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European Commissioner for Competition Neelie Kroes is proposing a radical shake up of telco competition in Europe which she hopes will stimulate aggressive deployment of fibre to the home across Europe - what the Commission calls Next Generation Access (NGA).

What she is trying to do right now is get agreement on a Europe-wide regulator policy which establishes just how rivals can use any fibre that is laid. Something similar went on through a process of lobbying and behind closed doors in the US, a move which finally resulted in the opening of both Verizon and AT&T’s cheque books to invest in fibre – Verizon to the home and AT&T to within 5,000 feet of every home. These moves coupled with incumbent price freedom, virtually put paid to Competitive Local Exchange Carriers in the US and Europe is trying to avoid this fate.

While British Telecom has come up with a master plan to create a network of end to end fibre and France Telecom and its rivals are laying fibre with a vengeance, the cozy relations between many telcos and their regulators in Europe is preventing investment – and as a result Kroes feels Europe could be left with slower broadband lines, and a repeat of the US situation where cable operators, regulated quite differently, began to gain the upper hand in broadband.

Telcos want guarantees that they can build out and keep the utility entirely to themselves, while the Commission wants to protect the fragile unbundling of the local loop that has led to lower broadband pricing in Europe and the creation of genuine competition in broadband services.

The consultation with regulators, which will lead to a draft directive in 2009 was almost certainly precipitated by the German regulator supporting Deutsche Telekom’s request that it had no unbundling on its fibre build out for at least three years.

What Kroes is suggesting is a layered approach where regulatory authorities should at least insist on access to the ducts of incumbents, so rivals can lay their own fibre, and where that is not possible have access to unlit fibre already laid but not used, so they can light it themselves - and where that is not possible access to the "bitstream" itself.

Otherwise rich incumbents will be able to shrug off the competitive effects of broadband suppliers and maintain a monopoly and high broadband prices and a pedestrian rate of deployment. It took almost 2 decades for what were once government-owned telcos to open up their exchanges and unbundle the local loop, and they see fibre as a way to shut that door. And without the right level of regulation, they will achieve that.

When France embraced unbundling nearly a decade ago, it led to broadband services at around $30 a month, and has since begun seeing $30 triple plays. In the UK where 10 years ago unbundling was being actively blocked by the incumbent BT prices were double that of France, and install rates were half, a situation that has only recently been fully turned around by local regulator Ofcom.

The draft Recommendation also provides a common approach to ensure non-discriminatory access, and a methodology for calculating a proper rate of return, including a risk premium, which will form the basis of what incumbents can charge for the privilege of access and connection.

The Commission cites the average cost of capital for fixed operators as roughly 8 per cent to 12 per cent in recent years, so its model will assume that as a basic minimum for financial return.

This move by Kroes is likely to cause yet another public war (a bit like the one Commissioner Reding caused on roaming fees), with huge amounts of transnational lobbying. But if she gets her way the 27 EU members will adopt the same directive for guidance of their local regulators and the potential for efficient, Europe-wide broadband operators will be brought about. British regulator Ofcom has already published its own consultation document on broadband competition reflecting very similar ideas to those laid out by Kroes.

There are roughly 229 million copper lines in the EU against 1 million fibre connections and analysts are forecasting €20bn ($29bn) of spending on FTTH by 2011.

Copyright © 2008, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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