Economies of scale could upset rollout of VDSL

28 Jan 2008

The anticipated rollout of very high-speed DSL (VDSL) with speeds of up to 100MB over copper could be a long time coming in Ireland, especially as the business case for sub-loop unbundling (SLU) is unattractive, according to a report commissioned by ComReg.

The report, entitled ‘The Business Case for Sub-Loop Unbundling’, compiled for Ireland’s telecoms regulator by Analysys, suggests that SLU is not as commercially attractive as local loop unbundling (LLU) and that most operators are likely to focus their deployment on cabinets with no less than 300 lines.

Sub-loop unbundling is a form of unbundling where the line is handed over from an incumbent operator to an other authorised operator (OAO) at a point closer to the end user than in LLU, and this typically occurs at a street cabinet.

While there are no commercial deployments of SLU in Europe, incumbents in the Netherlands and Germany have extensive VDSL plans.

It is debatable whether SLU can have any chance of success outside of large markets like Dublin and it could degenerate into the painful and drawn-out process that LLU has become.

In a base scenario, Analysys suggests that for SLU to be commercially viable for OAOs, broadband penetration in Ireland would have to reach 65pc by 2017 and the OAO would have to achieve an increase in average revenue per line (ARPL) of €5 per month by 2014.

The same OAO would have to be co-located with Eircom in each cabinet and would need to gain a 30pc share of the broadband market in the areas where it rolls out services.

In a more optimistic-sounding scenario, Analysys says the case for SLU would become more commercially attractive compared with LLU if an OAO could achieve an increase in ARPL of €10 per month and broadband penetration in Ireland reaches 75pc by 2017.

For this to happen, cheap backhaul would need to be available countrywide and OAO-only large cabinets with at least 300 lines would be required.

Analysys warns that SLU will be subject to strong economies of scale, which would be more significant than for LLU.

The largest costs to be faced by OAOs will be charges for line rental, co-location at the street cabinet and backhaul. Analysys says it is unlikely that competition will provide lower prices than those available from Eircom and therefore getting a fair price from Eircom is vital if SLU rollout occurs.

Because OAOs may struggle to get planning permission to deploy new street cabinets, Analysys says it is important provisions are made to allow them access to Eircom’s cabinets and that fibre backhaul is made available at a reasonable rate.

Analysys says that because the business case for SLU will be challenging enough in the Dublin area, it will be difficult to rollout elsewhere in Ireland where line density per cabinet is likely to be lower and backhaul costs greater.

A study of the business case for Eircom deploying VDSL shows that the costs are less than those for LLU at a market share of around 40pc, which is less than Eircom’s current retail market share of 47pc.

To ensure OAOs can have a viable business case for SLU, Analysys says that if any potential VDSL rollout by Eircom is not to have a detrimental effect on the market, ComReg will need to move fast to remove potential barriers.

Key to this will be the availability of a flexible and competitively priced wholesale bitstream product in addition to SLU, and access for OAOs to both large cabinets where Eircom will offer co-location space and to an affordable, fibre-based backhaul product.

By John Kennedy