Next Generation Access roll-out in Germany Regulatory implications

Transcription

1 Next Generation Access roll-out in Germany Regulatory implications Annegret Groebel, BNetzA Managing Director Head of Section International Coordination ANACOM Seminars Lisbon, 29 June 2007

2 Regulatory Objectives Intensify competition further as competition is the precondition for innovation and investment (dynamic efficiency) as well as for productive efficiency (static efficiency) as well as the best means to ensure consumer benefits (i.e. more choice, better quality, cheaper prices) Incentives for efficient investment Supporting innovation Supporting efficient usage of networks Minimizing transaction costs and regulatory costs

3 (All-IP) (Fibre) Source: David Levin, indepen

4 NG access networks (I) Next Generation Access (NGA) In the access area, fibre optic can be installed at different degrees of proximity to the end user, eg FttCab FttBuilding or FttHome Corresponding shift in the first access node and shift in the border between access and backhaul network The farther fibre optic extends to the customer, the greater the economies of scale are for the incumbent local loop access coverage: approx 8,000 MDFs coverage at street cabinet level: more than 300,000 sites To what extent will there be a change in the bottleneck nature of the access networks? Disappearance of old or emergence of new bottlenecks? sunk costs, economies of scale (size/density) influence of technological progress

5 For discussion: Economic viability of unbundling at the street cabinet seen differently by OPTA Source: David Levin, indepen

6 NG access networks (II) Challenge for the Federal Network Agency To adapt existing wholesale products and corresponding access products in line with technical development Access possibilities Economic: what access points are economically viable? Technical: where is access technically possible? Greater use of fibre optic can shift the balance (service/infrastructure competition) with infrastructure competition concentrated mainly in metropolitan areas Shared use of existing wireline network elements lowers the costs and may make fibre optic rollout an economic proposition where this would not otherwise be the case

7 Announcements to invest Incumbents NGN and NGA investment often stimulated by competitive pressure: Germany: Unbundling pressure in cities. DT announced 3bln vdsl urban investment complemented by ADSL2+ Netherlands: Competitive pressure from cable and unbundling. KPN announced all-ip upgrade (access and core) additional capex cost now < 0.9bln UK: Relatively well regulated and competitive market. 10b core network upgrade announced by BT France: Free investing 1bln in fibre through sewer system on open access basis (building on broadband competition). FT response 200,000 customers targeted by end 2008 USA: Telcos investing to provide triple play networks to compete with Cable Cos having >50% market share Japan: Open access regime. Fibre penetration highest in world. Substantial and continued investment Source: ECTA

8 Access Architectures using Fibre traditional copper local loop 25 Mbit/s copper pair street cabinet copper pair MDF / DSLAM optical fibre FttCabinet 40 Mbit/s copper pair SC/ DSLAM optical fibre MDF* / ODF optical fibre Depending on whether MDF are phased out or not FttBuilding copper pair 100 Mbit/s Distribution point optical fibre ODF optical fibre FttHome 1000 Mbit/s optical fibre ODF optical fibre

9 Examples of the local loop under different technology deployments FTTC Exchange based DSL Copper sub loop Copper sub loop New build cabinet(s) Local loop SDF Local loop Cabinet SDF 1 DSLAM Fibre backhaul 2 Exchange MDF 1 DSLAM Exchange 2 Fibre backhaul Key 1 Unbundling 2 Bitstream access Exchange Point to point FTTH Local loop ODF 1 2

10 Economics of NGA A mixture of technologies will be used for NGA deployment depending on a number of parameters and specific local characteristics, including copper local loop and sub-loop lengths, customer density and dispersion, the number of street cabinets per MDF. Economics of NGA networks are likely to vary across different technologies and different geographies, i.e. between MS and within MS. Increase in costs per line/user due to a lower No of end customers per node. Viability of the business case also depends on the demand side and additional ARPU that can be attained by offering customers innovative services.

