JUNE 26, 2008 -- Research released this week at the High Speed Europe conference by European telecom research and analysis firms WIK indicates that only incumbent operators, with their extensive infrastructure and customer bases, can profitably roll out high-speed FTTH lines to large parts of Europe. This raises the possibility that incumbents could once again increase their market share, WIK asserts, reversing the trend towards more competition in telecommunications.
The research, which was commissioned by the pro-competition European Competitive Telecommunications Association (ECTA), covers Germany, France, Spain, Italy, Portugal, and Sweden. It combines results from WIK's research with independent research carried out for regulators, governments and the OECD in other countries, which reaches a similar conclusion. WIK says its study demonstrates that, because of substantial economies of scale, replication of fiber access lines for high-speed services is not economically viable on any widespread basis.
The research indicates that it is significantly more cost-effective for incumbents to roll out fiber networks than it is for entrant operators to do so. Incumbents can save up to 30% of their investment compared to standalone operators. The three key reasons for this conclusion are that incumbents already own ducts on a nationwide basis; they can make substantial efficiency savings compared with their current network structure; and they already have the number of required subscribers that would pay for the investments simply by switching customers from their existing lines. In some of the countries examined, significant viability was found for incumbents to roll out next-generation access networks even with a relatively conservative return on capital of around 10%, which is commensurate with returns made on today's regulated copper access networks.
Dr. Karl-Heinz Neumann, director of WIK said, "Incumbents have accepted in principle the concept of open ducts, but this research clearly shows this is not enough. Europe needs open networks and not just open ducts to generate a competitive environment and to develop an optimal degree of replicability and investment in a next-generation access environment. Dominant firms should construct their networks from the outset to foresee access. Open networks in a competitive next-generation access environment make good business sense and incumbents should improve their business cases by pursuing a positive attitude to infrastructure sharing and access."
Innocenzo Genna, chairman of ECTA, said, "With MEPs voting on proposals for the reform of the telecoms package on 7 July, now is the time for Europe to get this right. ECTA is calling for mandatory access to fiber networks to be included in the European Framework for Communications, in exactly the same way that unbundling of copper networks is currently mandatory. Without the appropriate regulation in place competition in Europe's broadband market will be threatened, ultimately jeopardizing Europe's future economic growth."
The study also finds that several governments have pledged support for fiber roll-out through public funds. Countries where this is under active consideration or in place include Singapore, Australia, Sweden, and more recently Greece. Genna commented: "Where there is no commercial case for rolling out fiber, government support can be helpful in delivering on political objectives for high-speed networks. However, governments need to ensure they secure a good deal through a truly competitive tender. Regulated open access networks must also be required as part of the process."
The final extensive study will be published in July.
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