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EC Stays Firm on FTTH

Ray Le Maistre
2/29/2008

PARIS -- FTTH Council Europe -- European Commissioner Viviane Reding has sent a very clear message to Europe’s incumbent operators -- there’s no way you’ll get away with building closed FTTH networks.

Reding didn’t make it to this year’s FTTH Council Europe event in Paris -- she was busy squaring up to Europe’s national regulators -- but her presence loomed large at the proceedings. (See Showdown in Brussels.)

The commissioner, who has shown, in her ongoing dealings with the region’s mobile carriers, how tough she can be, sent a video message to the Paris event and left no one in two minds about where she stands. (See Reding Guns for Data Roaming Cuts and Euro Carriers Cut Prices.)

”Several operators have announced their fiber plans -- this great migration to fiber is a challenge. Some carriers want [regulatory] exemptions for their fiber rollouts,” she noted, without naming DT, “but regulatory holidays are not on the agenda -- there will be no sliding back to monopolies,” she added. (See EC Sues Germany and Achtung! Regulators Force DT to Share.)

Reding also praised Europe’s impressive broadband growth rate in recent years. With nearly 100 million broadband customers at the end of 2007, the region’s broadband connection total has grown three-fold during the past three years, “and that’s due to market forces promoting competition.”

But Europe can still do better, especially with regard to the speed of connections, as the average speed of a broadband connection in European Union member countries is just 1 Mbit/s, and Europe needs better upload speeds so it can participate in the user-generated content revolution, added Reding.

And that’s where the growth of residential fiber access will make a difference. (See Asia, Europe Dominate FTTH Elite and Report: EMEA Set for FTTH Surge.)

So what’s the European Commission going to do about regulating FTTH? Reding’s team is currently taking recommendations on next-generation access with a view to publishing a report on the issue by “mid-2008.”

Ken Ducatel, a member of Reding’s Information Society Commission Cabinet, told the Paris event that FTTH is “one of the most important issues we need to deal with.”

He said many incumbents will be attracted to a PON architecture because it will enable them to use existing physical infrastructure (especially ducts) and, overall, keep costs down.

Orange (NYSE: FTE) certainly falls into that category: It has stated it chose a PON architecture because it best suited its “legacy infrastructure, in terms of duct space and building space. A solution that takes up less space is preferable.” (See FT Fleshes Out FTTH .)

But PON rollouts also raise competitive issues, noted Ducatel. “How do you unbundle PON? That’s very unclear, whereas the unbundling potential of point-to-point [fiber access connections] is much clearer. We are making further inquiries into this. We haven’t reached any conclusions and we’re still talking to the national regulators,” said the EC man.

— Ray Le Maistre, International News Editor, Light Reading

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mrblobby
mrblobby
12/5/2012 | 3:46:28 PM
re: EC Stays Firm on FTTH
I disagree.

Call me old-fashioned, but I think that companies that invest in infrastructure should be allowed to profit from that investment.

Europe's "incumbents" are now listed companies and face competition in most (all?) of their market segments and have long lost any accrued unfair competitive advantage resulting from state aid. These companies should now be allowed to invest and exploit first-mover advantage.

Technically, the debate is about whether fibre-based service offerings are sufficiently different from copper or coax-based offerings to be regarded as different services for the purpose of the analysis of the "relevant market". If they are sufficiently different to be regarded as a different service, then there is a regulatory holiday while the new service is established, even if that results in a (temporary) monopoly in that market segment.

The problem with this regulatory approach is that the bitrates-per-Gé¼ that are achievable on all of the media (twisted pair, copper and fiber) creep up steadily, causing the services to also steadily become richer. However, there is going to be a hard limit at some point, requiring a step change in technology and therefore investment. The services that are now being offered on copper are so significantly different from those available at the time the Telecom Package came into force that it is farcical to maintain the disconnect between service and technology.

I'm not a hard-liner, mind you. The regulatory objectives need to focus on what services are available to end-users without too much regard to technology. However, in the face of a looming technology change that obliterates the competitive advantage of sunk costs (whether investment in twisted pair or coax), there is also the need to create an investment climate that will facilitate this change.

I therefore think that the hard part is deciding how far ahead regulators should think. I'd say a significant percentage of the technological lifetime of the infrastructure.

(Note also that end-users' switching costs need to be considered. It is not only the infrastructure providers who invest in technology, also end-users need to buy or otherwise pay for CPE.)

Cheers, mrblobby
rjs
rjs
12/5/2012 | 3:46:28 PM
re: EC Stays Firm on FTTH
If only the US FCC commissioners had as much spine.
T, VZ and cable MSO will try their best to retain their monopolies going into the fiber era. PON is just another method to prevent unbundling. P2P ethernet can do the job as well for a much lower price and is an open system.