11 Average/Max Sub-Loop lengths and ratio of street cabinets to MDFs varies widely, affecting incumbent incentive, amount of incumbent investment, altnet replicability, bandwidths that can be offered, interference between metallic loops, etc. Germany: 40 cabinets per MDF; sub-loops +/- 300m in dense areas (50/10 Mb possible) Belgium: 38 cabinets per MDF; sub-loops +/- 1 km (25/2 Mb possible) Netherlands: 21 cabinets per MDF; sub-loops +/- 1 km (25/2 Mb possible) France: 10 cabinets per MDF; sub-loops +/- 750m (25/2 Mb possible; no great advantage over ADSL2+ at MDF; several initiatives to shorten loops; ADSL2+ on shortened loop a possibility) Switzerland: sub-loops +/- 750m to cover 75% of population (25/2 Mb possible) Percentage of population that lives in multi-dwelling units (apartment buildings, condominiums) varies widely among EU Member States and within EU Member States, affecting the business cases for VDSL from street cabinets, VDSL from cellar, FttB, FttH Source: T-Regs

12 Comparison Relationship MDF:SC Country No of MDFs No of SCabs Relation MDF: SCab France 13, ,000 1:10 UK 6,000 80,000 1:13 NL 1,360 28,000 1:21 Germany 8, ,000 1:40

13 Source: JPMorgan

14 Distribution of Subscriber Loop Length % of reachable subscriber Spain Italy U.K. Germany India 10 U.S km

15 CAPEX vs. total households/density Source: ARCEP

16 Cost per line vs. customers per exchange area (Source Analysys)

17 Major cost uplift for LLU access at the street cabinet

18 Costs of alternative scenarios Scenario 1: incremental cost operators perspective Scenario 2: TS-LRIC Scenario 3: Stand-alone cost Usage of feeder cable infrastructure (joint/exclusive) Type of roll-out in feeder cable & cost allocation Fibre is using existing spare capacities (ducts) Fibre bears share of costs for ducting and trenching Fibre (cost per meter) (31% = 62,6 borne by VDSL) Otherdirectcostof VDSL-roll-out VDSL-Modem, VDSL-Splitter, unbundled subloop, Outdoor- DSLAM Joint usage VDSL-Modem, VDSL-Splitter, unbundled subloop, Outdoor-DSLAM Retail cost Dedicated (sep.) physical infrastructure for fibre 130 exclusive VDSL-Modem, VDSL-Splitter, unbundled subloop, Outdoor- DSLAM

19 Economic feasibility of DTAG s VDSL roll-out I Cost curves , , ,000 1,000,000 1,200,000 1,400,000 VDSL Kosten pro Kunde (Szenario 1) VDSL Kosten pro Kunde (Szenario 2) VDSL Kosten pro Kunde (Szenario 3) Preis pro VDSL-Anschluss 1,600,000 # VDSL Anschlüsse 1,800,000 2,000,000 Source: WIK

20 Economic feasibility of DTAG s VDSL roll-out II Results: Critical number of VDSL access lines increased from Scenario 1 to Scenario 3. Break-even penetration ratio increases accordingly The analysis did not consider the technical obstacle of interference

21 Fibre access roll-out in Germany (1) BNetzA believes that VDSL will be an important access-scenario in Germany in the next few years phone TAE socket Verzweigerkabelbereich Installation Montagestelle point approximately 300,000 Hauptkabelbereich Street KVz Cabinets appr. 8,000 MDFs Outdoor- DSLAM Kabelschacht Manhole NTP distribution cable (~ 300m) Glasfaser fibre Kupferkabel copper feeder cable (~ 1700m) Verzweigerkabel Hauptkabel HVt Due to the relation of 1 : 40 (MDF : SCab) higher barriers to market entry exist, economies of scale become more important, competitor APL/EVz likely to be at a comparative disadvantage to the incumbent, move to SCab uncertain, probable alternative: bitstream access at the MDF

22 VDSL roll-out: hybrid broadband infrastructure MDF SC NTP Customer fibre copper fibre

23 Fibre access roll-out in Germany (2) DTAG started with the roll out of VDSL-lines: FTTCab investment of 3 billion in 2 years 12 cities in the 1st stage; another cities later on request of regulatory holidays (heavy lobbying) reconsideration of investment plans after change of CEO? Length of subloops allows FTTCab Net Cologne started rolling-out FTTB in the Belgian quarter of Cologne

24 Fibre access roll-out in Germany (3) Overlay strategy of DTAG Special situation in a number of street cabinets, length of copper lines, therefore economies of scale High number of 52 LLU competitors at the MDF (appr. 5mio ULL 1Q/07), main access form (available since 1998) Low competition from cable network operators, xdsl remaining the most important broadband technology (appr. 96%) Competitors using ADSL2+ for IP TV offers (HanseNet) Competion of triple-play-offers Midterm strategy of both DTAG and competitors concerning NGN access network still unclear A voluntary offer by DTAG for access would be welcome A strategic investor in alternative infrastructure

