Comreg decision on wholesale broadband access

eircomtribunal

Todays comreg publication of the wholesale broadband access consultation and decision is here.
The connection charge has been halved from 60 to 30 euros and the retail-minus pricing model formula is on page 50/51.

An eircom retailed product of € 50 is to be wholesaled at some € 31.13, according to a formula and table at page 51.

Is that a change from the current state of affairs?

P.

SeaSide

Current retail price 29.99 inc VAT = 24.79 ex VAT
Current Wholesale 20 ex VAT
Margin 4.79

Proposed Wholesale price 13.65 (if calcs are right)
Margin 11.14

Significant change I would say

Remember to add the cost of backhaul at about 2.5 per month

eircomtribunal

SeaSide wrote:

Current retail price 29.99 inc VAT = 24.79 ex VAT
(if calcs are right)

Eircom's retail is higher, isn't it? €29.99 only being a promotional offer? I did not check, only from memory.
P.

probe

eircomtribunal wrote:

Is that a change from the current state of affairs?

Wholesale is a side-show and a delaying tactic. A FRIACO mark II. A pretence that something positive is happening.

It allows eircom to keep their nasty vice grip on the market.

With it they control your access speed.

They control the minimum price you pay (to them or one of their so called “competitors” - unless the latter engage in below cost selling).

They control service levels.

They control the range from the MDF where they will permit DSL. (Keeping it as short as possible to force as many as possible to remain on ultra expensive, slow dial-up PSTN or overpriced ISDN).

Eircom control virtually everything, whichever DSL supplier you use, via the wholesale route.

If they were forced to unbundle the loop – as is the case in the Republic of France and the Republic of Italy – this discussion would not be taking place. We’d have up to 20 Mbits/sec down and 1 Mbits/sec up for as little as EUR 19.99 per month. And lots of choice. And we'd enjoy far lower contention ratios than eircom impose and would not have to put up with the token speed increases that are hinted at for January 2006.

There are two main reasons for the alarmingly low penetration of broadband in Ireland.

(a) The high price of broadband – blame eircom.

(b) The presence of Dell and Microsoft is a major contributing factor to the small number of PCs in Irish households. Dell’s dominance in the market makes it difficult for computer shops to survive – thus the public have little exposure to the PC on sale on their shopping rounds compared with people elsewhere in Europe. Linked to this is the fact that Dell is in bed with Microsoft. The Linux operating system is free and works brilliantly on the internet. In free markets, one can pick up a basic PC with Linux for a few hundred Euro.

Ireland, the Kingdom of Monopolists!

probe

paulm17781

The main reason for BB failure in Ireland is that so few can get it. What Eircon should do is start offering a 512k low priced package to anyone who wants it. Speed increases won't improve uptake. Only availability will do that.

probe

eircomtribunal wrote:

Eircom's retail is higher, isn't it? €29.99 only being a promotional offer? I did not check, only from memory.
P.

Correct, it is €39.99. The other is promotional and expires after a short period when subscribers are subjected to the higher monthly charge.

http://www.eircom.ie/About/Activities/Sn1_pt18.pdf

probe

Sponge Bob

eircomtribunal wrote:

Todays comreg publication of the wholesale broadband access consultation and decision is here.

I am confuZZled now :eek:

In order to impose regulations such as this (welcome in itself ) margin squeeze prevention it is necessary for Comreg to designate Eircom with Significant Market Power or SMP .

After the SMP is confirmed they can issue regulations of this nature. The problem as I see it is that the SMP designation is currently 'sub judice' and is grinding through the electronic appeals panel as we can see here.

Frankly I am amazed that Comreg issued this document before the appeal is finalised but there ya are.

eircomtribunal

SeaSide wrote:

Current retail price 29.99 inc VAT = 24.79 ex VAT
Current Wholesale 20 ex VAT
Margin 4.79

Proposed Wholesale price 13.65 (if calcs are right)
Margin 11.14

Significant change I would say
Remember to add the cost of backhaul at about 2.5 per month

Doing the maths on the regular € 39.99 eircom retail price (minus VAT, multiply with 0.7, minus € 3.7) will give us a whole sale price of € 19.44, which is about the same as is currently offered.
This might explain why ComReg did not feel they had to wait with the decision, as it is one which simply confirms the current eircom pricing...
P.

Tom Young

Sponge Bob wrote:

I am confuZZled now :eek:

In order to impose regulations such as this (welcome in itself ) margin squeeze prevention it is necessary for Comreg to designate Eircom with Significant Market Power or SMP .

After the SMP is confirmed they can issue regulations of this nature. The problem as I see it is that the SMP designation is currently 'sub judice' and is grinding through the electronic appeals panel as we can see here.

Frankly I am amazed that Comreg issued this document before the appeal is finalised but there ya are.

eircom have SMP in the WBA - Wholesale Broadband Access, market.

This output only details the controls and minus beta for wholesale returns and applies certain controls on eircom retail.

Don't assume any changes to retail pricing at all.

eircom are appealing section 9 (price control) of the WBA market review at the ecap, www.ecap.ie. This may have an impact on this output.

This is to allow wholesale operators compete with hocus pocus type pricing arrangements and get an 11.5% beta/return on price points.

