OPTA CONSULTATION
PRICE REGULATION LEASED LINES
5 September 2001
Rob Rosendaal
Summary
Problemsl KPN’s prices are extremely high
l KPN’s current pricing causes price squeeze for OLO-products for which
KPN’s LL access is still an essential input
l Key bottleneck is that a cost-oriented KPN LL wholesale product is still not
available
Solutions
l A cost-oriented KPN LL wholesale product will improve overall competition
(on both wholesale and retail markets) with resultant customer and economy-wide benefits
l OPTA should focus on
(1) cost-oriented prices for KPN’s wholesale LL product
KPN’s prices are extremely high
Total Annual Cost over 3 Years5km 2Mbit/s circuit (1.5Mbit/s for US) US$ 2500 3500 4500 5500 6500 7500 8500 9500 10500 11500 12500 13500 14500
Germany Haupttrasse (new) Ameritech Illinois Zone 1
Sweden
Ameritech Illinois Zone 2Ameritech Illinois Zone 2 Germany Haupttrasse (old)
UK Central London
Germany Nebenttrasse (new)
NorwayDenmark
Germany Nebenttrasse (old) Aus tria Belgium zone 1 Switzerland citiesBe lgium zone 4 Netherlands WTS France Switzerland Italy UK Netherlands Ireland Spain
Total Annual Cost over 3 Years 5km 2Mbit/s circuit (1.5Mbit/s for US)
US$ 2500 3500 4500 5500 6500 7500 8500 9500 10500 11500 12500 13500 14500
Germany Haupttrasse (new) Italy new Ameritech Illinois Zone 1
Sweden Am
erit
ech Illinois Zone 2 Am
erit
ech Illinois Zone 2 Germany Haupttrasse (old)
UK Centra l London
Germany Nebenttrasse (new)
Norway Den mark Germany Nebenttrasse (o ld) Austria Belgium zone 1 Switzerland c ities Belgiu m zone 4 Netherlands WTS France Switzerland Italy UK Netherlands
KPN’s LL pricing results in Price Squeeze
l KPN’s LL pricing is squeezing competitive OLO products & solutions out of
the market to the detriment of overall competition
l In many cases the price of a KPN A-End-to-B-End LL is below the costs an
OLO incurs when buying LL’s from KPN to connect A and B to its own network
A cost-oriented KPN wholesale product is not
available
l KPN’s retail prices are equal to
KPN’s “commercial” CTN wholesale prices
l KPN’s prices for (proposed)
Interconnecting Leased Lines (ILL) are almost twice as high as KPN’s retail and CTN prices
l All KPN products far above costs
0 200 400 600 800 1000 1200 1400 1600 Retail CTN ILL Cost s
Solutions needed
l OPTA’s consultation document primarily focuses on the methodology of
price regulation of retail LL’s (I.e. the introduction of a price cap regime). OPTA should instead focus on price regulation of wholesale LL
l Cost-oriented KPN wholesale LL’s will increase competition in the
provision of retail LL’s and provide a competitive restraint on KPN’s retail LL prices
l Regulation of the margin between KPN’s wholesale prices and the lower
level of KPN’s retail prices is crucial to prevent price squeeze
l Regulation of the upper level of KPN’s retail prices is not needed anymore
KPN’s Interconnecting Leased Lines (ILL)
product
l OPTA should more actively involve OLO’s in the process of evaluating
KPN’s product and pricing proposals for ILL (OPTA should publish the latest ILL prices as proposed by KPN)
l KPN’s proposed ILL prices must be reduced substantially:
l Element based pricing - special focus on the “access part” l LRIC instead of EDC (as other NRA’s, e.g. OFTEL)
l Prices must fall within EU Best Practice (e.g. KPN’s CTN-prices for 5 KM 2
Mbit/s LL must be reduced by around 53%)
l Prices must be below pricing ceilings recommended by European Commission
Price squeeze between retail and wholesale
l Precondition for the development of sustainable competition is that
(vertically integrated) KPN is not allowed to squeeze margins of
competitive OLO’s (that use KPN’s wholesale LL’s as an essential input) via its retail-pricing
l Fully agree with OPTA that the difference between KPN’s wholesale and
retail pricing needs to be regulated
l Important to take discount-arrangements into account
l Anti price squeeze requirements must be installed before OLO’s start migrating
Regulation of retail prices no longer needed
when cost-oriented ILL is available
l Please do not waist valuable time & energy of OPTA and market-parties
on the introduction of a price cap for retail LL’s
l Adequate implementation of price cap for retail LL’s is very complex:
(sub-)baskets, discounts, cap, length, etc
l OPTA should do as OFTEL, who recently decided to focus on wholesale
LL pricing and to abandon the existing price cap for retail LL’s (except for 64 kbit/s analogue).
“OFTEL has therefore decided not to introduce any binding retail price controls on
