A Long-term Analysis of the Development of the Electronic Communications Sector - PTS-ER-2009:2

25/02/2009

PTS has observed that modern society is completely dependent on electronic communications services. Consumers, undertakings and the public sector are demanding services that require higher bandwidth and increased mobility. Technological development is moving at a fast pace, which creates new requirements and means new prerequisites for the network infrastructure. The competition situation is also driving these developments.

In the report, PTS discusses how the market may develop up until 2015 and conducts an in-depth analysis of six areas of focus: accessibility, spectrum, infrastructure-based competition in the access network, interconnection, broadcasting, and also security and privacy. The in-depth analysis describes current trends and debates in addition to the Agency's conclusions and proposals.

Accessibility

Many subscribers are switching from fixed telephony to mobile telephony or IP telephony. At the same time, the Internet and broadband are being used more and more, and an increasing number of people are becoming dependent on this as a tool in their everyday lives. The electronic communications market has changed considerably in recent years. In various ways, these developments have had both a positive and negative impact on accessibility.

IT infrastructure with high transmission capacity is crucial for regional and local development. PTS views that the political objective for accessibility as unclear and that there is uncertainty about how central government, public authorities, county administrative boards and municipal authorities should best work to achieve this objective. Clear rules improve the conditions for investment and new fruitful forms of cooperation between private and public stakeholders. They also help public authorities to act in an effective way.

For this reason, PTS proposes:

• that the Government appoints a working group with the task of formulating a political objective for accessibility and to propose strategies and tangible measures that can be taken to achieve this objective

• that the definition of functional access to the Internet is upgraded, and is continually updated in pace with technological developments and the basic services demanded, and
• that universal services are financed through a fund to which market stakeholders and central government contribute.

Spectrum

Spectrum is a limited natural resource. In recent times, there has been a sharp increase in the demand for spectrum. For this reason, spectrum that is currently not being used effectively needs to be released. There are several public stakeholders that have access to a certain amount of spectrum without clear requirements as regards effective use.

For this reason, PTS proposes that the central government considers:

• abolishing the unique position held by terrestrial television as regards frequency assignment

• promoting the release of spectrum from the Swedish Armed Forces, and

• granting funds for research within technologies for dynamic spectrum use, referred to as 'cognitive radio'.

PTS should identify bands where it is possible to improve spectrum efficiency and draw up a plan for how to phase out old systems in these bands and how licences for new systems should be allocated.

Infrastructure-based competition in the access network

Today's rapid technological development creates new requirements and prerequisites for network infrastructure. The objective of PTS's regulation is to achieve effective competition and, if possible, competition that is sustainable in the long term.

PTS can take a number of measures in both the short and long term in order to achieve this objective. PTS will establish the design of this regulation in the short term in the second- generation SMP decision, which will be presented later this year.
In the longer term, infrastructure-based competition at a regional or national level may either increase or decrease. These developments will be affected by a number of material factors, such as the demand for bandwidth, the development of access network technologies, investments in the access network together with the impact of PTS's regulatory measures.

PTS proposes:

• that the statutory provision concerning functional separation be reviewed so that a functional separation may also include fibre-based access networks.

Interconnection

The linking and exchange of traffic between operators, including interconnection for telephony, is a prerequisite so that households and businesses can use electronic communications services. PTS is responsible for ensuring this diversity and function.
PTS needs to indicate a direction for how interconnection regulation should be developed in the longer term. Consequently, the Agency is now drawing up a goal profile for interconnection. In the goal profile, PTS states, for example, that interconnection rates are to move towards symmetry between fixed and mobile traffic, which entails a reduction in the rates for termination in mobile networks. Symmetry should also apply to the termination rates in mobile networks.

For the long term, PTS has identified three regulatory models that have the capacity to fulfil this goal profile, namely LRIC using only separate costs, reciprocal mobile and fixed rates with an LRIC level as fall-back, and bill & keep. The regulatory model that is deemed to be the most suitable one to be introduced in future SMP decisions depends, among other things, on the development of the market, judicial settlements and the design of future regulatory frameworks. For this reason, PTS does not consider that it is currently possible to adopt a position on which regulatory model best fulfils the goal profile. Consequently, PTS intends to discuss the question of a future regulatory model with the market.

Broadcasting

The broadcasting market is not only characterised by problems related to competition, but also problems related to the regulatory and political frameworks that particularly characterise the digital terrestrial network. These problems bring with them a lack of predictability for market stakeholders and give rise to uncertainty as regards the investment situation in the digital terrestrial network.
PTS proposes:

• that a goal profile for the terrestrial network be drawn up within the framework of a central government investigation.

This type of goal profile should clarify how the terrestrial network should be used, by whom and for whom. This type of work includes clarifying the requirements that should be imposed on the basis of various existing interests – in terms of economic, cultural and ownership policy – and how conflicts between them should be dealt with.

Security and privacy

When society becomes increasingly dependent on IT in general and the Internet in particular, it becomes increasingly attractive for organised crime to attack society by means of systematic, technical attacks instead of through more traditional means. One of the main problems with the Internet today is the lack of security in the environments of individual Internet users.
Regulation often has a tendency to get out of step with rapid technological developments and increased globalisation. Increased globalisation also imposes higher demands on harmonisation and the adaptation of the Swedish regulatory framework.

PTS is working on issues related to both operational reliability and privacy. The Agency also conducts extensive work related to robustness.