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Going their separate ways

Monday, 24 September 2007

TeliaSonera sets up infrastructure company in hopes of avoiding imposed break up…

Swedish incumbent TeliaSonera is establishing a new wholly-owned telecom infrastructure subsidiary in Sweden . The company will cover copper and fibre networks and multiplexing, and sell its products on equal terms to TeliaSonera’s wholesaler customers and the company’s own operations. The new subsidiary is supposed to open its doors for business in Q4 2007.

The move is interpreted as an effort to head off an imposed separation of the telco’s activities by Sweden ’s regulator, the National Post and Telecom Agency (PTS). Earlier this summer (what summer you ask?) the regulator published a report ‘Improved broadband competition through functional separation’ that took as its premise that there have been structural competition problems in that market for a long time, and that neither the sector-specific regulation nor general competition law has been able to remedy these problems. In summary the PTS concludes that: ‘a new regulatory tool that provides the authority with powers to impose requirements for the vertical separation of a dominant stakeholder should be created in order to rectify this situation. A new tool, together with the current powers to impose obligations on operators with significant market power, would reduce persistent competition problems in the electronic communications market.’

This doesn’t play at all well with the incumbent, with TeliaSonera arguing – as do many national incumbents when faced with an imposed division of their powers – that break-up would jeopardise continuing investment in broadband. In a statement TeliaSonera contends: ‘TeliaSonera wants to continue to invest in the Swedish telecommunications infrastructure, but TeliaSonera must also be able to manage these investments within the scope of the requirement for equal treatment. TeliaSonera relies on the market forces and opposes the proposal of the Swedish National Post and Telecom Agency PTS for an act on so-called functional separation. The problems of the broadband market are not the kind that require such far-reaching legislative action.’

“The proposal regulates in detail the operations of a listed company in a manner which is unacceptable to us,” adds Anders Bruse, head of the Broadband Services business area at TeliaSonera. “With our market-based plan, we are able to solve the problems of the broadband market on voluntary basis and much faster than by legislative means.”

TeliaSonera’s argument about loosened ownership equaling reduced investment gets support from a new study by incumbent-heavy operator club ETNO. This states that intense access regulation of existing access networks significantly lowers the roll- out of new and alternative infrastructure, leading to a reduction of competition between networks. Over €10bn Euro of investment in fibre-based and other alternative telecoms networks could be lost, according to an investment model simulated over nine years, according to the analysis carried out by finance and economic consultants, LECG, with the support of ETNO.

However, another study – this time from the European Competitive Telecommunications Association (ECTA) – suggests that on-going efforts to prise the fingers of the incumbents off the access network are paying dividends. ECTA says broadband penetration in the EU has reached an all time high and has now drawn parallel with the US and Japan . The growth, at 16%, reckons ECTA, is largely the result of increased competition from new entrant telecoms providers using local loop unbundling (LLU), cable and alternative technologies.

‘Success in many of the high ranking countries in Europe can be attributed partly to local loop unbundling, the process whereby competitors rent the last mile from the national telecoms incumbent and offer their own broadband services to consumers,’ states ECTA. ‘The impact has been particularly pronounced in the UK, where the introduction of functional separation in January 2006 has contributed to a quadrupling in the number of unbundled lines within a year and an explosion of triple play offers including telephone services and TV. By contrast, middle and low ranking broadband countries typically have minimal or no unbundling.’

Ominously for defenders of the network control status quo, redoubtable EU Commissioner for Information Society and Media Viviane Reding looks to be warming to the idea of functional separation.
John Williamson