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Ovum: Separation the key issue in Australian next-generation network debate

18 06 2009 – With the publication last Friday of the submissions to the government’s regulatory review, the Australian industry is clearly split. The incumbent Telstra is on one side and everybody else (including the regulator, the ACCC) is on the other. But there is still a chance for a manageable transition to FTTH.

image Battle lines are drawn

In April 2009 the Australian government committed itself to investing up to A$43 billion in a national wholesale-only fibre-to-the-home (FTTH) network to be built over the next eight years. A national broadband network company (NBNCo) is being created to own and operate the FTTH access network.

It also announced a review of telecommunications regulation. The review canvasses both short-term changes to promote the current ULL-based competition and long-term changes that might be required for a next-generation network. A government response is due at the end of 2009.

The submissions to the government’s regulatory review were released last Friday. They show little common ground between Telstra and the rest of the industry. The regulator is firmly in the camp of Telstra’s competitors.

Telstra has proposed adjustments to the current competition regime that leave the broad pattern of regulation unchanged:

“Telstra delenda est”

During the Punic Wars, Roman senators ended every speech to the Senate – on whatever topic – with the words “Cartago delenda est”: Carthage must be destroyed. This sentiment is evident in the ACCC’s submission, which is reasonably representative of non-incumbent views:

However, there are also some jarring notes among the submissions. For example, Optus, Telstra’s largest competitor, argues that a national FTTH network is only sustainable in the absence of fixed infrastructure competition. This implies a transition to a statutory monopoly by rolling all of Australia’s access networks into the new NBNCo. This clashes awkwardly with the ACCC’s contention that a divested HFC network would provide valuable competition in the transition period to a national FTTH network.

Common ground is still possible

Telstra cannot ignore the groundswell for separation. Under the government’s FTTH plans, separation is the end game anyway. Its challenge is to manage the process and defend its own financial interests.

But nor can the government ignore Telstra’s capacity to damage the NBNCo’s business case. If the NBNCo must build its network and fight Telstra to peel away customers (separation takes away Telstra’s copper, not its customers), then the government’s subsidy costs will be vastly inflated.

The model that is now being widely discussed in the industry is for Telstra’s copper access network to be rolled into the NBNCo. This would achieve structural separation in the short term, while creating a sustainable access operator with an established revenue stream. In order for this to be attractive to Telstra, it would need to get a lot of equity and some kind of guarantee on the financial return on that equity.

This model reduces the FTTH upgrade from a commercial challenge to an engineering one to be managed by the NBNCo. Customers will be cut over to the new network automatically rather than having to be captured. This will allow the NBNCo to focus on growing new revenues as FTTH is rolled out.

If acceptable parameters for such a deal can be found, the government will have pulled off a remarkable coup. If not then a lose/lose scenario seems inevitable.

Source: ovum.com

FTTH: Government intervention in superfast broadband around the world

19 06 2009 – The Digital Britain report just published aims to provide a blueprint for an economy based on a high-speed digital communications infrastructure.

Carolyn Kimber, chairman of the Communication Managers’ Association, whose members spend £15bn/y on communications, wants a new Communications Act that balances better the interests of businesses and consumers. She said, "The CMA would have preferred to see an unequivocal commitment to carrier-neutral, open access networks as part of a revised universal access obligation."

Government intervention in superfast broadband around the world:

Australia: A$43bn project to deliver fiber to the home (FTTH, capable of 100Mbps) to 90% of homes; 12Mbps to the remaining 10%. Public to own at least 51% of the project. Minimum A$2,750 (£1,350) per household, depending on public sector share of investment.

New Zealand: NZ$1.5bn of public money to be used alongside private investment to deliver FTTH to 75% of homes. NZ$1,000 (£390) per household.

Singapore: $0.75bn of public funds available to deliver FTTH to 100% of homes. $715 (£450) per household.

Finland: By end of 2015, 99% of homes will be within 2km of a fiber connection. 95% of homes will be served by the market. The remaining 5% will be two-thirds funded by public investment of €133m. €55 (£47) per household (additional investment required to connect homes to fiber infrastructure).

Greece: €0.7bn of public investment, with a further €1.4bn of private investment, to deliver FTTH to 2m homes. €192 (£160) per household.

USA: Stimulus package includes $7.2bn for broadband projects, some which is to stimulate investment in superfast broadband, although most is to expand current broadband services. $63 (£40) per household.

UK: Final Third Fund to raise £1bn over seven years to bring superfast broadband to every home. £6 per household per year; £42 per household over seven years

Source: computerweekly.com

US: Broadband adoption and prices increase, Pew survey finds

17 08 2009 – Both broadband adoption and prices have significantly increased over the past year, according to Pew Research.

