the adoption of a lower-cost (new) technology as the standard for the valuation of assets (i.e. the modern equivalent asset)55.
NRAs should continue to use forward-looking economic cost models as the basis for price regulation. The cost of unanticipated write-downs of the value of pre-existing assets should not be included in the cost-base used to regulate prices (or to assess the economic return generated by services).
If VoIP is not a lower cost technology, but a higher value one, then any increase in total cost should be ‘allocated’ to new ‘added value’ services, and not basic voice telephony.
2.9.4 Use of VoIP by regulated operators
Incumbent operators may choose to deploy VoIP technology, which raises the question of whether a single ‘voice termination’ rate should be charged for termination across both the PSTN and VoIP networks, or whether separate termination rates should be allowed (and if so, whether both should be regulated)56.
As previously discussed, VoIP combined with presence management has the potential to remove the barriers to competition between networks for termination, and thereby convert the currently separate individual network termination markets into a smaller number of multi-network termination markets (at least for voice traffic). However, in the interim, we can expect terminating operators to continue to dominate their respective individual network termination markets. In this situation, it is important to understand how termination should be viewed when terminating operators employ multiple networks.
55 True forward-looking cost models, whether they use economic depreciation or (tilted) annuities, will naturally tend to produce results that correctly ignore any such exceptional write-down of pre-existing asset values. Alternatively, cost models based on financial information are more likely to (incorrectly) include such write-downs in the calculated costs of service, although they may also have incorrectly depreciated the value of assets in the past.
56 This refers to the termination of traffic that is explicitly identified as voice traffic, not the interconnection of basic IP traffic, which may, in fact be carrying voice data).
In this instance, the technology used to transport the voice telephony traffic to its destination should not be confused with the technology of the interconnection interface between the two networks. The issue of who should pay for gateways between VoIP and PSTN has already been discussed in Section 2.7.5.
Where the terminating operator employs both old and new (PSTN and VoIP) technologies to terminate calls, a number of different cases need to be distinguished:
• Case 1: The originating operator and terminating end-user have no choice as to the technology used by the terminating operator to transport the call
• Case 2: The terminating end-user has chosen a particular technology for the termination of calls to them (presumably linked to a decision about the technology used to transport outgoing calls) and the originating operator has no choice
• Case 3: The terminating end-user has not chosen a particular technology for the termination of calls to them, but the originating operator is able to do so on a call-by-call basis.
In the first case, it is clear that the terminating operator should charge the same price for termination, irrespective of the technology that it uses to terminate the call (since neither the originating operator, nor terminating end-user is able to act on any differential price signal that might be given). Furthermore, to the extent that it is appropriate to regulate the price of such termination, the relevant cost benchmark would clearly be the efficient cost of supply using the most efficient technology, irrespective of the mix of technologies actually used by the terminating operator (especially as the terminating operator’s decision to use both technologies in parallel would provide prima facie evidence of them being equivalent).
In the second case, it is no longer necessary for the terminating operator to charge the same price for termination of calls using the two different technologies (since at least one party to the call is able to respond to a differential price signal). However, if there is a case for regulating the termination charges levied by the terminating operator, then it will almost certainly be necessary to (separately) regulate the prices charged for termination using each technology. End-user choice does not prevent terminating operators from dominating the termination market.
Only in the third case might it be possible to regulate the termination charges levied by the terminating operator for only one of the two technologies. In this example, it is the originating operator (and perhaps their customers) that is able to choose which technology to use on a call-by-call basis, and hence which termination charge to incur. For this to be
comparable, and the regulated product should be the one based on the lower cost technology.
In summary:
Where terminating operators control the choice of technology used to transport terminating calls, they should not be allowed to charge different prices for the use of different
technologies. In these circumstances, and if termination prices are to be regulated, the relevant cost benchmark is the efficient cost of supply using the most efficient technology, irrespective of the mix of technologies actually used by the terminating operator.
Where terminating operators permit terminating customers to select which technology is used to terminate calls (but not the originating operator), it would be acceptable for terminating operators to charge different termination prices for the different technologies, but in those circumstances where it is appropriate to regulate such prices, the prices for termination of calls using both technologies will need to be regulated (separately).
Where terminating operators permit originating operators to select which technology is used to terminate calls, it would be acceptable for terminating operators to charge different termination prices for the different technologies. Furthermore, if it is appropriate to regulate the prices of termination, it may only be necessary to regulate the price charged for use of the lower cost technology.
2.10 Conclusion
The different forms of VoIP service considered in this section can create a number of effects:
• additional competition (where it is economically viable)
• reduced prices
• reduced costs of providing telephony services
• allow users to make a trade-off and choose lower quality, lower price solutions
• enable new services.
Different types of service have different effects:
Service type Impact for user Impact for service provider Self-provided consumer
(DIY)
Option of lower quality, lower price
Option of lower quality, lower price
(If provided as a managed service:
Reduced costs New services) Carrier internal use International routes:
Reduce prices
All of these are good for the EU telecoms market as a whole, as they will generate both consumer surplus (from reduced prices) and producer surplus (from new services, and new equipment).
It is very unlikely in the short to medium term that any VoIP service provider will obtain SMP in any of the (existing) relevant markets. However, as already noted, it is clear that VoIP services used on fixed networks, despite their location independence, are potential substitute services within many of the defined relevant markets “at a fixed location” and will need to be considered in future market reviews of these markets.
It is, however, possible that regulatory intervention will be needed if another player seeks to use control of some choke point to discriminate against VoIP providers. It is also important to ensure that the way in which the NRF is implemented by governments and regulators does not create unnecessary difficulties for VoIP service providers (such as availability of numbers within the national E.164 range).