Report: European incumbents could control 80% of next-gen broadband market

FEBRUARY 25, 2008 -â�� The pro-competition European Competitive Telecommunications Association (ECTA) is calling for stronger authority for regulators to implement competition rules after it publishes the results of its twice-yearly survey on broadband take-up and competitiveness in Europe.

The survey shows that while one in five people in Europe now subscribe to a broadband connection, competitive impetus has reduced across Europe with a growth rate of 10% in broadband connections. The survey also reveals "a serious threat" to the primary source of competition -- local loop unbundling -- as incumbents seek a moratorium on unbundling next-generation fiber access lines, ECTA says. Currently, the retail market share of incumbents remains high (close to 50%) and if the moratorium is granted, ECTA predicts this could result in incumbent operators controlling 80% of broadband lines across Europe.

Chairman Innocenzo Genna says, "People often do not realize that the choice they have of broadband provider and speeds and prices available depends on how effectively the regulator has opened up the last mile of the network to competitors. Policy makers ignore this at their peril, because the choice we have today may be gone tomorrow if we do not act to keep telecoms markets open, and Europe's competitiveness is at stake."

ECTA, the organisation representing competitive providers, believes that the European telecom market is reaching a critical stage as the existing legacy copper network is gradually replaced partly or wholly with next-generation fiber lines.

Genna adds, "Because fixed networks are particularly expensive to build, it is not always economical to duplicate the last mile -- the line going into each home -- because it will push up the retail cost of broadband and may not be justifiable to financial investors. Instead, what we need is a mechanism to share bottleneck access infrastructure on an equal basis. Functional separation could be a way to enforce infrastructure sharing rules more effectively."

The survey reveals that countries with the highest broadband take-up, including Denmark and the Netherlands, Sweden, Finland, and the U.K., have all benefited from competition through effective unbundling of the local loop.

In the countries with lower performance, include Italy and Poland, incumbent operators enjoy 64% and 59% of the retail market, respectively. Broadband penetration levels in Italy grew at just 3% in the last 6 months, and the nation now ranks the lowest of largest EU economies. In Poland, penetration rates of 7% are less than half of the EU average, and local loop unbundling -- despite being mandated for several years -- remains elusive. Regulators in both countries are actively pursuing functional separation as a remedy for the incumbents' control.

ECTA is urging the European Parliament and Council to approve measures proposed by the European Commission in its review of the telecom framework, which would strengthen regulators' powers to ensure effective sharing of telecom bottlenecks, which are critical in boosting Europe's competitiveness, the organization says. Functional separation is one tool that could be used to address enduring barriers to competition in the sector. In the U.K., it has contributed to the unbundling of 4 million lines in just two years, a boost in infrastructure investment by competitors, lower prices, and an increase in broadband speeds.

Key findings of the report:

Total broadband lines increased by 10% in the last six months from 84 million lines in 1Q07 to 92 million lines in 3Q07. Overall growth slowed from 16% in the previous 6 months.
Northern European countries remain leaders in broadband with Denmark and the Netherlands reaching 35% penetration and Sweden, Finland, and the U.K. all registering greater than 25% penetration. On the other end of the scale, penetration in Greece, Poland, and Slovakia remains less than 10%.
Duplication of access lines (last mile) is limited across Europe. 82% of broadband lines rely on the copper local loop of the incumbent operator, while the remaining 17% is supplied through cable (14%) and mechanisms such as fiber (1.2%), fixed wireless (0.9%), and other means such as satellite.
When regulated access is taken into account, incumbents maintain 46% of the retail broadband market. Most competition to the incumbent comes from unbundling of the local loop (sharing of the incumbent access line), representing 21% of all broadband lines. A further 15% of incumbent lines are wholesaled to competitors.
High-ranking countries typically have competition from both cable and LLU. In the EU15, broadband growth was strong in Ireland (17%) and Greece (45%). However, growth was less than 5% in Austria, Italy, and the Netherlands.

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