Last week, two global telcos, BT and Vodafone, with a significant presence in the Irish market forged a joint venture on broadband. The question is: will it advance Ireland’s so far poor performance in the realm of local loop unbundling (LLU)?
LLU effectively means an operator gains access to a local exchange and by being able to put in their own equipment they can offer higher speeds and newer services such as TV via broadband.
However, after more than 10 years since deregulation of the Irish telecoms market began, LLU can be seen as a market failure, with 96pc of copper DSL lines sold in Ireland originating with incumbent operator Eircom either directly or as ‘resold’ services.
Under last week’s deal, which is still subject to approval from the Irish Competition Authority, BT will transfer its consumer, small business broadband and voice customer base to Vodafone. This will involve the transfer of some €4.8m worth of assets.
The CEOs of BT and Vodafone, Chris Clark and Charles Butterworth, say the aim of the plan is to address the lack of competition in the Irish LLU market, while also playing to each of the company’s respective strengths.
The lynchpin of the plan is a price reduction proposed by ComReg in May, whereby the cost of accessing Eircom’s network may fall from €16.24 to €12.18, making investment in LLU more viable.
For Vodafone, the deal means not only will it be able to access BT’s 22 unbundled local exchanges around Ireland, but it will also gain BT’s consumer telephone and broadband base of 84,000 consumers, as well as 3,000 small businesses.
The significance of the new alliance is it will enable both companies to build an alternative LLU infrastructure that will grow access to local loop infrastructure from 20pc today to two thirds in the coming years.
The companies will focus on building a LLU-enabled network that will deliver up to 24Mbps, growing the network from 22 exchanges today to 58 exchanges over the next few years.
“The logic is compelling,” explains Vodafone’s Butterworth. “We realised that on our own neither company could make a business case for increasing Ireland’s infrastructure to the level we are suggesting. But, combined, we have 2.1 million customers and a fixed-line business. It is about economy of scale.”
BT’s Clark agrees: “This joint venture creates the economies of scale to enable Ireland to get the broadband coverage and quality it sorely deserves.”
He says the recent ComReg process to enable greater LLU access is really the first step to achieving a faster broadband network for the country.
According to Butterworth: “Now we have a regulator that is actively engaged in looking at wholesale pricing.”
Clark adds that not enough has been invested in broadband-enabling Ireland to date.
“It’s not just capital spend, but developing the services that will create the compelling business propositions to make use of higher speed. LLU investment in Ireland has really only been to a small scale.”
Another investor in LLU is Magnet Networks, which has unbundled 40 exchanges around the country, involving an investment of over €80m and an addressable market of 600,000 potential subscribers.
CEO Mark Kellett says LLU is vital for competition as it enables telcos to do far more for customers than a resold ‘bitstream’ connection.
“With LLU you can get true broadband speeds of up to 24Mbps. Is there a future for LLU? Absolutely. Bitstream simply cannot compete against a fully unbundled local line.
“But because 96pc of DSL lines are sold via the incumbent and more than half of those are bitstream, operators don’t have the capacity to innovate. This is something we have been at pains to impress on ComReg and the Government.”
Kellett points out that the new prices ComReg proposes, while welcome, could still be challenged by Eircom. He says what’s really needed is a similar agreement to that of BT and Ofcom in 2005 where BT agreed not to compete with bitstream until the UK had 1.5 billion LLU subscribers.
“If you were to do that on an Irish scale, you would be allowing the market to grow to 150,000 full LLU subscribers. At present, Ireland has only 16,500 LLU subscribers despite the millions invested by Smart, Magnet and BT. Aggressive competition has so far destroyed the incentive to invest in LLU.
“The Irish broadband market is four years behind the US and three years behind the UK. Ireland is playing catch-up and subscribers will want better and more innovative services,” Kellett concludes.
By John Kennedy
This story is part of the Digital 21 campaign to encourage Ireland to develop a National Digital Development Plan, ensuring the country anditseconomy are strategically well placed to thrive in the 21st century. For more stories, and to add your comments, visit www.digital21.ie