Local loop unbundling 'unlikely' in 2011

Local loop unbundling 'unlikely' in 2011
By Leigh-Ann Francis
Johannesburg, 5 Jan 2011

Industry's hopes that the local loop will be unbundled by November this year may be dashed, as fixed-line operator Telkom has already warned that regulatory and business hurdles make the deadline highly unlikely.

Late last year, communications minister Roy Padayachie committed to the November deadline, noting that local loop unbundling (LLU) remains a critical and important intervention.

The last mile, or local loop, is the copper link between the end-user and Telkom's network and is currently owned by Telkom.

The rationale behind LLU is to foster competition and reduce telecommunications costs by eliminating large investments by competitors to build their own infrastructure for last mile connectivity.

However, the process has been repeatedly delayed, after initially being mooted at least five years ago.

Regulatory hurdles

Telkom says it has embraced LLU and is working with both the Department of Communications, as well as the Independent Communications Authority of SA (ICASA) towards completing the process. However, the company argues that a number of regulatory issues need to be clarified before the process can get under way.

The operator believes a declaration of essential facilities must, by necessity, precede any potential local loop unbundling process.

“Notwithstanding that the Electronic Communications Act (EC Act) includes local loops in the indicative list of potential essential facilities, it is arguable whether the local loop is indeed an essential facility,” argues the operator.

“Specifically, the EC Act states an essential facility 'cannot feasibly be substituted' and it is Telkom's contention that a wireless local loop these days is more than a substitute for both voice and broadband communications.

“Even if local loops were indeed essential facilities, there are no provisions in the Act which stipulate the terms and conditions by which such facilities are to be unbundled,” Telkom continues.

Furthermore, argues Telkom, the process that would have to be followed to unbundle the local loop would be the market review process, as per Chapter 10 of the EC Act.

“To the degree that a local loop can provide one of three services, ie, voice, broadband and partial private circuits (half-leased lines), it is uncertain which market review ICASA would be required to use, since a remedy must not only relate to a market, however, further be confined to that market only,” explains Telkom.

“Even if, to be sure, all three market reviews were simultaneously undertaken, the list of pro-competitive remedies that may be imposed at the conclusion of a market review does not include unbundling of networks or facilities.”

Hence, there is much uncertainty on the regulatory process which should or could be followed to deliver local loop unbundling, presuming that a legitimate process exists in the first place, the operator maintains.

Comment from ICASA was not forthcoming at the time of publication.

Tight timelines

Secondly, having concluded the relevant regulatory process, Telkom will still need to undertake a product development process.

Telkom must determine the technical parameters of the service; the business rules and processes of the service; the prices of the service elements; the commercial and contractual conditions associated with the service; and the product relationships between local loop unbundling, facilities leasing and other network services.

The company explains that this process will take time, and given the number of variables both from a regulator perspective, as well as a business perspective, the operator does not believe the November deadline is realistic.


Too late

Meanwhile, industry believes it is already too late for LLU to make any real difference to competition in the industry.

Richard Hurst, senior analyst at Ovum, says local loop unbundling is a bit too late. “By the time it's done, it's not going to matter anymore. All the other operators will have rolled out their own infrastructure.”

Telcos are now in the process of connecting customers to their networks by technologies that cut out the last mile.

Neotel currently bypasses the copper infrastructure through wireless technology, and Vodacom has plans to eventually cut out the loop by running fibre directly to clients. In addition, Telkom is starting to eliminate the need for copper in its own network by putting in wireless connections.

Chris Gilmour, Absa Investments analyst, says ICASA has dragged its heels for so long that there is no real need to unbundle the last mile. He says copper will become a “deteriorating asset in the ground” and competitors will either role out fibre or wireless to connect.