Discussion Papers

No. 464: Incumbents requesting wholesale services on FTTB/H networks

Authors: Sebastian Tenbrock, Christian Wernick

(full version only available in German)

Summary

In light of FTTB/H rollout by alternative competitors in numerous regions, the key question arises as to the strategic response of incumbents. Possible options include parallel rollouts, takeovers and cooperations where incumbents purchase FTTB/H wholesale products from alternative competitors and offer their own products based on these (wholebuy agreements).

In the context of this discussion paper it is analysed, which factors and general framework conditions determine the make-or-buy decisions of incumbents when purchasing fiber wholesale products. On the basis of six country case studies (Austria, Denmark, Germany, Italy, Spain and Sweden), it is examined whether incumbents already procure fiber wholesale products from competitors and how these cooperations are designed.

In Sweden, wholebuy agreements have the highest market relevance for the incumbent; first agreements have already been signed in Austria, Denmark and Germany, while wholebuy is currently not significant for Telecom Italia in Italy and Telefónica in Spain.

The main drivers of these agreements are the amount of rollout costs (and thus the profitability of a parallel rollout) as well as the willingness of the incumbents and alternative competitors to deliberately develop a FTTB/H wholesale business. In addition, a high degree of standardization of the wholesale access interfaces, a strong market relevance of wholesale only models and specific national drivers have a positive effect on the conclusion of wholebuy agreements. On the contrary, the market relevance of FTTB/H seems less decisive.

In the short term, wholebuy agreements increase consumer choice and thus have a positive effect on competition. Even in the medium to long term, negative competitive effects on competition are unlikely, since incumbents will invest in the construction of their own FTTB/H networks if this is economically feasible.

Since wholebuy agreements improve network utilization (and thus the profitability), such models can represent an opportunity to accelerate the evolution towards a gigabit society and to promote the overall demand for ultra-fast broadband.

Discussion paper is available for download.

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