25 ULL Decision of 30/03/07 New ULL monthly price as of April 1st 07: based on the WIK BU-Model with LRICS, cost of capital: 9.47 nom 1.4 inflation = 8.07 real rate of return Prices approved until March 31st 2009 Price reduced from to MDF-access, price for subloop unbundling (access at the SC): 7.55 Monthly line sharing price was also cut down by a decision of Federal Network Agency from 2.31 to 1,91 (29 June 2007), on that day one-off fees for both full unbundling as well as line sharing were reduced considerably, which will support the remarkable increase in the use of both forms of access since the last price cut on 3 August 2005

26 Ladder of investment in a traditional environment Resale Bitstream Shared / full unbundling Own infrastructure Increase in intensity of competition Subloop unbundling S e r v i c e s I n f r a s t r u c t u r e

27 Regulatory situation Existing: unbundled access to the local loop at the street cabinet (sub loop unbundling, market 11) Additionally considered: access to the unbundeled local loop inside the incumbent s street cabinet access to ducts bitstream access at the MDF On April 4th 07 BNetzA started the national consultation on the 2nd market review of market 11 (comments until 4th May) Special consultation document with more principle questions published besides the market analysis and the remedies decision

28 Market 11: Unbundled local loop Wholesale unbundled access (including shared access) to metallic loops and sub-loops for the purpose of providing broadband and voice services (Market no 11 of the Markets Recommendation) Review of the market analysis findings according to the section 14(2) TKG after two years

29 Local loop definition The local loop traditionally runs between the connecting unit at the subscriber s premises and the main distribution frame (MDF), but can, in a future reorganisation of the access networks, also run between the connecting unit and a facility equivalent to the MDF Section 3 para 21 Telecoms Act defines the local loop as the physical circuit connecting the network termination point at the subscriber s premises to the main distribution frame (MDF) or equivalent facility in public fixed telephone networks

30 Access Options via ULL (1) Access to the local loop via: copper pair traditional connection between the MDF and the connecting unit at the subscriber s premises line sharing shorter connection between the primary connection point (PCP, i.e. street cabinet) and the connecting unit when the PCP is equiped with a DSLAM for the provision of high bit rate broadband services and is regarded as equivalent to the MDF hybrid local loop (OPAL/ISIS) special to Germany for historical reasons

31 Access Options via ULL (2) Local Loop Subscriber Cab MDF DSLAM copper copper Shortened Local Loop (reaching from subscriber to Cab only) DSLAM Subscriber Cab MDF copper optic fibre

32 Access infrastructure not included Not part of the market is access via: pure fibre optic loops (fibre to the home) Wireless Local Loop (WLL) retrofitted cable TV networks Broadband Wireless Access (BWA)

33 Notification of Market 11 On May 25, BNetzA notified acc. to Art. 7 FD its 2nd review of Market 11 Market definition unchanged to previous DTAG designated SMP operator (as now) Remedies decision notified at the same time Same remedies as currently imposed, plus Additional remedies: access to ducts between MDF and SCab to allow competitors to offer VDSL type services in case no spare capacity is available, DTAG must provide access to dark fibre Cion s comments letter received on 25 June, market definition + analysis accepted, comments reg. remedies

34 WBA market notification of BNetzA (M12) 2 BSA markets defined on the basis of the Rec.: - ATM BSA (handover at ATM-level) - IP BSA (handover at IP-level) After having received the letter of serious doubts, BNetzA amended its notification: BSA services based on VDSL technology were included insofar as they substitute BSA services based on regular technologies Commissionn accepted the amended notification and withdrew its letter of serious doubts on 23 Dec IP Bitstream access obligation plus ex-ante price regulation imposed on 13 September 2006, ATM BSA obligation plus ex-post price regulation imposed on 07 March, 2007

35 Supplementary Questions 3 options for wholesale customers seeking access: Standalone investment in own fibre network to move towards street cabinet, get access to unbundled loop terminating there; Own fibre roll-out using spare duct capacity; Rent dark fibre Option for those who do not invest, but stay at the MDF: bitstream access at the MDF, requires Access part (copper to the street cabinet); Backhaul part (fibre between street cabinet and MDF) Currently, the 2 BSA remedies decisions do not provide for a BSA product at MDF level, question raised about extent of clarification needed of analysis of M12 and subsequent remedies decisions

