JT S RESPONSE TO THE TRC S NOTICE REQUESTING COMMENTS ON THE IMPLEMENTATION OF VOICE COMMUNICATION SERVICES DELIVERED USING THE INTERNET PROTOCOL June 23 rd 2005 1
1 EXECUTIVE SUMMARY JT is of the opinion that VOIP services are not Publicly Available Telephone Services in terms of the definition proposed by European Regulators and that any comparison aimed at treating them equally would require that VOIP providers meet similar regulatory obligations which currently face traditional public telephony service providers in Jordan. Over-regulation of VOIP services would act as a deterrent to the development of domestic VOIP services and therefore discriminate against providers with Jordanian licenses and promote those VOIP services offered by offshore providers. This will damage the prospects of effective competition in an innovative market and deter infrastructure investment in Jordan. Consequently, JT would urge that the TRC plan a rapid retreat from regulation of those domestic services which are threatened by non-jurisdictional or offshore services in order not to disadvantage Jordanian operators in their domestic market. The justification for this position can be found in the substantial infrastructure investments committed by operators in Jordan to date aimed primarily at providing access services, both fixed and mobile, to Jordanians. Maintaining this investment momentum in Jordan will depend upon access markets to compete without cross-subsidy and without regulatory disadvantages imposed by the lack of regulation applied to offshore VOIP operators. 2 REGULATING INNOVATION JT has made representations to the TRC previously in respect of its approach to regulation as a rule as distinct from regulating by exception. The impact of such a regulatory policy is to stifle innovation and consumer choice by limiting returns for operators who might have developed new services but who consequently delay or modify their launch programmes to minimise regulatory attention, thus constraining customer choices and access to innovative services. It is no accident that VOIP services such as Vonage and Skype have grown in popularity without constraint. VOIP represents a technology development that is threatens to be spectacular in its impact on the Jordanian telecoms market. The impact elsewhere in the world has been similarly dramatic and regulators have been careful not to constrain the benefits of the new technology and the market impact that accompanies it. However, JT s main concern is that the TRC, and indeed the government of Jordan, maintain their policy of technology neutrality and avoid any regulatory preferment of VOIP solutions over other technologies. In this respect, if VOIP is to continue to be introduced to the Jordanian market with the maximum customer benefit, so alternative consumer solutions to the advantages of VOIP should be unconstrained by regulation that might otherwise be to the advantage of VOIP service providers. In order to achieve this effectively, the TRC will need to conduct regular, detailed market studies to determine the extent to which market definitions are appropriate to meet regulatory objectives. Just as VOIP threatens to change telecoms services and hence markets, so it must change the approach to regulation. Any delay in adjusting this approach will create a market distortion which will impact one or other voice technologies to the detriment of Jordanians. The more obvious remedy to this issue is to relax service approval procedures on all dominant operators in favour of ex post regulation. Only in this way would operators with market power be incentivised to take risks and launch new services at a rate enjoyed by many subscribers in Europe and North America. 2
3 ISSUES OF JURISDICTION JT is of the opinion that controlling access to internet-based voice services is unnecessarily restrictive and inconsistent with government policy. The ability to make a call from a computer with an ADSL connection is now a global phenomenon and is a service generally offered by companies which do not possess national operating licenses in the country in which they offer services. Unless the Jordanian government intends to control access to such services through primary legislation as is the case in some parts of the Middle East, there is little opportunity for the TRC to effectively regulate such service providers. The TRC must therefore consider whether those licensed operators providing access to such services should bear a regulatory burden on behalf of the unlicensed operators. This would seem somewhat unreasonable given that licensees will rarely have a direct relationship with an international content provider to enable any form of regulatory incentive. Because of this new paradigm of vertical dis-integration (see below), any regulatory burden placed upon access providers can only be recovered through access charges. Thus it would be inappropriate to attempt to create any quality of service obligations on access providers in respect of the quality of VOIP services purchased from a separate provider. Given the Jordanian Government s initiative to promote broadband services, internet usage, and the TRC s desire to ensure the lowest possible telecoms prices in the kingdom, the TRC s regulatory options are few and, subject to the forthcoming market reviews, will only contract in the face of such new technologies. It is therefore unclear how the TRC will enforce any regulations on operators offering VOIP services in a competitively neutral manner. 4 DEFINING VOIP SERVICES The market for VOIP services currently lacks a clear definition that unambiguously identifies the distinction between the physical and non-physical attributes of the service. VOIP, in a retail environment, is a complementary service enjoyable only with an internet connection of sufficient bandwidth. The latter requires an access medium such as spectrum or copper wire and terminal equipment in the form of a computer equipped with sound equipment and a modem (or a VOIP phone). Any one of these service components is of no use without the other in respect of benefiting from an internet voice service and yet the TRC s powers only extend to regulation of the public access service. Even then, with access to all these components, there is no guarantee of connectivity for a multitude of reasons. A public telephone service is different in a number of respects. Firstly the any-to any obligation requires that all network addresses can be reached. Secondly, the obligation to offer access to emergency services is a common for all licensees and made more reliable by fixed line equipment generally being line powered. Third, many emergency service operators in Europe link the specific location of fixed lines to their network address to reduce emergency service response times. Finally, for reasons of national security, many licensed operators are required to co-operate with national security forces when intercepting voice communications. VOIP services accessible via the Internet exhibit none of these attributes today and cannot therefore be termed public telephony services, nor can they be considered to be substitutes. Of crucial public concern is that the TRC and the industry take a responsible approach to informing the public that VOIP services provided over ADSL access lines do not exhibit the same performance characteristics or service options as traditional fixed lines. This should be a matter of 3
