Market Watch

German Regulator Proposes Cuts to LLU Fees


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The German telecoms regulator (BNetzA) has proposed to reduce full local loop unbundling (LLU) access fees from €10.20 to €10.08 per month. The prices will be effective retrospectively from 1 April, following a nationwide and EU consultation expected to complete in Q2 2010; they will stand until 30 June 2013.

Independent telcos who have built their own unbundled network pay full LLU access fees to the incumbent telco - in this case Deutsche Telekom (DT) - to connect their DSL equipment in phone exchanges to the "last mile" stretch of copper from exchanges to consumers' homes in order to provide ADSL broadband (and other services including IPTV).

BNetzA has also proposed lowering the fee for providers to rent the "sub-loop" copper stretch from street cabinets to consumers' homes, from €7.21 to €7.17. This so-called sub-loop unbundling (SLU), enables the provider to put equipment in street cabinets rather than in exchanges, to provide high speed VDSL broadband. Technically, SLU shortens to length of the final stretch of copper to consumers' homes by replacing the copper from the cabinet to the exchange with fibre. Minimising the final copper stretch is important since DSL speed deteriorates proportionately with copper line length.

Finally, the regulator put forward a change to the fees of a relatively new unbundling product - rental of the loop between the central switch (located in between the exchange and street cabinet levels) and consumers' homes, from €8.04 to €8.01 per month. Unbundling at the central switch level enables providers to supply faster speeds to DSL customers than unbundling at the exchange level; this is particularly useful in rural areas where last mile lengths between exchanges and consumers' homes are frequently longer than in more built-up areas.

Analysis
DT has yet to respond, but may speak out against the regulator's decision, especially since the telco had made a request in January 2011 to raise full LLU fees to €12.90. By contrast, groups representing independent ISPs, VATM and Breko, both criticised the price drop for not going far enough, claiming the fees do not reflect depreciation in the cost of DT's copper network.

Full LLU access fees vary across the EU, from €5.87 per month for a full LLU line in Austria, to €12.41 in Ireland (reduced from €16.43 in February 2010). The German market still counts as one of the most expensive for LLU operators, and ranks highest among the Big Five as at Q1 2010:

  • France: €9.00
  • Italy: €8.63
  • UK: €8.50
  • Spain: €7.79

For the German incumbent, renting LLU lines to third parties provides a significant revenue stream. According to data behind the IHS Screen Digest Broadband Technology service, in 2010, DT raised an estimated €1.2bn from LLU access charges, up from €1.08bn in 2009. By 2015, this total is forecast to hit €1.3bn.

The rental fee DT can charge is particularly important in light of the migration of providers from buying DT's traditional wholesale DSL products to using its unbundled products. From year-end 2008 to year-end 2010, third party wholesale DSL lines on DT's network have dropped from 2.9m to 2.0m, while LLU lines have risen from 8.4m to 9.6m.

For independent ISPs, turning to LLU gives them a way of taking control of the network and the services they supply (e.g. broadband product speed, traffic shaping etc), as well as helping to limit ongoing access and traffic-related fees.

Our research shows that in 2010, DT generated €301m in annual revenue from third party wholesale DSL (excluding LLU), a fall from €335m in 2009; by 2015, this trend is expected to continue, with revenue in 2015 totalling €272m. Still, as a share of total access fees paid by ISPs for retail DSL, wholesale DSL accounts for the majority, 76%, compared to 24% via LLU as of year-end 2010.

While SLU could present an opportunity for DT to boost revenue from unbundling  longer term, given it supports the general migration from slower ADSL to faster VDSL speeds, the product has yet to see significant adoption given the heavy costs providers would incur to buy and install equipment in the 0.3m street cabinets to provide a full nationwide service. In light of these high upfront costs, the announced monthly rental price change is unlikely to substantially push up uptake in the short term.

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