ECTA calls for action on excessive wholesale charges for telecoms

Prices need to come down, not increase, if Europe is to achieve its ambitious broadband targets
Latest Eurobarometer survey cites high access prices as a major deterrent to EU citizens getting online

Brussels, 20 October 2010: As the Commission prepares to comment on a proposal by the Italian Regulator, ECTA, the European Competitive Telecommunications Association, fears the wider implications for Europe.

"Consumers will face higher prices and dominant firms will not be incentivised to invest in renewing age-old networks if they are allowed to make super normal profits from sweating the legacy copper assets they inherited from the old monopoly days”, said Ilsa Godlovitch, Director of ECTA’s Brussels office.

The Italian Regulator, AGCOM, has proposed to increase the wholesale charges for telecoms by over 10% for the second year running, amounting to a shocking 24% increase over a two year period. The cost of wholesale access, which is relied upon by nearly all competitors to incumbents across Europe, constitutes a very significant proportion of the total costs of offering telecom services and increases could drive competitors out of business. The Commission’s comments in this case will have a significant impact on the Italian regulator’s final decision and could signal its approach to wholesale telecoms prices across Europe.

"Excessive wholesale prices not only hinder the take-up of broadband as they invariably result in higher retail prices”, continues Godlovitch "consumers choice will be reduced if competitors are forced out of business”.

The Commission’s objective is to have 50% of users subscribing to 100Mbit/s by 2020. The Eurobarometer survey released last week, however, revealed that 43% of EU households still do not have an internet connection at all. The survey further cites high costs as a major factor preventing 20% of people from getting online.

"Affordable broadband is the key to achieving the Commission’s take-up targets”, underlines the ECTA Director. "We urge the Commission to promptly issue guidance on wholesale costing methods to ensure that regulated access charges are not set at a level that will detrimentally affect consumers and competition”.

Issuing guidance on costing is one of the actions set out in the European Digital Agenda.

Background

• Italian telecoms regulator AGCOM has proposed to increase the wholesale charge competitors’ pay to access Telecom Italia’s local network (local loop unbundling) to €9.48 per month by 1 January 2012. This is the second significant increase agreed by AGCOM and would amount to a price hike of 24% over two years.
• Wholesale prices constitute a significant proportion of the total cost of providing telecoms services. Changes in these costs therefore impact retail prices and competition in the market.
• Incumbents have argued that they need higher wholesale charges to enable them to invest in next generation fibre access networks. However, there is no evidence that extra profits on legacy copper have translated through to higher investment. Telecom Italia’s profit margins (EBIT/revenues) increased from 23.4% in 2008 to 25.9% in 2009 as wholesale charges went up. However, their investment levels (capex) declined over this period and they refused to participate in a joint project to invest in fibre networks together with their competitors. The profits of TI’s leading competitor Fastweb reduced from 7.8% to 3.7% as wholesale charge increases began to bite.
• AGCOM proposes to justify charge increases due to a change in methodology from historic costs (the actual costs incurred by TI) to current costs (theoretical costs that an operator would incur if it built a new copper network today). However, the choice to move to a theoretical model is questionable because no modern operator would choose to build a copper network today, and the assumptions AGCOM uses in the model are also questionable because they fail to reflect the costs of an efficient operator.

For further information please contact: 
Ilsa Godlovitch, Director, ECTA.  Tel: +32 2 227 2718

About ECTA
The European Competitive Telecommunications Association (ECTA) looks after the regulatory and commercial interests of new entrant telecoms operators, ISPs and suppliers of products and services to the communications industry. 
ECTA works for a fair regulatory environment that allows all electronic communications providers to compete on level terms in order to multiply investment and innovation throughout an effective European internal market.  
The association represents the telecommunications industry to key government and regulatory bodies and maintains a forum for networking and business development. ECTA member companies include operators, service providers and suppliers as well as National Associations of such which all contribute towards regulatory policy development and participate in our comprehensive range of networking events, conferences, seminars, briefings and executive meetings. www.ectaportal.com