Open access is good for the market (and for operators)

Wednesday 21 October 2009 | 14:42 CET | Market Commentary
The Berkman Center for Internet and Society, part of Harvard university, has released a comparative study of internet services in 30 OECD countries for the US FCC. The countries are compared according to broadband penetration, speed and price. Japan, South Korea, Scandinavia and the Netherlands finish high in the rankings, while a number of East European countries and Mexico are at the bottom. The US, with which the FCC is naturally most concerned, came somewhere in the middle.

The report offers an accessible chart presentation of the results, for comparing speeds and prices. The American (and Canadian) providers show up among the high prices and low speeds. At the other end of the specturm, with low prices and high speeds are operators from Japan, South Korea, France, Sweden and Finland.

The reserchers make an important conclusion from the results: there is a high correlation between good scores and the level of availability of wholesale access. Countries with an open access regime for services such as bitstream and local loop unbundling have a high broabdand penetration, high available speeds and low end-user tariffs.

The report raises an important question: if open access is good for the market, is it also good for the operators? The question is difficult to answer with empirical evidence as not enough information is available. Results from for expample Verizon Communications (no open access) and BT Group (open access via functional separation) are difficult to compare. The markets differ in their social, economic and georgaphic characteristics, and sales and profits are not broken down. In addition, BT has sold its mobile activities, while Verizon Wireless remains core to Verizon's strategy. More fundamental is the question what parameters to look at. Is it only about sales growth and market share, or is it better to look at margins or cash-generating assets? Whatever the case, a serious investigation at this level would be welcome.

Still, we can say something about the consequences of open access. Not only BT, but also KPN offers access to its network, as a result of clear regulations. Among investors, KPN has made itself, partly as a result of this, a favourite in the telecoms sector. A number of reasons support this. First, KPN has embraced its unbundlers, seeing them as partners rather than parasites. Together, the DSL providers have won market share from the cable operators (see our commentary "Open netwerken uiteindelijk ook in voordeel van kabel") thanks to their combined market efforts.

Another argument is that profitability improves strongly as capacity utilisation increases. This is a common issue in the steel and semiconductor sectors, among others, and applies just as much to the broadband market. New investments in IP and fibre-optic technology create a redundant network, for which all efforts should be made to ensure an optimial utilisation rate. Wholesale, and new income sources, ensure that. In addition, the margins are higher as wholesale requires little to no sales and marketing.

Open access can also be defended from a services point of view. A network operator can not be reasonably expected on its own to get everything out of the network that's possible. By letting other providers on the network with their innovative services, usage increases further and the value of the network grows.

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