Swiss regulator encourages multi-fiber model

OvumAt a recent roundtable, Swiss regulators ComCom and Ofcom hosted a discussion about the deployment of fiber-to-the-home (FTTH) networks. During the discussions, industry players agreed on a single set of standards. Importantly, they agreed to adopt a multi-fiber model. Swisscom is to invest in building an FTTH network with several fiber lines laid in each building – where one fiber will be used by Swisscom and the others will be available to its partners. In line with the EC’s NGA Recommendation, the multi-fiber model reduces the high cost of infrastructure investment for operators and brings the potential added benefit of avoiding the designation of significant market power (SMP) and associated remedies.

A multi-fiber model fosters competition and reduces investment costs

This model is a promising measure to promote competition in the broadband market and encourage investment by Swisscom’s cooperation partners. In our view, co-investment in FTTH networks using a multi-fiber approach has several benefits. Firstly, it will reduce the SMP position in NGA markets, which happens particularly when the incumbent has first-mover advantage of rolling out fiber access networks. Secondly, it will cut the overall cost of infrastructure investment in fiber access through cooperative investment by operators. On average, 80% of the total cost of rolling out an FTTH network is incurred through the introduction of fiber into ducts and through in-house cabling. Sharing this cost under the multi-fiber model benefits operators and reduces the investment risk. Therefore, it will enhance infrastructure-based competition, with more operators climbing the ladder of investment. It also enables access seekers to obtain control over fiber lines without having to duplicate costly investments or risk facing discrimination in the case of single-fiber unbundling. The result of all this is more intense competition in downstream markets and ultimately benefits for consumers.

The Swiss regulator has being paying attention to NGA since Swisscom announced in December 2008 that it would invest $6.6 billion in deploying FTTH over the following six years, based on the multi-fiber model. As such, the regulator has encouraged all parties involved to reach an agreement on unified technical standards. The agreement involves the main industrial players, including telecoms service providers, electricity utility companies and cable network operators. The regulator will continue to monitor the situation to see whether further regulatory intervention will be necessary in order to remove potential future problems such as access discrimination for those service providers that will rely on the incumbent’s infrastructure.

End users are set to benefit from increased choice. In particular, the unified approach to standards removes the inconvenience to end users when they want to switch between fiber infrastructure providers.
 


An approach that is likely to be adopted by other European NRAs

Switzerland is not a unique case in Europe, with the French regulator Arcep also favoring this approach in its June 2009 proposal for regulating FTTH. (For further details, see our recently published report The regulatory approach to next-generation access: Europe.) NRAs need to take into account the demand involved in different markets and the fact that such an approach would give alternative operators control over their infrastructure. In addition, the EC’s second draft Recommendation suggests that NRAs should be cautious about imposing cost-orientation on SMP operators in the case of FTTH networks based on multi-fiber lines. Requiring operators to offer access on a cost basis would reduce their incentive to deploy multiple rather that single fiber lines in the first place, as the SMP operator would have to incur the additional costs without the commitment that its partners would even rent the extra fibers.

The multi-fiber model is the one advocated by the EC in its second draft Recommendation on NGA. The draft Recommendation suggests that NRAs should facilitate the deployment of multiple fiber lines under the assumption that the additional cost will be minimal. The size of this additional cost is now the focus of debate between incumbents and regulators. France Telecom recently declared that the extra cost of multi-fiber investment is 40%. The high extra cost estimated by France Telecom is the reason why France Telecom is going against Arcep’s rules regarding multi-fiber solutions. Arcep estimates that the extra cost is approximately 5%. This claim was recently supported by the French Competition Authority. Swisscom, on the other hand, estimates that there is a 10% extra cost for deploying multi-fiber lines rather than single fiber in its Fribourg FTTH project. Therefore, the Swiss and French cases could provide some useful lessons when regulators in other member states consider imposing a multi-fiber model.

 

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