36 Another, more future oriented perspective of the VDSL roll-out VDSL in an All-IP NGN Complete restructering of the feeder cable segment Implementation of local fibre rings Phasing-out of MDF locations (Dismantling) => dominant strategy since parallel operation of copper and fibre network is associated with high OPEX and CAPEX expenditure Such an restructering of the access network requires regulatory specifications regarding Subloop unbundling (SCab) LLU (MDF) Definition of new access locations (?) In NL already existing plans for restructering of KPN s access network With All-IP, KPN will replace its current network which consists of (partially) separate networks for telephony, leased lines, datacom services and broadband internet (the stovepipes ) with a single broadband All-IP network. Using this new network, all types of services can be provided (including IP TV, for example).

37 According to KPN, All-IP roughly consists of the following elements: The transmission network will be based on IP/Ethernet, through which large amounts of data can be rapidly transported over the network. The existing circuit-switched telephony exchanges will be dismantled, as will the existing 1,361 MDF locations (where providers of broadband internet access (DSL providers) can currently purchase unbundled access to KPN s local loop). Around 130 to 200 of the existing 1,361 MDF locations will remain as Metro Core Locations (from which the MDF will be removed). On its website (link: All-IP ), KPN provides an overview of the situation regarding the locations that will continue to play a part after Part of the local loop between the Metro Core Locations and the cable distribution boxes, of which there are around 28,000, will be switched to fibre ( fibre to the curb ). In 2006, All-IP will be tested in trials and pilots by KPN and possibly by other market parties, and KPN will start with an initial small-scale rollout. The aim is to have the implementation ready by 2010, depending on technological developments and market circumstances.

38 All-IP will result in broadband access based on VDSL2 (with a maximum speed of 20 to 50 Mb), and based on fibre optic when there is fibre to the home or fibre to the office (with a maximum speed of 100 Mb). For the roll-out, KPN is proposing a categorisation of the cable distribution boxes: Category I involves the cable distribution boxes in those areas where unbundled access to the local loop network and co-location are not being purchased at this moment. Category II involves the cable distribution boxes in those areas where unbundled access to the local loop network and co-location are indeed being purchased at this moment, but where the customer is located at distance of more than two kilometres from the MDF location. Category III is the same as Category II, except that the customer location is less than two kilometres from the MDF location. Broadly speaking, KPN is proposing to start with Categories I and II, followed by Category III.

39 Conclusions (1) Balance of infrastructure and service competition as well as market structure may change as not all LLU operators colocated at the MDF will move to the SC and even those that roll-out fibre to the SC will not do so everywhere, but only where there is a viable business case, i.e. in densely populated areas BNetzA committed to setting the right framework and rules to open options to LLU operators and avoid stranded investment at the MDF (neutral to business models and in line with the ladder of investment approach) and maintain level of infrastructure competition reached with LLU New market 11 and remedies decision on 27 June 07 Ongoing work on alternatives for MDF access in an access network with a hybrid broadband infrastructure

40 Promoting competition, because competition is the best driver for investment and competitiveness Best incentive to invest is confidence of investors in a sound regulatory environment Announcing the regulatory strategy in advance to ensure stability and predictability of the regulatory environment Answer could be: Conclusions (2) WACC that properly reflects the riskyness of investing in new technologies and upgrading networks Both ways providing a clear vision of the regulatory strategy as well as a signal that risks will be rewarded appropriately can incentivise investments as it helps building the necessary confidence of investors Provide regulatory certainty to operators is key

41 A N N E X

42 Regulatory aspects of NGA (1) Economic and regulatory aspects - Access network perceived as main bottleneck by several countries - Stranding problems may occur with fibre being brought closer to the end user - But too early to comment on current competition problems since NGA development still in an early stage - However monitor development closely to intervene in time if necessary to maintain competition and avoid that facts are created which cannot be undone easily - The regulatory framework provides the necessary tools, but they may need to be adapted to the situation

43 Regulatory aspects of NGA (2) The regulator should promote infrastructure competition at the deepest level feasible and sustainable and promote service competition otherwise NGA investments are likely to reinforce the importance of scale and scope economies, thereby reducing the degree of replicability, potentially leading to an enduring economic bottleneck. Ladder of investment in an NGA environment Regulators should provide regulatory certainty for operators as early as possible to maximise investment The regulator should signal the migration scenario early on

44 Regulatory implications 1: ULL (Market 11) FTTCab - the local loop consists of the copper line from the cabinet to the home; FTTB - the local loop consists of the copper line from the building entrance (where fibre ends) to the end-user premises; FTTH - the local loop would simply be constituted by optical fibre from the ODF to the end-user (home). in point-to-point solutions, it may be possible to unbundle the local loop in a manner very similar to that used today for copper full LLU of the loop is applied from the ODF; in a point-to-multipoint solution (shared infrastructure topology, such as PON), it is no longer easily possible to associate a single physical element of connectivity with a particular end-user.

