Preconditions for sustainable competition in the broadband sector - PTS-ER-2005:39
09/12/2005
The current dominant technology used to offer broadband access to end-users in Sweden is the use of TeliaSonera’s metallic loops (‘xDSL’). The growth of new broadband accesses is dominated even more so by xDSL technology, which is also the case in most other European countries.
Apart from TeliaSonera’s metallic loops, cable TV networks and LAN are the technologies that are commonly being used to provide broadband access in Sweden. In densely populated areas with multi-occupancy buildings the three infrastructures are to a great extent overlapping each other. Thus, in limited areas end-users have access to parallel infrastructures, whereas a great part of the households and companies in Sweden only have access to TeliaSonera’s metallic loops.
Set against the background of the importance that xDSL technology has consequently assumed in the Swedish broadband market, the wholesale products that TeliaSonera provides, for access to the company’s metallic loops, and the terms for those products are of very great importance in order for the retail markets for various broadband products to move towards long-term sustainable competition. As regards the goal of achieving long-term sustainable competition, PTS observes that there are many advantages to competition with several competing infrastructures compared with pure services-based competition. However, owing to the high risk involved in investment requiring a large element of unrecoverable costs, which is often the case in connection with investments in infrastructure, infrastructure-based competition may need to be regarded as a long-term goal that can be achieved through the operators being given an opportunity to accumulate their infrastructure investments gradually over time through climbing up the so-called ‘investment ladder’. However, in order for the investment ladder to be able to function in practice, availability of a range of access products with various levels of refinement is necessary. The products that can be incorporated into an investment ladder for access to TeliaSonera’s metallic loops with the aim of offering broadband services are LLU, bitstream access and resale products, where LLU products are the least refined products and resale products the most refined. It has been established, through European analysis, that the more complete the investment ladder, that is to say, the more relevant access forms that are actually available, the better the competition situation is in the national broadband markets.
LLU is consequently the least refined product of the three forms of access in the investment ladder and, besides parallel establishment of infrastructure, LLU is the form of access that allows the greatest control of the retail products that are offered. LLU is therefore a very important step in the investment ladder. However, in order to enable operators to offer broadband access to end-users profitably via LLU, it is necessary for the operators to be able to achieve the necessary economies of scale within individual local telecom exchanges. Today, competition based on LLU is consequently limited to local telecom exchanges with a large number of subscriber lines connected. For natural reasons local telecom exchanges with a large number of subscriber lines connected are to be found in big cities, whereas small local telecom exchanges can be found both in sparsely populated areas and in big cities. PTS’s survey shows that for more than one operator to be able to co-locate at a local telecom exchange and, in addition to TeliaSonera, be able to offer broadband access, a user base of more than 5 000 connected subscriber lines to the local telecom exchange is required. These figures should be related to the fact that over 40 per cent of Swedish subscribers are connected to local telecom exchanges with less than 2,000 subscriber lines. TeliaSonera has invested on a large scale in local telecom exchanges with more than 500 subscriber lines. In addition to the need of economies of scale, there are also a number of problems in connection with establishment through LLU that constitute impediments to unrestricted ascent of the investment ladder.
In the absence of opportunities to compete via LLU in the retail market for broadband services within the catchment areas for small and medium-sized local telecom exchanges, which constitute a significant proportion of the total number of exchanges and end-users, bitstream and resale products are of course of very great importance for allowing any competition to arise in these areas. In relation to large local telecom exchanges, these products constitute a very important step in the investment ladder, towards achieving long-term sustainable competition. However, PTS concludes that TeliaSonera does not currently provide any bitstream product that satisfies the demand by the market stakeholders. TeliaSonera has also limited the provision of the resale product Skanova Bredband ADSL. This consequently results in ‘gaps’ in the investment ladder. The consequences of these gaps are that end-users in parts of Sweden are at risk of not being able to gain access to competing broadband offers and the operators’ opportunities of successfully increasing their investments in infrastructure through climbing the investment ladder are greatly restricted. In line with earlier decisions PTS has made the assessment that it should be possible to address the competition problems in the long term to access regulation of LLU and bitstream. In short term and in absence of e.g. bitstream products are resale products of big importance for end customers’ access to competing offerings of broadband Internet products. Furthermore are the possibilities to, based on resale products, provide value added services such as IP telephony and IP TV limited.
PTS has imposed obligations and implemented supervisory measures in relation to TeliaSonera with the aim of promoting competition in the retail market for broadband access, both as regards provision of bitstream products and the provision of LLU. The Competition Authority has also intervened against TeliaSonera as regards the company’s conditions for the provision of resale products, regarding which PTS, with the current regulatory structure, does not have any powers to intervene. The majority of decisions made by both of these authorities are however currently the subject of judicial review and certain key decisions that PTS has made have been suspended by the court pending a final determination. The fact that the obligations imposed cannot be enforced poses a potential risk that inadequacies in the investment ladder may prevail for a significant period, which will result in serious consequences for the competition situation in the retail markets for broadband products. One factor that renders this situation, if possible, even more serious is that the retail markets are currently in a phase of dynamic growth and it is usually during times of strong growth that suppliers can attract customers. There is consequently a risk that the market shares that are established during the growth phase will endure for a long time into the future, for which reason protracted proceedings potentially restrain competition for an equally long period. The limitations for the development of competition during the growth phase therefore risk creating serious consequences for end-users and society, also in the long-term.