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Comreg and Line Share pricing review
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18-08-2009 4:34pm#1
Comments
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In December 2008 Comreg told eircom to reduce Shared LLU costs, eircom replied around April with the first link above and Comreg replied to eircoms reply in August .
Incidentally why are portions of the "non confidential" eircom response blacked out by Comreg , the morons .
Another 8 months of glorious hole scratching
The net result is that the €0.75c price from last December has been revised. The new price is €0.77c a month .
http://www.comreg.ie/_fileupload/publications/ComReg0966.pdfIncluded as part of the incremental costs are the remedial costs associated with pair gain systems removal, this relates to a small number of lines which were installed many years ago which cannot now deliver broadband and remedial work is required to ensure that, going forward, broadband can be delivered over these lines. This involves some cost of a capital nature with the appropriate depreciation charge being recovered each year.
Further on it gets quite involved
Eircom estimated the average capital cost of removal to be approximately €28.00 per line, ( urban lines people, not rural ones SB)
3.218. Once the capital cost of the pair gain system is determined, this cost should be depreciated over a period of time and the monthly depreciation charge should represent an incremental cost towards the cost of providing the LS service. This results in a range of costs of facilitating pair gains removal from €0.29 to €0.79. ComReg applied a 10 year depreciation period in Consultation Document No. 08/106; which implies that the incremental cost of pair gain removal is estimated to be €0.36.
Consultation Question
Q.18. Do you agree or disagree that lines with pair gain system should be unbundled? If so, what do you believe is a reasonable cost associated with pair gain removal and how should it be recovered? Please explain in detail your response.
Q.19. Do you consider that an incremental cost of €0.36 per line per month for pair gain removal is correct and reasonable, if it is established that lines with pair gain systems can be unbundled? Please explain in detail your response, with additional reference to the depreciation period chosen.
View of respondents
3.219. ComReg received five responses to these questions.
3.220. Two respondents (Eircom and Vodafone) agreed that lines with pair gain systems should be unbundled, however neither respondents agreed with the incremental cost of €0.36 per line per month. Two further respondents (BT and Magnet) disagreed that lines with pair gain systems should be unbundled. Smart did not have a view on this.
Depreciation period42 monthsWith old WACC42 monthsWith new WACC120 monthsWith new WACC180 monthsWith new WACCCost per line and per month0,79€0,78€0,36€0,29€
Response to Consultation and Decision - Rental Price for Shared Access to the
Unbundled Local loop
55 ComReg 09/66
3.221. Vodafone considers that it is important, in the interests of the promotion of competition and the promotion of social inclusion, that customers currently availing of fixed services on lines where a pair gain system is present should not be precluded from availing of broadband services provided by OAOs on the basis of LS. However, Vodafone contends that a depreciation period of at least 180 months, rather than the 120 months currently proposed would be more appropriate and consistent with Consultation Document No.09/11.61 Vodafone notes that Tera is not consistent with Consultation Document No. 09/11, section 4.30.3 proposes a regulatory asset life of 20 years for pair gain systems. Vodafone considers it appropriate to depreciate pair gain systems over a minimum of 15 years (180 months) in line with the depreciation period used by OfCom, as mentioned in the Tera Report.
3.222. Recent Eircom studies indicate that this cost is approximately €28.00 per line. Eircom, however, does not believe that €0.36 per line per month is a fair and reasonable charge to recover the cost of pair gain removal as the cost is a result of the provision of broadband and not PSTN and should therefore be written off consistent with the cost of broadband retail costs, i.e., over a much shorter term than that proposed by ComReg.
3.223. Eircom agrees that the cost of pair gain removal on the minority of PSTN lines should be recovered across all LS services connected, but does not agree that the 120 month asset life is an appropriate term for the recovery of the incremental cost that it incurs by removing the pair gain system. Eircom believes the cost of pair gain removal is caused by the requirement for the broadband service, irrespective as to whether it is provided as retail, bitstream or LS.
3.224. Eircom believes that the price regulation applicable to WBA requires that one-off retail costs, incurred to provide individual broadband services, be recovered over 42 months. Therefore, Eircom believes that the choice of 120 months as the period to recover the one-off costs of pair gain removal is incorrect. Eircom provided, in confidence, what it believes to be the appropriate charge based on a 42 month period.
3.225. BT believes that the incumbent removes pair gain systems for its own downstream bitstream and broadband services, hence, on the basis of non-discrimination, it should apply the same approach to LLU products. BT does not agree to the cost of pair gain removal being added to line rental as it pertains to a one off activity at the time of connection. BT believes that even if such a charge were valid, which BT does not believe it is, LLU generally exists in urban areas where broadband penetration is traditionally strong and where most pair gain systems already have been removed for the provision of the incumbent‟s bitstream service.
3.226. BT believes the proposal to charge for pair gain also causes an inconsistency in order types, as in those cases where an operator migrates a customer to LLU from bitstream via Inter and Intra migration orders, it is known that there is no pair gain. BT believes that in such cases the pair gain charge should simply not apply.
ComReg Document No. 09/11. Consultation & Draft Decision- Review of the regulatory asset lives of Eircom Limited, published 17 February 2009.
3.227. BT believes that if ComReg is of the view that the cost must be recovered in LS rentals, then ComReg should estimate the cost of pair gain removal across all DSL services (pooling) such as bitstream, LLU, PPCs (EUL access), Ethernet Access etc, and allocate the cost to all (spread) as all benefit from these devices being removed. Therefore, BT states that it is unfair to load the cost into LLU rentals.
