Outline of a study for BREKO
by Karl-Heinz Neumann, support: Dieter Elixmann, Stephan Jay, Rolf Schwab
The competitive market model has been the prerequisite and the driver of the dynamic development of telecommunications over the last 15 years. In light of NGA this competitive model is challenged mainly by incumbent operators. They propose a negative trade-off between competition and the level of investment in the sector and ask for relaxation of regulation and more concentration in the market.
This study shows that there is a positive relationship between competition and the level of investment in the sector. Competition drives and does not hinder investment. The economics of NGA networks, however, require a new reference model for competition. NGA networks cannot be replicated. It is therefore an illusion to have three or more NGA networks competing against each other. The most relevant dimension for competition in NGA is the competition for the market in a particular local region. The new vectoring regulation in Germany and the resulting competition model demonstrates this dynamic investment competition. Effective and dynamic investment competition generates the achievable maximum NGA coverage and the maximum speed for this coverage in countries like Germany (and probably other Member States).
Workable and efficient investment competition needs a proper regulatory framework to emerge and to flourish. Such conditions are shown for the case of competition for FTTC in Germany.
Some of the latest European policy developments are not in favor of a dynamic investment competition. Improving the investment conditions for incumbents seems to be a major driving force. In particular questioning the need and the availability of unbundling is counterproductive for investment competition.
This study shows that policy approaches which only try to improve investment conditions for incumbents is counterproductive for achieving the optimal sector development including a high level of investment. Compared to the incumbent the investment intensity of altnets is significantly higher in terms of revenues as well as of profits at least in Germany. Before this background the study develops three different investment scenarios over the next 5 years in the German market depending on the regulatory environment. In particular the FTTC/Vectoring investment is heavily dependent on the regulatory framework today and tomorrow. The study also shows that the investments of altnets – different to the investment pattern of the incumbent – will significantly contribute to expanding the NGA footprint in Germany.
The study (only in German) is available for download.