Dark fibre - market and state of competition - PTS-ER-2008:9

08/09/2008

In light of this, PTS has conducted a study of the dark fibre market in Sweden, with the aim of describing this market, the problems that exist and how these may be resolved. PTS has assessed whether the dark fibre market should be defined as a relevant market and whether there is reason to impose special obligations under the Electronic Communications Act (2003:389). The Swedish Competition Authority (KKV) has also dealt with matters concerning dark fibre and for this reason the authorities have collaborated when compiling market data.

Optical fibre is a medium that has a very high transmission capacity and which is used as a transmission technology in electronic communications networks. Dark fibre is the least refined service based on optical fibre. It refers to what is known as 'raw network capacity'; that is, physical cables without electronic equipment. Dark fibre is used as an input good for basically all electronic communications services and can be used in parts of or an entire interconnected network. For example, dark fibre can be used to connect end users to various broadband services, collocated equipment in local exchanges, base stations for mobile telephony and for a number of other purposes. Dark fibre is primarily in demand by operators, which in turn further refine the service for end-user services. Taking into account the increasingly high demands being placed on services that require capacity and the development of future IP-based networks and NGN/NGA, the significance of optical fibre, and thereby the demand for the dark fibre service, have risen, and in the assessment of PTS such demand will continue to rise.

The fact that dark fibre is an input good for many retail products means that the competitive conditions in this market are crucial for competition in a number of retail markets. Insufficient competition in the dark fibre market will entail a negative impact for consumers as regards basically all electronic communications services. Consequently, it is extremely important for this market to function well.

The dark fibre service looks similar wherever it is provided in the network and for whatever purpose it is purchased. Dark fibre is connected to active equipment by purchasers and they are consequently the ones that decide how it should be used, which also creates the necessary scope for differentiation between the purchasers and a greater potential for competition at the next level. Combined with the high transmission capacity of this fibre, this means that the alternatives to purchasing dark fibre, such as wavelength services, leased lines, radio links and copper connections, cannot serve as a substitute for an operator that has requested dark fibre.

Dark fibre is similarly in demand at all network levels and throughout the country. Dark fibre is being provided in a similar way throughout the country, which is a response that reflects this demand. Overall, the wholesale market is therefore deemed to be national, even though access to it varies somewhat across the country and in various parts of the network. Market development means that definitions in terms of both products and geography will be an essential area in conjunction with continuing assessments of the market situation.
There are currently various owners of optical fibre infrastructure. TeliaSonera is by far the largest single owner of optical fibre infrastructure, controlling approximately 50 per cent of all fibre in Sweden. Other major owners include certain local municipal networks and, to a lesser extent, other traditional operators such as Telenor, TDC and Tele2. There are also smaller stakeholders such as IP-Only, which owns some fibre. However, other operators are only provided with a small proportion of optical fibre in the form of dark fibre.

There is currently excess demand for dark fibre, which is partly a consequence of a lack of access to the optical fibre available and partly due to insufficient market prerequisites for establishment and access to new infrastructure.
Over the past two years, TeliaSonera has changed its strategy and limited its sales of dark fibre to wholesale customers at the same time as demand has increased; this is why there is a lack of access to existing fibre. TeliaSonera's large share of the fibre established in Sweden indicates that the company has significant power in the dark fibre market. Other factors supporting this assessment include the fact that TeliaSonera is the only stakeholder with a national backbone network as well as interurban and local area networks in all parts of the country, the fact that TeliaSonera has advantages in the form of access to ducting, existing agreements, etc., which facilitate new establishment, and the fact that TeliaSonera has advantages due to its size and its capacity as a vertically integrated operator. Overall, TeliaSonera is regarded as having such a position in the dark fibre market that the company should be deemed to have significant power in connection with ex ante regulation.

Besides TeliaSonera's optical fibre, a great deal of fibre has been rolled out over the past few years, mainly through the establishment of municipal networks. This rollout is expected to continue, albeit at a slower rate. It also appears that municipal networks have an increasingly positive attitude towards offering dark fibre as a wholesale service to a greater extent than previously. The municipal networks are striving to make their offerings more uniform. There is now, for example, a web-based system for inquiries, to which several municipal networks are connected, which facilitates the work of operators that often purchase fibre from several different municipal networks. However, until now, these owners of infrastructure have only been viewed as complements to TeliaSonera and cannot meet the needs of market stakeholders on their own.

The alternative for an operator that cannot purchase dark fibre to the extent required is to roll out its own fibre. A number of difficulties are associated with this in terms of both structure and regulation. Rolling out fibre infrastructure entails considerable investments and a high level of financial risk, which some stakeholders have nevertheless been willing to bear in certain areas. Besides these financial and structural barriers, there are also regulatory barriers, such as difficulties in obtaining the necessary licences, permits and contracts.