REGULATION://What comes after LLU in the Netherlands

OPTA today issued a Positionpaper All-IP, responding to KPN's plan to build a FTTN/VDSL2 network. It is all about phasing out LLU and coming up with a fuklly fledged alternative. Interested parties have 4 weeks to respond. OPTA aims to have new regulation place by late December of this year.

First, the facts from the Management Summary and the paper itself:

• KPN must be allowed to build the network and close COs as planned, but negative effects on competitors must averted.
• Infrastructure-based competition is OPTA's primary goal. Only wheneven it is impossible will OPTA resort to services-based competition.
• OPTA calls upon altnets to define alternative strategies.
• KPN's planned exit of COs (and thus MDF access and the sale thereof) must be accompanied by a migration strategy for LLU operators. LLU is to be replaced by a new form of infrastructure-based competition. OPTA aims at altnets rolling out their own FTTN network (from COs to street cabinets, i.e. KPN's Metro Access Network, which in fact is for large part completed), facilitated by KPN. OPTA sees a range of possibilities: from renting capacity on this MAN (SDF backhaul) to sharing the trenches. However, OPTA also recognizes that probably only KPN has sufficient scale for the latter investment.
• Closure of COs will be restricted in order to allow LLU operators to recoup their investments. OPTA sets this period at 5 years. In addition, the timeframe would be such that KPN needs to notify the market of closure of each CO 2-2.5 years ahead, after which LLU operators have 1-1.5 years to migrate.
• KPN is held to provide service-based competition for areas that are not yet covered by DSL and that it plans to add.
• OPTA will examine the British model (equivalence, Openreach), especially should KPN and altnets be unable to work out a model on their own.

OPTA will formulate a full alternative to current MDF access. It will likely include a choice from these options:

• Access to street cabinets.
• Conditions for the phasing out of MDF access.
• A regulated wholesale broadband product form KPN wherever it offers no SDF backhaul.
• Dark fiber access or regulated SDF backhaul, plus co-location at both street cabinets and MCLs (higher up in the network than current MDF locations).

KPN's All-IP plans include reducing the number of COs from 1350 to 200, roll-out fiber to 28k street cabintes and deploy DSL (including VDSL2) in the last mile. Build-out is to take from 2006 through 2010. Selling-off real estate should furnish EUR 1 bn or at least half the cost. Some 8k jobs (of 20k) will be lost.Opex savings are targeted at 850m EUR/yr from 2009.

Observations:

• OPTA opens a consultation phase, lasting 4 weeks. It could potentially be a long process, but roll-out by KPN should not be frustrated too much. At the same time, KPN is very smart by having a large part of the work already done. By the way, this means that responses are due October 31, the day KPN reports Q3 results. OPTA aims to have new regulation ready by late December 2006.
• OPTA seems to call for action from altnets. The regulator is quite explicit about the end of LLU. Maybe they hope for a Free/Iliad or A9 (Australia) style initiative. So far, we have seen little action, most notably all of them allowing KPN to acquire a string of ISPs (OK, LLU investments are at risk, but should be recoverable). Why is it so hard for those (cash-strapped) competitors to work together, possibly even with municipalities?
• A limited negative for KPN is a delay in the planned closure and sale of COs.
• OPTA's commitment to altnets and infrastructure-based competition is positive for competitors, but should not surprise a soul.
• Possibilities for co-location at street cabinets remains unclear. OPTA seems unimpressed about any problems here (SDF-co-location). KPN places its NG-DSLAMs at these street cabinets to form MSANs (multi-service access nodes).