How Ofcom encourages network ‘slum landlords’
Because Ofcom’s regulations do not reflect the underlying technology change from time division multiplexing (TDM) to statistically multiplexed packet switching, those who control access to network-based services can and do behave like “slum landlords”.
This observation is contained in a response to an Ofcom consultation on how its regulations need to change so as to not discourage shared works, shared facilities or revenue sharing and rather support mechanisms for this.
Consulting firm Predictable Network Solutions (PNS) told Ofcom “The market and regulatory structure that has emerged is one that requires the monopolist to charge ‘rent’, and where there is no other measure than the rent that is charged, the result is a race to the bottom where monopolists become ‘slum landlords’ and fitness for purpose is entirely lost.
“Money is charged for access to the resource, not for the resultant outcome, and this attitude persists along the value chain, so that all the accumulated risk (that outcomes will not be achieved) is dumped onto the final customer.”
PNS said its work revealed “an emerging pattern that points to structural flaws in the UK telecoms market. In our view, these flaws constitute a substantive risk that many of the potential benefits to the UK of robust, reliable, ubiquitous and cost-effective telecommunications will not be realised.”
It ascribed this to Ofcom’s traditional view that telecoms is about “deterministic and centrally controlled” circuits rather than packets. “The created retail services are, essentially ‘purpose-for-fitness’, in that ‘you get what you get’; there is no specification of what is delivered, and it is the end users’ problem to find a way of exploiting whatever it is. It is this divergence of expectation from delivery that is creating large scale (and costly) hazards,” it said.
PSN said the current market structure has led to a focus only on the rate of financial return on capital investment. This has been to the detriment of service outcomes.
“Where there is fitness for purpose in the current system (eg TDM), it is fitness for a historical purpose, with no flexibility that would encourage innovation. A further consequence of this ‘rental’ model is there is no market for concurrent services to the end user.”
PNS said customers can switch access providers, but they cannot switch service providers, for example one delivering reliable streaming video, one VoIP and one general web access.
To reduce the risk of owning a network but no “tenants” (think Digital Region), incumbents had to work at “large scale”, and rip off competitors with high prices (think of the fight between BT and Sky over TV content) for access to the network.
This also affects wholesale customers. PNS noted that mobile network operators need to backhaul LTE traffic from small cells. TDM circuits are too costly, so they need to use DSL. “However, the lack of any guarantee of the transport characteristics of such connections (ie mass market DSL) makes their use in a RAN [radio access network] problematic, as the protocols employed were developed to work over TDM.”
PNS called for “an underlying carrier that can offer services that are appropriately isolated from each other and differentiated and guaranteed performance characteristics. A competitive market can then develop in delivering concurrent services over this infrastructure (including, but not limited to, non-discriminatory internet access).”
PNS recommended a regime where service providers offer a set of services with well-defined, quantifiable and verifiable outcomes. These could be offered equally well by competing entities, and other players could built further layers of service on top of them.
Note: Other responders were Ofcom’s Advisory Committee for Wales, Arqiva, the Mobile Operators Association, Virgin Media, Vodafone, and the Wireless Infrastructure Group.