Br0kenTeleph0n3

Following the broadband money

Posts Tagged ‘ECTA

BT’s broadband rip-off – the evidence

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Credible evidence that BT is charging more than double what it should for wholesale superfast broadband products has probably prompted national regulator Ofcom to investigate a complaint that BT is conducting an illegal margin squeeze.

The evidence is contained in a confidential report commissioned by TalkTalk, currently the biggest user of BT’s local loop unbundling (LLU) products, which made the complaint.

Ofcom presently does not regulate BT infrastructure provider Openreach’s pricing for SFBB fibre products believing to do so would discourage BT’s claimed £2.5bn investment in fibre to the cabinet (FTTC). Openreach’s prices are generally meant to be very close to its costs, especially where it has ‘significant market power’, in this case, outside the Virgin Media Docsis footprint.

The 59 page report found that Openreach’s costs to build its FTTC network are £4.39 per line per month. BT Openreach charges resellers £7.40 or £9.95 depending on the bandwidth provided. Current prices for BT’s Infinity FTTC services start at £13/month and go up to £26/month. BT Retail offers discounted prices of £6.50 and £20 per month respectively for the first three months.

The report, by German telecommunications analysts Wik Consult, is a sequel to its 2012 report to ECTA, the association of European challenger carriers, that found incumbent operators price LLU access so high as to leave no money for LLU carriers to profit or invest in network upgrades or expansion. It showed that LLU had been a failure in Europe, allowing incumbent operators to retain almost 100% of the market.

“At the prices charged for copper, all the cash flows have gone to the incumbent, and entrants have been persistently cashflow negative,” Wik reported, adding the same might become true for access to fibre-based products unless regulators stopped it.

For its report to TalkTalk, Wik modelled Openreach’s costs based on publicly available information. It found the main factors that affect its costs are penetration (take-up of GEA on the FTTC platform), the weighted average cost of capital (WACC) including any risk premium applied to NGA, the extent to which existing ducts can be reused for the installation of fibre between the street cabinet and local exchange, the depreciation method and asset lifetimes.

It checked the results produced by its base model and sensitivity tests against BT’s own statements and evidence from more developed markets in Europe. The checks suggest Wik’s assumptions and conclusions are conservative.

In particular, it suggests that 65% of non-Virgin Media SFBB subscribers will take up an service provided using Openreach infrastructure. Active electronics had a life span of eight years, cabinets and fibre 20 years each, and ducts 40 years, it said.

Almost two years ago Kevin McNulty, Openreach’s general manager for next generation access commercial partners, told Br0kenTeleph0n3 BT’s NGA financial plan was based on a break-even period of 10 to 12 years and a 20% take-up.

For the record, Ofcom announced on 1 May that it would investigate a complaint from TalkTalk Group that alleged BT has been conducting an illegal “margin squeeze” on wholesale access to Generic Ethernet Access (GEA), BT’s FTTC product.

Ofcom said the complaint alleged abuse of “a dominant position in breach of (regulations) in relation to the supply of superfast broadband (‘SFBB’). Specifically, (TalkTalk) alleges that BT has failed to maintain a sufficient margin between its upstream costs and downstream prices, thereby operating an abusive margin squeeze.”

Ofcom said it could investigate such allegations if it had “reasonable grounds” for suspecting a breach.

TalkTalk said in a statement, “We have long maintained that there needs to be tighter regulation in superfast broadband to ensure a level playing field and therefore deliver real benefits for consumers and businesses. We are pleased that Ofcom is taking this matter seriously and have decided there is reasonable suspicion to investigate BT’s fibre pricing.”

BT said it was “disappointed” by Ofcom’s decision.

Ofcom expects to report its initial findings towards the end of the year. It will decide then whether or not to proceed.

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Written by Br0kenTeleph0n3

2013/05/05 at 08:56

Incumbent telcos leech cash from altnets, starve broadband market

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Europe’s incumbent telcos are sucking all the cash out of what is meant to be a competitive market in telecommunications infrastructure, endangering the chance that the union will meet its Digital Agenda targets of 30Mbps for all and 50% of citizens using 100Mbps broadband by 2020.

