Telecoms operator Eircom says that it is no longer going to proceed with plans for an IPO because it sees encouraging signs of momentum in its business and may not need to raise capital on the markets.
Dublin: 20.09.2014 02.57PM
A recent consultation by Ireland's communications regulator ComReg proposes dividing up the Irish telecoms market into different segments with Larger Exchange Areas (LEAs) where relaxed remedies will enable Eircom to introduce lower priced bundles to compete with UPC, Vodafone, Magnet and others. Ireland’s telecoms watchdog ComReg answers our questions.
Independent telcos fear these proposals will divide the market into haves and have-nots in terms of affordable and competitive access to next-generation broadband services.
Letters have been written by the European Competitive Telecoms Association (ECTA), Ireland Offline and ALTO, which represents firms like BT, Vodafone and Magnet, to Reinald Krüger, director general of Information Society and Media at the European Commission, expressing grave concerns about the potentially distortive effect the proposed changes could have.
Are the industry's fears grounded? We put a number of questions to ComReg on the issue.
ECTA, ACTA and ALTO have written to the European Commission voicing their grave concerns about the distorting effect the proposal of a Larger Exchange Area would have, and could create a ‘competitive vacuum’ for independent licensed operators. Is this a valid fear?
No. It is important to understand that, in essence, the same test is applied nationally. Eircom will (assuming the decision is adopted)continue to be obliged to cover all of its costs – including the appropriate share of common cost - both within the LEA and outside it. In telecoms, this is the most rigorous standard available to a regulator. In fact, as an added protection for entrants, most costs are calculated as being those faced by the entrant and not Eircom. This is to reflect the fact that they are smaller and do not have the same scale economies as Eircom. In both areas we also assume that entrants will need to use Eircom wholesale products.
The reality is that competition based on platforms such as LLU and cable is very unlikely to emerge outside more densely populated areas, hence the need to define the LEA. The most material difference nationally is that outside the LEA we accept that LLU will probably never be used and that operators will use Eircom’s wholesale line rental and wholesale broadband services. Within the LEA, the test will reflect pro rata the use of LLU as it is taken up but not before. If LLU usage remains low not much will change. The tests are designed to evolve as competition itself evolves.
What is the rationale for the amendment of existing remedies in Markets 1 and 4? Is it due to increased competition against Eircom from cable operator UPC and LLU resellers Vodafone, O2, Magnet and very soon Sky?
The rules around bundling were not spelled out in detail in previous ComReg decisions documents and this needs to be clarified. We also believe that everyone in the sector needs to understand what will happen as the competitive landscape evolves, which is why the tests are very much forward looking. This is in everyone’s interest. Also important is the fact that up to now there has been no guidance as to how services, such as mobile and TV, should be treated when included within fixed bundles and it is important that this be clarified now particularly as next-generation services, such as IPTV, emerge.
By relaxing margin tests and allowing Eircom to offer cheaper bundles in areas where it is deemed LLU competitors have failed to achieve sufficient market share, do you not think this provides Eircom as incumbent an unfair advantage?
See answer above. If LLU operators do not increase their market share this is automatically reflected in the test. There will be no premature relaxation of regulation.
What is the likely upshot of all of this for the Irish consumer? Will it result in higher prices in rural areas, as some have suggested, or will it see Eircom offer lower priced bundles in urban areas, where it competes with players like UPC and Magnet?
These proposed changes have no bearing on rural prices. Indeed, Eircom will still continue to be obliged to charge for line rental at the same price across the entire country under separate obligations. However, it is inevitable that some services, such as next-generation access, will be offered first in urban areas because these areas are cheaper to serve and competition is most intense. It is notable however that, in general, to date we have not seen operators charge differentially for the same service in different regions. It is also important to remember that excessive regulation could lead to higher consumer prices – there is a balance to be struck.