Dutch report sees business case for wholesale cable access

Friday 18 August 2017 | 14:20 CET | Background

WIK Consulting has researched the options for newcomers on the Dutch fixed networks, in a report commissioned by the regulator ACM. The study looks at options for access on the copper, fibre and cable networks. WIK found that a positive business case can be made for all three, but the required market share for a profitable business varies depending on the type of network.

The ACM published in July a separate study by WIK over the technical options for network access. The latest study looks at the financial factors. The studies are part of the ACM's latest analysis of the fixed market. At the moment only KPN's network is opened up to competitors, while cable is not subject to access requirements. 

Two options for cable newcomers

For coax, WIK developed a model for a customer of WCA (Wholesale Cable Access) or VULA over coax (virtual access, also known as bitstream). The conclusion was a newcomer could develop a profitable business case. 

A wide range of parameters was used as input for the model, including costs for the service, such as line rental and colocation, equipment at the central office and customer premises, and spending on personnel and marketing. The costs for MDF on KPN's network were used in part as a starting point, as these are publicly available. 

After costs, revenues are based on the monthly subscription fees and a small amount from telephony usage. The revenues were estimated at EUR 47.80 per subscriber per month.

A newcomer using WCA that attracted around 160,000 subscribers could thus generate a margin of around EUR 935,000 per month, or 12 percent of revenue.

The result for VULA cable was negative. A virtual provider would attract fewer customers, at an estimated 56,000, while its costs are higher. The result would be a loss of almost EUR 300,000 per month, equal to a negative margin of 11 percent. 

Positive results with KPN network access

WIK also analysed the existing regulation for access to KPN's network and added new calculations based on recent developments such as the confirmation of the pure Bulric method for setting call termination rates. A court recently confirmed this as the correct model, rejecting operator appeals.

The results were positive for wholesale access (WBA) over copper and fibre and VULA over copper. An alternative operator with around 170,000 subscribers could achieve a margin of 14 percent with WBA and 8 percent with VULA. 

Fibre LLU unprofitable

WIK also looked at unbundling on the fibre network. The input parameters are based on the speed of the internet subscriptions and the split between single-, dual- and triple-play customers. The study found that a provider using LLU over fibre could attract 34,000 customers, but would lose almost EUR 18 per customer per month. That means a negative margin of 37 percent. 

ACM market analysis

The WIK report is one of the building blocks in the market analysis underway at the ACM. The regulator plans to publish a draft decision on unbundled access this year, which will then be subject to public consultation. 

While WIK concluded that a positive business case can be made for a new entrant on the cable network, this doesn't mean the ACM will make that happen through regulation. A market decision is complex and will incorporate many more aspects than the report from WIK. 

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