3.228. Magnet believes the customer is paying for a full copper pair into their residence; therefore, Eircom should not recover for something that should not exist.
3.229. Smart believes that ComReg, using the powers bestowed upon them by the Act should obtain and be aware of the actual costs. Smart believes that a fully working "similarly efficient model" is required when calculating cost models. The absence of such a model may, in theory, leaves ComReg‟s decisions on this issue open to challenge.
ComReg’s Position & Conclusion
3.230. ComReg acknowledges the respondents‟ views and remains of the opinion that lines with pair gain systems should be suitable for broadband and, where necessary, unbundling.
3.231. ComReg believes that BT‟s comment that pair gain systems have already been removed in densely populated areas is not justified, because this implies that only Eircom should support the cost of removing the pair gain systems in densely populated areas, even if Eircom‟s customers remain only for short periods of time with Eircom and then migrate to LS.
3.232. ComReg does not agree with BT‟s proposal that costs of removing pair gain systems could be recovered through one-off charges. Even if BT‟s proposition has some advantages, ComReg believes that this would act as a disincentive for lines with pair gain systems because OAOs would have to pay one-off fees. ComReg believes that such a proposal would add another layer of complexity to the LS order process because it would require an additional test to be carried out on the line to be unbundled to determine whether a pair gain system is present.
3.233. ComReg believes that Eircom‟s proposal is also not appropriate. Eircom‟s response presumes that when a LS order requires a pair gain system to be removed, it will never been reinstalled to either Eircom or an OAO. Eircom‟s proposal appears to be based on the assumption that once a customer has cancelled its LS subscription it will never again avail of a broadband service with Eircom or an LLU operator. This is a most conservative assumption since the line customer is highly likely to be used again for a broadband service.
3.234. ComReg proposes that the pair gain removal cost is depreciated over the economic life of the asset and not the customer life. This should address BT‟s concerns that by charging for pair gain removal an inconsistency in order types may be created when an operator migrates a customer to LLU from bitstream via Inter and Intra migration orders.
3.235. It should be noted that ComReg has accepted the cost estimate of Eircom in relation to pair gain removal costs, as it is likely to be a difficult cost to measure accurately at this stage. It is also not possible for ComReg to independently
verify the number from that provided and ComReg also does not believe this should be necessary at this stage. The incremental cost approach is a recognised international approach adopted by numerous NRAs. ComReg has analysed in full other alternatives and is confident that the incremental cost approach is a robust and fit for purpose methodology for determining the monthly rental price of LS.
3.236. While not clearly highlighted in Consultation Document No. 08/106, the incremental cost of €0.36 per line per month is calculated by dividing the total pair gain removal investment by the total number of lines to ensure there is no discrimination from one service to another, including LLU, bitstream and DSL.
3.237. While not directly in line with the LRIC pricing principles of an efficient operator, where pair gains would not have arisen in the context of a new network, ComReg is sympathetic to the fact that Eircom currently incurs actual costs in remediating legacy network build issues.
3.238. As Vodafone pointed out, ComReg‟s proposal is inconsistent with Consultation Document No. 09/11 where an asset life of 20 years for pair gain systems is proposed. It must be noted that Consultation Document No. 09/11 was published subsequent to Consultation Document No. 08/106. ComReg agrees with Vodafone that they must be consistent. Accordingly, ComReg is revising the asset life of pair gain systems to 20 years, which changes the depreciation period from 120 months to 240 months, in line with ComReg‟s Decision No. 03/0962.
3.239. To recover the total cost of pair gain systems removal would require approximately €28.00 per line to be recovered across all PSTN lines. This cost is depreciated over a 240 month period. Eircom‟s weighted average cost of capital (“WACC”) of 10.2% is included in the depreciation calculation. A present value of approximately €28.00 over 240 months, at the Eircom WACC of 10.2%, results in a cost of €0.26 per line per month. ComReg therefore has revised the proposed incremental cost per line per month of providing a LS service to €0.26 per line per month.
Conclusion: ComReg remains of the view that lines with pair gain systems should be in a position to provide broadband services where possible and that they can be unbundled if and when requested. ComReg, however, has revised the incremental cost of removing pair gain systems from €0.36 to €0.26 per line per month in line with the most up to date asset life applicable.0 -
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Anyone running a book on how long it will be before Eircom appeals? :pac:
Soon as you opened your big mouth Trekky
Astonishingly Comreg did not bottle the court case like they usually do and it was settled today with the line share price at €0.77c a month.
That only took about 3 years from early 2007 to publication in late 2008 to court by september 2009 to settlement in January 2010
Unlike the last crack Comreg had at line share pricing with the Prof Bill Melody report in 2003 they bottled out after the 3 years and slunk away.
There are signs of backbone in Comreg nowadays, normally they have the imprimatur of Alex Chisholm about them...not the other two stooges.0 -
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It is on balance but about 7 years too late though
Many people want to keep eircom number/service but would rather BB came from someone else. Jumping lock stock barrel and phone number was too much.
The LLU carriers have €8 a month of decent margin on their service this way and can also offer IP Telephony and combination routers if they wish. LLU is only offered in cities and large towns. I estimate that no more than 40% of households are connected to an LLU exchange though and most of those can get UPC too.
This is also a salient success in terms of Comreg costing NGN investment and enforcing NGN type LLU which shall be rather different to V1 LLU.0 -
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