Pew’s annual Home Broadband Adoption survey released today shows that 63% of Americans now have broadband Internet connections in their homes, up from the 55% in last year’s survey. One of the big drivers has been an increasing number of subscribers to premium broadband services. The survey found that 34% of users reported subscribing to premium services in 2009, up from 29% in 2008. By contrast, the percentage of broadband subscribers who used basic services held about steady at 53%.

However, the increase in broadband adoption has also coincided with an increase in broadband prices, which the survey found are now at their highest level since 2004. Broadband users reported having an average monthly bill of $39, a 13% increase from the $34.50 reported in 2008. The increase is striking, as broadband prices had generally been declining since 2004, when users also reported an average monthly bill of $39.

Pew says the price increases aren’t caused by more people adopting premium broadband services since premium and basic service users saw their average monthly bills increase.

The average monthly bill for a basic broadband users was $37.10 in 2009, up from $32.80 in 2008, while the bill for premium users was $44.10, up from $38.10. The survey found that prices were higher in areas that had only one broadband provider, where the mean monthly price for broadband services was $44.70 and the median monthly price was $40. In areas with more than one broadband provider, the mean monthly price was $38.30 and the median monthly price was $35.

Pew also reports that 7% of Americans reported having a dial-up Internet connection at home, down from 14% just two years ago. The dropoff in dial-up connections is significant because dial-up connections were more numerous than broadband connections in the U.S. as recently as 2004, Pew notes. Of the dial-up users surveyed, 32% said they were waiting for broadband prices to fall before upgrading their connection, 17% said they were still waiting for broadband to become available in their areas and 20% said that "nothing" would get them to subscribe to broadband services.

Pew says that non-Internet users now represent 21% of all U.S. adults. When asked by Pew why they didn’t use the Internet, 22% reported that they weren’t interested in getting online, which represents a sharp decrease from the 33% who said they weren’t interested in getting online back in 2007. Other reasons that people gave for not using the Internet included reported lack of access (16%), cost (10%) and perceived difficulty of use (7%).

The survey was conducted through telephone among a sample of 2,253 U.S. adults between March and April. The survey comes just as the FCC has been working on developing a national broadband strategy to ensure that all U.S. citizens have access to affordable, quality broadband. The U.S. government has also designated $7.2 billion to fund broadband infrastructure in the recently-passed economic stimulus package.

Source: computerworld

Regulation needed to ‘free’ NBN operators

17 06 2009 – SINGAPORE–Regulation is needed to ensure an open access platform is provided for the country’s next-generation broadband network (NBN), in order to "free" operators to offer innovative services to customers.

Speaking at the imbX conference and exhibition Wednesday, Khoong Hock Yun, assistant chief executive of infrastructure development group, Infocomm Development Authority (IDA), said regulation of Singapore’s planned next-gen NBN is necessary to ensure "neutral access and an open ecosystem for service providers".

"Competition is not an end unto itself." Operators who have access to "clear prices" upon the network will have the freedom to innovate, and "the private sector is in the best position to decide what services should be offered" upon the NBN, he said.

Open access and structural separation between the NBN’s network company (NetCo) and operating company (OpCo) will make entry less daunting for downstream service providers, said Khoong.

Tan Kah-Rhu, CEO of OpenNet, the appointed NetCo, touched on the operating and business support service (OSS/BSS) platform that it will offer to the OpCo and RSPs (retail service providers).

OSS/BSS is a telecoms industry term referring to areas such as fulfillment, service assurance, customer care and billing.

She said the portal will offer e-services on a "simple and transparent" platform.

David Storrie, Nucleus Connect CEO, said: "The proposed OSS/BSS platform is designed to provide open access to enable all layers to interact for ease of delivery of service."

Storrie said, in line with the regulations stated by an Interconnection Offering (ICO) expected to be released August by the IDA, the OpCo will offer standard pricing to RSPs, and will sell different tiers of connection bandwidth.

Nucleus Connect is proposing 99.5 percent availability to meet quality of service (QoS) targets in the ICO, and let downstream RSPs sell different tiers of service levels to customers.

The IDA’s Khoong said the OpCo will sell different grades of service levels defined from A to D, with A being "real time", B being "near-real time", C being "mission critical" and D as "best effort".

Source: ZDNET Asia

UK (Video): Digital Britain: Further reaction

17 06 2009 – Broad criticism of unambitious minimum broadband speed target, with equivalent projects in other markets cited; stealth tax on landlines to fund the project also widely criticised.

Digital Britain: The Final Report

Matthew Howett, Senior Analyst, Ovum:

“[Lord] Carter’s plans appear ill thought out. Firstly, the model follows a similar approach to the one originally taken in Australia, which the government eventually abandoned in favour of building a fibre-to-the-home (FTTH) network itself after concerns that a fibre-to-the-curb (FTTC) solution (most likely what the fund will enable) would not represent value to the taxpayer. FTTC would mean speeds of up to 50Mbps by 2017 – hardly future-proof when compared to other countries.

