Local-loop unbundling

Local loop unbundling (LLU) is the regulatory process of allowing multiple telecommunications operators to use connections from the telephone exchange to the customer's premises. The physical wire connection between the local exchange and the customer is known as a "local loop". It is owned by the incumbent local exchange carrier (also referred to as the "ILEC," "local exchange," or in the United States either a "Baby Bell" or an independent telephone company). Other providers are granted unbundled access to increase competition.

Policy background

LLU is generally opposed by the ILECs, which in most cases are either former investor-owned North America or state-owned monopoly enterprises forced to open themselves to competition. ILECs argue that LLU amounts to a regulatory taking, that they are forced to provide competitors with essential business inputs, and that LLU stifles infrastructure-based competition and technical innovation because new entrants prefer to 'parasitize' the incumbent's network instead of building their own and that the regulatory interference required to make LLU work (e.g., to set the LLU access price) is detrimental to the market.

New entrants, on the other hand, argue that since they cannot economically duplicate the incumbent's local loop, they cannot provide certain services, such as ADSL without LLU, thus allowing the incumbent to monopolize the respective potentially competitive market(s) and stifle innovation. They point out that alternative access technologies, such as wireless local loop, have proven uncompetitive and impractical and that under current pricing models, the incumbent is, in many cases, depending on the regulatory model, guaranteed a fair price for the use of its facilities, including an appropriate return on investment. Finally, they argue that the ILECs generally did not construct their local loop in a competitive, risky market environment but under legal monopoly protection and using taxpayer's money, which means, according to the new entrants, that ILECs ought not to be entitled to continue to extract regulated rates of return, which often include monopoly rents from the local loop.

Most industrially developed nations, including the U.S., Australia, the European Union member states, and India, have introduced regulatory frameworks providing for LLU. Given the problems mentioned above, regulators face the challenging task of regulating a market that is changing rapidly without stifling any innovation or improperly disadvantaging any competitor.

The process has been extended - the first action in the E.U. resulted from a report written for the European Commission in 1993. It took several years for the E.U. legislation to require unbundling. In individual E.U. countries, the process took further to mature to become practical and economic rather than simply being a legal possibility.

In 1996 the United States Telecommunication Act (in section 251) defined the unbundled access as:

The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory by the terms and conditions of the agreement and the requirements of this section and section 252. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements to provide such telecommunications service.

The 1993 report referred to the logical requirement to unbundle optical fiber access but recommended deferral to later when fiber access had become more common. In 2006, the first signs were that (as a result of the municipal fiber networks movement, for example, in Sweden, where unbundled local loop fiber is commercially available from both the incumbent and competitors) policy may evolve in this direction.

Unbundling developments around the world

World Trade Organization (WTO)

Some provisions of World Trade Organization telecommunications law can be read to require unbundling:

• Sect. 5(a) of the GATS Annex on Telecommunications requires WTO Members to guarantee service suppliers "access to and use of public telecommunications transport networks ... for the supply of a service". New entrants argue that with LLU, they can supply services such as ADSL.
• Sect. 2.2(b) of the 1998 WTO Reference Paper, to which some Members have subscribed, requires "sufficiently unbundled interconnection" with major providers. However, the Paper's definition of interconnection excludes LLU.
• Sect. One of the Reference Paper requires Members to maintain "appropriate measures ... to prevent [major] suppliers ... from engaging in or continuing anti-competitive practices." New entrants argue that such practices include not giving competitors access to facilities essential to market entry, such as the local loop.

The question has yet to be settled before a WTO judicial body, and, at any rate, these obligations only apply where the respective WTO Member has committed itself to open its essential telecommunications market to competition. About 80 (primarily developed) Members have done so since 1998.

India

LLU has not yet been implemented in Indian cities. However, BSNL stated in October 2014 that it will open its copper loops for private participation. In addition to this, the proliferation of WiMax and cable broadband has increased broadband penetration and market competition. By 2008, the price war had reduced basic broadband prices to INR 250 (US$6), including line rental without long-term contracts. In rural areas, the state player, BSNL, is still the leading and often the only supplier. BSNL is a monopoly used as a tool to ensure competition by the Government.