Members of ECTA, the association of “challenger” or altnet telcos, have asked Digital Agenda champion Neelie Kroes to force incumbents to cut the price of renting incumbents’ copper lines.

“At the prices charged for copper, all the cash flows have gone to the incumbent, and entrants have been persistently cashflow negative. In Portugal, we understand there are now no active competitors using unbundling, whilst in Poland there is only one remaining altnet,” ECTA director Ilsa Godlovitch told Br0kenTeleph0n3.

While local loop unbundling appears to have been a disaster in Europe, the same may become true for fibre access.

Incumbents argued previously that they need high prices for copper lines to fund fibre roll-outs. ECTA told Kroes yesterday most incumbents are not installing fibre to households, but are only installing fibre to cabinets (VDSL). This cost relatively little and could undermine competition by limiting altnets’ ability to unbundle the incumbent’s access network, they told Kroes.

“Many incumbents installing VDSL have been able to retain nearly 100% market share of these (local) lines, a position which would strengthen their dominant position even further in years to come,” they said.

Share of unbundled sub-loops and VDSL WBA lines of total number of FTTN/VDSL lines of the SMP operator (in %). Mid 2011
Access to the unbundled sub-loop Wholesale broadband access to VDSL connections Total
AT 0.00% Partially no access 0.00%
BE No access No data available 1.00%
CH 0.00% No access 0.00%
DE No data available No data available 8.10%
DK No data available No data available No data available
ES 0.00% No data available 44.70%
FR No FTTN/VDSL roll-out No FTTN/VDSL roll-out No FTTN/VDSL roll-out
HU 0.00% No data available No data available
IE No access No access 0.00%
IT No FTTN/VDSL roll-out No FTTN/VDSL roll-out No FTTN/VDSL roll-out
NL 0.00% 0-5% 0-5%
PL 0.00% No data available No data available
PT 0.00% No data available No data available
RO 0.00% No access 0.00%
SE 0.00% No data available No data available
TR 0.00% 0.50% 0.50%
UK <1% Partially no access No data available
Source: WiK Consult

ECTA chairman Tom Ruhan said, “The liberalisation experiment which Europe began in the late 1990s is close to failing.”

Regulations do not help even leading telecoms competitors. Without change Europe might go back to monopolies and duopolies for broadband services within five years. “This will not deliver more investment in broadband and will have a negative impact on the services and prices consumers receive,” he said.

The European Commission is redeveloping its ideas on wholesale charges and competition in the telecoms sector. Incumbents have challenged proposals that would compel them to invest in fibre to homes in exchange for retaining higher charges on their legacy copper infrastructure.

CEOs of altnets, which according to the FTTH Council, currently operate 55% of Europe’s FTTH lines, argue that incumbents have been receiving subsidies for years, and have drained competitors of capital, yet have failed to modernise their networks.

ECTA said these views did not represent those of ECTA members who are also incumbents, such as BT and Danish telco TDC. It is unlikely this difference can or will be resolved.

All ECTA members generally support the principle of open wholesale access to incumbents’ networks at home and abroad.

Now, if they can just get beyond their cosy gentlemen’s agreement not to rock the boat in each other’s home markets, Kroes might see her dream fulfilled.

Written by Br0kenTeleph0n3

2012/05/22 at 07:02

Fed up with broadband wait, investors JFDI themselves

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Delays in government-sponsored broadband delivery are driving frustrated individuals and companies to start doing things for themselves.

Later on today veteran community broadband activist Adrian Wooster will reveal an initiative, BroadwayPartners, to offer attractive tax breaks to rich individuals for their investment in community broadband networks. Wooster can already deliver a number of technically and commercially viable broadband project proposals.

He wants to fund network builds using money invested under HM Revenue & Customs’ Enterprise Investment Scheme (EIS). The EIS is designed to attract venture capital and offers a 20% rebate on investments up to £500,000 a year.

Wooster will be joined shortly by a finance expert currently working in the City. Wooster says the keys to sustainable business plans are risk reduction, cost minimisation and demand aggregation. “There will be minimal dependence on government funding,” he says.

That’s because the government has already decided to work through county-level agencies and funding bodies. Most of them are either in thrall to BT, or not equipped or prepared to deal with village-size networks, judging from their recent calls for expressions of interest in broadband projects.

