Monday, 24 November 2008

KPN/Reggefiber offer fiber for €12 euro/month

The  Dutch will get wholesale fibre for between €12 and €17,50 a month. OPTA has just released its opinion on investments in fibre networks where a party with significant market power is involved. You have until january to voice your objections and then the digging starts. That's what tonights published document says (more or less).To find out much more about this proposed deal and its background and how KPN and Reggefiber fit together see these ubervalued , super-duper , hi-James-we-copy-your-style , multi-talented, scoop-hunting , fellow-bloggers and my own  stuff. I hope those guys will go into comparisons on price etc as I'm now going to go to sleep.  (Update the morning after: Yves Blondeel has a good analysis of the proposed regulation too)

To start with the sweet stuff in the back of the document. In the annex you can find the prices for the Optical Distribution Frame service of  Reggefiber as the passive operator of the FTTH-network. The offer is for a wholesale service. The annex is written as the contract that operators of the active services on the network will have to sign. All costs are excluding VAT (19%) and applicable discounts.

The monthly fees are:
Depending on the area type there will be different CAPEX. The monthly fee per customer is dependent upon the area type and CAPEX. Normally the price should be at the first price, but it may go up by as much as €2,50 if certain penetration rates aren't reached to satisfaction etc. If an area has a higher or lower CAPEX, every 50 euro's is another bracket and another 75 cents. There is a discount for bringing in more customers in a specific area. The discounts are as follows: Vincent correctly saw that this all suppliers get this discount if the active fiber pairs in a region hit this number!
This sounds like a good teaser for KPN as it will give them discounts in their retail side when they bring customers over from the DSL offers to the new environment. There are some connection, disconnection fees, Pop-fees etc. Most are one-off, some monthly. Energy is outside the scope. In the accompanying letter OPTA says it agrees with the Reggefiber's pricing. It will formally say so on December 19th and explain its reasoning after which it will notify Brussels and give you time to voice your objections. The Dutch Competition Authority NMA will start this week on a market test. 
The main bit of the letter however is the market consultation of the proposed policy rules for price regulation for unbundled access to fiber optic networks. You have until December 8th to have an opinion. This bit is full of legalese.  So I'll try to condense it. Everything is done in conjuction with the Proposed decision for the unbundled access to the wholesale level of November 5th. In this proposed decision KPN is designated as a party with Significant Market Power. 
OPTA nicely adheres to the stated goals of infrastructure competition. On paper it looks good, but realistically we won't see a second, third and fifth party rolling out a ftth network under these conditions. The Netherlands is stuck with Cable vs KPN forever and wireless will play a minor role too. 
Opta will regulate the offer done by Reggefiber and KPN as it would with a copper network. So there are protections against price squeeze, discriminator pricing and excessive prices. Nothing on delaying tactics, which is a bit of a pity as I would think that KPN's All-IP plans have already sown Fear Uncertainty and Doubt in the investors community and this plan just ups the ante. 
The regulation will be by creating a ceiling for he prices Reggefiber can ask for its wholesale offer. The calculation of the price is done by using a variable All-Risk Weighted Average Cost of Capital. The WACC consists of the standard WACC for the copper network, with on top of it:
  1.   an extra fiber WACC as fiber is a risky investment by itself. This one is thought to be variable and decreasing over time as the investors know better what they got themselves into.
  2. a regulatory risk WACC, which is stable as regulators are notoriously unstable and investors want to be compensated. 


If the internal rate of revenue goes over the WACC than Opta will either lower the ceiling or Reggefiber will need to quikckly invest more into less profitable regions. OPTA will evaluate the ceilings every three years based on the entire business case. Nice thing is that the Reggefiber is allowed to increase prices in accordance  with the official Dutch inflation numbers. (Now how does that work in a time of deflation). Unfortunately there are no numbers on the height of the WACC etc yet. 
Opta does promiss to be vigilant and guard that Reggefiber won't make excessive profits by misrepresenting potential penetration rates, Capex per region etc etc. 

5 comments:

  1. Looking at the table for the discounts (Tabel II) I think we should also read the 3 lines just above the table. If I'm correct, these lines say: You are entitled to a discount that depends on the total number of leased lines from all parties TOGETHER. So if KPN has say 15.000 active fiber pairs and Tele2 adds 4.000, together they have 19.000 and so BOTH will get a discount of 17.5 %. There's no extra advantage for KPN and no disadvantage for Tele2. Do you agree?
    Vincent Dekker

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  2. De afnemende partij heeft recht op een korting op het huurtarief, afhankelijk van het aantal afgenomen vezelparen dat alle afnemende partijen in een aansluitgebied afnemen.


    You are completely right Vincent. Well caught!

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  3. I wonder where else in the world offers unbundled fiber access to the home?

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  4. Peter,

    Stokab in Stockholm is a good example.
    Free in France has spoken about unbundling if I'm not mistaken.
    It does make good sense to unbundle as fibre is an infrastructure play. It's like a big building, keeping it half empty is not smart. Better for your competitor to rent half of it, then for it to sit empty.

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  5. Another country with unbundled fibre offer is Japan. Interesting too because it's a PON.

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