The Ovum View: Cable as DSL competitor? No, says the EC

The European Commission recently issued its draft recommendation on the telecoms markets it feels should be regulated within its member states. Included in the recommendation is the Commission's view that cable modem technologies should not be considered as part of the market for broadband internet access and that DSL is the only relevant technology. However, with cable modems still outperforming DSL in several European countries, Jan Dawson asks whether this position is realistic,and what the effects will be for the market.

Out of 12 markets ain total, one the Commission has identified is the market for 'wholesale local access, for the purpose of providing broadband internet services'. It is defined as one sitting between dial-up internet access and dedicated access of the sort that might be provided over leased lines.

This market is clearly designed to encapsulate services that are currently provided over DSL and cable modem technologies to the majority of customers. However, the Commission has decided cable modem technology is not to be considered in this market, which is therefore limited to DSL technology provided over copper local loops, through either local loop unbundling or bitstream access.

The Commission's reasoning is that 'upgraded cable systems are not sufficiently widely developed or deployed to address such a market in a widespread fashion'. Cable modem technology is therefore not relevant to its definition of the wholesale market for broadband access, and is left out in the cold, along with other less well-deployed technologies such as fixed wireless access, 3G mobile networks, digital broadcast systems and powerline technology.

One of the major goals of the new EU regulatory framework was to have been 'technologically neutral' regulation. This phrase refers to regulation that addresses markets based on the services provided rather than the underlying technology supporting them. This is a welcome move, and could theoretically have led to regulation that treated broadcasting, cable and telephony networks providing the same service in the same way, as they should be.

However, in regulating the broadband internet access market, the Commission seems to have ignored this consideration entirely. In doing so, it has lost what was probably the best opportunity in the entire framework for putting this philosophy into practice. It seems that the Commission has shot itself in the foot, scuppering its own plans despite the absence of any obvious external pressure.

Its reasoning is simple - cable networks are not as ubiquitous as copper access networks and in many cases the existing infrastructure still needs to be upgraded to allow cable modem services to be provided over it. In some European countries, there is no cable modem service at all, while in others it is still very limited.

However, a closer look at cable modem deployment figures in Europe reveals that in six European countries (the UK, Austria, the Netherlands, Greece, Ireland and Portugal) there are more cable modem subscribers than DSL subscribers. In another, Belgium, cable modem is only a little way behind DSL. Even in the US market, where DSL has been available for longer, recent research shows that between 55 and 65 per cent of broadband connections are cable connections.

In terms of alternatives to the incumbent's DSL services, cable outweighs competitive DSL by a factor of around three to one across Europe. Only in four countries are there more competitive DSL lines than cable lines, and in three of those this is because cable modem services have not yet been launched. The fourth is Spain, where the difference between the two is negligible.

In addition, in two European countries - Sweden and Denmark - other technologies are being used to provide a significant number of access lines.

All of this evidence belies the Commission's contention that cable modem technology is not yet widespread enough to be considered a major alternative to DSL. It is clearly already a major alternative in a large number of European countries, as well as in several countries outside Europe, including South Korea, Canada and the US.

Fortunately for the market, the recommendation on relevant markets is only at the draft stage and therefore it is possible the Commission will change tack in a final version. However, it is also possible that this provision will remain. If this happens, what will be the impact on the market?

The first obvious thing to say is that this is clearly good news for cable operators. If national regulators follow the Commission's line, there is little chance that access to cable networks by other operators will be made mandatory, even though this option has already been considered in several European countries. The new framework would make such a move difficult, and the Commission would be able to use its veto powers to prevent it if it saw fit.

If cable modem technology were included in the analysis of the broadband internet access market, and if it turned out to have a market share of more than 50 per cent, this would be a good case for mandating access to cable networks in the form of a local loop unbundling equivalent or open access. Excluding cable therefore lets the cable operators off the hook and they will doubtless breathe a big sigh of relief.

What would be good news for cable operators will be bad news for incumbents and competitive DSL providers, although for different reasons. A lack of regulatory intervention in the cable networks will mean that incumbents will continue to feel the full force of any intervention in the broadband internet market.

In addition, whereas open access or similar regulation in the cable networks would provide a valuable alternative for competitors currently restricted to using an incumbent's network, failing to regulate will continue to restrict their options.