NRAs in some of the largest European markets have permitted a rise in the amount that incumbent operators can charge for access to the local loop. We have witnessed this in at least three (UK, Italy, and Spain) of the “big five”. On the other hand, a recent review in Germany saw a very slight decrease in the cost of unbundling the local loop.

 

As Ovum’s recent Wholesale Broadband Access benchmark indicates, the downward trend that characterized LLU rates across EU countries last decade appears to have inverted in the last two years. This depends on factors such as inflation and a rise in the price of copper, alongside the constant decline in demand for fixed lines. While at first glance this might be considered harmful to competition, to an extent it could in fact provide an incentive for investment in next-generation access in that it shows that NRAs are committed to allowing network owners to recover costs and incentivize communication providers to migrate to fiber.

 

 

The price of unbundling the local loop has on the whole been falling across most European broadband markets over the past 10 years. However, as Ovum’s new benchmark dedicated to WBA shows, some of them have returned to an upward trajectory in the last year or two – for example, Italy and the UK as of 2009 – while most countries have stayed at the same level. Recent regulatory decisions in the EU5 illustrate this recent trend.

 

Inflation and the rising price of copper, alongside a falling demand for fixed lines at a retail level, go some way towards explaining this new tendency. In particular, the latter determines the necessity to recover a higher amount of the initial investment from every single line, in turn putting pressure on prices. Different cost methodologies adopted by national regulators don’t seem to significantly affect the outcome, given that NRAs using different models – e.g. Italy and Spain – have reached similar conclusions.

 

The main concern that might arise due to such an increase in price is the effect on competition in a market which has benefited from a downward trend in rates over the past 10 years. However, it seems premature to overstate such risks: countries in which prices have been stable, or have recently increased, haven’t shown obvious signs of a decrease in competition or a fall-off in demand at a retail level. Broadband uptake has kept growing, with alternative operators generally increasing their market shares. It is essential to ensure that any rise in price is solely justified by the underlying costs so as to protect the current level of competition. If price didn’t follow cost then incumbents could end up making a loss on each line unbundled. Requiring incumbents to offer access below cost could also have a negative effect on the demand for NGA, as it would widen the gap between the cost of “current-generation” broadband and that of fiber, hence hampering the “substitution effect” for alternative providers and retail customers.

 

All these elements would be detrimental to the investment that operators have already made, and in turn affect investment in fiber at a time when policy makers are pursuing the steady development of super-fast broadband. Regulators that have recently increased rates following their market analyses seem to have had this in mind.