Broadband: the telecom dinosaurs bite back

Date: 03/10/02

By Peter A.D.Teare

THE European Council has made clear the importance of the competitive provision of broadband telecommunications services to delivering the widespread take-up essential to Europe's competitiveness.

The European Commission has prepared legislation, which the Council and Parliament have adopted, that gives the telecommunications regulators across Europe the power to deliver on this critical objective. Yet across the Union we see the slow growth of broadband services largely, sometime entirely, provided by the old, ex-monopoly, incumbent national carrier.

The result is that consumers are not getting the benefits of competition and choice in internet services that have delivered such spectacular price reductions and quality improvements in voice telephony.

The problem is that competing network operators and service providers cannot get their service over the so-called 'last mile', the network connections owned by the incumbent phone company.

In 2000, the Commission moved to unblock this bottleneck through a regulation to require operators to 'unbundle' their local connections, which link customers to the local telephone exchange.

The idea was that new operators could then install their equipment in these local exchanges, connect to competing national networks and offer consumers innovative, competitive broadband internet services.

The political enthusiasm was intense. The Local Loop Unbundling (LLU) regulation - itself an uncommon legislative instrument because it took effect automatically in each member state without the need for national implementing regulation - was enacted in record time.

The LLU regulation is, however, having only a modest impact in the broadband market. An analysis by the European Competitive Telecommunications Association (ECTA) has shown that only 3 of Europe's telecoms broadband connections are over unbundled local loops.

The reason is that local loop unbundling requires considerable investment by the new network operators.

It also requires new entrants to be given access to the incumbent operator's exchanges to install equipment.

As incumbents tend to see each customer taken by a new entrant as one that they've lost, it is hardly surprising that some have been slow to cooperate.

Even where the incumbent is complying with its legal obligations under the LLU regulation, there are serious practical problems about making unbundling work.

In particular, technical and cost calculation issues - particularly around up-front costs - make unbundling strategies difficult to finance in today's cash-constrained telecoms sector.

So, while local loop unbundling works in some parts of the market, particularly in the business sector, it is not bringing broadband to homes.

Mass-market competition requires a different solution.

As ECTA's new position paper, Broadband Interconnection (see www.ectaportal.com) explains, what is required is the establish-ment of an interconnection right for broadband services.

Interconnection is the process whereby competing networks connect to each other, allowing consumers to connect a call to anyone irrespective of their network provider.

It is at the core of the telecoms liberalisation and laid the foundation for substantial reductions in prices consumers pay for voice telephony.

Interconnection is, however, much less developed for broadband services.

An interconnection policy is entirely in keeping with EU legislation and the Commission supports these alternative channels to market.

But the approach of the member states' regulators varies. In some countries, such as Germany, there are no proper interconnection services available.

Even in the UK, the member state with the most inter-connected customers, there are tens of competing providers but the incumbent, British Telecom, still has 60 of the market. Across the EU, incumbents typically retail 80-90 of digital subscriber loop connections.

More competitive providers must be encouraged to enter the broadband market if consumers are to get the benefits of liberalisation - innovation, choice and lower prices.

It is these key drivers that will lead to the mass take-up of broadband that, in turn, drives the competitiveness agenda that the European Council adopted.

Europe's political leaders have enthusiastically willed the end.

The European regulatory framework for interconnection, as enforced by the Commission, offers the means.

It is up to national governments and their telecoms regulators to deliver Europe's citizens the access to broadband internet services that they deserve through the provision of interconnection rights for broadband services.

• Peter A.D. Teare is chair of the European Competitive Telecommunications Association's Digital Subscriber Loop (DSL) Policy Group. He is a partner in the London office of Crowell & Moring, an international law firm specialising in telecommunication transactions, regulation and competition law.

Feature on the problems facing the development of broadband telecommunications services in Europe.