Ata recent roundtable, Swiss regulators ComCom and Ofcom hosted adiscussion about the deployment of fiber-to-the-home (FTTH)networks. During the discussions, industry players agreed on asingle set of standards. Importantly, they agreed to adopt amulti-fiber model. Swisscom is to invest in building an FTTHnetwork with several fiber lines laid in each building – where onefiber will be used by Swisscom and the others will be available toits partners. In line with the EC’s NGA Recommendation, themulti-fiber model reduces the high cost of infrastructureinvestment for operators and brings the potential added benefit ofavoiding the designation of significant market power (SMP) andassociated remedies.
A multi-fibermodel fosters competition and reduces investment costs
This model is a promising measure to promote competition in thebroadband market and encourage investment by Swisscom’s cooperationpartners. In our view, co-investment in FTTH networks using amulti-fiber approach has several benefits. Firstly, it will reducethe SMP position in NGA markets, which happens particularly whenthe incumbent has first-mover advantage of rolling out fiber accessnetworks. Secondly, it will cut the overall cost of infrastructureinvestment in fiber access through cooperative investment byoperators. On average, 80% of the total cost of rolling out an FTTHnetwork is incurred through the introduction of fiber into ductsand through in-house cabling. Sharing this cost under themulti-fiber model benefits operators and reduces the investmentrisk. Therefore, it will enhance infrastructure-based competition,with more operators climbing the ladder of investment. It alsoenables access seekers to obtain control over fiber lines withouthaving to duplicate costly investments or risk facingdiscrimination in the case of single-fiber unbundling. The resultof all this is more intense competition in downstream markets andultimately benefits for consumers.
The Swiss regulator has being paying attention to NGA sinceSwisscom announced in December 2008 that it would invest $6.6billion in deploying FTTH over the following six years, based onthe multi-fiber model. As such, the regulator has encouraged allparties involved to reach an agreement on unified technicalstandards. The agreement involves the main industrial players,including telecoms service providers, electricity utility companiesand cable network operators. The regulator will continue to monitorthe situation to see whether further regulatory intervention willbe necessary in order to remove potential future problems such asaccess discrimination for those service providers that will rely onthe incumbent’s infrastructure.
End users are set to benefit from increased choice. In particular,the unified approach to standards removes the inconvenience to endusers when they want to switch between fiber infrastructureproviders.
An approachthat is likely to be adopted by other European NRAs
Switzerland is not a unique case in Europe, with the Frenchregulator Arcep also favoring this approach in its June 2009proposal for regulating FTTH. (For further details, see ourrecently published report The regulatory approach tonext-generation access: Europe.) NRAs need to take into account thedemand involved in different markets and the fact that such anapproach would give alternative operators control over theirinfrastructure. In addition, the EC’s second draft Recommendationsuggests that NRAs should be cautious about imposingcost-orientation on SMP operators in the case of FTTH networksbased on multi-fiber lines. Requiring operators to offer access ona cost basis would reduce their incentive to deploy multiple ratherthat single fiber lines in the first place, as the SMP operatorwould have to incur the additional costs without the commitmentthat its partners would even rent the extra fibers.
The multi-fiber model is the one advocated by the EC in its seconddraft Recommendation on NGA. The draft Recommendation suggests thatNRAs should facilitate the deployment of multiple fiber lines underthe assumption that the additional cost will be minimal. The sizeof this additional cost is now the focus of debate betweenincumbents and regulators. France Telecom recently declared thatthe extra cost of multi-fiber investment is 40%. The high extracost estimated by France Telecom is the reason why France Telecomis going against Arcep’s rules regarding multi-fiber solutions.Arcep estimates that the extra cost is approximately 5%. This claimwas recently supported by the French Competition Authority.Swisscom, on the other hand, estimates that there is a 10% extracost for deploying multi-fiber lines rather than single fiber inits Fribourg FTTH project. Therefore, the Swiss and French casescould provide some useful lessons when regulators in other memberstates consider imposing a multi-fiber model.
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