Title of Report/Proposal
Total Page：16
File Type：pdf, Size：1020Kb
The case for dark fibre access A REPORT PREPARED FOR VODAFONE January 2015 © Frontier Economics Ltd, London. January 2015 | Frontier Economics i The case for dark fibre access Executive Summary 3 1 Conclusions: The introduction of dark fibre remedies is now appropriate 5 1.1 Transport networks have evolved towards mature, widely adopted standards and technologies ......................................... 6 1.2 Significant network upgrades and enhancements are frequently required to accommodate explosive growth in supply and demand for capacity ................................................................... 7 1.3 CPs have the reach and capability to efficiently leverage BT’s vast fibre estate .......................................................................... 9 2 Transformation in Telecom networks 12 2.1 Traditional Interface Service-Specific Networks ....................... 12 2.2 Alternative Interface Multi-Service Networks ............................ 15 3 Transformation in demand for services 21 3.1 Mass market ............................................................................ 21 3.2 Corporate Market ..................................................................... 25 4 Transformation in the UK market landscape 35 4.1 The Duopoly Review and Infrastructure Competition ............... 35 4.2 Access bottlenecks and Telecom Strategic Review ................. 36 Contents ii Frontier Economics | January 2015 Figures and Tables Figure 1: UK telecom market evolution 2000-2014: key milestones ..... 5 Figure 2: BT Network hierarchy, circa 2000 ....................................... 13 Figure 3: Generic Fixed Access Network ........................................... 16 Figure 4: Average download speed for Mobile Networks ................... 18 Figure 5: BT 21CN .............................................................................. 20 Figure 6: Volumes of Outbound Voice Traffic 2000-2013 ................... 21 Figure 7: Consumer and SME Broadband Connections 2000-2013 ... 22 Figure 8: Consumer Broadband speeds and Prices ........................... 23 Figure 9: Number of Internet connected devices per Household ........ 23 Figure 10: Global Mobile Data Traffic Forecasts 2013-2018 .............. 24 Figure 11: Uptake of services amongst Business users in 2005 ........ 26 Figure 12: Spending and Volumes of Corporate data services, 2003- 2004 ............................................................................................ 27 Figure 13: Business Fixed Voice Volumes 2002-2013 ....................... 28 Figure 14: Volumes of Ethernet Connections 2007-2013 ................... 29 Figure 15: Volumes of PPC Connections 2007-2013 ......................... 29 Figure 16: TI services volume trends 2011-2016 ................................ 30 Figure 17: Volumes of Ethernet Services 2008 - 2016 ....................... 31 Figure 18: Price per Mbps of Ethernet Local Access Services and PPC terminating segments .................................................................. 32 Figure 19: Business Mobile Voice Volumes 2008-2013 ..................... 34 Table 1: Per Device Usage (MB per month) ....................................... 25 Table 2: EAD Local Access and EAD Connections 2013 and 2014 ... 33 Tables & Figures January 2015 | Frontier Economics 3 Executive Summary The UK telecommunication market has undergone a very significant transformation in terms of technology, demand and competition in the past 15 years. In the first part of this period (from approximately 2000 to 2005), access was primarily narrowband for both fixed and mobile networks. The introduction of PPC in 2000, allowed CPs to efficiently connect their networks to corporate customers through a small number of interconnection points on BT’s network. The 2004 Telecommunications Strategic Review dramatically changed the consumer fixed market, with operators using LLU to offer broadband and voice services. This led to a rapid increase in the uptake of broadband services but also led CPs to co-locate at a much larger number of BT exchanges than previously, where CPs could offer nationwide services though a small number of points of interconnection. The LLU based operators were also significant users of Ethernet services for backhaul from their equipment co-located in BT’s exchange sites. Corporate customers also began to migrate their voice and data traffic from TDM based access to converged Ethernet networks. In the last five years the growth in fixed broadband has been echoed by huge growth in mobile broadband, with the widespread adoption of smartphones. The introduction of LTE, along with the licensing of additional spectrum, should allow this growth to continue. The development of ‘carrier grade’ Ethernet has allowed operators to migrate the vast majority of traffic in the aggregation network to Ethernet networks, rather than operating dual TDM and packet switched networks. The market is now characterised by convergent transport networks using robust, flexible and cost efficient network protocols supporting a range of broadband access technologies. This has radically altered network economics, removing the need to set high end user prices for traffic in order to limit demand for core transmission. This move to ‘unmetered’ traffic has led to an explosion of demand driven by new applications. Customers now expect these applications to work seamlessly over different access networks with the evolution of fixed and mobile access networks allowing for customers to use ever increasing volumes of data. The move to unmetered transport has also changed the focus of competition to access networks, with both fixed and mobile networks competing to offer broadband connections. This has resulted in thousands of network nodes being operated by CPs throughout the UK and generating high and increasing volumes of broadband traffic: whether these are mobile base stations or network equipment sited in BT’s exchanges. However, significant residual bottlenecks exist, with network bandwidth being artificially constrained where BT has Executive Summary 4 Frontier Economics | January 2015 maintained control over infrastructure which has proven difficult to replicate. These bottlenecks occur in two main areas In high quality connections to corporate users, in areas where there is no alternative access providers; and For backhaul for fixed and mobile access networks. In both these areas BT has used its market power, derived from its control over fibre infrastructure, to artificially inflate prices for higher bandwidth services1 in order to maximise profits where there is no longer sound technical or economic reasons to restrict bandwidth. The lack of competition for these services allows BT, as a dominant provider, to offer a reduced quality of service and to slow the adoption of new services and technology2, further reducing the flow of the benefits of technological improvements to customers. In many past instances, regulatory intervention at critical junctures in the development of the UK telecom industry contributed to the removal of bottlenecks and constraints to competition, most importantly with the introduction of infrastructure competition following the 1991 Duopoly Review and the introduction of passive remedies for copper access (LLU) and of Equivalence of Inputs requirements following the 2004 Telecom Strategic Review. It is our view that we are now at another critical juncture in the evolution of the UK telecoms landscape, where a regulatory intervention is warranted, in the direction of making BT’s passive fibre access inputs broadly available to CPs. Availability of dark fibre would largely remove the remaining artificial bottlenecks, allowing corporate users access to higher bandwidths, boosting productivity, and removing the bottlenecks that prevent the full exploitation of the next generation of mobile and fixed broadband networks. The absence of dark fibre or similar passive remedies allows BT to leverage its market power by restricting capacity and innovation in this part of the networks. This would act as a major hindrance for further market development as it may limit the benefits of current network standards and technology, constrain network upgrades and innovation and generate network duplication and inefficiency. 1 As Ofcom points out in the consultation document (para 2.14), in BT current offer “The bandwidth gradient (i.e. the change in price charged when moving to a higher capacity circuit) exceeds the gradient of the incremental cost in relation to bandwidth” 2 All Product Development activities are subject to Openreach “Statement of Requirements” process (http://www.openreach.co.uk/orpg/home/products/productdevelopment/) Executive Summary January 2015 | Frontier Economics 5 1 Conclusions: The introduction of dark fibre remedies is now appropriate The last 15 years have seen a radical transformation in the UK telecom market: IP/MPLS networks exploit the capability and flexibility of optical and Ethernet transmission technologies to efficiently deliver many services and applications on converged Multi-Service Platforms (“MSPs”) at very low incremental cost in comparison with previous SDH transmission networks3; Users access voice, data, video, social networking and entertainment services with high speed broadband connections, from both fixed and mobile terminals, feeding unprecedented growth in demand for network capacity; Regulatory decisions on infrastructure competition and network access and industry consolidation have