The Competitive Dynamics of DSL in Western Europe: prospects for local loop unbundling & bitstream

SUMMARY

"Local loop unbundling is at the start of a huge growth curve. By 2010, 28.6 million local loops will have been unbundled in Western Europe and competition in the DSL market will be increasingly infrastructure driven. However, unbundling is potentially becoming a victim of its own success - urban exchanges are becoming overcrowded. This report explains what happens next and how incumbent and alternative operators can each turn events in their favour." Martin Scott, Analyst

The Western European market for local loop unbundling (LLUB) has taken off but the ultimate size and dynamics of that market remain to be seen. The Competitive Dynamics of DSL in Western Europe: prospects for local loop unbundling and bitstream explains the roles of various wholesale products in the evolving DSL broadband market and identifies the potential strategies of different types of operator (alternative operators, DTH players, incumbents and non-traditional fixed telecoms players, such as mobile operators). The report includes individual forecasts for 16 Western European markets.

The Competitive Dynamics of DSL in Western Europe: prospects for local loop unbundling and bitstream answers your key questions:

• What are the big issues for unbundlers?
• What are the most important points for incumbents?
• Where do DTH and mobile players fit into the LLUB market?
• What is the present state of the Western European market and what can your company learn from this?
• How much will individual country markets be worth up to 2010 and what will the incumbent take?
• How can incumbents slow down the growth of alternative operators, while maintaining their own market share?
• Should you unbundle and, if so, where?
• What are the long-term options for rural deployment?
• How can alternative operators gain the trust of the consumer?
• How must bitstream evolve to remain more than a service taken by incumbent's retail arms?
• How will cabinet-based DSL affect unbundlers' options?
• Will VDSL, fibre and triple play raise more regulatory uncertainties?

Who should read this report

• Incumbent operators: See detailed forecasts of incumbents' shares of the DSL and broadband markets, including breakdowns of revenue for wholesale and retail services. Read in-depth discussion and analysis of Western European DSL markets, including strategy for how to maintain retail market share and to prolong the life of wholesale services.
• Alternative operators: Study detailed forecasts of subscriber numbers and revenue for alternative operators' share of the DSL and broadband markets. Examine in-depth discussion and analysis of Western European DSL markets, including strategy for how to maintain retail market share, how and where to unbundle and future regulatory issues.
• Mobile and DTH operators: See discussion of strategies for mobile and DTH operators considering a fixed broadband approach, including guidance on the best policies on infrastructure, as well as detailed forecasts of subscribers in the DSL market.
• Financial institutions and investors: Inform your investment strategies through detailed forecasts of subscriber numbers and revenue for unbundlers, other alternative operators and incumbents.
• Vendors: Establish the drivers of DSL market dynamics and future demand for ULL infrastructure from demand-driven market forecasts.
• Regulators: Examine future market sizings and an overview of the regulatory issues of today and tomorrow.

TABLE OF CONTENTS

0. Summary

1. The Western European DSL market is maturing quickly

• 1.1 The Western European regulatory playing-field is not yet level
• 1.2 Take-up of LLUB has grown as prices have fallen
• 1.3 Regulators are acting to remove obstacles to LLUB
• 1.4 Many urban exchanges are now overcrowded

2. Unbundling makes commercial sense foremost alterative service providers

• 2.1 Further up the investment ladder, profit margins can be significantly higher
• 2.2 A number of factors affect which exchanges alternative operators should select for LLUB
• 2.3 Alternative operators from non-ISP backgrounds, such as mobile-only and DTH operators, must also consider LLUB
• 2.4 Shared LLUB will be an intermediate step on the way to full LLUB

3. Incumbents can stem the decline in bitstream access

• 3.1 Incumbents will maintain their market share of retail DSL
• 3.2 A bitstream product will maintain a strong share of the market
• 3.3 Bitstream must be expanded to include more significant service offers
• 3.4 Beyond 201O the removal of bitstream access is in many players' interests

4. Competition in the DSL market will be increasingly infrastructure driven

4.1 Western European DSL markets will vary based upon present penetration and broadband technology exposure

5. DSL market dynamics will never be simple

• 5.1 Deutsche Telekom's VDSL network has raised the question of regulatory definitions
• 5.2 KPN's cabinet-based strategy could leave alterative operators behind
• 5.3 New regulatory uncertainties about fiber are on the horizon

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List of Figures and Tables

• Figure 0.1: Western European broadband subscribers, 2005-10
• Figure 1.1: The alternative operator investment ladder
• Figure 1.2: Levels of interconnection within the DSL network
• Table 1.1: Western European wholesale access portfolio, October 2006
• Figure 1.3: The Western European DSL market by type of access, 2H 2003-1H 2006
• Figure 1.4: Monthly average total cost per shared unbundled local loop 4Q 2003-2Q
• Table 1.2: Prices for unbundled local loops and bitstream products in Belgium, 2005
• Figure 1.5: Number of active national, residentially focused unbundlers in Western Europe, October 2006
• Figure 2.1: Estimated direct costs and gross margin for different types of DSL access in the UK
• Figure 2.2: Approximate costs of full LLUB in the UK, by subscribers per exchange
• Figure 2.3: Potential LLUB population coverage dynamics
• Figure 2.4: LLUB population coverage, 2005-1O
• Figure 2.5: Full LLUB as a proportion of total LLUB in selected Western European countries 2005-10
• Figure 3.1: Incumbents' shares of retail DSL lines in Western Europe, 2005-1O
• Figure 3.2: Incumbents' market shares of retail DSL access revenues 2005-1O
• Figure 3.3: Proportion of wholesale connections supplied to third parties
• Figure 4.1: Revenue from broadband access in Western Europe, by access type, 2005-10
• Figure 4.2: Western European broadband subscribers, 2005-1O
• Figure 4.3: Change in key market metrics in France, 2Q 20064Q 201O
• Table 4.1: Key market metrics in France.201O
• Figure 4.2: Western European broadband subscribers, 2005-1O
• Figure 4.3: Change in key market metrics in France, 2Q 2006-4Q 201O
• Table 4.1: Key market metrics in France, 201O
• Figure 4.4: Change in key market metrics in Germany, 2Q 2006-4Q 201O
• Table 4.2: Key market metrics in Germany, 201O
• Figure 4.5: Change in key market metrics in Italy, 2Q 2006-4Q 201O
• Table 4.3: Key market metrics in Italy, 201O
• Figure 4.6: Change in key market metrics in Spain, 2Q 2006 - 4Q 201O
• Table 4.4: Key market metrics in Spain, 201O
• Figure 4.7: Change in key market metrics in the Netherlands, 2Q 2006-4Q 20
• Table 4.5: Key market metrics in the Netherlands, 201O
• Figure 4.8: Change in key market metrics in the UK, 2Q 2006-4Q 201O
• Table 4.6: Key market metrics in the UK, 201O
• Figure 5.1: Net work topologies for DSL deployment