45 Regulatory implications 2: WBA (Market 12) Bitstream access at MDF may become more important. Market 12, as defined in the Recommendation already comprises all kinds of wholesale broadband access products. Therefore no change is required. Bitstream products might need to be enhanced to allow the provision of high quality services. Changes in the SMP-party s network may also imply changes of the WBA product that have to be adapted accordingly. Bitstream offers on FTTx architecture can provide the same type of services using Ethernet at the access plus backhauling to Ethernet switches at different levels or the IP level. Ethernet services allow more features such native multicast (e.g. of TV channels). When carrying out a substitutability test between markets 11 and 12, a relevant factor is that bitstream access at layers 2/3 reduces the freedom of the competitor to control quality parameters, compared to the LLU case, where the authorized operator gets access to the physical line (layer 1 access).

46 Regulatory implications 3: FTTCab Wholesale access products The main barriers are Colocation at the street cabinet, Backhaul between the Street Cabinet and the operators networks. Street cabinet unbundling may become more important: Colocation at the street cabinet could be imposed as an ancillary service obligation to SLU, provided it is technically feasible Complementary products such as backhaul services in the middle mile from the cabinet to the operator s node and/or duct sharing may be needed: Backhaul could be considered: as an ancillary service to market 11; as a wholesale terminating segment of leased lines (market 13); or a separate backhaul market could be defined. Duct sharing could be imposed as an ancillary service to market 11.

47 Regulatory implications 4: FTTH/FTTB Wholesale access products The main barriers are Civil engineering cost (horizontal barrier) and In-house wiring (vertical barrier) Fibre has to be included in market 11 in order to allow for the unbundling of the optical local loop (if SMP has been assessed in this market). Amendment of the Recommendation required, which is in line with the definition of the AD Other possible wholesale products, e.g. duct sharing Under the SMP framework Symmetric regulation to be imposed on all operators based on Article 12 FD could be strengthened, to ease facility sharing e.g.: Obligation to negotiate sharing of facilities under reasonable requests Settlement procedures before NRA in case of refusal; allow MS to intervene in particular for promoting fair competition, NRA may impose the setting up of extra facilities.

48 Ladder of investment in an NGA environment FTTH / FTTB + Duct / inhouse wiring sharing Own infrastructure level Complementary use of access products Resale Bitstream Shared / full MDF unbundling FTTCab unbundling + Backhaul Backhaul S e r v i c e s I n f r a s t r u c t u r e Increase in intensity of competition

49 Ladder of investment intermodal competition DSL technology Cable Bitstream Shared / full unbundling Own infrastructure Intermodal competition Alternative infrastructure Resale

50 Conclusions: Regulatory Implications for wholesale local access products (1) A local loop can be defined as a dedicated line between the NTP at the end-user s premises and the distribution frame at the first aggregation point (cf. Art 1 lit. e AD) AD thus allows adaption of market 11 to include fibre loops Market 11 can be characterized as access to the physical layer (layer 1), Unbundling at the street cabinet may become more important Market 12 does not require adjustments as by definition it already comprises all kinds of wholesale broadband access products, Bitstream access at the MDF may become more important Adjustment of access products: move from MDF unbundling to street cabinet unbundling, complementary products such as backhaul services in the middle mile and/or duct sharing are necessary

51 Conclusions: Regulatory Implications for wholesale local access products (2) Stranding investment problems may occur with fibre being brought closer to the end user Symmetric regulation based on Art. 12 FD could be strengthened Information on roll-out strategies of incumbents is crucial for managing the transition process, regulator to give prior notice of phasing-out of MDFs (enable a smooth transition) There is no contradiction between infrastructure and service competition, but balance has to be reviewed in an NGA environment as economics of scale change Ensure current state of competition is maintained in an NGA environment by adapting the regulation to deal with technological change while incentivising efficient investment in new infrastructure