European Union

Implementing local loop unbundling is a requirement of European Union policy on competition in the telecommunications sector. At various stages of development, it has been introduced in all member states (Operators with Significant Market Power shall publish (from December 31, 2000, and keep updated) a post reference offer for unbundled access to their local loops and related facilities. The offer shall be sufficiently unbundled so that the beneficiary does not have to pay for network elements or facilities that are not necessary for the supply of its services and shall contain a description of the components of the offer, associated terms, and conditions, including charges).

European States that approve membership to the E.U. must introduce LLU as part of the liberalization of their communications sector.

United Kingdom

See also: Internet in the United Kingdom § Unbundled local loop

On January 23, 2001, Easynet became the first operator in the mainland of the U.K. to unbundle a local loop of copper wire from British Telecom's network and provide its broadband service over it.

By January 14, 2006, 210,000 local loop connections had been unbundled from B.T. operation under local loop unbundling. Ofcom hoped 1 million local loop connections would be unbundled by June 2006. However, as reported by The Register on June 15 2006, the figure had reached only 500,000 but was growing by 20,000 a week. Ofcom announced in November 2006 that 1,000,000 connections had been unbundled. By April 2007, the figure was 2,000,000.

By June 2006, AOL UK had unbundled 100,000 lines through its £120 million investment.

On October 10, 2006, Carphone Warehouse announced the purchase of AOL UK, the leading LLU operator, for £370m. This made Carphone Warehouse the third largest broadband provider and the largest LLU operator with more than 150,000 LLU customers.

On May 8, 2009, TalkTalk, owned by Carphone Warehouse, announced that they would purchase ailing Tiscali U.K.'s assets for £235 million. On June 30, 2009, Tiscali sold its U.K. subsidiary to Carphone Warehouse following regulatory approval from the European Union. This purchase made TalkTalk the biggest home broadband supplier in the U.K., with 4.25 million home broadband subscribers, compared with BB.T.'s3.9 million. The service was rebranded as TalkTalk in January 2010.

Most LLU operators only unbundle the broadband service, leaving the traditional telephone service using BB.T.'score equipment (with or without the provision of carrier preselect). Where the conventional telephone service is also unbundled (full LLU), operators usually prohibit the facility where selected calls can be made using the networks of other telephone providers (i.e., accessed using a three- to five-digit prefix beginning with '1'). These calls can still be made using an 0800 or non-geographic (NGN) access code.

Although regulators in the U.K. admitted that the market could provide competitive offerings in due time, mandatory local loop unbundling in the United Kingdom was to speed the delivery of advanced services to consumers.

United States

Under the Telecommunications Act of 1996, the Federal Communications Commission (FCC) requires that ILECs lease local loops to competitors (CLECs). Prices are set through a market mechanism.

New Zealand

The Commerce Commission recommended against local loop unbundling in late 2003 as Telecom New Zealand (now Spark New Zealand) offered a market-led solution. In May 2004, this was confirmed by the Government, despite the intense "call4change" campaign by some of Telecom's competitors. Part of Telecom's commitment to the Commerce Commission to avoid unbundling was a promise to deliver 250,000 new residential broadband connections by the end of 2005, one-third of which were to be wholesaled through other providers. Telecom failed to achieve the number of wholesale connections required, despite an attempt by management to claim that the agreement had been for only one-third of the growth rather than one-third of the total. The Commerce Commission rejected that claim and the publicized figure of 83,333 wholesale connections out of 250,000 was held to be the true target. The achieved number was less than 50,000 wholesale connections despite total connections exceeding 300,000.

On May 3, 2006, the Government announced it would require unbundling the local loop. This was in response to concerns about the low levels of broadband uptake. Regulatory actions such as information disclosure, the separation of the accounting of Telecom New Zealand business operations, and enhanced Commerce Commission monitoring were announced.

