Local loop unbundling
Local loop unbundling (
LLU) is the process of allowing
telecommunications operators to use the
twisted-pair telephone connections from the
telephone exchange's central office to the
customer premises. This
local loop is owned by the
incumbent local exchange carrier (ILEC).
Unlike most other economic
liberalisation measures, LLU involves more, not less, regulation. It is considered an application of the "
essential facilities" doctrine found in U.S., Australian and, arguably, EC
antitrust law.
LLU is generally opposed by the ILECs, which in most cases used to be state monopoly enterprises before the telecommunications sector was liberalised (and the ILECs often privatised as well). They argue that LLU amounts to a
regulatory taking, that they are forced to provide competitors with essential business inputs, that LLU stifles infrastructure-based competition and technical innovation because new entrants prefer to 'parasitise' the incumbent's network instead of building their own and that the regulatory interference required to make LLU work (e.g. to set the price) is detrimental to the market.
New entrants, on the other hand, argue that, since they cannot economically duplicate the incumbent's
local loop, they cannot actually provide certain services, such as
ADSL, without LLU, thus allowing the incumbent to monopolise the respective market and stifle innovation. They point out that alternative access technologies, such as
Wireless local loop (WLL) have proven uncompetitive and/or impractical, and that under current pricing models, the incumbent is guaranteed a fair price for the use of his facilities, including an appropriate return on investment. Finally, they argue that the ILECs generally did not construct their local loop in a competitive, risk-fraught environment, but under state monopoly protection and using taxpayer money, which means - according to the new entrants - that ILECs ought not to be entitled to continue to extract monopoly rents from the local loop.
Most developed nations, including the
USA,
Australia and the
EU Member States, have introduced regulatory frameworks providing for LLU. Given the above-mentioned problems, regulators face the challenging task of regulating a market that is changing very rapidly, without stifling any type of innovation, and without improperly disadvantaging any competitor.
The process has been long - the first action in the EU resulted from a report written for the European Commission in 1993. It took several years for the EU legislation to require unbundling and then in individual EU countries the process took further time to mature to become practical and economic rather than simply being a legal possibility.
The 1993 report referred to the logical requirement to unbundle optical fibre access but recommended deferral to a later date when fibre access had become more common. In 2006 there were the first signs that (as a result of the municipal fibre networks movement and example such as Sweden where unbundled local loop fibre is commercially available from both the incumbent and competitors) policy may yet evolve in this direction.
UK
As of
14 January 2006, 210,000 local loop connections have been 'unbundled' from BT operation under local loop unbundling.
Ofcom had hoped that 1 million local loop connections would be unbundled by June 2006. However, as reported by
The Register, on 15th June 2006, the figure had reached only 500,000, but was growing by 20,000 a week.
By June 2006, AOL UK had unbundled 100,000 lines through its £120 million investment, making it the largest single LLU operator in the UK market.
The latest LLU status of individual exchanges in the UK can be checked on
www.samknows.co.ukU.S.
The
Federal Communications Commission (FCC) requires that ILECs lease local loops to
competitors at a certain pre-set
wholesale price.
New Zealand
The
Commerce Commission recommended against local loop unbundling in late
2003 as
Telecom offered a market-led solution. In May
2004 this was confirmed by the
Government, despite the intense
"call4change" campaign by some of Telecom's competitors. Part of Telecom's commitment to the Commerce Commission to avoid unbundling was a promise to deliver 250,000 new residential broadband connections by the end of
2005, one-third of which were to be wholesaled through other providers. Telecom failed to achieve the number of wholesale connections required, despite an attempt by management to claim that the agreement had been for only one-third of the growth rather than one-third of the total[
1]. That claim was rejected by the Commerce Commission, and the publicised figure of 83,333 wholesale connections out of 250,000 was held to be the true target. The achieved number was less than 50,000 wholesale connections, despite total connections exceeding 300,000.
On the 3rd of May
2006 the
New Zealand Government announced it would require the unbundling of the local loop. This was in response to concerns about the low levels of broadband uptake. Regulatory action such as information disclosure, accounting separation of
Telecom New Zealand business operations, and enhanced Commerce Commission monitoring was also announced. [
2]
New Zealand is now the 29th out of 30 OECD countries to unbundle the local loop. The only country that has not yet unbundled its local loop is Mexico.
See www.med.govt.nz for more information regarding telecommunications regulation in New Zealand.
Switzerland
Switzerland is one of the last OECD nations to provide for unbundling, because the Swiss Federal Supreme Court held in 2001 that the 1996 Swiss Telecommunications Act did not require it. The government then enacted an ordinance providing for unbundling in 2003, and Parliament amended the act in 2006. While infrastructure-based access is now generally available, unbundled fast bitstream access is limited to a period of four years after the entry into force of the act.
Unbundling requests tend to be tied up before the courts, however, because unlike in the EU, Swiss law does not provide for an
ex ante regulation of access conditions by the regulator. Instead, under the Swiss
ex post regulation system, each new entrant must first try to reach an individual agreement with
Swisscom, the state-owned ILEC.
Hong Kong
At the meeting of the Executive Council on
6 July 2004, the Council advised and the Chief Executive ordered that the regulatory intervention under the current Type II interconnection (Hong Kong/
Traditional Chinese:第二類äº'連) policy applicable to telephone exchanges for individual buildings covered by such exchanges should be withdrawn, subject to conditions documented in http://www.ofta.gov.hk/tas/interconnect/ta20040706.pdf.
Germany
Details on the actual situation of LLU in Germany can be found at: http://www.bundesnetzagentur.de/enid/191ee9e2e7f04351d7b55a7f3034c1e7,0/Telecommunications/Telecoms_Regulation_17g.html
WTO
Some provisions of
WTO telecommunications law can be read to require unbundling:
* Sect. 5(a) of the
GATS Annex on Telecommunications (1) requires WTO Members to guarantee service suppliers "access to and use of public telecommunications transport networks ... for the supply of a service". New entrants argue that without LLU they cannot supply services such as
ADSL.
* Sect. 2.2(b) of the 1998
Reference Paper (2), to which some Members have subscribed, requires "sufficiently unbundled interconnection" with major providers. However, the Paper's definition of interconnection appears to exclude LLU.
* Sect. 1 of the Reference Paper requires Members to maintain "appropriate measures ... for the purpose of preventing [major] suppliers ... from engaging in or continuing anti-competitive practices." New entrants argue that such practices include not giving competitors access to facilities essential to market entry, such as the local loop.
The question has not been settled before a WTO judicial body, and, at any rate, these obligations only apply where the respective WTO Member has committed itself to open its basic telecommunications market to competition. About 80 (mostly developed) Members have done so since 1998.
*
OECD, Developments in Local Loop Unbundling*
EU telecommunications liberalization framework*
Check UK LLU coverage and availability by postcode
