A future without unbundling?

bealtine

Rob Gallagher peers into a future without unbundling
05 January 2009




If you listened only to the growing body of next-generation-broadband evangelists, you might conclude that no bad could possibly come from the move from today's creaky copper networks to tomorrow's future-proof fiber. These enthusiasts are convinced that superfast broadband will provide a platform for an array of society-enhancing applications, despite openly admitting that they have no idea what these might be. Yet there is growing evidence that the move to next-generation access networks will carry a consequence that we should feel decidedly more ambivalent about.

It has to do with how today's operators will compete with each other in a next-generation world, and what prices and services consumers will get as a result. To be fair, it's not a topic many operators are willing to talk about openly. The incumbents are cagey because they do not want to be seen as using the move to re-establish their fixed-line network monopolies, although this is clearly an outcome some desire. Their competitors, the alternative operators, are keeping quiet for fear that shareholders will come to realize that the multi-million-euro networks they have spent years building may soon become redundant.

Today's competitive environment is defined by regulation that encourages alternative operators to extend their networks closer and closer to the home in order to better compete with the incumbent on price and services. In most European markets, the major alternative operators are on the rung of this "ladder of investment" known as local-loop unbundling. This involves the operator installing its own equipment in the incumbent's local exchanges, which sit at the top of "last mile" copper-local-loop networks that lead to the home. The final step on the ladder would see an alternative operator sever its reliance on the incumbent's network by building its own local loop, so that it could compete entirely on its own terms.

The move to next-generation networks threatens to remove the rung of unbundling, and with it alternative operators' chances of extending their networks right to the home. Many fiber networks will be difficult, if not impossible, to unbundle. Unbundling a fiber-to-the-cabinet network would require an operator to install equipment in thousands of street cabinets in order to serve the same number of households covered by just a few hundred exchanges. Fiber-to-the-home networks based on the GPON technology popular with most incumbents can be unbundled in theory, but only if they have been built with that purpose in mind in the first place. Mindful of these concerns, the European Commission and some national regulators are also pushing for rules to force incumbents to allow competitors to lay their own fiber in the ducts of their local-loop networks.

In public, most alternative operators are lobbying for all these options to be available. In private, many admit that each method may be too expensive or technically complex to use on a widespread basis, if at all. In a next-generation-access world, they may have to take a step down the ladder of investment from unbundling to some form of bitstream access, which on today's copper networks offers less scope to compete on price and services.

Would this be such a bad thing? Not necessarily. Copper-local-loop unbundling has undoubtedly helped alternative operators to deliver prices and services that would be hard to match using bitstream. But next-generation bitstream - or active access, as it is increasingly becoming known - is unlikely to be so limited. For one, incumbents will want to make their active products as flexible as possible in order to deter service providers from leaving their networks to build their own. The incumbents could also introduce products in a bid to create new types of wholesale business. For example, instead of renting one line per provider, they could divide it into "virtual connections" that could be used by different providers for different purposes, such as teleworking, IPTV and online gaming.

The question is whether the market for plain Internet access will become less competitive. With only a standard set of active products to draw on, competing on price will be not be so straightforward, and competing on headline speeds will be almost impossible. There would also be little incentive for alternative operators to drive innovation at the level of the network. Regulators are likely to oblige any monopoly-NGA operator to offer "open access" to its wholesale products, which would mean that everyone gets access to the same products and everyone pays the same prices.

Proponents of the NGA-monopoly model say it will rightly shift competition among operators from infrastructure to content and applications. It remains to be seen whether that will sit well with the broadband providers and consumers of tomorrow, but it certainly won't work for many of today's, which still largely value broadband on the basis of speed and price.

Rob Gallagher is a principal analyst for Informa Telecoms & Media's Broadband & Internet Intelligence Centre research portal and editor of Telecom Markets.