Will LLU mean cheaper ADSL?
Local Loop Unbundling (LLU) is widely seen as a driver of competition by giving competitors access to the incumbent telecom operator’s last mile copper infrastructure, which would prove very expensive for competitors to replicate.
LLU is particularly relevant in the broadband market segment, where strong competition results in higher broadband speed and lower broadband prices.
South Africa’s poor fixed-line broadband performance meant that the SA government (which is also the biggest shareholder in Telkom) became actively involved in addressing the issue. This was done through its broadband policy document and measures such as LLU, to try and bring about more competition in the local ADSL market; but will this have any effect?
According to Ewan Sutherland’s paper “Unbundling local loops: global experiences”, poor broadband performances are linked to “the presence of a strong incumbent operator and a weak regulatory regime, a history of inadequate investment in infrastructure, and low levels of PC ownership and computer literacy”.
All of the aspects mentioned above prevail in South Africa, which raises the question as to whether LLU will solve South Africa’s fixed line broadband performance problems.
LLU and broadband
According to Sutherland, LLU has been made to work in a number of countries with relatively dense and well developed traditional copper networks, but in South Africa certain conditions may hamstring the effectiveness of LLU in the ADSL market.
It is no secret that Telkom’s forced rollout of fixed lines to historically underprivileged areas was a massive failure, and even after the significant decline in fixed line numbers since the late nineties a large portion of Telkom’s exchanges remain unprofitable.
Exchanges in high income and business areas – especially in areas where enterprise customers reside – are the biggest drivers of revenue and profit for Telkom while rural exchanges are often a drain on the company’s finances.
LLU and ADSL
Considering the big drivers of fixed line telecoms revenue, it is not surprising that Telkom’s 10Mbps ADSL upgrades, which require significant investments, are aimed at high income areas where Telkom’s investments will not go to waste.
This raises the question as to whether full LLU will not simply result in a few of Telkom’s competitors cherry-picking exchanges like Sandton, Rosebank and other city centres to serve their corporate clients, and steer clear of the residential ADSL market where revenue and margins are much lower.
Telkom CEO Pinky Moholi previously told MyBroadband that their DSL384 margins are very thin, which means that ISPs are unlikely to make significant investments in ADSL co-location to serve mainly low-end residential customers.
Many telecoms players in South Africa agree that the likely outcome of full LLU will be that most ISPs will focus their attention on exchanges in business areas and steer clear of exchanges in residential areas.
Vox Orion MD Jacques du Toit previosuly explained that the complexity of putting down equipment in, or next to, a Telkom exchange, integrating the infrastructure into your own network, and building your own backhaul network to the exchange, kills most business cases around LLU.
LLU and ADSL in South Africa
If full LLU is not the answer to boosting ADSL in South Africa, what can be done to boost ADSL and increase competition?
Rudi Jansen - MWEB CEO
Du Toit, Altech Technology Concepts (ATC) CEO Wayne de Nobrega and MWEB CEO Rudi Jansen all agree that Bit Stream Access (where Telkom installs and maintains the copper infrastructure and hands over the traffic from this infrastructure to other providers at an agreed point) makes more sense than full LLU.
Bit Stream Access means that third party operators will not gain access to the copper pair in the local loop, but it has the benefit of removing the need for third parties to invest in expensive network infrastructure to offer their own ADSL offerings.
Another benefit is that Telkom is already trialling its IP Stream service – a bit stream access product – and can therefore implement this form of LLU immediately.
Even Telkom sees Bit Stream Access as a logical first step to LLU, and with the pesky issue of Access Line Deficit and recuperating these costs through fixed line access, Bit Stream Access may therefore do more for ADSL in South Africa than full LLU in the short and medium term.
If Telkom is willing to throw in naked ADSL, which many ISPs have been asking for, to accompany reasonably priced wholesale ADSL services like IP Stream and IP Connect, most broadband service providers may be willing to put full LLU on the back burner.
Loading ...