You may not have noticed that during July the Belgian Telecom regulator BIPT put out an 870 page consultation on the state of its broadband market. Unlike most other European markets Belgium has far less fixed line competition and it has proposed the idea of enforcing wholesaled cable, to introduce more competition. The idea came out about 5 years ago, but is now on its way into legislation.
This week Cable Europe brought everyone’s attention to the issue, by effectively threatening a reduction in broadband investment if new legislation goes ahead to unbundle the last mile in cable as it was previously in twisted pair.
That’s not what will happen. Cable Europe represents all of the cable operators in Europe, but is administered, paid for and controlled purely by Liberty Global executives, in particular Matthias Kurth, its Executive Chairman who has successfully crossed the house, going from being part of the German regulator, to helping Liberty Global annex most of Dutch broadband through a merger with Ziggo, a deal we insist should have been illegal due to anti-trust, to create a situation almost as lacking in competition as in Belgium.
In both countries the incumbent telco has been too strong for too long, but both have substantial cable infrastructure, reaching substantially more than 50% of homes. The result is drifting towards the US situation where you can either get cable or you can get telco broadband, and there are no other choices. Most of Europe is further behind than Belgium and the Netherlands, but they are all headed, through consolidations, in this direction.
In the past Liberty Global has taken one of two routes in any given market. It either invests a ton of money to make sure that, over time its infrastructure is the best on the market, or it sells the business.
In the Netherlands it found a halfway house. By merging it with Vodafone Netherlands, it gave it cellular revenues, which are under even more competition than broadband, with Tele2 and T-Mobile filling out the market alongside KPN. Because neither Tele2 nor T-Mobile have fixed line infrastructure there, eventually, by using bundling, both Ziggo and KPN have the advantage and win market share until they share both the broadband and cellular markets. Ziggo however is dominant in pay TV.
So instead of selling of a subsidiary that is coming under increasingly pressure, Liberty Global managed to limit is own exposure and lengthen the life of its assets there by adding cellular, and only owning half of it. Smart.
In Belgium it has acquired MNO Base from KPN, and now Proximus (the old Belgacom telco) and the combined Base and Telenet, have the bundling power to kill off the third cellular service, in this case Orange.
Liberty Global does not have the opportunity to sell off half of the operation to anyone other than Orange, and that really would eliminate too much competition – so it can either, sell up, or continue to target Orange and Proximus customers and grow. There is the small matter of Voo, the 2nd independent cable operator – which could potentially merge with Orange and create a third Quad play force. Voo is more of a mind to merge with Telenet the Liberty Global subsidiary, we suspect.
If Liberty chose to sell up and leave Belgium, then whoever buys it must invest to stay ahead, and if Liberty Global keeps it, it must also invest or lose market share to Proximus.
The fewer operators in each territory in Europe, the more market power they have, and then the bigger their voice and the most aggressive their threat sounds, when it comes to regulating them.
Eventually all of Europe will come down this road, so Liberty Global/Cable Europe is fighting to prevent a regulatory move which will create the kind of precedent that the French created when they unbundled the local loop and led the way in Europe to low prices and 4 strong competitive carriers.
The nonsense spouted by Cable Europe included, ““Infrastructure competition should be promoted, not regulated. This means that telecom access rules should be lowered as much as possible in order to stimulate investments in high speed digital networks across Europe.”
That is all well and good in an environment where cable is substantially behind the incumbent in telephony and broadband – but the truth is that this is not the case the longer.
We suspect that the pro-cable European Commission would love to intervene, but since this is all about making a new law, to prevent broadband price stagnation, it is not really a matter for the Commission – this is the legislature requesting information and stakeholder opinions before passing a law.
Proximus characterizes the move of the regulator as taking the stance that the market needs a third fixed player and that it proposes a scheme for deepening the cable regulation (allowing transparent and regulated wholesale of cable) and forcing Proximus to push into fiber network, which it is already doing.
Interestingly Proximus is always one of the first to implement broadband innovation such as G.fast and VDSL and vectoring, not first just among Europeans, but globally. It is deeply aligned with Nokia’s technology strategy, and is not as much of a basket case financially as KPN. It has begun implementing fiber in line with increasing Netherlands investments in fiber.
Cable Europe tried to take the position that the Belgian regulator is at odds with the investment objectives of the European telecoms framework and the European Single Market Strategy. Read that as code for it wanting its friends in the Commission to intervene. It makes out that Proximus is as much the author of the proposals as the regulator – proposing to define separate wholesale fixed broadband markets based on technology and impose wholesale bitstream access on Belgian cable operators. This market definition would be an anomaly in Europe, that’s true, and it might drag other markets with it.
We argue that the Commission will struggle to interfere, and that other regulators will begin to look at what happens in Belgium. BIPT analyzed the market in some detail, in particular broadband pricing which has stopped falling and flat lined for the past three years with no wholesalers in sight.
Liberty Global could sell off its Belgian business in disgust, if the law goes through, but if the Netherlands copies the law, or Germany tries something similar down the road, it cannot sell all of its assets, and it will have to make a stand somewhere. And it will have to continue to invest or be caught by the incumbent Telcos. Perhaps that’s the reason for investors no longer being in love the Liberty Global stock.
Already OTT video has levelled the playing field on pay TV, and allowed in Netflix, now a partner to Liberty Global, but if the same happened on broadband, the company would lose its edge entirely.
BIPT wants transparency of costs and pricing, done at arms’ length to stimulate alternative operators, with no price squeeze.
The 870 pages are in Dutch or French, but what we could understand of it, showed a clear understanding that broadband and wireless and pay TV are not separate markets, but interrelated, and the country has an effective duopoly and it provides pricing evidence in some detail.