By Stephen Howard
Head of Telecoms Research
HSBC

Stephen Howard HSBCThe EC’s fresh direction in the regulation of fixed-line access networks is likely to prove, in our opinion, the most important driver of the sector this decade.

Regulation remains the most decisive driver for the telecoms sector, and no decision is more important than that on how pricing is to be determined on the fibre-based fixed-line networks of the future. We regard the EC’s new proposals in this area as very positive for any operators that invest in their own access infrastructure (rather than merely unbundling that of the relevant local incumbent).

This outcome will surprise many industry observers, with many having been very bearish on prospects for regulation. By contrast, however, we have long argued that regulation would need to improve in order to promote investment. In our Four Steps for Fibre thematic (February 2012), we highlighted four things needed to get investment going, and three of these are relevant specifically to this EC consultation – namely: first, pricing flexibility on wholesale fibre; second, a better copper ULL pricing environment; and, third, technology agnosticism (which translates in practical terms to the flexibility for incumbent telecoms operators to deploy FTTN, not just much more expensive FTTP).

The EC’s fibre statement should, in our view, underpin much more extensive NGA investment.

The EC has unveiled an approach that should give incumbents the necessary flexibility to justify upgrading to NGA (next generation access) platforms (ie those that are typically fibre-based). Firstly, national regulators will no longer be compelled to apply price regulation to wholesale NGA services – provided incumbents make these available on the basis of equivalence (ie on the same terms to third parties as to their own retail divisions) and subject to a margin squeeze test. Secondly, there is the assurance that there should be stable copper prices in future. And thirdly, the EC has The EC’s fresh direction in the regulation of fixed-line access networks is likely to prove, in our opinion, the most important driver of the sector this decade.

Regulation remains the most decisive driver for the telecoms sector, and no decision is more important than that on how pricing is to be determined on the fibre-based fixed-line networks of the future. We regard the EC’s new proposals in this area as very positive for any operators that invest in their own access infrastructure (rather than merely unbundling that of the relevant local incumbent).

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