-RJS
mojorising
mojorising
12/5/2012 | 3:46:27 PM
re: EC Stays Firm on FTTH
Verizon and AT&T only made their deep fiber investments after the FCC relaxed their rules and allowed them to retain those exclusive rights.

The question will be what the long term competitiveness picture looks like.
rjs
rjs
12/5/2012 | 3:46:27 PM
re: EC Stays Firm on FTTH
mrblobby,

One has to be consistent. If you want the first mover advantage, then make sure that there is competition. If you are the ONLY possible mover, the concept of "first mover" is redundant!!

If there is no competition, then one needs some sort of regulatory oversight or "un-bundling" or "wholesaling" --- call it what you want.

FCC and Congress need to be consistent.

As regards the value to the economy nobody is questioning that ... most of the world is way ahead because they adopted GSM.
The revenue India generates by having an open standard and wholesaling of minutes on its wireless network is enormous. BTW, the wholesaling occurs as competing wireless carriers try to monetize their returns. This occurs in wireless because wireless deployment is much easier than fiber deployment.

The FCC/Congress should clearly communicate to the VZ/T/MSOs is NO BUNDLING. This economy does not need the baggages of the teleco past moving in the fiber future. The fact that these ancient monopolies are wielding so much power is something that we as Americans should seriously consider.

-RJS




rjmcmahon
rjmcmahon
12/5/2012 | 3:46:26 PM
re: EC Stays Firm on FTTH
re: After all, you can always confiscate investor profits (if any) later, after they have sunk their money into the network. So even if that is the plan, it's best to pretend that it isn't...

Agreed. I wouldn't invest a dime in an entity that couldn't protect these networks from misguided government regulators. That's another reason why a municipal project backed by private bondholders might be the preferred financing model as the US Constitution's Contract clause might protect the bondholder's interests.

http://en.wikipedia.org/wiki/C...

In United States Trust Co. v. New Jersey, the Supreme Court held that a higher level of scrutiny was needed for situations where laws modified the government's own contractual obligations. In this case, New Jersey had issued bonds to finance the World Trade Center and had contractually promised the bondholders that the collateral would not be used to finance money losing rail operations. Later, New Jersey attempted to modify law to allow financing of railway operations, and the bondholders successfully sued to prevent this from happening.
Luke M
Luke M
12/5/2012 | 3:46:26 PM
re: EC Stays Firm on FTTH
The European regulators sound even more stupid than ours.

Preemptively imposing costly regulations on a network that doesn't exist, and which you are hoping that private investors will fund, is retarded.

After all, you can always confiscate investor profits (if any) later, after they have sunk their money into the network. So even if that is the plan, it's best to pretend that it isn't...
rjs
rjs
12/5/2012 | 3:46:25 PM
re: EC Stays Firm on FTTH
MPLS2, read the last sentence of my post.

""" .... P2P ethernet can do the job as well for a much lower price and is an open system."""

By forcing users to buy a 10 dollar part for $100
you are effectively putting in a barrier to entry.
It has NOTHING to do with the fact whether it can be implemented but rather how cost efficiently can be implemented.

-RJS

PS: I am quite glad that you are following my posts! Even my wife ignores me.
rjs
rjs
12/5/2012 | 3:46:25 PM
re: EC Stays Firm on FTTH

Long term competitiveness you ask???
I am getting my children to smile a lot and pretend to be interesting so that they can get a job at Starbucks --- Starbucks at least gives some sort of health insurance.

Yup we Americans are asking for it and we have no one to blame but ourselves. If the monopolists have their way the future looks quite rosy for Starbucks and Walmart.

-RJS

""""

Verizon and AT&T only made their deep fiber investments after the FCC relaxed their rules and allowed them to retain those exclusive rights.

The question will be what the long term competitiveness picture looks like.

""""
mpls2
mpls2
12/5/2012 | 3:46:25 PM
re: EC Stays Firm on FTTH
If only the US FCC commissioners had as much spine.
T, VZ and cable MSO will try their best to retain their monopolies going into the fiber era. PON is just another method to prevent unbundling. P2P ethernet can do the job as well for a much lower price and is an open system.

-RJS

------------------------------------------------


I thought you'd pop up onn this thread.
You can actually do unbundling with PON, either you are being ignorant or haven't kept upto date with the functionalities of a PON box..
rjmcmahon
rjmcmahon
12/5/2012 | 3:46:24 PM
re: EC Stays Firm on FTTH
RJS; A couple of things which might help out.

o An open system is a policy choice not a technology choice. During the days of COAX deployment the same arguments for open access were made. The trade off there ended up being the cable operators donating to a city a studio and a community access channel. Today, there isn't much worthwhile being produced and broadcast on these community access channels.

o The monopoly vs. competition is a false choice. The monopoly is an economic condition and not a policy choice. Politicians use these "illusions of choice" such as competition to placate the masses whose cognitions don't match an objective reality. They're doing it in this case to abdicate their responsibilities as well as pander in order to obtain political capital.
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