Commission faces ‘fistfight’ on broadband pricing

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This article is part of our special report Broadband: driving recovery?.

Companies still reeling from a fight over contested EU regulation on access to fibre networks now face an even bigger battle over how much smaller telecommunications operators will have to pay their bigger rivals to use their networks, industry sources reveal. 

The European Commission is due to release guidelines on how network operators should set wholesale access prices to copper line infrastructure to allow them to accommodate a costly roll-out of newer networks made of fibre-optic cables.

EU regulators have recently given their blessing to a spate of price rises for copper access, most notably CMT in Spain and AGCOM in Italy, in spite of firmly-worded advice from the European Commission not to do so (see 'Background').

The pending struggle over pricing basically boils down to a fight over companies' potential market prowess, because optical fibre carries more services over longer distances and deliver them in less time than copper.

"This one is becoming a real fistfight," an industry source who wished to remain anonymous told EURACTIV.

Battle lines drawn

The large incumbent telecoms firms, for their part, argue that copper prices should go up to cushion their investments in rolling out fibre networks. Meanwhile, those representing smaller players, which rent the copper lines owned by their larger rivals, argue that access prices should be lowered to shepherd in the transition to fibre.

In Brussels large telecommunications companies' interests are usually represented by the European Telecommunications and Network Operators (ETNO), while the European Competitive Telecommunication Association (ECTA) speaks on behalf of their smaller rivals.

The two sides are known opponents on most regulatory issues and had butted heads since 2008 on the long-awaited Next Generation Access recommendation, which finally emerged in September 2010.

Both recently commissioned studies which came to conflicting conclusions on what should be done about copper access prices to pave the way for a fibred future.

Driving down copper prices would tarnish the business case for investing in fibre by encouraging customers to stay on copper, argues a report commissioned by ETNO.

ECTA's report, on the other hand, argues that copper charges should go down because high copper charges will not push telcoms firms to invest in fibre, in that they could still rely on legacy copper lines to make profits.

The report adds that current access prices, estimated at an average of €8.55 per month, are based on an older pricing model when incumbents were replacing the copper lines regularly. But given the interest in fibre, this is no longer the case.

Incumbents maintain that they face an uncertain future, with take-up for high bandwidth fibre not yet guaranteed and uncertainty about how quickly fibre could reap returns.

Jury still out

BEUC, a Brussels-based consumer group, warns against any spikes in copper access prices as these would be passed on to users.

The group's economic analyst, Monika Stajnarova, points to Spain and Italy as "alarming cases" which have set a poor precedent and urges EU policymakers to take a stronger stance against access price hikes.

The European Commission is currently in the process of assessing both sides of the argument and the result of its analysis should appear in the form of a recommendation in the early autumn. 

"We have seen alarming developments in some EU member states regarding the increase of wholesale access charges. Recent cases in Italy and Spain where regulators approved increases in wholesale access charges will result in higher retail prices inevitably being passed on to consumers and with no improvement in service," said Monika Stajnarova, economic officer at European consumers' organisation BEUC.

"Particularly in the case of Spain, this is a very regrettable step as the quality to price ratio of telecom services is already among the most imbalanced in Europe," Stajnarova continued.

Luigi Gambardella, executive board chairman at ETNO, a trade group representing mainly incumbent telecom operators, says operators must keep a fair return on their infrastructure investments. "As highlighted in the Plum report, driving down copper prices would discourage NGA investment, firstly, by encouraging customers to stay on copper. Secondly it would negatively impact on the fibre and other NGA platform business cases, by lowering the retail price levels for ultra-fast broadband products in a distortive manner."

Professor Ingo Vogelsang, one of the authors of the study commissioned by ECTA, a trade group representing new entrants on the market, saw it differently. "If regulators signal that copper access prices will be cut, but that incumbents can switch the copper off if they invest in open fibre, that should provide the incentives we need to kick-start the move to high-speed broadband. Consumers will receive faster and better services quickly and at little additional cost," he said.

Last year Italian telecoms regulator AGCOM signalled it wanted to raise access prices by 24%. Its Spanish equivalent, CMT, said in March 2011 it wanted to up the cost of renting access by 7%.

In an indication of the European Commission's thinking on such hikes, the body issued opinions encouraging both not to raise their access prices. However under current rules, the Commission's opinion carries very little weight.

On May 25, when the new Telecoms Framework comes into force, the Commission should have more say on national rates and can ask regulators to amend the way they set prices. In addition, the Commission is due to issue a recommendation on costing methodologies in the autumn.

  • Early autumn 2011: European Commission to issue recommendation on access to Next Generation Networks.

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