Why are we waiting?

The UK has been waiting for a new deal on investment in high speed broadband since before the last election. Since the coalition got in, targets have slipped and costs risen without a working system actually being delivered through the agency set up to do just that, Broadband Delivery UK (BDUK).

Br0kenTeleph0n3 is aware of at least one other scheme that is also looking to serve the so-called Final Third of the UK that “market forces” won’t reach without state help. “It is hardly surprising that there will be competition in this space – the opportunities look increasingly attractive,” says a former BT executive, who is now helping the partnership.

The final straw appears to have been the publication of leaked details of the qualification thresholds of BDUK’s proposed procurement framework. These required primary contractors to have turnover of £20m for the past two years and to have installed at least one network of 30,000 subscribers. This is likely to lead to a duopoly of BT and Fujitsu Telecom/Virgin Media.

The leaked document also signalled a slower definition of “superfast”, from 24Mbps download speeds to 15Mbps. According to two readers of this blog, BT has indicated 15Mbps is the lower limit it uses to determine whether its £2.5bn “up to 40Mbps” FTTC (fibre to the cabinet) roll-out is “practical”.

Cable spurs

An exhaustive economic model developed by Wik Consult, a German consultancy, for the European Competitive Telecommunications Association, showed that incumbents such as BT will never (rationally) invest in fibre unless they are forced to do so.

The only firms capable of exerting this pressure are cable TV firms with their mix of fibre core networks and co-axial cables to the home. These are invariably faster and more reliable that the incumbents’ FTTC, copper to the home networks.

This largely restricts fibre availability to urban areas, and to where new entrants, with no legacy investment to protect, are prepared to risk the incumbents using their fat margins to undercut entrants’ prices and instil fear, uncertainty and doubt in the newcomer’s ability to deliver, Wik said.

Wik suggested that mobile network operators may be able to compete with incumbents in rural areas by using LTE or Long Term Evolution technology. In Germany Deutsche Telekom is already installing a 100Mbps LTE system in Cologne, with plans for another 100 cities this year, and Vodafone says it is starting LTE trials there too.

To achieve these speeds LTE operators need fast ie fibre backhaul, and this could give firms like Broadway Partners the base load to justify serving rural communities.

Financial innovation (not)

About six weeks ago we asked BDUK’s boss, the department of culture media and sport what consideration it had given to alternative ways to boost the £530m the government has earmarked for Final Third broadband networks. Some ideas we floated to the department were ring-fenced municipal bonds and the creation or at least tolerance of private infrastructure funds. We know they got the email because they acknowledged it. So far they have not replied to the question.

They longer they delay, the less relevant their answer will be.

Written by Br0kenTeleph0n3

2011/07/06 at 08:00

The search for fibre’s G spot – continues

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Finding what will trigger large scale investment in fibre networks is like the search for the elusive G spot: there is no shortage of approaches, but most are missing the mark.

This was evident at  Wednesday’s European Competitive Telecommunications Association (ECTA) conference on how to trigger investment in fibre.

The Brussels conference, designed to influence European policy makers, probably left them more confused and despairing of achieving a single market in communications services, and hence missing the aggressive Digital Agenda targets. These are to give all Europeans access to broadband by 2013, and for all to have 30Mbps by 2020, and 50% to be using 100Mbps by then.

The conference showed that each country is responding to the unique circumstances that rule in that country. That response is also heavily influenced by the market position of the incumbent, usually the former state-owned telecom monopoly, and the national regulator’s views of how best to achieve the Digital Agenda targets (whisper this – without relegating the local incumbent either to the scrap heap).

As they like to say in Brussels, the facts on the ground are these: on average incumbents still have 45% of the retail market. They have a virtual monopoly outside the cities. Their main competitors are cable operators, where they exist. Their future competitors, especially in rural areas or “white spots” areas without an adequate broadband service may be mobile operators who use LTE (Long Term Evolution) technology.

Investors think telcos risky investments, at least riskier than other utility-type service providers. To deliver the DA targets telcos must compete in an already tight capital market. Except for video, there is no “killer app” for high speed broadband. Perhaps half the people who now get a 5 to 6Mbps service don’t see the point of faster downloads speed for a premium price, and perhaps 30% of people don’t see the point of the internet at all.

