What unbundling means for service providers and consumers

Drive around SA city streets and you’ll soon notice Telkom’s green and blue distribution cabinets, like the one pictured above near TechCentral’s offices in Johannesburg, writes Candice Jones.

Soon distribution cabinets of various colours could be popping up next to Telkom’s street boxes, thanks to local-loop unbundling. And their arrival could herald a steep reduction in fixed-line broadband costs for consumers and businesses.

Telkom’s distribution boxes, many of which now have fibre-optic cables running into them, are often the place where the company provides consumers with access to its digital subscriber lines, the broadband links over the copper cables that run into people’s homes.

The Internet market has long been anxious to see the local loop, the so-called last mile of copper cables that connects consumers and small businesses to Telkom’s network, unbundled.

This dream could be realised before the year is over, and rival operators and Internet service providers have to start thinking now about how they will gain access to this network to provide fixed-line broadband directly to consumers.

Worldwide, local-loop unbundling has boosted competition among Internet providers, driving down prices and paving the way for new services.

Greg Massel, CEO of alternative operator Switch Telecom, says one of the requirements is that Telkom allows competitors to “co-locate” telecommunications equipment in Telkom’s exchanges – and, closer to homes, in distribution cabinets — so they can gain direct access and provide onward connectivity over their own backhaul links.

Getting the equipment into these facilities is a big exercise, even if Internet service providers only want to serve niche areas rather than offering broadband services nationally.

“Costs will vary depending on the coverage area, the equipment used and the capacity deployed, but I think it’s safe to say the kind of investment required will limit the direct benefits of unbundling to larger service providers,” says Massel.

But he says smaller service providers will have more options when looking for alternative wholesale suppliers, which may help drive down prices.

For many local Internet providers, backhaul will be a key consideration. Web Africa CEO Matthew Tagg says getting fibre to Telkom’s facilities will be the biggest factor influencing how successful unbundling will be.

However, Tagg says alternative fibre network suppliers like Dark Fibre Africa have begun providing backhaul links, which should help keep prices down.

The process becomes complicated in areas where Telkom doesn’t provide broadband access over copper from its traditional telephone exchanges, but rather from the distribution cabinets along city streets.

In recent years, Telkom has actively laid fibre closer to people’s homes, running into distribution cabinets, and shortening the distance between consumers and high-speed fibre backhaul. Shortening the local loop in this way has allowed Telkom to offer higher-speed broadband, up to 10Mbit/s in some areas that are served by Metro Ethernet technology.

But it also means Internet service providers have to start thinking about deploying their equipment in those boxes, or even building their own, says Tagg. The problem is there isn’t much space in Telkom’s cabinets, so alternative providers will have to consider building their own cabinets nearby.

There have been suggestions that Telkom could offer what is called “bit-stream unbundling”, where it provides all the equipment other service providers need to connect customers. In this scenario, service providers won’t need to provide their own facilities in the exchanges or build their own distribution cabinets.

“The industry should have had bit-stream access from when Telkom first introduced digital subscriber lines,” says Tagg.

He says to propose bit-stream access as an alternative to full unbundling is “a big cop-out”. “It will do very little to drive competition or produce real change for customers.”

Tagg says full unbundling has been “very successful in Commonwealth countries such as Australia and New Zealand”. Increases in speeds and broadband quality in those countries can be directly attributed to the increase in competition brought on by unbundling.

“We are already playing catch-up with countries like Australia. By my estimation we about seven or eight years behind,” says Tagg.

Though smaller operators are looking forward to unbundling, larger players are wary of committing themselves to exactly what will be needed to take advantage of the process.

MWeb CEO Rudi Jansen says what will be required will depend to a large extent on what the regulator, the Independent Communications Authority of SA (Icasa), stipulates must be unbundled.

The authority last week revealed, in an exclusive interview with TechCentral, that it hopes facilities-leasing regulations will be enough to force Telkom to provide competing operators access to the local loop.

In terms of the Electronic Communications Act, the local loop is considered an “essential facility” since it is a key aspect of the telecoms environment and operators are now able to demand access from Telkom.

However, Jansen says facilities leasing is only a portion of unbundling and will only take the process so far.

“At the end of the day we are all in the hands of what Icasa decides and how much Telkom would like to open up and under what conditions it will allow us into their facilities,” he says.

“We need naked digital subscriber lines, where telephone and broadband line rental is split and not a situation where one is conditional on the other,” Jansen says. “More exchanges need to be upgraded to be broadband-capable and investments need to be made in access speeds,” he says.

However, he says Icasa is not entirely on the wrong track. “For now, I think the regulator must go for the easy wins that will give immediate benefits to all.”

Internet Solutions MD Derek Wilcocks says the best bet for local-loop unbundling is for the country to impose on Telkom what UK regulator Ofcom imposed on Britain’s incumbent fixed-line operator, BT Group.

BT spun off its local loop into a separate, independent company called Openreach, which manages, maintains upgrades and leases the local loop to competing operators, including BT itself, and does it in a way that is transparent to all market players.

“Creating a wholesale, transparent spin-off would be the most practical short-term solution for getting things done,” says Wilcocks.

However, he says Telkom is preparing new products that indicate it is taking unbundling seriously. “For example, it is offering aggregated capacity at the larger exchanges to competing providers, instead of charging for every circuit in that exchange.”

Whether Internet service providers will gain access to the local loop this year remains unclear. However, most industry players are hoping Telkom will meet the November deadline set by communications minister Roy Padayachie.