“Secondly, the introduction of a specific tax on fixed lines rather than using general taxation hasn’t been used elsewhere. It may have the effect of accelerating the pace of fixed-to-mobile substitution, which would only serve to reduce the size of the fund and provide a signal to the mobile sector and in particular to mobile broadband, which Carter admits himself is unlikely to deliver true next-generation bandwidth.

“Despite attempts to ensure we all have access to the internet, Carter also is ready to take it away. One of the most contentious issues of late in Europe has been the issue of illegal file sharing over the internet.

“Britain has decided not to go down the ‘three strikes and you’re out’ route, instead ambitiously expecting to reduce unlawful activity by serving written notification to the abuser and then informing the content owner of their identify for them to take further action. If this proves not enough to deter people then bandwidth restriction will be considered.

“Whilst this might work in the very short term, ways around the restrictions would soon be found. It would have been more forward looking to reassess the whole system of digital rights and access to online content.

“Trying to apply 18th century rules in a 21st century world isn’t sustainable and will not foster the creativity that is expected to make use of the digital infrastructure. Expecting this approach to work highlights one of the report’s greatest weaknesses and almost fails to capture the debates that have been taking place, particularly around network neutrality.

“Whilst the imitative was likened to the building of roads and bridges of the past, it clearly lacks the scale, funding and ambition.”

Paul Lawton, Managing Director, Opal Telecom:

“The Digital Britain report offered an opportunity to address the fact that the UK has failed to keep pace with convergence and digital technology on a European and international scale, but the report has become a missed opportunity for UK business and puts no framework in place to create the Prime Minister’s ‘digital capital.’
“Although the report acknowledges that broadband is an ‘essential commodity’ for economic and social progress, the focus remains on social use and the domestic user, with the report concentrating much of its content on allowing consumers access to video content. Consumer broadband performance is focused on downstream speed only but in the business market the need is to ‘share’ business information and applications, a two-way process requiring large files and data to be exchanged in both directions.
“The UK is already at risk of being left behind and committing to a minimum of 2Mbps by 2012 – while good news for domestic users – is not going to help UK businesses to effectively compete in the future or enable business owners to accommodate requests for flexible working.
“For flexible working to be a viable option, home workers need to be able to enjoy the same ‘experience’ (speed, performance and security) as they would in the office. This would usually involve running some form of IP VPN as well as the use of desktop conferencing, VoIP-based applications and MPLS networking allowing workers to be connected into the cloud using low cost broadband links. However, what all of these opportunities require is broadband that is both ubiquitous and capable of providing the performance and speeds to support them.
“A minimum recommendation of 2Mbps is a step in the right direction and the benefits will certainly be felt by consumers. However, Digital Britain’s focus on downstream speeds of only 2Mbps will limit broadband’s wider use, because for businesses it is the upstream which is the limiting factor.

“If, as the Prime Minister says, Britain is to leapfrog other countries from its current position, a framework must be put in place to support the new raft of high bandwidth, business critical applications required for UK businesses to complete.”

Spokesperson for Carphone Warehouse fixed/broadband unit TalkTalk:
“Before the telephone tax becomes law, it is the Government’s job to consult and justify the charge while explaining how people will benefit.  We will be involved in this debate representing the views of our customers and, of course, if legislation is passed we will collect the tax as directed.
“The Digital Britain Report fails to acknowledge what almost every informed commentator knows; that determined filesharers will find a way around any technical roadback that can be put in place. Our position on filesharing has always been clear; we refuse to disclose our customers details unless the case against them has been proven in court.
“This remains our view and, while we’re pleased the Report reflects this, we’ll be participating in the forthcoming consultation to ensure that our customers’ rights are protected.

“Technology is moving fast in this area and there are already a number of proven ways that people serious about file sharing can avoid detection, so the suggested route means the only people who are likely to be be caught will be light, unsophisticated users of file sharing or people who have had their computer or Wi-Fi network compromised by a third party.

“There is only one sustainable and practical solution to the problem and that is for rights holders to adapt their business model and make their content easy and cheap to access legally online
“We have long recognised the importance of digital inclusivity and welcome the plan that has been put forward as it delivers central funding without putting a further burden on the customer.”

