IHS Global Insight Perspective | |
Significance | Of the major European markets, Britain and Germany are facing the issue of pricing the wholesale access to NGNs. |
Implications | Setting the right prices over the wholesale prices is crucial for open network approaches to work in practice—not least investment-wise. Thus far, it seems that the German operators—and the local telecoms regulator—stand a better to chance of finding a mutually satisfying solution. |
Outlook | In Germany, alternative operators seem willing to invest in fibre-optic roll-outs, as intended by the government and its national broadband strategy. In Britain, where BT is the dominant NGN investor, there is a risk the other operators may be hesitant to commit to huge investment during ongoing economic uncertainty |
In Germany, the local incumbent, Deutsche Telekom, has confirmed that it will stick to the earlier promise to keep its VDSL-type NGN open for wholesale rivals. Speaking at the annual CeBIT technology fair in Hanover, northern Germany, the group's board member Timotheus Hoettges underlined that the offer is voluntary and not a regulatory requirement, adding that the operator plans to price the wholesale access at around 30 euro a month (US$37.8) initially, with a declining scale based on increased network usage. According to Hoettges, Deutsche Telekom will invest some 300 million euro in its broadband infrastructure in 2009.
Speaking to the press at the same expo, Vodafone Germany's chief executive, Friedrich Joussen, commented on the incumbent's price proposal by saying that for his company it is too high. However, Joussen also said that Vodafone is ready discuss the issue and agrees that the price should not be set directly by the regulator. Also, the CEO said that Vodafone is willing to participate to VDSL-deployment partnerships, pointing that he expects regional ISPs—such as M-Net (Munich) and Netcologne (Cologne)—to take a role in such cooperation.
Elsewhere, BT has been given a free rein to set NGN access fees by the U.K. regulator. Ofcom has said it will not intervene in the wholesale pricing set by the former incumbent, in order to allow BT to be sufficiently rewarded for the cost of fibre infrastructure and roll-out. The regulator hopes to accelerate the spread of super-fast broadband in the country, by allowing free competition and pricing for all the operators.
It is expected that BT's Openreach access division will maintain full control of its NGNs, and will offer access to all operators, including BT's Retail unit, on fair and open terms. Ofcom CEO Ed Richards said in a statement: "Our message today is clear: there are no regulatory barriers in the way of investment in super-fast broadband; we want to promote investment but also ensure that there is fair and effective competition for the future." Ofcom has now launched a full consultation on the proposals, which will run until 14 April, after which a fresh set of undertakings will be signed with BT.
Outlook and Implications
- Germany: The German government's national broadband strategy has set a target of providing 75% of the households with Internet access of or above 50 Mbps by 2014, and both unrestricted wholesale access and roll-out partnerships are considered the main elements in achieving this (see Germany: 19 February 2009: German Government Introduces National Broadband Strategy, Pledges to Auction Digital Dividend). In the first place, both the government and the regulator, Bundesnetzagentur (BNA), were willing to let Deutsche Telekom to keep the rivals out of the network, but once it—in the course of 2006—became obvious that this would be contested by the European Union (EU), they both begun to revised their stance. In 2008 also, the incumbent itself adopted a more-constructive approach and effectively promised to keep the network open, providing that it would be, in return, given the right incentives to do so. Correspondingly, the alternative carriers have committed themselves to share costs by making their own investments, which has led to VDSL partnerships—currently trialled by Deutsche Telekom and Vodafone, and Deutsche Telekom and EWE TEL—as a means of network expansion (see Germany: 27 January 2009: Deutsche Telekom and EWE TEL to Cooperate for VDSL Roll-Out in Lower-Saxony—Report). In the meantime, the BNA has pledged that it intends to encourage roll-outs by keeping the regulatory environment as investment-friendly as possible. A crucial part of the collaborative approach is to strike a mutually satisfying deal over how to price the wholesale access, and the incumbent has now made its first concrete proposal. The alternatives will, understandably, come up with their own, lower counter-proposals, but we nonetheless expect that the parties have good chances to find a common ground on the issue. All in all, the first signs of the German approach have been largely positive—now it remains to be seen if the self-regulation also works when it comes to pricing.
- Britain: BT has welcomed Ofcom's decision, with group CEO Ian Livingston saying: "Today's announcement gives us the green light to push ahead with our £1.5 billion (US$2.12 billion) superfast broadband investment plans to reach at least 40% of U.K. households by 2012... Today's announcement from Ofcom has set expectations for the whole U.K. industry as the market evolves into a fibre-based world." BT has shown disappointing financial results in the last couple of quarters, which it has chiefly blamed on its overseas Global Services unit (see United Kingdom: 12 February 2009: BT Q4 Earnings Drop 9%, Global Services Blamed), and is keen to progress with NGN rollout in order to harness this key revenue growth area. The U.K. government has recently released its vision of the future of broadband in the United Kingdom, entitled "Digital Britain" (see United Kingdom: 30 January 2009: U.K. Government Unveils Vision of Broadband in Every Home, But No Funding), which it says is vital both for high-speed home broadband needs, such as high-definition TV, online gaming and streaming or downloading music and video–on-demand, and for stimulating business growth via high-speed data transfer and services such as video-conferencing. However, the proposals offered little in the way of incentives or funding to stimulate roll-out—giving an indication of the regulatory route which it intended to take. The government is also now finally beginning to move on the release of fresh tranches of spectrum to boost mobile broadband networks (see United Kingdom: 16 February 2009: Ofcom Proposes 900MHz Spectrum Release to Boost Mobile Broadbandand United Kingdom: 21 January 2009: U.K. Technology Group Calls for "Spectrum for Speed" Broadband Deal).
- U.K. Roll-Out: Several U.K. operators have begun the rollout of super fast broadband, including BT, which has recently begun full fibre network (FTTX) trials, and Virgin Media, which already offers a high-speed service on its cable network (see United Kingdom: 15 December 2008: Virgin Media Launches 50Mbps Home Broadband). Although the regulator's decision allows the natural development of free competition in the United Kingdom, it offers little in the way of incentives for BT's rivals to develop their own networks. Ofcom is now relying on BT to accelerate its own NGN roll-out, and although this open-market model has worked well in the country's existing fixed-line and mobile sectors, IHS Global Insight believes that the government's "hands-off" strategy in Britain has the potential to lead to underinvestment, as BT may be hesitant to pour huge investment into unproven broadband during the current economic uncertainty.