Local loop unbundling ‘too late’

‘Too little, too late” was the general reaction of internet service providers, telecommunications companies and telecoms analysts this week after the regulator released its discussion document on unbundling the local loop.

The regulatory process, which a ministerial directive ordered the Independent Communications Authority of South Africa (Icasa) to complete by November this year, has been delayed for years. In an apparent attempt to save face this week, Icasa insisted it would meet the deadline by finalising its regulations on local-loop unbundling (see “What is local-loop unbundling?”).

The discussion document, which quotes from the policy directive of the late former communications minister, Ivy Matsepe-Casaburri, stipulates that the unbundling process should be urgently completed and “implemented” by 2011. It is anticipated that Icasa will not meet the implementation deadline — after a barrage of questions from industry players and the media at a briefing on the discussion document this week, it appeared to shift the goal posts.

Ovum Telecom’s senior analyst Richard Hurst said that the longer Icasa took to unbundle the local loop, the less consumers would benefit. “By the time the government and Icasa put a gun to Telkom’s head and say unbundle the local loop now, they will say you can have it — it’s worthless,” said Hurst.

Some stakeholders and analysts told the Mail & Guardian this week that the unbundling could take up to two years to complete, depending on the model Icasa uses. Icasa is considering four different models, which are detailed in its discussion document.

Other industry stakeholders said that, if all operators played ball and did not stall the process with legal challenges, which were common in the regulation of the broadband and telecoms sector, unbundling could be achieved within months.

Dave Gale

Telecoms analyst Dave Gale said that you had to look at the theory and the practice of unbundling. “In theory, it is very important to unbundle the local loop because it makes available the network to Telkom’s competitors,” said Gale. “Whether it is practical or profitable is another story. It’s a hell of a lot of work and I’m not sure if the real returns will be worth it.”

Another analyst, who would comment only on condition of anonymity, said that, with Icasa’s poor track record, he doubted whether unbundling the local loop would have any effect on any of the major players. “Pricing will be the big issue,” he said. “What is it going to cost Telkom to provide access to the local loop?”

The analyst also said that Telkom had previously argued it had an “access deficit”, which arose when an operator’s average access charges were not set high enough to cover the provision of the service. Telkom chief executive Nombulelo Moholi was reported as saying that to keep the average fixed-line service it cost about double the R133.30 a month it charged for line rental. She said the shortfall amounted to a total of R2-billion to R3-billion a year.

Icasa mentions the access deficit in its discussion document, but Icasa councillor Thabo Makhakhe said in response to a question that Icasa had no figures to establish the access deficit and was hoping that it would emerge from the unbundling.

Angus Hay

Neotel’s head of strategy, Angus Hay, said regulators around the world had learned to deal with access deficits and often the focus came down to efficiencies.

“You look at an operator in its current state and you look at the efficiencies of the operator and you say next year you need to be 10% more efficient,” said Hay. Of the four unbundling models proposed by the regulator, Neotel favoured the full unbundling of the local loop, he said. “The four models shouldn’t be seen as a shopping list for operators. Neotel would not consider this process successful if the full local loop was not unbundled.”

Gale agreed and said: “For the local loop to be properly unbundled, Icasa needs to give access to all Telkom exchanges around the country on a 24/7 basis.” Telkom issued a brief comment after the release of the discussion document and said that it had not had time to review the document. “The company is in the process of examining the document and will comment on the matter at a later stage,” it said.

What is local-loop unbundling?

The local loop, also referred to as the last mile, traditionally refers to the copper cables that run from Telkom’s exchanges to millions of homes and businesses in South Africa. Technologies such as wireless and fibreoptic cables have been used more recently to replace copper cables, but the majority of Telkom’s last mile is still copper. In theory, unbundling the local loop will benefit consumers in two ways.

Firstly, it will stimulate competition, giving hundreds of service providers access to customers they have not been able to service up to now. Industry stakeholders and telecoms analysts point out that this will allow existing and new products to be provided by numerous players and will ultimately result in fierce competition that will in turn bring down prices.

Secondly, unbundling the local loop could also allow for a reduction in the fees consumers pay for their telephone and broadband line rental. Telkom has a monopoly, thanks to the millions of copper cables that make up the local loop under its control. Telkom charges consumers R133.30 a month to rent a residential telephone line and R182.70 to rent a business telephone line.

But if a customer also receives a broadband service through that line, they are billed somewhere between R152 and R413 on top of their line rental, depending on the speed of their service. Analysts and industry stakeholders argue that Telkom’s competitors could substantially discount these line-rental costs to attract new customers, depending on the wholesale prices of access to the lines.

Four unbundling models

Icasa’s discussion document on local-loop unbundling suggests four different models.

Option one, which is “bitstream” or “wholesale access”, allows for Telkom to give access at a wholesale level, but does not require the unbundling of the physical copper cable.

Option two is called “line-sharing” and allows for Telkom and its competitors to share access to the lines, thus Telkom could still provide voice services on the line and a competitor could provide broad- band services on the same line.

Option three is called “full local- loop unbundling” and would allow operators full access to the copper local loop. “This option enables the facilities seeker [the operator seeking access to Telkom’s local loop] to install its own broadband equipment and co-locate,” Icasa’s discussion document states.

Option four is called “sub-loop unbundling” and would allow Telkom’s competitors access to its “primary connection point” at street level. Telkom’s competitors would provide their own networks all the way to the primary connection point and then locate their equipment next to Telkom’s telephone exchanges.

Source: Mail & Guardian