Blog Post

As mobile use takes over, Europe deregulates retail access market for fixed-line telephony

The European Commission has announced a shakeup of the continent’s telecommunications regulations, largely as a response to the slow death of traditional phone usage in many countries.

On Thursday, the Commission said it was deregulating the retail market for access to fixed telephony across Europe, as well as the wholesale market for fixed call origination. It pointed out that many people are these days using mobile phones, VoIP and other IP-based communications channels instead of fixed-line telephony, and claimed there was sufficient competition in the number of players – traditional phone providers, fiber and cable networks, and so on – offering fixed-line services.

The EU’s executive branch has also changed certain rules around fiber access. However, the Commission has decided not to deregulate the markets for fixed and mobile call termination rates – the fees Operator B charges Operator A to connect calls from A’s customers to B’s customers.

Deregulation disagreement

“I am delighted to announce this cut in telecoms red tape,” crowed Neelie Kroes, the outgoing digital agenda commissioner. “It is the result of increased competition in telecoms markets and it takes us a step closer to a real Connected Continent.”

Not everyone is happy with the decision. BEUC, the European consumer organization, referred back to a letter it sent Kroes in July, in which it argued against a move away from “ex ante”, or pre-emptive, regulation. The organization pointed out that the market was competitive precisely because of such regulation, and claimed that millions of consumers may now suffer from reduced or entirely absent competition.

“By deregulating these markets, infrastructure owners will be able to freely set a wholesale telephony price that risks drowning out the competitive pressure of alternative operators,” BEUC said in that letter, adding that some national regulators within Europe were not up to the task of properly analysing their markets.

A survey earlier this year showed that, in some European countries such as Finland and the Czech Republic, more than 80 percent of people no longer have landlines at all. Finland’s national regulator has actually already deregulated both the retail access and wholesale call origination markets for fixed-line telephony.

However, this trend is most pronounced in eastern and southern Europe. Fixed telephone access is still prevalent in most countries – in Sweden it extends to 98 percent of households, in France 86 percent, in the U.K. 82 percent, and so on. The European average is 68 percent. Across the 28 member states, 61 percent of households have both mobile and landline access, and just 31 percent have only mobile telephony access. The trend is most definitely in the direction of mobile-only, but it’s a slow transition with huge regional variation.

(Since you ask, two percent of EU households apparently have no telephone access at all.)

Virtual unbundling

As regards the rules that have been changed rather than scrapped, the big news is around so-called virtual unbundling.

When European regulators were working to break up the old national monopolies around copper networks around the turn of the millennium, one of their major tools was what is known as local loop unbundling, or LLU. Rather than forcing alternative carriers to build prohibitively expensive duplicate networks across European nations, LLU allowed these new entrants to install their own equipment in the incumbents’ telephone exchanges.

This meant that in the case of, say, the U.K., [company]BT[/company] continued to operate the infrastructure but new rivals like TalkTalk and Be were able to insert their own systems into that infrastructure, allowing customers to get retail phone and broadband access through them rather than BT. Incumbents had to split into infrastructure businesses (Openreach in BT’s case) and retail businesses that had to operate on the same terms as their new rivals.

Then came the advent of fiber access, and again Europe told the incumbents (around 2010) that they would have to give their upstart rivals physical access to their networks. Only this didn’t happen in many cases. In the U.K., for instance, BT continued offering rivals its so-called virtual unbundled local access (VULA) product, but didn’t let them insert their own systems into the BT’s exchanges so they could take over the “last mile” fiber connection to the customer premises. (Rivals could, however, build their own last-mile lines using BT’s poles and ducts.) Ofcom, the British national regulator, went along with this.

So the Commission has now essentially changed its tune, and said that VULA may in some cases be an acceptable alternative to full fiber unbundling. “In such a setting, it may no longer be technically possible or economically viable for an access-seeker to obtain physical access, and therefore non-physical or virtual wholesale access products have been introduced,” it said in an FAQ on the new rules. The physical access is in this case replaced by a virtual access link to the end-user premises, and the access seeker uses that virtual link to provide its services.”

However, the Commission said not every VULA product was acceptable, only those that hand over traffic to the alternative provider close to the customer’s premises and give those providers LLU-grade control, and that provide generic transmission capacity with guaranteed bandwidth (so no service-specific VULA.)

Again, BEUC is not happy – it warned that “the push towards virtual unbundling might have severe consequences for competition among broadband providers.”