Evaluating how evolving European

NGA regulation will affect fibre

network roll-outs

Innocenzo Genna

Genna Cabinet

Bruxelles

FTTx Summit Europe

London, 24 April 2012

The opinions expressed in this presentation are personal and do not represent the position of associations where the Author holds management responsibility

• Innocenzo Genna, consultant on telecoms and Internet

policy at EU Level

• Currently, Council officer of Euroispa and director of

Italian ISP association (AIIP)

• Chairman of ECTA (European Telecommunications

Competitive Association) from 2007 to 2009

• General Counsel of the Tiscali Group from 2002 to

2006

• Previously partner of Ughi & Nunziante, Italian law

firm leader in telecoms

Agenda

• European current and ongoing framework on

Next Generation Access Networks (NGA)

• Data about NGA deployment in the EU

• Financial and investments dilemmas about

FTTH roll-out

• Regulatory responses and initiatives at EU level

The targets and the instruments

• EU Digital Agenda fixes ambitious targets in the

matter of fast and ultra-fast Internet access:

• 30 megabit for all citizens by 2020

• 100 megabit for 50% of them

• Beside the electronic communications

Framework, a broadband package has been

adopted:

• NGA reccomendation

• BB funding guidelines

• BB communication

The actions plan

• Concerns about the achievements of the targets,

new legislative proposals ongoing:

• Adoption of (wholesale) costing and (access) non-

discrimination recommendations

• Adoption of European Radio Spectrum policy program

• Better implementation of NGA recommendation,

harmonization of remedies

• Revision of relevant market recommendation and BB

guidelines

• Implementation of national and regional BB plans

• Providing resources through CEF (Connecting Europe

Facility) and Rural Development Fund

BB penetration in the EU is diverse and fragmented

• E

- EU lagging a behind Japan, Korea and US on average, however best

performing European countries are leader in the world

- Disparities within EU to competition (Cable, ULL), bit also informatisation and

average revenue are relevant factors

Broadband trends

• 77,6% BB lines are DSL – down from 80% in 2009

• BB increase in 2010 was 1,7%, the lowest of all times – Due to market maturity, lack of competition in some countries, structural

digital divide, fixed-mobile substitution;

• Incumbent market share is 43,3% on average, almost stable – however, in some countries (Bulgaria, Portugal, Spain, Austria, Finland,

Malta) BB market shares are starting to growth again

• Mobile BB is growing: 7,2% (dedicated devices), with 37% growth – Finland, Portugal, Austria, Sweden, Ireland and Denmark over 10%

Sources: European Commission, Digital Agenda Scoreboard

Digital Agenda targets proving challenging

Incremental upgrades (vDSL) occurring, but pace of FTTH slow

• New entrants first to lay commercial FTTH, incumbents’ response in progress

• vDSL accelerating (driven by incumbents)

• At July 2011, just 2% population subscribed to FTTH-based services

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40,000,000

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Source: FTTH Council/IDATE

vDSL and FTTH/B deployment in Europe

All FTTx incl FTTN

FTTH/B

Non- incumbents are more advanced in FTTH investment

The financial dilemma of FTTH roll-out: who has got the cash to invest?

• Altnets: Willing to invest, but cash poor + FTTH roll-out not viable if parallel infrastructure (copper/vDSL) persists and/or if incumbents threaten to overbuild

• Incumbents: have cash, will invest in vDSL where threat from cable, but view FTTH as unnecessary + potential to cannibalise existing profits from copper

• Equity investors and pension funds: want guaranteed returns, reluctant to see telco dividends fall, short term view

• Infrastructure funds: Long term view, but will only invest if industry structure and regulation is clear – separate regulated monopoly “access” from riskier services

A problem of demand and innovation?

• Even where FTTx exists, conversion is low (<20%)

• Co-existence of copper, large price premium for higher speeds and limited innovation through competition are deterring FTTH take-up

• Should FTTH be driven by demand? Ford: if I had asked my clients what they wanted, they demanded faster horses rather than cars

• Which are the driver for innovation? What type and price of cars would we see on the road if road-builders had a monopoly on car construction?

The regulatory debate about unblocking high-speed broadband

1. Recognise access monopoly? Pure access network is an economic bottleneck – is infrastructure competition policy still justified?

2. Need to send appropriate upgrade signals? Pricing of copper and fibre should send correct economic signals to reward the replacement of copper with fibre. Migration should ne rationale, need to mandate switch-off?

3. Open or closed networks? open networks tend to increase speeds, innovation and demand, increasing network use and reducing investment risk. However, the historical access provider will lose control of the vertical value chain

Implications for the European Commission’s initiatives

Access monopoly Fibre upgrade signals Open networks

State aid or financing (CEF)

Favour open separated structures

Target areas without open FTTH

Rel mkt Rec (M4/5) confirm fixed

Local access bottlenecks?

EU telecom Framework:

“infrastructure” competition has limits

Pricing Rec: tailoring

appropriate margins for

copper, to stimulate

migration. Fibre to be

compensated only when

Built.

NGA Rec: clarify copper

Switch-off conditions

NGA Rec: enforce conditions

and harmonisation in the EU

Non-disc/FS Rec – products

available at same time, no abuse

Pricing rec: pricing should not

permit margin squeeze

New initiatives: describe

And standardise NGA remedies

Thank you

Genna Cabinet

Brussels

inno@innogenna.it