-network interfaces (e.g.: in mobile, the SMS kiosque service being developed by the three French operators is a start to openness).

  • 6  Regulation Issues :

    The move by players to NGN will turn the technical and economic landscape of electronic communications upside down, and inevitably affect the nature of regulation missions and the means of fulfilling them.

    Players do not see the regulator playing a strong interventionist role, but rather see a strengthening of its leadership role in discussion (working groups) and its participation in standardisation activities, market surveillance and facilitating a necessary convergence to unified architectures and protocols.

    The regulator is asked to set up a technical and economic context favourable to NGN, with in particular:

  • Strong demand for a technologically neutral regulatory framework, allowing the players freedom of choice, in accordance with the new European regulatory framework
  • In the short term, the resolution of current difficulties, in particular concerning local loop unbundling and the move to Internet Broadbandaccess offers
  • The implementation of a regulatory framework favouring players’ long-term investments, as well as the sharing of infrastructures in a broad sense (among players and among activities of a single player)
  • The players ask that the adaptations to the regulatory context of NGN be guided above all by market demand. Therefore, they ask for, more than anticipation, high regulation reactivity and a strong operational approach. These needs for adapting the regulatory context must therefore be, if not anticipated, at least prepared for through studies and/or the creation of working groups.

    Several areas for evolution to legislation and regulation were identified in the course of this study:

  • In legislation :

  • - The rapid transposition of new European directives ("package 2000") in France.
    - The definition of the status of future NGN players, in particular service providers, and their rights and obligations (in particular authorisation regimes and interconnection conditions).

  • In regulation :

  • - The foreseeable development of market surveillance, with special attention to quality of service (within an IP network, and end-to-end), which is identified as a major risk and an indicator of a lack of maturity.
    - Increased facilitation role in technical and operational discussions.

  • In technology watch, in preparation for a possible evolution of the regulatory and regulation framework :
  • In-depth discussions on the evolution of resources and management mechanisms for numbering, naming and addressing on NGN networks (evolution to IP).
    - The necessary evolution of certain corporate services to take into account a converging voice/data and fixed/mobile environment, such as portability, emergency services (in relation with geographic location concerns) the perimeter and the technical definition of "basic" services, legal interception.
    - The evolution of the interconnection of networks, services and information systems, which raises concerns for interface standardisation, interoperability and strategic willingness of players to open their networks to partners. It seems wise, in preparing for the move to NGN, to already actively encourage the openness of operator networks to third-party service providers, whether for mobile (e.g.: GPRS) or fixed networks and services.

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