Regulators Focus on Naked DSL to Boost Competition
Facing growing consumer demand for broadband access unbundled from public switched telephony network (PSTN) services, European incumbent telcos are scurrying to stave off competition from alternative providers. Within 2 years, “naked DSL” will be widely available in Europe, said Ovum Senior Analyst-Broadband Mark Main. The service is raising regulatory and competitive questions telecom regulators are monitoring but haven’t answered definitively, said Jette Jakobsen, division head of Denmark’s National Information Technology & Telecom Agency (NITA).
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Norwegian incumbent Telenor has offered naked DSL since 2002, since national regulatory authority NPT let users subscribe to broadband services without necessarily taking telephone service, Main said. Norway is the only European country so far to require an incumbent to offer naked DSL -- the result of a pact between the regulator and Telenor.
In June, France Telecom said it would offer a package -- details yet undisclosed -- as of next year. Telefonica seems to be looking to separate broadband and PSTN services, and in July Telecom Italia began offering wholesale naked DSL. Dutch incumbent KPN has been offering naked DSL “under the table” to customers requesting it or threatening to go to another provider, Main said. KPN’s package bundles ADSL and VoIP without PSTN, he said, but the company is thought to be eyeing other options.
Naked DSL has been available in Denmark on a commercial basis, Jakobsen said. Incumbent TDC creates “bearer lines” -- empty services in the low frequency band that let end users have DSL without a PSTN subscription. For the bearer line, TDC charges roughly the same amount as for an ordinary PSTN subscription. The fee is paid by the end user if a TDC customer or by an alternative operator that can pass on the charge “The consequence of this setup is that there is no strong price incentive for the end user to switch to Internet Protocol-based telephony,” Jakobsen said.
In June, Danish regulator NITA proposed to mandate the provision of naked DSL for TDC due to its significant market power in the wholesale broadband access market, Jakobsen said. The draft decision forbids bundling DSL with other products, and sets 2 prices for DSL -- one with PSTN, the other when separate. The price difference represents costs of a shared unbundled loop, as Denmark uses a 50-50 split of common costs when setting shared access prices. The plan should encourage consumers and alternative telcos to shift to IP-based telephony, while “being fully in line with the principle of cost-oriented pricing,” Jakobsen said.
Incumbents are reluctant to offer naked DSL, since it’s basically the same as bitstream but without the requirement that users buy voice subscriptions from them, said Sandro Bazzanella, dir.-EU affairs, European Competitive Telecom Assn. (ECTA). So incumbents have fewer opportunities to “create procedures that slow down the delivery of the bitstream access” by rejecting a request based on the wrong identification of the user, he said. The European Telecom Network Operators’ Assn. didn’t respond to a request for information.
Alternative operators don’t mind paying a bit more for naked DSL than for bitstream, Bazzanella said. Prices ought to be set to encourage market entrants to “climb the ladder of investment,” he said. Naked DSL is “an issue that the U.K. Competitive Telecom Assn. will be considering in light of the growth in VoIP services and moves by both regulators and incumbents in other European countries to provide the services,” said Dir.-External Affairs Christine Roberts.
With incumbents aiming to seize the naked DSL market -- and few rules in force -- where does that leave alternative providers? Competition issues surrounding the service have yet to be tested, Main said. For instance, should a firm with significant market power in an area have the chance to distort another market in which it has next to no clout? KPN is doing that with broadband and VoIP, he said.
That question and others will lead to “a fair amount of turmoil and debate” before a new broadband and VoIP world takes form, Main said. Meanwhile, Ovum said naked DSL could accelerate fixed-to-mobile substitution; cause a “dramatic decline” in traditional voice revenues; wreck alternative telcos’ carrier selection and carrier preselection business model; and speed uptake of consumer VoIP services.
Incumbents fear to discuss naked DSL with regulators because they have a lot to lose, Main said in a Dec. 2004 opinion. “However, rather than burying their heads in the sand, they should start a debate with their respective regulators to understand the problems more fully” before regulators act unilaterally.