Issue: 35/08

Deploying fibre - debating frameworks

September 10, 2008

Through our links with INTUG, ATUG watches the debates and developments around the deployment of fibre networks with interest and insight.

One of the key objectives of Australia’s telecommunications policy framework is the international competitiveness of the Australian industry and for that reason ATUG takes an active interest in developments overseas.

At the same time it is important to ATUG that broadband is available to all end users – so the realities of Australia’s geography and population mean a “home-grown” solution is needed.

ATUG was interested in the reported comments of Kip Meek, a previous Board Member of Ofcom (UK regulator), discussing the relevance or otherwise of Functional Separation.

The current Australian debate about the regulatory framework to support fibre deployment – affordably and without decreasing the degree of competition in telecommunications that end user rely on for good price, service and innovation outcomes - starts with the RFP and that starts, as Meek suggests we should, with Equivalence and how to ensure it:

	1.1.9.	As the NBN will be a vital communications platform for the future, the Government is determined to ensure that the long-term interests of end-users continue to be promoted as well as the efficiency and international competitiveness of the Australian telecommunications industry. As such, it will be important that appropriate open access arrangements are in place.
	1.1.10.	Proponents should submit arrangements for open access to their networks, including measures or models to ensure equivalence of access prices and non-price terms and conditions, and arrangements for allowing access seekers to differentiate their service offerings to customers.

Competition and open access issues are covered in clause 1.5.14 - 1.5.23, including at 1.5.16:

Open access arrangements should apply to wholesale services to be provided over the NBN, including upgrades of services, as specified in the contract for the NBN. In accordance with section 1.4 of Schedule 2, Proponents should submit their proposed arrangements for ensuring open access to the NBN, including measures or models to ensure that access is provided on equivalent price and non-price terms and conditions. If a Proponent proposes to supply both wholesale and retail services it should demonstrate what structural measures or models it proposes be put in place and maintained to prevent inappropriate self-preferential treatment and ensure that effective open access is achieved on the terms required by the Commonwealth.

This issue of structural measures is covered again in Schedule 2:

	2.5	Ownership and Operational structure of the NBN
	(a)	Proponents should describe the proposed ownership and operational structure of the NBN. This should include:
		•	identifying each entity to be involved in the investment, establishment, and management of the NBN, including the Government’s role;
		•	any functional or structural separation of network ownership from wholesale and retail businesses; and
		•	exit arrangements for the Commonwealth and the Proponent from the NBN.

Meek’s input to the NBN regulatory discussions is available to all. Click Here

…However, when other countries look at the UK model, it is worth asking first whether the problems being addressed are as severe in the UK and how any problems should be addressed. In the UK, the lack of equivalent treatment between BT Retail and BT’s competitors by the wholesale arm of BT was so severe that drastic measures were required.

ATUG does not read this as a wholesale rejection of Functional Separation but a rather more considered caveat to assess market conditions carefully when applying serious interventionist tools.

By way of an update on developments in Europe, the European Competitive Telecommunications Association (ECTA) has released an update of the Broadband Scorecard for Q1 2008 available here

The emphasis added in the extract from the release reflects the interests ATUG has in this important debate:

Europe now has over 100 million broadband subscribers according to the latest Broadband Scorecard. The results of its twice-yearly survey also show that altnets, or competitive providers, and not the large incumbents which own much of the telecom infrastructure, are leading in provision of super broadband connection speeds above 10Mbits/sec, as well as driving the uptake of high-tech services. Speeds and services have become the next broadband battleground, according to the pro-competition body.

In Sweden, the leader for super broadband services where one in 10 people subscribe to a super-fast connection, 70% of the high speed services were provided by competitors compared with just 20% by the incumbent. The results are similar for all other countries surveyed.

However, while competitors dominate in offering high broadband speeds, the access lines over which broadband services are provided continue to be controlled predominantly by incumbent operators. Only 18% of broadband services across Europe were supplied via an alternative parallel network to the incumbent – usually cable. The remaining competitive services rely on regulated access to the incumbent network such as local loop unbundling.

ECTA’s Chairman comments, “The results show that it is largely competitive providers and not the incumbents who are bringing very high speeds and new services into the market. However, consumers’ choice to switch to an operator offering faster and better services depends on regulators enforcing effective access so that the line can be used by multiple companies and not just the owner of the line. A real concern is that consumers in some cities or even entire countries could find that the choice they have today reduces and speeds stagnate because policy-makers decide that access to fibre networks is not needed.”