Richard Heap, Head of Telecoms, at BDO Stoy Hayward:
“Despite being widely criticised in January for only committing to a broadband network speed of 2Mbps by 2012, Lord Carter has gone ahead with plans to provide Britain with outdated technology at a speed akin to a snail’s pace. This is even more frustrating when other countries, such as South Korea, are committing to universal speeds of up to 1Gbps by 2012, which is 500 times faster. Even Gordon Brown has gone on record saying that all households should be able to enjoy broadband speeds of 10Mbps.
“We believe that the Government should consider investing some of the £25 million into innovation projects. One such example they could follow is Quintain Estates which has recently announced that it has installed a high-speed fibre-optic technology to a new residential development where residents can enjoy speeds of up to 100Mbps.
“To add insult to injury, Carter has said he’s going to tax every phone line in the country £6 per annum to fund this inaptly named “next generation” network. Especially as an Ipsos Mori poll has shown that 43 per cent of people wouldn’t use broadband even if they had access to it. This clearly begs the question of where resources should be allocated – surely in quicker broadband rather than trying to meet the Universal Service Commitment?”

Trefor Davies, Chief Technology Officer, Timico:

“Two funding streams have been identified for the 2Mbps Universal Service Obligation and the longer term Next Generation Access broadband. The 50p per analogue line will raise about £180 million a year and the diversion of funds from the unused digital TV switchover fund will account for £200 million.

“I guess my point is that in last year’s Caio Report the NGA network was estimated to cost £29 billion and a large proportion of this would have been spent in areas that currently can’t get broadband and would be in the USO area.. The per line cost of providing 2Mbps is probably not much less than the 40 or 50Mbps talked about in NGA.

“So the funding identified for USO can only be a start and there is a scenario where they might just as well go straight for the fast stuff.  It is good that the Government has recognised that the Digital Divide exists but they do need to do more.”

Click here for more from Trefor Davies.

Chris Woodland, Communications, Associate Partner at KPMG:

“The proposed Next Generation Fund presents new opportunities for service providers to deploy broadband networks to the final third of the UK population.
“But the strength of the investment incentive will depend on the associated regulation, as yet unknown – will, for example, these service providers be forced to open these networks to third parties in due course?
“Mobile operators will benefit from greater certainty in owning 3G licences indefinitely and from Ofcom’s desire to promote further levels of network-sharing, but this will be tempered a little by the unknown quantum and changes in any additional costs payable as an Administrative Incentive Pricing (AIP).

“Clear messaging around the desire to promote network-sharing does raise the possibility that Ofcom may look sympathetically upon the prospect of fewer mobile networks operating in the UK in the long term.”
David Thomas, Head of Communication Regulation, KPMG:

“Residential consumers, SMEs and teleworkers are likely to be disappointed by the lack of ambition for universal broadband speeds of only 2Mbps. 
“However this low target is not surprising, given the lack of available Government funding due to the current economic environment and the industry view that customers will be unwilling to may much more for broadband.”
“This is in stark contrast to the radical plans announced in Australia to spend £21 billion, funded jointly by Government and industry.”

Michael Phillips, Product Director, BroadbandChoices.co.uk:

“A 2Mbps commitment is a pretty underwhelming aspiration given the rest of Europe already experiences over 6Mbps as an average. If this is a headline speed then experience would indicate that many recipients will actually get only a fraction of this, as headline speeds presently fluctuate dependent on levels of usage and how far users are from junction points…
“The Government is proposing a carrot of offering indefinite 3G licences to mobile operators in a bid to stimulate investment to patch over rural/outlying not-spots. The investment from the operators will be significant so the success of this will ultimately hinge on the operators’ ability to recoup outlay in any reasonable timescale given the population density in many of theses areas. The fall back option is to use satellite infill which could be prohibitively expensive to subsidise on a per household basis…
“The Government’s target to hit UK-wide 2Mbps broadband coverage for all by 2012 is a very tall order. Updating and implementing the necessary mobile and fixed line infrastructure in three years will require a massive coordinated effort and a clearer route to bolstering the £200 million from direct public funding to be achievable…
“It’s a bold move to tax all cable and copper lines by 50p per month to fund the infrastructure for superfast services to the estimated third of the population that will be left behind by the ISPs. This could potentially deliver some £175 million a year towards the project. Unsurprisingly, the report has left any timescales for implementation – and the term of the proposed levy – frustratingly vague.”

Source: mobilenews

UK phone lines to be taxed and downloaders throttled

16 06 2009 – UK households are to pay a line tax to fund universal broadband (at 2Mbit/s minimum) and multiple copyright offenders will be throttled.

image The new measures were outlined today in the UK parliament upon the publication of what’s been billed as a landmark report, Digital Britain, undertaken by ex-cable TV CEO, regulator and now cabinet minister, Lord Carter.

Carter is now resigning, no doubt to take up some lucrative job with a media company.

As we predicted, Carter and the UK government have stopped short of actual Internet disconnection for copyright offences (a la French 3 strikes), but the government is proposing to enable Ofcom to enable ISPs to do a bit of annoying bandwidth throttling (or perhaps site blocking) should warning letters to P2P file sharers fail to do the trick and stop the offending behaviour.

