Tuesday, December 12, 2006

FTTN://Alternative for LLU nearing

OPTA, the Dutch regulator, this week published the response from 9 telcos (including KPN) to its Position Paper. It was the reworking of the Issue Paper, which in turn was a response to KPN’s All-IP network plans. I wrote about it here and here.

Below is what I found most interesting from all the recent paperwork (December 4). Source material is in Dutch only.

OPTA targeted late December for a Decision Paper, but I doubt they will be able to make this deadline. This must be a tough nut to crack, as opinions diverge widely. Could it lead to a blue print for next generation regulation, post LLU?

1 Rough outline of KPN’s All-IP network

KPN plans to close c. 1100 of its MDF locations (Man Distribution Frame, ‘nummercentrales’, home of LLU) and to extend fiber to c 28k street cabinets (home of SLU, subloop unbundling).
OPTA needs to find a ‘Full Alternative’ to LLU. It will consist of SLU, SDF backhaul and WBA (wholesale broadband access).
OPTA in its Position Paper gave heavy support to KPN’s plans.

2 Main arguments from market participants

2.1 General
It seems only natural that this would put some obligation onto competitors to also invest. Whether this is the case or not, LLU is coming to an end.
In general, altnets have large issues with OPTA’s position paper. Finding a Full Alternative to LLU is a complicated matter.
Should SLU be unfeasible, then WBA is the only viable offering. This implies service-based competition and the remonopolisation of the local loop. Arguably, it also implies mere price-competition. This would sort of copy the US model, where open access to broadband networks and new build-outs was abolished – altnets had had their chance, after 8 years or so of regulation. This seems to be T-Mobile NL’s point of view – no wonder, since its parent company is aiming for just this type of market structure (a duopoly).
Analysys currently looks into the options for replicating KPN’s fiber network to SLU locations. It comes as no surprise then that altnets cry foul. They want this market analyses to be finished first, before KPN would be allowed to continue the roll-out for its All-IP network which has already started. Also, legal support for closing of MDF locations in the first place is questioned.
In the meantime, KPN is extending its lead, heaving started work on the new network in 2004. It has fiber to many street cabinets in place, or at least empty ducts. It has VDSL trials going on and intends to launch VDSL service may 1, 2007.

2.2 Specific

The most striking elements:
KPN: different take on FTTH, compared to statements made to investors. They seem to take it seriously, all of a sudden.
ACT: conservative approach to MDF accesses. Personally I do support progress – i.e. allowing KPN to move on and build a better and cheaper network.
Bbned: states that KPN isn’t really investing at all and claims some of the proceeds of the planned real estate sales.
T-Mobile: copying its parent’s views.

3 Details from each operator or operator group

3.1 KPN:

1. KPN stresses that it is no longer a monopolist in the local loop. There are fiber (Amsterdam, Lisse and Nuenen) and wireless (UMTS/HSDPA, WiMAX) alternatives.
2. Such alternatives should exempt KPN from providing SLU services in certain towns.
3. KPN will launch (activate) its VDSL network from May 1, 2007 and says that the date should not be dependent on OPTA’s upcoming ruling.
4. KPN disagrees with OPTA over the phasing-out period of MDF locations. OPTA is looking at a period of 5 years after, the same as the 5 year pay-back period for investments from altnets. KPN feels limited by this approach and is looking for a 2 year period between announcement of closure and closure itself.
5. KPN wants to get out of line-sharing obligations for a lack of demand. Full unbundling is much more popular.

My comments to this:

1. Obviously, KPN downplays those local loop alternatives when it communicates to investors and analysts. This way, KPN hurts its credibility.
2. Sounds fair, but misses the point. OPTA doesn’t seem to be willing to move to a US style model (duopoly).
3. I doubt whether OPTA will let KPN go ahead launching its VDSL network. I suppose OPTA will put its foot down on this one.
4. Nice try. A tough nut to crack fro OPTA. I think KPN suspects altnets may make small strategic investments at the last minute, thereby buying an extra 5 years of time before the MDF can be closed.
5. KPN seems to have a point, but if altnets desire the product, I do not see it being phased-out.

