Open Networks and Services - PTS-ER-2009:32


The Swedish Post and Telecom Agency (PTS) has come to the following conclusions after completing the Government commissioned assignment
concerning open networks and services:

  1. Openness creates the prerequisites for innovation and competitiveness but must be balanced against other interests worthy of protection, such as incentives to invest and network security.
  2. Openness is promoted by securing non-discrimination and effective competition.
  3. Openness is of great significance and it is therefore important that suppliers in their marketing activities and in applicable terms and conditions, provide clear and specific information with respect to lock-in periods and restrictions relating to Internet access and access to services.

The use of electronic communications has in Sweden become a prerequisite for almost every activity - within industry and the public sector as well as in private life. An increasing part of everyday life takes place on the Internet, where access to communication services contributes, among other things, to knowledge sharing and a vivid social debate. IT and electronic communications services in every form play a crucial role in society, due to the impact on productivity and innovation as well as on economic growth in Sweden.

In this report the term openness and its importance for a competitive and innovative broadband market is analyzed.

This report takes the market stakeholders as its starting point and is structured around a value chain for the production of broadband-based Internet access and services. The value chain is divided into five levels – natural resources (use of and access to land, ducts and spectrum), infrastructure (passive cables and masts), transmission (equipment for transportation of bit-streams), IP/Internet (equipment for traffic direction and IP addressing) and content and services (content, services and end user equipment). The report identifies – on each level of the value chain – challenges to openness.

One essential challenge to openness today is restrictions in access to passive infrastructure (e.g. dark fiber) which are critical input goods for the production of broadband-based services. These restrictions create barriers of entry to the broadband market, since broadband infrastructure is very expensive to build, and there are often major efficiency gains connected with collocation. How public stakeholders participate in the market is an important aspect and PTS would like to emphasize that public stakeholders first and foremost should adopt a complementary role in the market. The second major challenge can be traced back to insufficient consumer mobility due to long lock-in periods, high transition costs and other lock-in effects. These combined lead to reduced possibilities for customers to ”vote with their feet”, which in turn may result in a slower pace of innovation and less possibilities for end users to safeguard their rights. The third challenge is based on an increasing demand for mobility. This demand has lead to a shortage of spectrum enabling wireless communications with high area coverage, which limits the ability to access the Internet from any location.

One challenge which affects several levels in the value chain relates to openness when managing electronic communications over the Internet, network neutrality. In short, network neutrality means that all traffic routing over the Internet should be neutral and made in accordance with queue principles. Difficulties arise when quality of service requirements or network security, resilience or other public requirements result in departures from neutral traffic management. One important aspect to consider is when balance is achieved and when the line for justified interference in relation to network neutrality and openness is crossed.

The amended legal framework, based on the Telecom Reforms Package, provides PTS with a stronger position when it comes to promoting network neutrality in addition to adopting transparency requirements and increased consumer information requirements.

In the report PTS suggests several measures aimed at securing openness, measures which take all interest worthy of protection into consideration –especially incentives to invest and network security. PTS suggests stronger principles for equal treatment when building new infrastructure, increased access to existing infrastructure, information designated to consumers regarding possible pitfalls and the importance of openness and, finally, increased transparency regarding the existence of potential limitations of Internet traffic such as prioritization of traffic and blocking of services.

PTS’ proposed measures will not resolve all challenges presented. The measures will, however, provide a good starting point in creating consumer awareness enabling consumers to safeguard their rights, an increased number of market stakeholders being able to offer more versatile and innovative services on every level of the value chain, and an improved readiness to act from a regulatory standpoint. These combined should contribute to increased levels of public benefit and continued progress in competition and innovation.