Will Unbundling ever Work?

Over the years, the cost of long-distance telecomms transmission has fallen dramatically to the point where it is now possible to make a phone call to the USA for the same price as a national call. Many new telecomms companies have appeared, aiming to take advantage of these low costs and offer low-price services. Unfortunately, the cost of reaching the end userís premises is disproportionately high because of the expense of laying cables or providing some other local infrastructure. This is the "last-mile" problem and means that it is very difficult for new companies to compete with BT. Local-loop unbundling is the process where BT has been forced to rent its copper wire pairs to other operators so that they can compete or provide differentiated services.

This process started in 1999 when Oftel decided that unbundling was necessary to encourage competition in areas like high-speed Internet access and video on demand. The competing operators welcomed this decision and many decided to try the new freedoms. The story since then has not been a happy one and the unbundling process has not run smoothly. To cut a long story short, only a few operators are still going down the unbundling road. The bulk of them have dropped out because of the extra, unforeseen costs and the difficult procedures that have proved necessary. In fact there have only been about 200 unbundled lines installed so far in the UK; compare this with about 25000 in Germany. The reasons for this disparity are complex but one significant factor is the much lower loop pricing offered by Deutsche Telekom.

The success of unbundling has been very mixed across Europe, but, overall, only about 3% of DSL lines are unbundled. Denmark has done better than any other country with just under half of lines being unbundled, this is probably because they started earlier and have an incumbent operator with a more liberal attitude than most of the others.

Nevertheless, unbundling is not yet dead in the UK and some companies are trying very hard to make a go of it. Notable among these is Fibernet, which has made extraordinary efforts to streamline ordering processes and control costs. Fibernet, which is a British company despite the spelling, has rented space in buildings and installed equipment in street cabinets adjacent to BT exchanges. This avoids the hassles of gaining access to BT premises at short notice. Fibernetís customers (mainly ISPs) can order a connection via a web page and can follow the progress of the order on line. The ordering process is automated and uses e-commerce standards to place orders with BT. Fibernet has decided to start by providing symmetrical services aimed at the SME market where the margins are a little higher than residential services. Additionally, Fibernet can offer service level agreements to its customers because it does not need to send its personnel into BT premises to fix faults.

It remains to be seen whether Fibernet can make a successful business out of unbundling, however, it seems to me that, if Fibernet fails, there is very little chance of any other company succeeding and the whole process should be reviewed once again.

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