The Next Generation Network roadmap
The introduction of next generation networkseffectively
the migration from a hotch-potch of different infrastructure technologies towards
one network based on IPwill affect all ICT players. Dan Bieler,
Research Director of Ovum, takes a look at the big picture and what enterprises
will see on the VoIP and service pricing fronts.
NGNsnext generation networkssit at the centre
of the convergence debate, be it voice-data, fixed-mobile, content-data or IT-telecoms.
NGNs have the potential to reduce opex, although at the cost of high upfront
They will change the cost base of telcos and thus affect their
pricing strategies and even staff allocation. NGNs act as an enabler for IT
service and content providers. All ICT players must prepare themselves for NGNs
because they will create new dynamics in the ICT marketplace.
Most Fundamental Transformation
The shift towards NGNs is possibly
the most fundamental transformation the ICT segment has ever seen. However,
it is an evolutionary rather than revolutionary development, and has long-term
The shift towards NGNs is possibly the most fundamental transformation
the ICT segment has ever seen. However, it is an evolutionary rather than revolutionary
development, and has long-term implications. As a rough timeframe for OECD countries,
we expect NGNs to be in place by around 2012 for fixed and 2020 for mobile infrastructure.
NGNs mean slightly different things to different people.
The ITU, for instance, maintains that the fundamental difference between
NGNs and todays network is the switch from current circuit-switched
networks to packet-based systems. Italys regulator AGCOM
defines an NGN as a packet-based network able to provide telecommunication
services and able to make use of multiple broadband QoS-enabled transport technologies,
and in which service-related functions are independent from underlying transport-related
We believe that these definitions describe NGNs well. Their
essence, in our view, lies in the convergence of fixed and mobile, voice and
data, data and content, and most importantly, IT and telecommunications. We
view the migration from circuit-switched to packet-based networks as a logical
progression in the drive towards IP. The implications of the migration from
spaghetti to lasagne (to use the words of a leading NGN planner,
BTs CTO Matthew Bross) are wide-ranging and will affect financial, operational
and regulatory aspects of the market.
From a financial perspective, one of the most direct implications
of the move to NGNs is a shift in capital spending. Although in most cases we
see a gradual phasing out of circuit-switched networks and the introduction
of packet-based equipment, we expect that the transition will require additional
capex funding. Hence, in the medium-term, we anticipate the average capex/sales
ratio for fixed line activities to increase by about 1.5 to 2 percentage points
from the current 12 to13 percent.
Opex, meanwhile, is likely to remain fairly stable initially
before offering some cost-reduction potential, mainly through more efficient
network management. However, the evolution of NGN opex will no doubt be influenced
by emerging pricing models. We assume that an NGN environment will result in
a flattening supply curve. In an all-IP world, the correlation between unit
production and price weakens. Flat-rate tariffs offer a glimpse of that shift.
NGN is likely to intensify this move, throwing up uncertainties regarding the
optimal point of capacity production as the relationship between
marginal cost and marginal revenue needs to be redefined. These uncertainties
in turn affect the willingness to fund NGN projects.
In operational terms, issues such as QoS and inter-operability
are obviously crucial to the roll-out of NGNs. VoIP, a core NGN service, takes
centre-stage as it gradually becomes more widespread, leaving the soft-client
segment behind. Outside a private network, it remains basically impossible to
control the quality of service of VoIP. Moreover, it continues to be impossible
to make calls between various soft-client VoIP providers. These problems will
slow down the spread of VoIP among users.
A different, but linked challenge, relates to the adoption
and marketing of an emerging range of services such as instant messaging, unified
messaging, dual phones, click-to-talk, interactive gaming and shared TV. While
NGNs take the opportunities these services offer to a new level, old distribution
channels are unlikely to work. Voice, for example, might well become a commodity
productdespite remaining the ultimate killer application. Going forward,
we see the policy of bundleisation gaining momentum, with service
providers throwing in voice for free when offering broadband connectivity, multimedia
and messaging services.
However, bundling and packaging require significant upgrades
and changes to existing service arrangements. In particular, the areas of billing,
content formatting, network management and data analysis often go beyond what
service providers have traditionally been used to. We thus believe that the
migration towards NGNs is best done in partnership with specialist providers.
This, of course, raises the old question of who controls the juicy-bits
of the value chain. From our point of view, traditional telcos are unlikely
to work matters in their favour.
There is no clear regulatory framework concerning NGNs on
either side of the Atlantic, or anywhere else for that matter. Every European
country is working on its own approach to NGN regulation, covering the entire
spectrum from non-intervention to tight regulation. On an EU level, the debate
remains focussed primarily on the implementation of the new regulatory framework
rather than an NGN-specific solution. In the US, the debate focusses on net
neutrality, and a regulation-light approach seems to have gained
the upper hand.
The key regulatory issues surround numbering, law enforcement
(i.e. bugging) and universal services. Also, the regulatory shift towards LRIC
modelling and cost accounting remains hotly contested. As indicated above, we
believe that it could be challenging to cost certain service elements adequately
in an NGN environment.
Above all, there is discussion regarding the wholesale reform
of the current inter-carrier compensation regime focussing on IP interconnect.
Without a clear framework outlining who gets paid what and how, there is an
obvious risk that the NGN roll-outs will be postponed. Without the ability to
forecast reliable returns on investment, fewer investments will be made.
NGNs will no doubt have fundamental implications for business
models and pricing. The meaning of unit costs will have to be redefined, and
market participants will have to radically reconsider how to charge for services,
both on a wholesale and resale level.
The most challenging task could well turn out to be bringing
together the worlds of IT and telecommunications. By and large, they remain
dominated by different cultures. Yet this transformation is crucial if NGNs
are to deliver their full potential. Perhaps NGNs will only fully evolve with
the arrival of next-generation employees.