Discussion Papers

Christin-Isabel Gries, J. Scott Marcus
The significance of Bitstream for the German telecommunications marketplace

No. 355 / June 2011

(full version only available in German)

Summary

Bitstream access as a regulated wholesale product plays only a minor role in the German broadband market today and has been stagnating at a low level since its introduction in 2008. The focus of this study is to analyse the reasons for this development in the past, and to evaluate a potential change of the significance of bitstream access in the course of NGA-rollout in the future. In this context, the study focuses on the relevance of bitstream access for the business models of broadband competitors.

The analysis of the evolution of bitstream to date reveals that the low share of bitstream access in the wholesale market can be explained by the interaction of several different factors. Among these, the most important factor is the extraordinary importance of the unbundled local loop in Germany in comparison to other countries. In Germany, access to the unbundled local loop was introduced very early (1998), whereas regulated bitstream products were first available ten years later. In 2008, it was difficult for bitstream access to develop into an important wholesale product, inasmuch as DSL penetration was already high and almost completely based on ULL. To date, only layer 3 bitstream access products have been sold, motivated by the migration from resale to bitstream. These bitstream access products are provided not only by DTAG, but also by alternative operators. Layer 2 bitstream offers exist in Germany, but there is no demand for them due to interoperability problems, lack of quality, and implementation difficulties; however, market players have recently agreed on the definition of a comprehensive NGA interoperability interface in an attempt to overcome one of the major barriers to ethernet bitstream.

In the course of NGA-rollout, fundamental changes in broadband competition can be expected that might result in bitstream access taking on increasing importance. Network operator plans for NGA-rollout imply that no single market player is likely to operate a nationwide infrastructure. Instead, it is very likely that multiple NGA networks will emerge, each of which will be operated by a specific market player and will be restricted to a specific region. Access to these distinct networks will be one of the major challenges in NGA, as all relevant competitors will be reliant on wholesale access products in the future. In this changing competitive landscape, DTAG will also have a significant need for wholesale access products.

The future development of bitstream supply and demand is very difficult to predict, because so many underlying factors are still unclear: however, it is likely that bitstream access will become more im-portant in the future than it is today. First, and in contrast with past experience with the copper net-work, bitstream access in NGA is likely to be available as a wholesale product from the first. Second, it seems that the GPON point-to-multipoint architecture that DTAG and major competitors intend to deploy in Germany will face significant unbundling problems from a technical and economic point of view; consequently, bitstream might possibly provide the most viable and attractive NGA wholesale access product in Germany in the future.

Discussion Paper is available for downlad.

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