Press release: Pricing of wholesale access products needs to be aligned with European Digital Agenda 2020 universal broadband goals
Pricing of copper-based wholesale access products will have a direct impact on the business case for NGA, finds the new report by Plum Consulting on “Costing methodology and the transition to next generation access” presented today at an ETNO Expert Workshop on Price Regulation and Costing Methodology in the transition from copper to next generation access.
BRUSSELS –Pricing of copper-based wholesale access products will have a direct impact on the business case for NGA, finds the new report by Plum Consulting on “Costing methodology and the transition to next generation access” presented today at an ETNO Expert Workshop on price regulation and costing methodology in the transition from copper to next generation access.
“The pricing of copper-based wholesale access products is a key element of the equation of how to accelerate the development of high speed networks. 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. ETNO hopes that today’s workshop and the Plum report will inform the debate and ensure that the forthcoming EU policy on costing supports the investments needed”, says Luigi Gambardella, ETNO Executive Board Chairman.
The European Digital Agenda includes ambitious 2020 goals for universal high speed broadband access. Achieving the Digital Agenda objectives will requires significant investment, to be mainly driven by the private sector.
The Plum report considers one aspect of regulation in relation to these goals - costing methodology – on which the European Commission proposes to issue guidance. The study authors Brian Williamson, David Black and Jonathan Wilby commenting on the study noted that:
“Regulation has evolved with networks in place, stable demand and little competition in the broadband access market. None of these conditions hold during the transition from copper to fibre. The transition from copper to fibre involves increased competition between both copper and fibre during the transition period, in addition to growing competition from wireless and cable. The regulatory approach needs to adapt to reflect the increased platform competition, long-term investment horizons and uncertain demand for high bandwidth services.”
The study therefore proposes three things:
1. A re-appraisal of competition taking account of competition between copper and fibre during transition, in addition to competition from more capable wireless and cable.
2. An approach to copper pricing that supports customer migration. The predominant status quo position in Europe – replacement cost – should be maintained.
3. An approach to fibre pricing that reflects the long-term nature of investment and demand uncertainty. Either ex ante price controls should not be applied or they should involve two departures from the status quo approach - commitment in advance and a flexible approach to pricing.”
Notes to editor:
The EC has ambitious 2020 goals for broadband in Europe which will require investment in fibre and other advanced broadband access technologies. The EC proposes guidance on costing methodologies to guide national regulators. The Plum report appraises alternative approaches to costing methodology for copper and fibre in the context of the 2020 goals.
The transition from copper to next generation access (NGA) involves:
? More competition as regulated copper competes with next generation access
? Higher costs as copper and next generation access are run in parallel
? Uncertainty regarding consumer demand and willingness to pay for NGA
This implies that a successful transition requires:
? A copper price that is not too low – costing should continue on a replacement cost basis
? A re-evaluation of market competition given increased competition during the transition
? An appropriate remedy in relation to NGA:
– Reliance on the constraint of a regulated copper “anchor product” and ex post margin squeeze alone; or
– A pre-announced medium term price path commitment taking account of anticipated market demand and business investment case assumptions
To download the report, please consult:
Plum is a London based consultancy providing strategy, policy and regulatory advice in relation to telecommunications, media, radio spectrum and the internet. Plum has advised governments, regulators and operators around the world on fixed and wireless next generation access and the challenges of transition.
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