Regulators must rule swiftly on bitstream – Ovum

11 Apr 2003

European telecoms regulators must realise the importance of bitstream DSL (digital subscriber line) access in order to foster competition and bring consumer benefits, says leading telecoms analyst Ovum.

The European Regulators Group (ERG), the forum for co-operation among EU telecoms regulators, recently agreed to examine whether to adopt common rules on bitstream access, or wholsesale DSL services. The forum cited “the importance of bitstream access for broadband services and applications” as the motivation for policy co-ordination. The topic, however, is only due to be tabled in its September meeting.

Senior Ovum analyst Victoria Gerus said: “Given that many ISPs [internet service providers] and alternative providers are struggling to maintain profitable business, and the perceived importance of telecom services for growth in the telecoms industry, the regulators would do well to address this issue sooner rather than later.”

Gerus, however, argues that bitstream access is still the way forward and that regulators must take more action to make it competitive. “While European policy-makers thought local loop unbundling was the regulatory solution for DSL provision, bitstream access and other forms of wholesale DSL are proving to be more viable – and more feasible. These wholesale options allow alternative operators to compete with infrastructure-light solutions.

“Bitstream access gives alternative providers less control over the DSL service portfolio, but the trade-off is less investment risk. The alternative providers can differentiate themselves through branding, service innovations and product bundling. In EU countries, bitstream access is now the most prevalent form of wholesale DSL used by alternative providers [excluding Germany where bitstream access is not yet available].”

In Ireland Eircom recently revealed basic wholesale rates of €27 following a year of legal acrimony with the Commission for Communications Regulation (ComReg). However, rival operators such as Esat BT have complained that the pricing structure is still too high, especially when a €150 connection fee is added, leaving them little room to be cost competitive and leave room for profit margins. Yesterday, Esat BT unveiled a pricing structure that it claimed was 20pc cheaper than Eircom’s pricing structure.

According to Gerus, commercial pricing is an issue all across Europe: “Complaints that wholesale prices are set too high and/or that incumbents are engaging in predatory retail pricing to ‘squeeze’ competitors out of the market are common. While price controls have been imposed in a few countries, most incumbents have commercial freedom in their pricing.”

She called for harmonised regulation of bitstream DSL. “Where regulators do find justification for price controls, regulators need to remember that the incumbents’ local loop is an ‘essential facility’ for broadband services – in both a legal and practical sense. Any price controls must give incumbents incentives – and the means – to continue investments in their local networks.

“This is an area, in fact, where harmonised policies across EU countries would be valuable to the industry. To date, EU member states use varying costing approaches when setting prices for local loop unbundling – with many still using historical costs. For stimulating investments in new infrastructure, regulated returns need to be based on replacement costs for all assets – at current or forward-looking costs. Wholesale prices should go down for alternative providers, while the incumbents will have some cash for infrastructure investments.

“For the continued success of service-based competition in broadband services, the commission and the ERG will need to prompt regulators to act quickly and with regulatory remedies that ensures investment in the local loop,” Gerus said.

By John Kennedy