BT and Vodafone CEOs plan a broadband network ‘of scale’

23 Jul 2009

BT chief executive Chris Clark and Vodafone chief executive Charles Butterworth plan to grow their combined local loop infrastructure from 20pc of today’s market to two-thirds and create one of the most progressive wholesale broadband operations in Europe.

Speaking with yesterday after announcing their broadband joint venture, Clarke and Butterworth said the aim of the plan was to address the lack of competition in the Irish local loop unbundling (LLU) market and effectively play to each of the company’s respective strengths.

Under the 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.

BT will, however, retain its lucrative enterprise and network divisions, which include corporates, the public sector and other communications providers for whom it builds and manages networks. The company recently recorded £800m sterling in revenues North and South, largely from managed services and corporate technology services.

For Vodafone, the deal means not only will it be able to access BT’s 22 unbundled local exchanges around Ireland, but it will gain BT’s consumer telephone and broadband base of 84,000 consumers, as well as 3,000 small businesses.

The significance of the move could easily be hidden by the movement of customers from one operator to another. The real importance of what BT and Vodafone are doing is arresting the clear market failure of LLU in Ireland.

Operators such as BT, Magnet and Smart Telecoms have all invested millions in enabling copper networks in Ireland to be able to carry broadband via digital subscriber loop (DSL).

However, aggressive competition from incumbent operator Eircom and the lack of a regulatory remedy has resulted in a situation whereby eight years after most operators began unbundling local exchanges 96pc of DSL broadband in Ireland is still sold through Eircom’s network.

In the past year, the Commission for Communications Regulation (ComReg) has moved to reduce LLU access prices and, according to Clarke, this was the spark that allowed Vodafone and BT to pool their resources.

Last year, Vodafone acquired Perlico for €80m. However, while it gained 62,000 customers,it still had no fixed line infrastructure. BT, on the other hand, realised it was gaining more by focusing on corporate and public-sector work, as well as its expertise in network building. The latest deal with BT will make Vodafone the clear No 2 in the Irish fixed line market with 170,000 fixed customers and 15pc share of the fixed broadband market.

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 to two-thirds of the Irish population, growing the network from 22 exchanges today to 58 exchanges over the next few years.

“The logic is compelling,” said Vodafone’s Butterworth. “When we both looked at our operations 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, and with that scale comes the fact that we can build the infrastructure that will drive the market in a positive direction.”

BT’s Clark agreed: “Most people would accept that Ireland needs to see growth in terms of broadband coverage and speed. The economic challenges we face to achieve the smart economy are critical. The challenges so far have been immense in terms of population, geography, regulation and economics. This joint venture between BT and Vodafone creates the economies of scale to enable Ireland to get the broadband coverage and quality it sorely deserves.”

Clark agreed that the recent ComReg process to enable greater LLU access is really the first step to achieving a faster broadband network for the country. “We are committed to increasing our LLU footprint in terms of exchanges and aim to reach two-thirds of available lines.”

According to Butterworth: “Now we have a regulator that is actively engaged in looking at wholesale pricing. The prices have been too high to date, but now we are on a progressive path and look forward to further developments. But what Ireland needs is parties with enough scale to see this through.”

Clark added 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 that will make use of higher speed. LLU investment in Ireland has really only been to a small scale.

“Where we have invested in LLU we have experienced a massive competitive take-up. This partnership allows BT and Vodafone to get serious about broadband coverage.”

Butterworth added: “This is about taking the game further. Vodafone’s aim in the retail space is to go to any customer and ask them how they want their broadband – mobile, fixed or any other way? When we bought Perlico we bought a customer base and an IT capability, but not an infrastructure. But when you look at BT, it has one of the most progressive wholesale operations in Europe and there’s no reason why Ireland shouldn’t benefit from that.”

Clark explained: “We have a strong wholesale business in the Republic of Ireland and Vodafone is an important customer of ours, along with a number of other providers.

“But in terms of access, it is in everyone’s interest to have an open access network. This is what will drive innovation, competition and services.”

Butterworth said that what has been missing in Ireland is alternative infrastructure, and this will mean that future next-generation networks will have to be built with open access in mind.

“If we want to have next-generation networks, you need to have competition in the market. We’ve got to build the networks and then we’ve got to be rational. This is about a competitive ecosystem. We want to be able to drive a stable competitive framework in Ireland and then what we’ll do is take our chances at a retail level. We’re determined that with our brand and our customer base we’ll be successful.”

By John Kennedy

Pictured: BT chief executive Chris Clark and Vodafone chief executive Charles Butterworth