On August 9, 2007, Telecom released the keys to exchanges in Glenfield and Ponsonby in Auckland. In March 2008, Telecom activated ADSL 2+ services from five Auckland exchanges – Glenfield, Browns Bay, Ellerslie, Mt Albert, and Ponsonby – with further plans for the rest of Auckland and other major centers, allowing other ISPs to take advantage.

With the number of copper (DSL) connections falling rapidly in New Zealand as of 2023, a large majority of internet connections are now through fiber as opposed to copper, which is wholesaled by Telecom-spun off company Chorus, rendering local loop unbundling a minor percentage in DSL connections.

Switzerland

Switzerland is one of the last OECD nations to provide for unbundling because the Swiss Federal Supreme Court held in 2001 that the 1996 Swiss Telecommunications Act did not require it. The Government enacted an unbundling ordinance in 2003, and Parliament amended the act in 2006. While infrastructure-based access is now generally available, unbundled fast bitstream access is limited to four years after the act enters into force.

Unbundling requests tend to be tied up before the courts, however, because unlike in the EU, Swiss law does not provide for the regulator's ex-ante regulation of access conditions. Instead, under the Swiss ex-post regulation system, each new entrant must first try to reach an individual agreement with Swisscom, the state-owned ILEC.

Hong Kong

Mandatory local loop unbundling policy (termed Type II Interconnection (Traditional Chinese:第二類互連) in Hong Kong) started on July 1, 1995 (the same day of telephone market liberalization), to ensure choice to customers. After 10 years, new operators have built their networks covering a large region of Hong Kong; the Government considered it a good time to withdraw mandatory local loop unbundling policy, to persuade operators to build their networks and let businesses run themselves with a minimum of government intervention. At the meeting of the Executive Council on July 6 2004, the Government decided that the regulatory intervention under the current Type II interconnection policy applicable to telephone exchanges for individual buildings covered by such exchanges should be withdrawn, subject to conditions documented in a statement by the Telecommunications Authority. After that, the terms of interconnection will be negotiated between telephone operators. Hong Kong is the only advanced economy has withdrawn the mandatory local loop unbundling policy.

South Africa

On May 25, 2006, the Minister of Communications of South Africa, Dr Ivy Matsepe-Casaburri, established the Local Loop Unbundling Committee chaired by Professor Tshilidzi Marwala to recommend the appropriate local loop unbundling models. The Local Loop Unbundling Committee submitted a report to Minister Matsepe-Casaburri on May 25, 2007. This report recommends that many companies offer models allowing customers to access voice and data. The models recommended are Full Unbundling, Line Sharing, and Bitstream Access. It is recommended that customers should exercise carrier pre-selection and thus be able to switch between service providers. It is also recommended that an organization be created to manage the local loop, that this organization be under the guidance of the regulator Icasa, and that Icasa be capacitated in terms of resources. The committee recommended that service providers approved by Icasa should have access to the telephone exchange infrastructure whenever necessary. The committee recommended that a regulatory guideline be established and managed by Icasa to guarantee that strategic issues like the quality of the local loop be optimized for regulation and delivery of services. Based on this report, the Minister has issued policy directives to Icasa to move swiftly with the unbundling process. At the end of March 2010 nothing has happened yet, however a deadline of November 1, 2011, was set by the Minister of Communications for monopoly holder, [[Telkom SS.A.] to finalize the unbundling process.

See also

• Forced-access regulation
• GLUMP ("Geographic Number Portability Unbundled Line Metallic Path")
• Local number portability
• Loop management system
• Mobile number portability
• Product bundling
• Sub-loop unbundling
• Unbundling in France (in French)

Further reading

• OECD, Universal Service and Rate Restructuring in Telecommunications, Organisation for Economic Co-operation and Development (OECD) Publishing, 1991. ISBN 92-64-13497-2

External links

• OECD, Developments in Local Loop Unbundling
• LLU Exchange List
• EE.U.telecommunications liberalization framework
• Local Loop Unbundling - What is it?
• LLU Availability
• MAC Codes - UU.K.Guide for obtaining your MAC code