Telecoms industry bewildered as ComReg decides to split market

12 Feb 2013

Ireland’s telecoms watchdog ComReg is to press ahead with a controversial wholesale decision that will divide the telecoms market into areas where a variety of price margin tests will need to be applied. The ‘Larger Exchange Area’ decision is to enable Eircom to be competitive in urban areas where it competes with new rivals, like UPC.

Before Christmas, various industry groups appealed to the European Commission to block the decision.

Various telecoms industry experts have warned that not only will the decision add layers of administrative complexity that could see margin tests applied to as many as 126 different exchange areas in 14 counties around the country, it could serve to push out companies that rely on local loop unbundling (LLU) to reach end customers.

Critics of the decision – which was published on Friday evening – argue that it will ultimately allow Eircom to lower prices in areas where it competes with cable player UPC for bundled triple-play products, but that this could potentially result in higher prices elsewhere in the country, like rural areas that are less competitive.

A spokesman for ComReg assured that the decision is purely focused around the structure wholesale services and will not impact the line rental price paid by end consumers and businesses.

In a statement ComReg said: “This decision should bring certainty to the market and  should ultimately lead to greater choice and value for consumers.”

A spokesman for Eircom also confirmed that contrary to fears of groups like the IFA, there will be no increase in line rental. The spokesman pointed out that by the end of 2014, more than 50pc of Ireland will be getting broadband services from fibre/copper technologies like VDSL rather than pure copper-based DSL broadband.

Paving the way for the fibre future

The decision comes ahead Eircom’s launch of next-generation access (NGA) broadband which will rely on fibre-to-the-cabinet (FTTC) technologies, like VDSL, to boost broadband speeds to 50Mbps and higher.

In the document, ComReg said the Irish telecoms market has gotten more competitive with the growth of UPC and the arrival of players like Vodafone and Sky, who reach the market through exchanges unbundled by BT.

It said the decision is designed to encourage Eircom to invest in NGA and develop its wholesale network.

In the document, ComReg proposes a complex system that revolves around an instrument called a Net Revenue Test (NRT) that recalculates the margin to ensure “Eircom Retail’s pricing is not unduly constrained by regulation.”

In plain English, that means Eircom can reduce prices in areas where competition is deemed high.

Barrister Ronan Lupton, who is also chairman of licensed telecoms group ALTO, explained that the outcome of ComReg’s decision will be to increase Eircom’s competitiveness through the creation of a range of different prices on a sub-national basis.

Instead of one price across the country for a product or service, it will be divided by different areas.

“ALTO considers this decision creates the potential for Eircom to aggressively foreclose current generation service through a combination of the mass migration of customers to NGA and discounted pricing.”

Lupton said the decision will have serious implications for alternative providers like BT, Vodafone, Magnet and Sky, who have invested in the current generation of LLU services.

He said the implications of the decision are of such importance that a full market review is required.

“ALTO supports the evolution and development of NGA services, but regulation that facilitates aggressive and untimely foreclosure of competition is inappropriate. It is ALTO’s view that the objective of the notified measures is clearly to materially reduce the regulatory burden on the incumbent in those areas where it is rolling out NGA, to the significant detriment of alternative providers.”

Lupton said a similar market approach had been adopted in Austria but eventually annulled by the Austrian Administrative Court.

The Austrian experience, Lupton said, had been deemed a market failure and the remedy has not been attempted anywhere else in the world until now.

Telecoms industry reaction

Throughout the telecoms industry in Ireland yesterday, executives were holed up in meetings trying to ascertain the meaning of the ComReg decision.

BT regulatory expert Peter Evans said: “Basically, this decision is designed to give Eircom additional price flexibility in urban areas in order to allow them to compete against UPC.

“Our initial observation is that this may appear good in the sense that any downward price movement can be seen as a good thing.”

However, he warned: “If implemented in the wrong way or too quickly, it could have an adverse effect of squeezing out alternative platforms, such as LLU or FWA (fixed wireless access) – and will also contribute even further to the digital divide.”

Ireland Offline spokesman Eamon Wallace said the market split decision, in tandem with another decision that will give Eircom control over VDSL cabinets, will have significant ramifications for alternative rivals to Eircom and UPC, namely BT, Magnet, Digiweb and Sky, which only launched in the Irish market last week.

“LLU may continue in its current form, but nobody really knows the true meaning of these proposals.

“The ramifications are enormous and people are still digesting the likely outcome.”

Wallace said the decision to press ahead with the creation of a ‘Larger Exchange Area’ will result in tiered pricing throughout Ireland.

“This is tiered pricing. Eircom will be allowed to charge less in urban areas where there is ‘imaginary competition’ with UPC and inevitably rural users will have to make up the shortfall in income. So, leading to higher prices for rural users where there is no competition,” Wallace warned.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years