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Is LLU Broadband Really Cheaper?

Posted: 13th Sep, 2006 By: MarkJ
ADSLGuide points to an interesting analysis by DowJonesNews, which raises the question of whether unbundled broadband services can maintain their cost advantage. The piece uses Vodafone's recent broadband deal with BT as an example:

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Bridgewell Securities analyst Dan Gardiner said Vodafone's decision to pursue an "asset light" approach to rolling out broadband in the U.K. indicates that the cost advantage of unbundling the local loop, or ULL, may be eroding.

"Other large players - Carphone Warehouse Group PLC(CPW.LN), Sky (BSY.LN), O2 , a subsidiary of Telefonia SA(TEF) - are investing heavily in ULL on the basis that it will deliver a sustainable cost advantage. Our view is that aside from being difficult to deploy, the cost advantage offered by ULL will be eroded by falling wholesale prices."

Unbundling the local loop refers to a process by which alternative operators install their own equipment in BT's local exchanges, rather than simply buying wholesale capacity.

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The argument itself isn't anything new and is one that all ISP's must consider before tendering any kind of investment. Initial costs can be high, yet with prices set to reduce for rival products and coverage already being better via BT's network, the question of viability is suddenly more crucial than ever.

Typically Ofcom would no doubt frown if BT cut its wholesale prices too close to that of LLU's, although they wouldn't have to be cut by much to hamper development and cause providers to have a case of “second thoughts”. Time will tell.

Lest we not forget that some consumers have reported a higher degree of unhappiness with products based on LLU as opposed to BT. Typically unbundled broadband is still a fledgling product and these issues should be resolved with time. Similarly much of this can be the fault of the ISP as opposed to the technology, which confuses matters.
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