Professional Documents
Culture Documents
The author’s opinion and conclusions expressed in this paper are not
official positions of Deutsche Telekom.
www.detecon.com
Regulating NGN Access
Regulating NGN Access Networks in Germany
Introduction
Ten years after the complete opening of the German telecommunications markets to
competition the regulatory system needs to change. For a decade the regulatory focus was
on service competition, namely reducing the monopolistic or significant market power of
the incumbent. This was done by opening it’s infrastructure to competitors, improving
service variety, preventing predatory or excessive pricing, and reducing the retail price level
for consumers. Infrastructure investment by new competitors concentrated on long distance
networks. As the local telephone access network was in good shape and connected virtually
every building, new providers offered services via interconnection and local loop unbundling
or resale rather than building new local loops. Efforts to use wireless technologies as a
competing infrastructure have failed so far, and nor have the CATV network providers in
Germany managed to offer an alternative on a significant scale.
Now the market environment is changing: Broadband access services have shown
tremendous growth and could be handled by the copper access networks at bandwidth
requirements well below 12 Mbit/s. Bandwidth demand is growing exponentially, in particular
through video elements in virtual reality games, IPTV or HDTV services as part of a “triple
play” offer. In a next generation network the access lines will therefore need to be upgraded
or replaced by fiber to achieve very high data rates of 50 Mbit/s and beyond.
In this context Fiber-to-the-Curb and VDSL investment are just an interim step to a
fully fiber based NGN access network. Substituting the “2nd mile” of the copper local loop
with fiber optic cables while leaving the “1st mile” with copper cables is a roll-out strategy that
is only profitable under certain conditions. Figure 1 shows the CAPEX requirements of
different fiber roll-out situations.
FTTC 17 17 8 42
FTTH in
existing ducts
33 17 50
FTTH aereal 58 17 75
Figure 1: CAPEX for Fiber to the Home and Fiber to the Cabinet
Deutsche Telekom for example has chosen the FTTC solution as most primary pair cables
are not buried in ducts in the country’s old telephone network. It therefore appears more
economical to make an interim investment in new DSLAMs in the 300.000 cabinets in
Germany, rather than to dig up the streets to reach 40 million homes and completely replace
the old copper network. Civil works typically count for two-thirds of total CAPEX.
Following a fierce debate on whether VDSL investments would create a new market in line
with the new § 9a of the German Telecommunications Law, and could thus be excluded from
ex-ante regulation, the FNA made two major decisions.
In June 2007 FNA adopted its final decision on the wholesale market for unbundled local
loop, or Market 11. It designated Deutsche Telekom as having significant market power due
to its high market share, high barriers to entry, vertical integration, lack of actual and
potential competition, and lack of countervailing buying power.
Q Deutsche Telekom was obliged to grant access and collocation, non-discrimination and
ex ante price control for its wholesale services. A reference unbundling offer is to be
published. Currently competitors have co-location facilities in about 2000 of the 8000
Main Distribution Frames (MDFs).
Q In addition Deutsche Telekom is obliged to grant access to ducts between the MDFs and
the street cabinets. In cases where there is no free capacity available it also has to offer
access to dark fiber.
FNA has also drafted a first round decision for Market 12. This is the market for “IP bitstream
access at the IP layer 3 at different points of access in network hierarchy including high
frequency broadband access”. This market would be an alternative way for competitors to
achieve broadband access to the customers. According to the draft Deutsche Telekom has
been designated as having significant market power in this market too and will be obliged to
offer bitstream access products for xDSL connections, grant access and collocation and will
be subject to ex-ante price control for its wholesale services. A reference bitstream access
offer has to be published.
In summary the FNA has subsumed VDSL as part of the existing markets 11 and 12,
refused to define it as a “new market”, and thus made it subject to ex ante regulation.
Competitors wishing to provide customers with an alternative broadband access offer may
then choose to invest in:
Q their own complete access network, like NetCologne, who are establishing a Fiber to the
Building network in and around Cologne,
Q an access network up to the street cabinets, and then use Deutsche Telekom’s last
copper loop,
Q a small access network, co-locate at the MDF, and then use Deutsche Telekom’s
complete local loop, or
Q just a backbone network, and get bitstream access at Deutsche Telekom’s BB-PoPs.
The first solution requires the highest CAPEX and minimizes wholesale costs, the last option
minimizes CAPEX and has the highest wholesale cost. In addition the bitstream access
solution offers least opportunity to differentiate products in terms of quality of service.
Deutsche Telekom recently announced that it plans to reduce its VDSL roll-out, fearing that
wholesale prices might be calculated on traditionally long-run-incremental cost basis for
competitors and therefore pressing retail prices below a level that would be sufficient to re-
capture the infrastructure investment.
The high cost of building new duct systems is the major barrier to investment in FTTH
for both the incumbent and new carriers.
A policy that would open all existing duct infrastructures could effectively boost real
infrastructure competition between DT and other operators offering FTTx solutions. If
infrastructure competition really starts, ex ante regulation could be replaced by ex post
regulation - the original idea of “regulatory holidays”.