The squeeze tests and checks will not be public, no surprises there.

The RIA has meat on it, which is nice to see. ....for a change.

Personally, I don't think this is a bad move. Given that Wholesale operators are/were buying bitstream based on a conjugation of eircom's own i-stream/dsl offerings. So the market and regulation has been in hiatus since April 2003.

Not confusion. End of story. Wholesale move to secure returns and set down area for ComReg's specific control.

So 11.5% is all operators have to: Bill, Provision, Maintain and Service ....versus the eircom retail pricing.

Simple model:

A+B+C+D <= F @ 11.5%, where F is the eircom retail price.

Where a squeeze occurs that 11.5% is detremented for any reason. F - 11.5% should be approx the price the wholesale carrier/reseller pays eircom.

Where:

A might be billing.
B might be Provision.
C might be maintenance.
D might be service.

Tom

Wonders if this will confuse? ?!

Tom Young

SeaSide wrote:

Current retail price 29.99 inc VAT = 24.79 ex VAT
Current Wholesale 20 ex VAT
Margin 4.79

Proposed Wholesale price 13.65 (if calcs are right)
Margin 11.14

Significant change I would say

Remember to add the cost of backhaul at about 2.5 per month

I disagree on principle. But that is based on ComReg's ability to control the prices and do the margin squeeze tests. See my model above its simplistic but might give some cluse of the little if any margin remaining on the offering.

I didn't include the network costs. It depends on how you build and buy. The capacity is a retail sell as far as I am aware = higher cost.

eircomtribunal

From ENN
It's a bad sign, if Eircom welcomes the decision.
Will other operators now really have a bigger margin, Damien?

ComReg alters broadband pricing rules
Thursday, November 24 2005
by Charlie Taylor

The Commission for Communications Regulation has published new information on how Eircom's wholesale 'bitstream' broadband service should be priced.

Wholesale bitstream is the product that the incumbent offeers to other operators to enable them to provide retail broadband services over Eircom's network under their own brand name.

In February, ComReg ruled that Eircom held Significant Market Power (SMP) in the wholesale broadband access (WBA) market, a decision which meant that ComReg could effectively regulate the sale of bitstream. Following this, the regulator specified interim price controls on all bitstream services pending a consultation to decide permanent pricing.

ComReg has now published its response to a consultation on how Eircom's wholesale broadband product pricing should be structured. In a statement released on Wednesday, the regulator said that wholesale prices will be calculated by a formula based on Eircom's retail prices.

The response is likely to be warmly welcomed by Eircom's rivals who have previously complained that the way the incumbent calculated its wholesale price meant that margins were so tight, competitors were unable to make a profit offering broadband services to customers.

Previously Eircom offered its wholesale broadband product at a fixed price of around EUR20 (ex-VAT). However given that the firm has been reducing the price it charges for its consumer services, it has become increasingly difficult for other licensed operators to compete effectively with Eircom. The incumbent is in a position whereby it could cut the cost of its retail products while maintaining the price of its wholesale product, whereas other licensed operators were forced to reduce their retail service prices to stay competitive, but were cutting into their already thin margins to do so.

ComReg's response has been positively received both by Eircom and its competitors. "Broadly speaking we're happy with the response, but we are in the process of reviewing it," a spokesperson from Eircom told ElectricNews.Net.

Ireland Offline, one of the organisations to offer a submission for the consultation has also welcomed the response. "There were worries that with eircom retail dropping prices down towards the wholesale price and then increasing speeds, the margins for a competing service were dwindling to almost nothing. But when wholesale prices are linked to retail the playing field is more level," Damien Mulley, Ireland Offline's chairperson told ElectricNews.Net.

"Other licensed operators will now have a bigger margin which could mean that they reduce the price of retail bitstream products or offer a better service for the same price, which is good news for consumers," Mulley added.

P.

paulm17781

I would say Eircon only welcome it in the hope it'll stifle LLU.

Sponge Bob

paulm17781 wrote:

I would say Eircon only welcome it in the hope it'll stifle LLU.

Not really Paul

Eircom can keep their existing Bitstream product range with the dismal margins in place. The margin squeeze formula only applies to new products.

If Eirocm vary the port size on entry from 1Mbit to 2 mbit that is a variation of an existing product not a new product as I understand this regulation.

Therefore Comreg , by not applying these regulations to existing products in the market

1. Have removed the possibility of there EVER being a 19.99 entry level long haul 512k product for persons beyond the 4.5km limit.

and

2. Have condemned Bitstream operators to the same margin squeeze as before.

The decision essentially does nothing for competition but not because it affects LLU , no wonder Eircom welcomes it

damien

eircomtribunal wrote:

It's a bad sign, if Eircom welcomes the decision.
Will other operators now really have a bigger margin, Damien?

Nope, I got that wrong.

Sponge Bob

damien.m wrote:

Nope, I got that wrong.

Note another implication of margin squeeze .

1. Comreg accepts that a 1mbit port upgrade to 2Mbit is a variantion of an existing product

2. Twice as much data goes thru the same pipes

3. Margin the same

4. Bitstream operator has to order more backhaul (from Eircom of course) to handle the incereased traffic.