Contrary to incumbents’ assertion that competitors can use wireless connections, the ECTA survey suggests that wireline technologies such as DSL and fibre are better adapted than wireless for providing high speeds and bandwidth-hungry applications. Only a few wireless connections were offering more than 2Mbit/s whilst the very high speed services with 10Mbit/s or more were entirely dominated by wireline connections.

The European Parliament debate on access to next generation networks, as well as a number of additional key elements of the Telecoms Framework, took place on Tues 2 September, the outcome of which ECTA believes will have a considerable influence on how successfully Europe migrates from existing legacy copper network to next generation access networks, including Fibre-to the-home/Fibre-to-the-building.

ECTA says policy-makers need to find a balance between ensuring that access is provided so that consumers have a choice and owners of access lines, predominantly incumbent operators, makes a fair return on investment. ECTA is concerned that the debate seems to be swinging too far in favour of the incumbents which have maintained and in several cases even strengthened their share of the retail broadband market in recent years and are typically in a considerably stronger financial position than the smaller competitive providers. If policy-makers do not commit to providing access to VDSL-based networks and fibre lines, or if they over-compensate incumbents, the result will be excessive profits for incumbents, and low speeds and less choice for consumers.

Key findings of the report:

•	Broadband lines reached 102m across the EU in Q1 2008 up from 92m in Q3 2007, a 10.2% increase. The number of lines rose 20.9% over the year.
•	Nordic countries remained European and world leaders in broadband take-up. In Denmark 36% of the population now subscribes to broadband. Netherlands, Sweden and Finland all had penetrations above 30%. At the other end of the scale take-up in Bulgaria, Romania, Poland and Slovakia was less than 10% of the population.
•	Of the countries for which information was available, super-broadband speeds (>10Mbit/s) were most predominant in Sweden (10% of population). 1.5% of the population in Slovenia and Lithuania benefited from ultra high speed services.
•	Alternative operators were leaders in super-broadband (>10Mbit/s) and provision of voice over broadband services for nearly all of the countries for which information was available.
•	DSL and fibre technologies predominate in the provision of services >10Mbit/s and in lines used for VoB (video over broadband) and IPTV. Fixed wireless access is mainly used to offer lower speed services.
•	Europe has more than 1.2m fibre access lines. The highest fibre penetration was recorded in Sweden where 5% of the population is served by fibre. Several new member states also have significant fibre penetration particularly Estonia, Lithuania, Slovenia and Slovakia.
•	Of the countries for which data was available, IPTV was most developed in Denmark (5% of population), Slovenia and Sweden.
•	Incumbent operators maintained their share of the retail broadband market across Europe with 47% of all connections (53% including resale connections) – a figure that has remained static for nearly 2 years. Incumbents strengthened their retail market share in France, Austria, Belgium, Finland, Ireland and Greece.
•	82% access network lines used for broadband are controlled by incumbent operators, whilst 18% of competitive lines are provided via alternative parallel infrastructure (mostly cable). The majority of competitive services (34% of the broadband market) were supplied by means of regulated access to the incumbent network such as local loop unbundling.

Given the performance of Sweden, it is interesting to see the approach of the Swedish regulator to availability of functional separation as a regulatory tool of relevance in the DSL/ULL market:

Functional separation
• New legislation decided by the parliament - enters into force July 1 2008.
• Provides PTS with a tool to impose functional separation of the copper access network as an SMP remedy
• Possibility to approve a voluntary commitment from TeliaSonera regarding functional separation
• PTS supports the EC proposal which is”wider” than the Swedish legislation (limited to ULL market)

Why is functional separation necessary?
• Large dependence on TeliaSonera’s fixed access network – xDSL has higher growth than other access solutions
• Today deep mistrust in relation between TeliaSonera and the wholesale customers (competitors)
• Repeated disputes and long court proceedings, refusal to supply certain regulated wholesale products
• Effects for end-users: less choice, unwillingness to change operators, problems when transferring subscriptions
• Functional separation eliminates possibilities for discriminating behaviour and abuse of internal information

The full presentation is available here

Whether Functional Separation is right for Australia market for high speed fibre broadband services is an important debate which must he held publicly – the interests of telco shareholders are important but the broader interests of all the other companies and organisations that make up the Australian economy, and of consumers generally are the basis on which Australian’s decisions about telecommunications policy must be made.