The pro 3 strikes lobby sense a loss of government nerve on the issue, while the pro file-sharing lobby are no doubt looking forward to seeing the measures impplemented so they can find cunning ways to avoid detection.

There will be a rights agency (also a la France) but it’s unsure at this point how effective this will be as its ability to impose sanctions and encourage new services appears to have been "watered down" say observers.

The interesting thing is whether the throttling proposals will be able to withstand legal challenge, given the measures included in the EU Telecoms Package designed to enshrine European citizens’ rights to Internet access.

Amendment 138, for instance, makes any disconnection subject to proper legal proceedure and other measures in the package are designed to protect users service from degradation by ISPs.

Source: TelecomTV

The internet is as vital as water and gas: Gordon Brown, British PM

16 06 2009 – Every home will have broadband access as we aim for a digital Britain fit to take on the world.

The digital revolution is changing all our lives beyond recognition and today we shall set out how Britain must change with it. Whether it is to work online, study, learn new skills, pay bills or simply stay in touch with friends and family, a fast internet connection is now seen by most of the public as an essential service, as indispensable as electricity, gas and water.

Just as the bridges, roads and railways built in the 19th century were the foundations of the Industrial Revolution that helped Britain to become the workshop of the world, so investment now in the information and communications industries can underpin our emergence from recession to recovery and cement the UK’s position as a global economic powerhouse.

Today the Government will publish its Digital Britain report, which firmly places the digital economy centre stage as it is core to our future industrial capability.

The UK’s digital economy at present accounts for about 8 per cent of our national income. Its continued development is fundamental to the productivity and innovative capacity of so many other sectors and, with that, the creation and protection of hundreds of thousands of jobs.

I am determined that Britain’s digital infrastructure will be world class. For me, it is all part of building Britain’s future beyond the difficult, short-term economic conditions. We must continue to invest to become a world leader in the new high-tech, low-carbon industries of the future by reigniting the British genius for invention, discovery and trade – to capitalise on our strengths.

Whenever I travel abroad, I see the presence of British products and services that testify to our national strength in the emerging high-end manufacturing industries, the information and communications industries and creative industries such as advertising, film and television.

These are the dynamic sectors that we need to back and promote. So, like other leading economies, we must develop the next generation of communications networks – fixed, mobile and broadcast.

The private sector is rightly leading the way and investing significant sums. But there is also a role for targeted, strategic action by government.We can create the right framework, for example, for the release of wireless spectrum – a national asset – while also liberalising its uses and extending mobile broadband coverage.

In our fibre optic and cable networks, which will provide the next generation of superfast broadband, the Government must also complement and assist the private sector to move farther and faster.

Modernisation of our communications infrastructure is vital to take advantage of important shifts in technology. The public sector, businesses large and small – and those who work in them – need access to both fixed and mobile high-standard, high-speed networks.

But I am clear that this transformation must benefit us all, business and consumers alike, in every part of the country. Digital Britain cannot be a two-tier Britain – with those who can take full advantage of being online and those who can’t.

So the first step must be to make the existing broadband network truly available to all. Just as we remain committed to a universal postal service, we pledge today to give every home, community and company access to broadband internet.

These technological advances will be accompanied by a revolution in content, which they allow. We must develop and sustain public service content, such as commercial regional news, which we all value and rely on, ensuring that it can be delivered across multiple digital outlets by a range of providers accessible to all.

These are difficult times for local newspapers, TV and radio and, as Ofcom has said, a regionalised TV news network is no longer financially viable. However, competition in news – as in business – is vital to provide consumers with the highest quality and we cannot allow a monopoly to take root. Remaining in touch with local issues and holding councils and regional bodies to account is the lifeblood of our democracy.

We also need to help Channel 4 to secure its future. In its short history, the station has produced Oscar-winning films and some of the most popular and highest-quality programming. But it now requires long-term stability to develop as a truly global player.

Improved communications technologies from the progressive digital switchover will enable the Government and local authorities to provide taxpayers with improved individually tailored public services offering the greatest value for money, and increasing efficiency for citizens and businesses. We must also introduce a robust legal framework to combat digital piracy and secure the rights of Britain’s creative talent.

Broadband is at a tipping point. High-speed internet access will soon be essential for everyone. Only a digital Britain can unlock the imagination and creativity that will secure for us and our children the high-skilled jobs of the future in a global economy.

Gordon Brown is the Prime Minister

Source: timesonline.com

UK plans universal access to high-speed Internet

16 06 2009 – Britain’s government pledged Tuesday to provide universal access to broadband Internet connections as part of a plan to spur the country’s technology sector and boost the economy.

British Prime Minister Gordon Brown said Tuesday that high-speed Internet access has become as “indispensable as electricity, gas and water” for most of the public.

