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30.12.2019

No. 456: Parallel glass fibre expansions on the basis of co-laying and co-use as opportunities for the creation of infrastructure competition

No. 456: Parallel glass fibre expansions on the basis of co-laying and co-use in accordance with the DigiNetzG as opportunities for the creation of infrastructure competition

Authors: Menessa Ricarda Braun, Christian Wernick, Thomas Plückebaum, Martin Ockenfels

(full version only available in German)

Summary

In view of the high costs associated with the construction of broadband infrastructures, the Cost Reduction Directive and its implementation at national level via the DigiNetzG have created the legal basis for expanding companies to be able, under certain conditions, to claim access to existing and newly emerging civil engineering infrastructures in order to significantly reduce their roll-out costs. This instrument is not only relevant for new broadband deployment, but also for the duplication of existing and newly emerging network infrastructures and thus for the creation of infrastructure competition.

In this paper we have estimated the costs of different duplication scenarios for FTTH, analysed their economic representability and market relevance and discussed the role of infrastructure competition in a gigabit world.

For this purpose, we examined the four scenarios of independent parallel expansion, shared use, shared laying and 4-fiber model. Our calculations show that the duplication costs can be significantly reduced compared to a parallel expansion. While these extra costs compared to a stand-alone expansion in the 1-fibre model sum up to 86.2 - 93.6% with a parallel expansion depending on the technology and topology expanded, they decrease to 22.3 - 31.1% with co-laying, to 18.9 - 27.8% with co-use and to 9.2 - 17.4% with expansion in the 4-fiber model.

However, due to the high costs of expansion in connection with comparatively low payment readiness, the economic analysis shows that despite enormous cost reduction potentials, a second supplier can only expand glass fibre cost-effectively and thus economically in very densely populated clusters on the basis of today's framework conditions.

In view of the obvious lack of economic incentives for far-reaching duplication the question arises as to how alternative forms of competition are to be assessed from the consumer and competitive point of view.

Our analysis shows that competitor access via unbundled fibre optic local loops in the form of ULLs offers almost the same differentiation possibilities as "real" infrastructure competition. In addition, from a technical point of view in the gigabit world, intelligent network functions are expected to result in a further shift of innovation activity from the infrastructure to the service level and a related revival of the product landscape at the product level.

Where network duplication is not economically possible, wholesale only networks are to be assessed as the most economically efficient expansion option. From an economic point of view, cooperation models can also be a sensible expansion option if it is ensured that no discrimination against third parties takes place. Both approaches also offer the possibility of reducing regulatory intensity, which is also provided for in the new electronic communications code.

Irrespective of the business model, FTTB/H networks should ideally be set up as P2P network infrastructures, as these offer the highest level of performance and thus sustainability.

Discussion Paper (in German language) is available as pdf-file and can be ordered for a fee of 7 Euro incl. VAT.

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