Monday, December 18, 2006

REGULATION://Fully-fledged Alternative for LLU v. Structural Separation

The press in the Netherlands has taken interest in KPN’s statements ahead of OPTA’s decision on its All-IP network. KPN wants to charge competitors for MDF locations that it would have to maintain for their use only; KPN is interested in being a reseller on cableco networks and FTTH networks; KPN says its network has been and always will be open to resellers, so there is no need for structural separation (to any degree, be it the equivalence/Openreach model or full separation as may happen in Ireland and Denmark). Also, the press picked up a statement form OPTA (about looking into splitting up KPN), which wasn’t new at all.

The important thing about this is that it is OPTA who will decide, not KPN. I believe KPN is trying to convince everyone of its reseller potential. I’m sure they have it, but I’m equally sure that KPN in reality isn’t serious about those efforts. I do not believe KPN would limit itself to service-based competition, i.e. competing on price alone. Also, KPN is trying to convey the message that there is nothing wrong with service-based competition.
It’s all about politics and creating some negotiating space. The same goes for those juicy statements of altnets, which unfortunately didn’t get any media exposure.

To name a few (not literal):
- Regulation should be abolished altogether (T-Mobile). Sound familiar? (hint: Deutsche Telekom).
- Selling MDF locations is not necessary for KPN’s All-IP network and it probably is illegal (ACT).
- KPN isn’t investing at all, they are not contributing to the general economy; all they do is relocate assets by selling certain ones (MDF locations) and buying back others (All-IP) (bbned).
- Should KPN be allowed to sell MDF locations, then we want to share in the proceeds (bbned).

By the way, I outlined here where we are right now. OPTA is due to publish the timing (sometime early 2007) of its findings this week: 1. Policy rules (‘Beleidsregels’) related to the closure of MDF locations. 2. A memorandum of findings (‘Nota van bevindingen’) related to a host of other matters, still to be resolved

What it comes down to, I believe is this.
- The All-IP network effectively means that LLU as we know it is coming to an end. This will happen in all markets, eventually, because fiber will be pushed deeper into networks and because everybody will switch over to IP.
- OPTA (or any other regulator) has to decide on a Fully-fledged Alternative (‘Volwaardig Alternatief’). If none is found, structural separation (to some degree) will be considered.
- The outcome will be the result of (1) creativity on the part of OPTA and politics (see above), (2) market conditions. The latter are comprised of several items: cable reach; FTTH reach; scale economies on the side of altnets, necessary for replicating SDF backhaul; KPN’s lead over altnets, since KPN started building the All-IP network in 2004. Of course, at some point regulators could say (as they did in the US): it is time to end regulation; altnets have had their chance; now if they want to compete, they have to build their own networks, or negotiate a reseller deals with network operators.
- In markets such as the Netherlands full separation will probably not happen, for the simple reason that cable networks have very high reach (as is the case in Belgium, Switzerland, Portugal, etc.).
- Partial separation (Openreach is still part of BT, but at an arm’s length) is a possibility.

It remains to be seen if all market participants can work out a Fully-fledged Alternative; if not, splitting up KPN is unavoidable.

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