“Just as the bridges, roads and railways built in the 19th century were the foundations of an Industrial Revolution that helped Britain to become the workshop of the world, so investment now in the information and communications industries can underpin our emergence from recession,” he wrote in an op-ed piece for the Times of London.

Brown’s comments came ahead of the release of the government’s “Digital Britain” report, which was expected to propose major investments aimed at giving every home broadband access and suggest policies aimed at developing new jobs in the information and communications industries.

Over 70 percent of British adults now have some form of access to the Internet at home but authorities want to reach those who are reluctant to get online – either because they cannot afford it or because they do not feel they benefit from it.

Broadband access in Britain is patchy and many households in rural areas can only access the Internet through slow or unreliable connections that cannot be used to watch movies, shop online or access other services that would be useful to people living far from larger towns.

The government now wants to ensure every household can have broadband access at 2 megabytes per second – fast enough to use the Internet to buy products online and use social networking sites like Facebook.

Britain is not the only country to try to expand Internet access. Germany announced a similar plan in December, as part of its first economic stimulus package. India’s President Pratibha Patil recently outlined plans to get 40 percent of people in the countryside online over the next five years.

Source: washingtonpost.com

Broadband and Economy paper

13 06 2009 – A very nice paper about Broadband and Economy from OECD.

 

EU: Broadband – Commission consults on regulatory strategy to promote very high speed Internet in Europe – frequently asked questions

12 06 2009 – The European Commission has launched a public consultation on its revised proposals for the regulation of Next Generation Access (NGA) broadband networks, in the form of a draft Commission Recommendation.

A previous public consultation held during the last quarter of 2008 confirmed general support for the objective of the Commission to achieve a common regulatory framework for NGA in order to foster timely investment in very high speed networks while ensuring that the competitive structure of the market is maintained.

In the light of comments from stakeholders, the revised draft Recommendation includes mechanisms to allocate the investment risk between investors and operators seeking access to NGA networks. The draft Recommendation forms part of the European Broadband Strategy that the March European Council invited the Commission to develop by the end of 2009. The public consultation will be open until 24 July 2009. The Commission plans to adopt the Recommendation, taking account of comments received, before the end of 2009.

EU Competition Commissioner Neelie Kroes stated: " For consumers and businesses to be able to reap the benefits of competitive very high speed broadband services, we need a common pan-European regulatory approach to NGA broadband networks. This consultation will help to ensure that the Commission Recommendation gives the necessary legal certainty to encourage large scale investment in new fibre infrastructure for very fast broadband internet services while safeguarding effective access to NGA networks for competitors."

EU Telecoms Commissioner Viviane Reding said: "High speed fibre networks are the new generation of broadband infrastructures in Europe. In order to give citizens and businesses across Europe access to fast broadband Internet, very large sums of private and also public money will need to be injected in the coming years. Investors therefore need to know the rules of the game. The aim of the planned Commission Recommendation on next generation access is to provide legal certainty for all players by providing national regulators across Europe with clear guidance on the regulatory approach to be taken. I call on all stakeholders to contribute actively to the new public consultation in order to help us achieve the right balance between effective competition in the broadband market and giving the right incentives for sustainable investment in Europe’s high speed networks."

The revised draft Recommendation would include mechanisms to allocate investment risk between investors and access seekers. In particular, to foster market-driven investment outside densely populated areas, the draft Recommendation defines conditions under which co-investment schemes could be deemed pro-competitive. Under the draft Recommendation, deployment by the dominant operator of multiple fibres could justify less stringent regulatory obligations. The competitive advantage of having multiple fibres in the ground is that it allows immediate and undistorted infrastructure competition.

The revised draft Recommendation endeavours to develop a pan-EU common regulatory approach, which telecoms regulators would adapt to national market conditions. The approach proposed by the Commission aims at driving infrastructure-based competition where it is possible and efficient, while ensuring a seamless migration from copper to fibre-based networks.

The Commission organised a first public consultation on a draft Recommendation on the regulated access to Next Generation Access Networks in 2008 (see IP/08/1370 ). The consultation confirmed the need to provide guidance on how the current regulatory framework should apply to NGA investment, in order to avoid Single Market distortions and create legal certainty for stakeholders. It also confirmed general support for the proposed balance between investment incentives and the protection of broadband competition. However, there were also calls to consider alternative mechanisms to diversify the specific risk of NGA investment as a way to foster investment in fibre.

The March 2009 European Council called for cooperation between investors and operators to be authorised so as to diversify the risk of investment in NGA, whilst ensuring that the competitive structure of the market and the principle of non-discrimination are maintained.

Background

Broadband access is currently regulated by national telecoms regulators. The objective of the Commission’s Recommendation will be to foster the application of consistent access remedies on dominant NGA operators.

