Local loop unbundling (LLUB) and bitstream access have been mandatory in most EU countries in Central and Eastern Europe (CEE) for several years, but the effects of this regulation have been limited. The opportunities for alternative operators from LLUB and bitstream depend on how quickly the remaining regulatory obstacles are overcome. The analysis below is taken from a recent Analysys report, Prospects for Local Loop Unbundling and Bitstream in Central and Eastern Europe, and examines the impact of regulatory delays on the commercial value of LLUB.
A year's delay could halve the value of unbundling for altnets
Widespread use of unbundling may have a dramatic impact on the dynamics of the broadband market in CEE. The experience of Western European markets such as France and the UK has demonstrated that unbundling can significantly reduce prices and accelerate broadband penetration. However, the timing of effective regulatory intervention is critical to the attractiveness of unbundling for alternative operators. If regulators are slow to implement a regulatory framework that offers favourable conditions for unbundling and the broadband market becomes heavily saturated, unbundlers might not be able to gain a significant share of the market because it will be difficult to lure customers away from incumbent operators and non-DSL players. Figure 1 shows how delaying mass-market LLUB take-off by one year (from 2007 to 2008) decreases the value of commercial DSL.
Figure 1: Cumulative value of the altnet DSL market in CEE in 2010, with LLUB take-off in 2007 versus 2008 (Source: Analysys Research, 2007)
LLUB may only be a short- to mid-term solution for alternative operators in CEE
Alternative operators in CEE have the opportunity to learn from the unbundling experience in Western Europe and pre-empt the problems that reliance on LLUB has caused in that region. For example, in some cases, Western European incumbents and regulatory authorities adopted approaches that hindered unbundled access.
- Some incumbents in Western Europe (such as KPN in the Netherlands) decided to build their DSL broadband strategy on a cabinet-based architecture, which causes logistical, technical and regulatory difficulties for the implementation of unbundled access. In this situation, alternative operators must either invest substantially in backhaul links to cabinets, lobby for bitstream access or rely on some sort of wholesale offer from the incumbent operator.
- Incumbents can lobby for favourable legislation that hampers access to unbundling. For example, the German government adopted legislation that temporarily permitted Deutsche Telekom not to open its VDSL2 network to its competitors. However, in April 2007 the German regulator issued a draft decision that ordered the incumbent to provide access, following the threat of legal action by the European Commission.
Potential unbundlers in CEE should consider all of these factors and adapt their strategies accordingly. If legislation in CEE proves an effective enabler of competition in the short term, then there is a business case for involvement in unbundling – particularly for mobile operators and direct-to-home broadcasters. However, players that believe that the unbundling process is flawed could pursue one of the following alternative long-term strategies: withdraw from the market; re-consider WiMAX; refocus on the long-term benefits of mobility; or build out their own FTTB.