self-regulation as distinct from co-regulation as encouraged by the Telecoms Law. In summary, if operators market VOIP services as substitutes to licensed telephony services in their current form, JT would advocate penalties for misrepresentation. In the longer term, as such services become more prevalent, JT would advocate that they are constrained by the same regulations as current licensees in order to safeguard the safety and security of Jordanians and fair competition. Of lesser importance, but for the sake of completeness, where VOIP technologies are deployed in operator networks, up to, but not beyond, the network termination point, JT is of the opinion that this is a commercial decision that should be of no particular regulatory concern to the TRC. 5 VERTICAL DIS-INTEGRATION Many regulators have concerned themselves primarily with the legacy of cross-subsidies which prevent effective competition. Rebalancing access and call charges has therefore been a primary concern for many regulators as competition is introduced. Jordan has been no different in this respect. However, the availability of the many call conveyance and supplemental services historically enjoyed by telecoms subscribers over broadband access services from service providers entirely unrelated to the access provider, means that the historical vertically integrated structure of telecoms operators is no longer sustainable. A loss-making access business will soon no longer be able to survive on cross-subsidy from call conveyance services. Any form of regulation which constrains the removal of such cross-subsidies is therefore enormously damaging and must be relaxed. JT has made previous submissions to the TRC on this issue and repeats the urgency with which a solution to the universal service fund must now be found in order to recognise that JT s ability to fund its obligation through a cross-subsidy from international service revenues is no longer viable. Given the extent to which the TRC recognises the competitive threat Jordanian operators face in the market for international retail calls from offshore VOIP service providers, it is increasingly unsustainable that any operator in Jordan should be subject to any retail price controls for international calls. Finally, if domestic VOIP services become widespread as second lines to an accompanying traditional fixed line, such fixed lines will enjoy little or no call revenues making them little more than a financial burden on operators and consumers alike with no contribution from the VOIP providers who will ultimately enjoy the international revenues. The consequences of this for the TRC are that any regulatory constraints on any operator wishing to set the price of their access service to a level which covers its costs, including a lack of funding to cover the costs of any license obligations aimed at social inclusion in telecoms networks, is not only a market distortion caused by those responsible for preventing them, but hugely damaging to the long term prospects of that operators ability to meet its social obligations. 6 INVESTMENT CONSIDERATIONS JT has made representations on the impact which some VOIP services will have on the Jordanian economy previously. Retail VOIP services will have a similarly dramatic effect by enabling returns to be made from Jordan without the need for any investment in Jordan. In the absence of any regulatory constraints on such services, the clear conclusion must be to increase the incentives 4
to invest in access services and permitting service bundling such that there is effective competition between regulated onshore and unregulated offshore service providers. Without such a regulatory policy, infrastructure investors will be deterred from market entry and further infrastructure investment in favour of the offshore service provision model whereby revenues are derived from the provision of internet content. Starved of investment returns, the prospects of infrastructure competition in Jordan will simply wither away to a commodity access model best served by a single operator with substantial economies of scale. With the growing popularity of mobile data solutions, the same issues face mobile operators, albeit on a somewhat delayed timeframe. In any event, the future prospects for infrastructure investment in the Jordanian telecoms market are grim indeed unless the TRC can formulate a convincing regulatory policy designed to stimulate and sustain the economic value of such investments. 7 EQUAL TREATMENT With a growing population of broadband subscribers in the kingdom, and a similarly growing population of VOIP users as can be seen from a simple search for Jordanian VOIP users on any major VOIP service, the regulatory imbalance between VOIP and traditional voice services is becoming relevant. JT has made representations before that international retail rates should no longer be the subject of price controls and that any regulation should address individual markets based upon national dialing codes, i.e. destinations. Further delay to an adjustment to historic legacy regulation will serve only to weaken Jordanian operators by comparison with their offshore competitors. As these VOIP service providers gain ubiquity within Jordan, so domestic calls will become relevant for a relaxation in regulatory rules. Continuing to constrain operators beyond the point at which they no longer enjoy market influence in a relevant market is bad regulation. The need for an ex post approach to regulation based upon transparent competition safeguards started in January this year. The lack of any progress in this respect only serves to damage the Jordanian telecoms market and stimulate the use of less regulated offshore telecoms services. 8 NUMBERING The history for numbering regulations in Jordan is not be a source of pride as previous decisions on this subject have embedded discriminatory behaviour in some markets to the detriment of effective competition. Consequently, JT does not support any numbering plan which permits the easy recognition of telephone numbers used for VOIP services, as it may result in deterring crossnetwork calling as has happened previously. However, JT trusts that the TRC will only offer numbers to individual licensees without which the TRC would simply encourage the importation of the vertical dis-integration model to the detriment of national access providers. 5