See also MEMO/09/274 .

The Commission’s public consultation document can be found at:

http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/index_en.htm

Input to the Commission’s public consultation can be sent to:

infso-B1ext@ec.europa.eu

Commission consults on regulatory strategy to promote very high speed Internet in Europe – frequently asked questions (see also IP/09/909 )

What are Next Generation Access networks?

Currently broadband is provided by telecommunications operators to their subscribers via the same copper wires that have been used for telephony since its invention in the 19 th century. However, new broadband services such as online gaming, high-definition TV and interactive applications require enhanced network characteristics including higher bandwidths that cannot be provided over copper infrastructure. To provide these services it is necessary to replace the copper infrastructure connecting the end-users to the local switches (the "local loop") by optical fibre. These new fibre-based access networks are referred to as "Next Generation Access networks" or "NGAs".

Two main forms of next-generation fibre access can be distinguished, depending on how close the fibre is brought to the end-user. Fibre can be rolled out all the way to the customer’s premises (Fibre To The Home, "FTTH" also designated as Fibre to the Building "FTTB"), or it can be rolled out to an intermediary concentration point (Fibre To The Node, "FTTN" also designated as Fibre To The Cabinet "FTTC") and copper wires remain in use for the final connection to the customer 2 . FTTN architecture allows download speeds of up to 50 Mbit/s depending on the configuration. FTTH architecture allows download speeds of 80 Mbits/s or more with current technologies, and almost unlimited bandwidth in the long term with technological advances in photonics equipment.

Why regulate NGAs?

In the EU Member States, national telecoms regulators currently regulate broadband to avoid distortions of competition. Incumbent operators are required to provide access to their networks, which cannot be duplicated in a reasonable time period, to enable consumers to choose between broadband providers. The roll out of NGA networks does not remove the existing competition concerns regarding broadband, i.e. that incumbents could leverage the dominant position they enjoy as owners of non-replicable legacy access infrastructure to monopolise new broadband services provided over this infrastructure and thereby limit consumer choice.

Currently, the wholesale broadband markets warrant ex-ante regulation, under the Commission Recommendation on relevant markets (see IP/07/1678 ). Unless it can be established that NGA access services are markets different from the current regulated wholesale broadband markets, dominant operators with significant market power (SMP) in these markets are within the scope of the Recommendation and access to their NGA networks should be regulated. Proper broadband regulation remains a necessity to ensure a level playing field amongst NGA investors and brings benefits to consumers, including better services, more choice and lower prices.

Who regulates NGAs?

The regulation of broadband in each Member State is the responsibility of the national regulatory authority (NRA). In accordance with the EU’s Telecoms Rules, where an NRA determines that a relevant market is not effectively competitive, it shall identify operators with significant market power and impose appropriate regulatory obligations (see MEMO/07/457 ).

Some NRAs have already adopted obligations concerning access to the NGA infrastructure of the dominant national operator (including France and Portugal in the case of FTTH and Germany in the case of FTTN). Other NRAs have further specified obligations concerning infrastructure sharing.

The national regulators have started reflecting on the regulation of NGA and published a position paper on this issue at the occasion of the review of the EU electronic regulatory framework 3 .

Why is the Commission now intervening?

The Commission believes that it is important to provide regulatory guidance to the NRAs at an early stage of NGA rollout to ensure a smooth transition. Inconsistent regulatory responses throughout the EU would undermine national and cross-border investment in NGA. Moreover, competition may be harmed due to improper regulation or the absence of regulation which would allow incumbent operators who own most of the infrastructure and have the largest customer bases to monopolise the broadband retail services.

The Commission’s Recommendation will provide a framework to examine the measures proposed by the national regulators for the rollout of NGAs under the Community consultation mechanism (the so-called Article 7 procedure). For a key development such as the roll out of NGA networks, it is more efficient to provide overall ex-ante guidance to the national regulators than case-by-case comments.

What will be the potential effects of the Commission’s intervention?

So far, f ibre networks have been deployed slowly across the EU, covering often only a marginal share of national markets. The deployment of NGA networks will occur gradually. Regulatory predictability is clearly one of these conditions. The Commission’s Recommendation will provide regulatory certainty to investors by ensuring a consistent application of regulatory remedies throughout the EU, thereby facilitating cross-border investment, and consolidating the internal market for electronic communications.

As importantly, the Recommendation will guarantee fair competition during the roll out of NGA by ensuring that national regulators mandate appropriate access to the infrastructure of the SMP operators. This will ensure long term sustainable competition and increase consumer choice and innovation.

How will consumers benefit from the Commission’s intervention?

The deployment of NGA is necessary to allow EU consumers to use various new broadband services. Therefore, the NGA rollout will contribute to long term consumer welfare. It will also offer large growth opportunities to the IT and content industries and to the European economy as a whole.