There are huge philosophical differences in the appropriate response to the facts. One of the most interesting new developments is the emergence of the so-called infrastructure fund. These are privately-owned funds that invest “patient money” typically from pension funds, that look for low risk in return for predictable if lower returns.

The pitch to telcos from Henri Piganeau from Cube and Randolph Nijsse of Rabobank’s Communications Infrastructure Fund is simple: you can’t do it with your present balance sheet, so sell us your passive network, sign a long term usage contract with us, and use the cash to introduce innovative services that will draw in millions of subscribers.

Or as Nijsse said bluntly to a stunned Sean Williams, BT’s group director of strategy, policy and portfolio, “How much do you want for your copper network?”

If anyone knows, it should be Williams, a former regulator with Ofcom. But he didn’t say. He has different ideas. In fact he takes issue with almost everything anyone from the continent said.

There’s plenty of money, at least in Britain, Williams says. Besides, Ofcom had priced copper access below cost in the past, and should now let the price rise to drive consumers onto fibre, he says. BT is pricing its fibre-based £2.5bn Infinity service at the same price as copper-based broadband, he says. What’s more, it is spending as much again on copper, largely because FTTC gets higher speeds to consumers faster.

BT regards the linkage between the consumer and the network provider as crucial, but wholesaling the network’s capacity to third parties is key to its business plan, Williams says. Some 45 service providers were already testing the relationship, he says.

Williams’ strongest supporter is cable industry lobbyist Caroline van Weede, MD of Cable Europe. The cable sector is already well-placed to deliver half of the DA targets, and ahead of time, she says. “I think we can leave it to the incumbents to do the rest.”

What should happen to the price of copper access is dividing line. Ofcom economist Peter Culham suggested that pushing it up to drive consumers to fibre is ETNO’s basic position, while driving it down to force incumbents to install fibre is ECTA’s position, he says. He believes it should be held constant to act as an “anchor price” against which to measure alternatives.

The French too are taking a different view. Already 98.5% of the population has access to broadband, despite 20% of them living in 80% of the geographical area. Jerome Coutant of ARCEP says this is because of efforts of the departements (regional authorities). Now the government has said 70% should have fibre access by 2020, and everyone 100Mbps by 2025.

And they are going to encourage, if not force, cooperation between telcos. If one decides to put fibre into an area or a building, it muct tell the others. The others can then decide to buy into the initial risk, or pay a premium for joining later, Coutant says.

As to demand, Coutant says overall consumers want a “bigger story” to go fibre. “People with 20Mbps via ADSL aren’t hungry for more, but take-up in rural areas is in the 50% to 60% range,” he says.

Cut copper prices to boost fibre, regulators told

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The main reason there is so little fibre in Europe is because incumbent network operators are making too much money from their copper networks, and financiers don’t want to upset that cash flow.

If Europe is to achieve the aggressive targets of the Digital Agenda, it must find a way to cut the value of copper and reduce the perceived risk of rebuilding the existing networks with fibre.

This emerged at the European Competitive Telecommunication Association conference on how to kick-start fibre investment in Brussels.

Andreas Weiss, managing director and head of telecommunications, media and technology at investment bank WestLB, said the banks’ preferred borrower was a monopoly with strong, profitable and predictable cash flows. “It’s the top line and then the bottom line that’s important to us,” he told delegates.

Weiss was replying to a question on whether financiers would like to see governments renationalise or create monopoly suppliers of passive broadband infrastructure, a development now underway in Australia.

Karl-Heinz Neumann, general manager and director of WIK Consult, and author of an exhaustive analysis of the effect of wholesale pricing on fibre roll-out, said incumbents were responsible for only 19% of the present investment in fibre, even though they would benefit most by it. “Altnets” (alternative network operators) had spent 73% because they did not have a copper legacy to protect and exploit, he said.

The Digital Agenda calls for 50% of Europeans to have access to 100Mbps broadband by 2020. For this to happen, the wholesale price of copper has to drop from its present average of €8.55 to €6.02 to encourage new build (greenfield) fibre investment, and to €3.42 if the altnet had affordable access to the incumbent’s ducts, poles and other passive infrastructure (a “brownfield” scenario), Neumann said.

