Opinion: Ofcom reins in VoIP and NGNs

New regulation for an evolving telecoms landscape

New regulation for an evolving telecoms landscape

With IP-based telecoms technologies coming into widespread use, Ofcom is playing catch up. Olswang solicitor Simon Muys gives a glimpse of what to expect as these regulations take hold.

Ofcom appear to have done it again. In two consultation documents, running to more than 160 pages combined, the regulator has delivered another panoramic preview of the future of telecoms regulation in the UK.

The first paper, published in late February, sets out their proposed approach to regulating voice over IP, or VoIP, services. The second and perhaps more fundamental document is a consultation on the future regulation of IP-based, next generation networks (NGNs).

Both follow work begun by Ofcom in 2005 to identify how regulatory structures need to change to fit the new technological and economic realities of IP-based services and underlying networks.

IP technologies present regulators with tricky problems on two fronts. First, IP lowers the entry barriers for broadband-based voice and other services, allowing services to be introduced without the need for investment in substantial kit. At the same time, increasing broadband penetration is making convergence a reality and creating fresh incentives for consolidation and investment in network infrastructure by the big players, something which has not been seen in the UK since the dizzy, halcyon days of the late 1990s.

This leaves Ofcom having to offer stability and certainty for investment by the big end of town whilst avoiding over-regulation at the service layer, where small and nimble new entrants need to be able to exploit the opportunities of IP.

So what does the future look like? Here are a few highlights:

Two-tiered VoIP market
Ofcom's initial approach to VoIP in early 2005 was tentative; adopting a 'forbearance' model which allowed IP-based voice providers to decide just how much regulation they wanted to comply with. Just as regulation of VoIP services has subsequently tightened in the US and Europe, it is little surprise that Ofcom is also now withdrawing this relaxed policy and requiring all voice providers to commit to an 'all or nothing' approach to regulation.

The key issue here is whether an operator provides a 'publicly available telephone service', or Pats. If it wants to enjoy the benefit of number portability (which is only available to subscribers of Pats services), an operator needs to ensure that its service complies with a pile of other regulatory requirements, such as providing emergency location information, access to emergency calls and certain minimum technical standards.

In practice, this looks like creating a two-tiered market, as large VoIP providers, supported by their own IP network infrastructure, are able to deliver the full suite of regulatory obligations and compete head-to-head with traditional voice services. The rest are left to battle it out, no doubt, with basic internet-based softphone applications.

Another Consumer Code
As voice services fragment, Ofcom is concerned to make sure consumers are told about limitations to their services. To do this, Ofcom is proposing requiring every operator who provides voice services (whether Pats or not) to comply with a general Consumer Code.

The Code will cover the full range of consumer issues, including reliability, access to emergency numbers and portability.

Consumers will need to be warned about technical limitations to their service and, importantly, will need to agree to these restrictions at the point of sale. It looks as though telecoms companies may have another customer consent to squeeze into their order forms next to the ubiquitous data protection opt-out.

The end of carrier pre-selection and indirect access?
One area where Ofcom is raising the prospect of substantial change is in local access, or the origination and termination of voice calls. The regulator is planning a review of call origination and access to begin towards the end of 2006.

Depending on the outcome of that review, it seems keen to explore new models of voice access that would give competing operators more control over end-user services, perhaps even eventually replacing products like Carrier Pre-selection (CPS) and indirect access (products which allow for calls to be routed away from BT to competitive providers but leave control of the network infrastructure in the hands of the incumbent).

Again, one senses that Ofcom has an eye on a model of competition in the future where entrants commit to greater network investment than is presently the case. When Ofcom talks about a future 'converged access product', to potentially replace CPS and indirect access, it suggests that competitors might take control of a customer's physical card in the relevant BT network node (or MSAN). This seems to imply that even service-level remedies are increasingly likely to involve some degree of network commitment by competitors.

More co-regulatory bodies
In a telecoms market already littered with new co-regulatory bodies, the NGN consultation has proposed not one but two more agencies. The first is an NGN industry body, intended by Ofcom to provide a forum for managing industry negotiation of general NGN co-ordination arrangements. The second, modelled on the Office of the Telecommunications Adjudicator - established to resolve disputes associated with local loop unbundling, will have a similar brief regarding operational or technical disputes involving NGN interconnection.

Ofcom is enamoured with co-regulation. The true believer would argue that this is justified and represents a modern, innovative approach which offers industry leadership and allows for 'light touch' regulation. The cynics might suggest that co-regulatory bodies provide Ofcom with an escape hatch, letting it slip out of delivering on the sharp edge of regulation: enforcement. Either way, the regulator need to tread carefully. You do not encourage investment by forcing new entrants to tackle a complex web of inter-related co-regulatory codes and enforcement bodies.

Rather than farm out enforcement, one of the best things Ofcom can do to encourage investment is prove it's prepared to firmly enforce existing structures. Although Ofcom has prosecuted a number of consumer-orientated misdemeanours, it is yet to establish itself as a hard-nosed enforcer where it counts - at the big, network end of the market.

Complex future
What does the future look like? Complicated.

Reading between the lines of the VoIP and NGN consultations, it is clear that although IP may simplify the technology, over the short-medium term it is only likely to make telecoms regulation in the UK more complex.

BT and the telecoms industry have been left to thrash out how legacy PSTN products will be handled and paid for during the transition to IP.

Interconnection and charging over IP networks is a long way from being settled. Yet more co-regulatory bodies are being set up to oversee and enforce NGN negotiations - and getting access to the mother of all NGNs, BT's 21CN, is subject to new and as yet untested undertakings issued by BT last year under the Enterprise Act 2002.

In the muddled reality of a telecoms market in transition, the real test now is not just in the clarity of Ofcom's vision but in the strength of their resolve.

Simon Muys is telecoms solicitor at London-based law firm Olswang.