Enhanced competition between operators helps to encourage service innovations and to convey broadband prices to the lowest level, as illustrated already in the French or the UK market. More competition and choice for consumers are the essence of the new EU Telecoms Rules proposal (see IP/07/1677 and MEMO/09/219 ).

Will regulation only be imposed on dominant operators (SMP operators)?

The overall objective of the Recommendation will be to foster the application of consistent regulatory remedies on dominant NGA operators in broadband markets in order to prevent them from leveraging their dominant position to new broadband services markets. The recommendation is therefore mainly "asymmetric", i.e. rules are imposed only on dominant operators with significant market power.

However , the Recommendation is without prejudice to stricter measures adopted by Member States.

What type of access will be imposed on dominant operators?

In general, the Commission considers the facilitation of infrastructure competition as the preferred regulatory option. It allows sustainable competition in the long term and increases consumer choice and innovation. With civil works representing up to 80% of the total rollout costs of NGA, an efficient remedy would be to ensure a cost orientated non-discriminatory sharing of legacy physical infrastructure. In most cases however the deployment of parallel fibre networks is not viable because no ducts are available or because the population density is too low for a sustainable business model. Access to other passive elements (unbundling of the fibre loop) or access to active elements – service based competition ("bitstream") – should also be mandated, according to the draft Recommendation.

The draft Recommendation requires NRAs to analyse the entire telecoms value chain in a consistent manner and in particular to analyse markets 4 & 5 in a coordinated way. This should lead to a minimum, proportional and consistent set of remedies resulting in effective competition on the downstream market.

How is the question of NGA investment risk addressed in the Recommendation?

The draft Recommendation recognises the risk involved in certain NGA investments and the need to properly allocate it between access seekers and providers in order to foster investment in fibre.

In particular, the deployment of FTTH networks normally entails considerable risks given the demand uncertainty for enhanced services which can only be delivered via fibre and the possibility of large irreversible investments. In such cases, the draft Recommendation provides that NRAs should assess whether a higher risk premium should be granted when deriving access prices. IfAdditional mechanisms to distribute the risk between investors and access seekers could also be used, such as long-term commitments or volume discounts. Such adjustments should however only reflect the reduction of risk for the investor.

Co-investment in NGA also allows distributing the risk between co-investors. Co-investment schemes will foster the deployment of NGA networks, in particular outside densely populated areas. The draft Recommendation defines the conditions under which such co-investments can be deemed pro-competitive.

Is the Commission not granting a form of "regulatory holiday" to the incumbent operators by allowing co-investment or risk-sharing mechanisms?

Incumbent operators with SMP will remain subject to regulation and will have to provide appropriate access to their NGA infrastructure. The draft Recommendation acknowledges however that under specific circumstances, co-investment schemes are likely to lead to effectively competitive situations and thus to the absence of SMP. In addition, co-investment schemes should in all cases be regulated proportionally to the objective of promoting efficient competition and investment. In certain conditions, listed in the draft Recommendation, less restrictive regulation will be sufficient to attain these objectives.

In all cases of more flexible regulation, additional safeguards will ensure that the SMP operator cannot engage in abusive practices, be it unilaterally or in collusion with co-investors. The draft Recommendation provides therefore that NRAs should control the SMP operator’s pricing behaviour by applying a properly specified margin-squeeze test to ensure that a sufficient margin remains to allow entry. NRAs should also co ntrol possible collusive behaviour between NGA co-investors. In any circumstance NRAs will reassess the competitive situation at each periodic market reviews (every 2/3 years) and impose stringent access conditions if deemed necessary.

Why is the deployment of multiple fibre lines important?

With Multiple fibre FTTH, an investor deploys more fibre lines than needed for its own purposes in order to sell access to the additional fibre lines to other operators. The deployment of new networks provides a unique opportunity to develop long-term sustainable infrastructure-based competition. Multiple fibre deployment costs marginally more than single fibre infrastructure and will from the outset allow for infrastructure competition and consumer choice. Multiple fibre deployments will also preclude operational difficulties of sharing one access line between several operators, as is still experienced today for copper loop unbundling (10 years after the first unbundling regulation was adopted). In contrast to single line unbundling, multiple fibre allows immediate access to the end-user (no unbundling procedure) and full independence between the operators to provide high-speed broadband offers and to compete on the retail market.

See exhibit 1 (Source OFCOM’s public consultation September 2007 http://www.ofcom.org.uk/consult/condocs/nga/future_broadband_nga.pdf )

See exhibit 2 (Source idem)

http://www.erg.eu.int/doc/publications/erg07_16rev2_opinion_on_nga.pdf

and http://www.erg.eu.int/doc/publications/erg_07_16rev2b_nga_opinion_suppl_doc.pdf