3.2 ACT (Association of Competitive Telecom Operators), i.e. bbned (Telecom Italia), BT, Colt, Orange (France Telecom), Priority (UPC/Liberty Global), Verizon and Versatel (Tele2):

1. MDF locations. ACT objects to he planned closure of MDF-locations. Keeping them open will not hinder the All-IP roll-out. In case there is a Full Alternative and KPN should want to close an MDF location and force out competitors, it must have moved out itself first at least 1 year earlier (in order to prevent that KPN changes its mind and decides to stay). Fiber to MDF locations should be depreciated over a period of 10-15 years.
2. SDF backhaul. It has not yet been proven that altnets can realistically roll-out an alternative network to street cabinets. OPTA unjustly doesn’t consider the case where SDF backhaul is found unrealistic, as ACT thinks. KPN being so far ahead in its build-out limits the chance for SDF backhaul being realistic. Even if SDF backhaul is realistic, KPN should still be forced to offer SDF backhaul as a wholesale service.
3. Subloop. Duplicasting the subloop is not realistic.
4. SLU. SDF-colocation is too expensive to be profitable because altnets have no real estate to sell, as KPN does, and because there are too few customers per location.
5. KPN should not be allowed to start offering retail services, because altnets would need 2 years after they can start offering SLU services. Time-to-market for new services should be equal for all parties. KPN is way ahead, having started work in 2004.
6. KPN should not be allowed to be be the sole wholesaler in the Netherlands.
7. Even if SLU, SDF-backhaul and WBA are realistic, they should still be regulated.
8. KPN should be more clear about the status of pilots and define an ending date in order to distinguish from a first roll-out.

3.3 Bbned:

The Telecom Italia subsidiary makes 2 general remarks: (1) It has no confidence in self-regulating markets because KPN proved an unreliable party in the past. (2) As part of ACT, bbned agrees with ACT’s position, except for one issue (virtual unbundling).
Bbned proposes a 15 year depreciation period.
KPN isn’t really investing at all; they are reallocating funds from MDF locations (which is where altnets have their operations) by selling buildings and reinvesting in the All-IP network (which is so far unregulated). Furthermore bbned argues altnets should share in the proceeds from the sale of those buildings, for at least 20% (being their collective market share).
Altnets face being behind considerably, compared to KPN’s build-out and demands a hault of at least 12 months before KPN can start offering VDSL services. Also, KPN should stop adding fiber to local loops. OPTA should have forced KPN to allow altnets to join in the digging work. KPN can put fiber through empty ducts to street cabinets, but it is not known how many street cabinte scan be connected this way without opening up the streets. KPN should not be allowed to sell any assets before the Full Alternative is finalised.
WBA should have a floor price, in order not to disincentive market participants to invest in infrastructure.
Should bbned plan to build-out a FTTC (fiber to the street cabinets), with adjacent street cabinets, it will take no less than 23 years.

3.4 Tele2-Versatel:

The company is part of ACT and only adds some remarks.

3.5 Orange:


3.6 Eurofiber (= Reggefiber):

The plans will remonopolise the DSL market into KPN’s hands. MDF access and LLU will end, whereas SDF access and SLU are unrealistic business cases (no economies of scale; SDF and SLU aren’t free KPN services, while they do not constitute wholesale services for altnets) and therefore no full alternative. WBA reduces altnets to simple resellers.
Questions include: can MDF locations be kept open? can VDSL and ADSL services be provided side by side?

3.7 Essent:

Has no real comments and agrees with OPTA’s views.

3.8 Vodafone:

Claims that the roll-out of All-IP should be haulted until there is a clear migration path. All market analyses should first be finalised. Damage has already been done.
Any LLU alternative should be cost-neutral to KPN, thereby transfering All-IP advantages to all market participants.
Those who wish to take wholesale services from KPN (thereby retreating to competition at the service level), should be given proper bitstream access and tariffs.
Vodafone agrees that the Openreach/equivalance case should be examined. As this may not be enough to create a level playing field, structural separation (of the access network) should also be looked into.

3.9 T-Mobile (Deutsche Telekom):
T-Mobile is a broadband competitor and claims that OPTA doesn’t provide a level playing field with altnets, which are protected by regulations. Therefore, OPTA should consider ending access obligations altogether.

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