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By: MarkJ - 29 November, 2011 (7:06 AM)
fibre optic cableeurope mapThe Vice-President of the European Commission's (EC) Digital Agenda strategy, Neelie Kroes, has told the European Competitive Telecommunications Association (ECTA) that one way to encourage incumbent telecoms firms, such as BT in the UK, to invest in an enhanced rollout of superfast fibre optic internet services would be to have them raise the cost of existing broadband services (copper based ones) instead of lowering them.

The move is part of Europe's wider Digital Agenda, which seeks to bring basic broadband to 100% of Europeans by 2013 and superfast 30Mbps+ services by 2020 (with 50% or more using a 100Mbps product).

However the new proposal is likely to send shudders down the spines of consumers, many of whom are already feeling the pinch from a harsh economic climate, and has been made because people who are already covered superfast services appear to be "unwilling to pay a premium" (low uptake).

Neelie Kroes, VP of the EC Digital Agenda, explained:

"Our target is to ensure that markets know that NGA investment is profitable for the long term. To hit that target, it seems to me that we will need more than one string to our bow.

So we are exploring whether copper prices could be gradually adjusted after a certain time. While allowing higher wholesale and retail prices for NGA products, and possibly also copper products for a transitional period, if operators commit to invest.

In fact, we should not forget that, in some places, copper and NGA are in a close competitive relationship. Where consumers haven't yet seen what fibre offers, they might still be unwilling to pay a premium. In that case, fibre prices mirror copper prices; and lowering copper access prices would send us in the wrong direction.

That's why we consider that, in places where there is a firm and credible commitment to invest in NGA, it may not be appropriate to reduce copper access prices. Instead they could be an anchor for higher returns on fibre. That is the first plank of the approach we are exploring.

Alongside that, you'll know that I want markets to be competitive. I want fair access for all, certainty for the industry, and the best deal for consumers."

In short, the EC effectively wants to force consumers into upgrading their broadband by making existing copper ADSL (up to 8Mbps) / ADSL2+ (up to 24Mbps) based internet connections more expensive and thus less attractive. Certainly that could work but it's definitely not going to win any popularity prizes.

Many unbundled ( LLU ) ISPs in the UK ( e.g. TalkTalk , Sky Broadband and O2 ) might also question the idea because copper is where the bulk of their internet revenue comes from. Meanwhile ISPs often feel that BT still fails to provide a flexible enough alternative to copper LLU for superfast broadband, which makes it harder to compete with the incumbent.

On top of that there's the inherent difficultly in ensuring that any profits from higher copper prices would go towards fibre and not merely back into dividends for shareholders or other areas. Furthermore copper prices are already rising, often through higher line rental charges and new ISP regulations.

Higher copper prices might also have the unwanted disadvantage of making older generation broadband services seem more attractive to the major operators, which could potentially reduce their incentive to invest in fibre. A better solution might be to use the profits from copper to reduce fibre prices but that's a tougher sell and one that only really works for big ISPs (economics of scale).

At any rate the best solution can usually be found in fostering measures that encourage a strong and naturally competitive market. In that sense Kroes does state that she wants to "explore the capacity to act" so that dominant Telco's do "not discriminate against competitors seeking access" and thus gain an "unfair advantage".

Neelie Kroes continued:

"Vertically integrated operators should not discriminate against competitors seeking access. They get an unfair advantage when competitors cannot get to wholesale offers before retail offers are launched. They inhibit competition when they give their own retail arms preferential access to commercially sensitive information.

I want to explore the capacity to act here. In particular, to act in a consistent way across the EU. Because it is troubling to have a geographical lottery where the same problem meets with different rules, different remedies, in different Member States."

Two related EC consultations, which covered many of the areas discussed above from wholesale access to fibre regulation, closed yesterday and Kroes has pledge to examine the input "carefully" before delivering some form of policy recommendation next year. Progress on superfast broadband hasn't been as fast as the EU would have liked so this has recently been given a higher priority.
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