If the present access price for copper was firm, fibre network operators would have persuade consumers that the €19.90 access price was worth it, he said.

Neumann called for regulators to give firm and credible timetables to incumbents indicating how and when they would have to cut the wholesale price of copper.

Fibre now reaches just 3.9m (2%) of the total homes in Europe, although it passes 22m, giving a 17% penetration rate. In the UK, BT’s penetration rate is under 3% (144,000 out of 5m homes passed), although it is aiming for 20%.

Open access is key to meeting Digital Agenda targets, says ECTA

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Europe’s first Digital Agenda Assembly, which starts tomorrow, is a standing-room only event to see what progress the continent has made in the year since its aggressive targets were spelled out, and how to get there.

European Commission vice-chairman Neelie Kroes wants every European to have access to a broadband connection by 2013, for everyone to have 30Mbps access by 2020, and for half of them to be on 100Mbps links.

Estimates of what this will cost vary. The European Investment Bank told BrokenTelephone its “back of the envelope” calculation put the sum at between €72bn and €200bn. Other estimates put it at €300bn.

Kroes recently asked the CEOs of leading communications services providers (CSPs) for their estimates as to ways and means. So far they haven’t shown their hand.

In a video interview ahead of the event, Erzsebet Fitori, director of regulatory affairs for ECTA, a lobby group for “challenger” network operators and their suppliers, said the Digital Agenda scoreboard published recently showed wide-spread access to basic broadband, but warned that unless policy makers adopted some different ideas, Europe would miss its upper targets.

Competitive access

ECTA was looking for policies that increased competitive access to markets. History had shown that competition led to innovation and increased availability and affordability of services, she said.

Key to this was for “challenger operators” to have “open access” to the fibre networks of incumbent operators, she said. The implementation of existing rules on opening up such access had been “patchy” she said.

“Member states need to commit to open and competitive networks and implement the rules vigorously” she said.

Fitori said the fibre networks being laid today would be serving consumers for the next 40 or 50 years. This required efficient funding and pricing models.

ECTA members also wanted the commission’s assurance that it would not tolerate discriminatory prices and “abusive practices” by dominant operators.

Fitori said fibre to the home for everyone was unrealistic. Wireless techniques would serve the most remote consumers, she said.

ECTA welcomed recent moves to rationalise and speed up access to radio frequencies that would help operators roll out high speed broadband access. “We need them now,” Fitori said, adding the 700MHz band was well-suited to mobile broadband, and called for the unlicensed frequencies, especially in the 5GHz band, be set aside for wi-fi networks.

She called for spectrum allocation to be “pro-competitive”, non-discriminatory, and to avoid the creation or strengthening of dominant players.

Written by Br0kenTeleph0n3

2011/06/15 at 16:10

Online copyright laws are premature, say telcos, ISPs

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European communications providers and internet service providers (ISPs) yesterday condemned European Commission moves to protect online content, saying they were were “premature”.

In a joint statement, Cable Europe, ECTA, ETNO, EuroISPA and GSMA, welcomed the search for search for a “holistic” solution, but regretted that the Commission seemed  “pre-disposed to revise the IPR Enforcement Directive 2004/48 (IPRED) at this premature stage”.

Too little had passed from the directive’s transpostion into national law, it said. “Consequently, there is insufficient evidence at this stage to suggest a real necessity for a revision.”

Premature changes risked stifling innovation and the development of new models by which creative people could build new businesses and jobs, they said.

The signatories worried that the commission planned to force ISPs to police their internet traffic for illegal downloads, and that this could make them liable for charges of illegally infringing their customers’  privacy, and the entire process was outside judicial oversight. .

The statement highlights background to an opinion expressed by the commission’s Digital Agenda head, Neelie Kroes, at the E>G8 conference in Paris this morning. Kroes said the present copyright regime was unfit for purpose in the digital economy and needed to be updated.

Several (US) speakers from the E>G8 floor praised the recent Hargreaves review, the UK’s effort to update copyright for the digital economy. It was “less moralistic” than yesterday’s heated debate on the subject, said one.