The Hindu Business Line : Local loop unbundling: A new dimension in telecom competition

THE Telecom Regulatory Authority of India (TRAI) has to be commended for releasing a comprehensive set of recommendations on April 29 addressing various issues for accelerating the growth of broadband and high-speed Internet access in the country.

If the recommendations are accepted and implemented by the government, it is expected that broadband access will experience growth similar to that witnessed in mobile telephony. Of all the different areas in which improvement is sought, Local Loop Unbundling (LLU) is critical and, hence, is addressed here.

Internet Service Providers (ISPs), which introduced high-speed Internet connectivity solution referred to as Digital Subscriber Loop (DSL), did not make enough inroads, thanks to monopolistic bottleneck in the critical "local loop" of the incumbent Basic Service Operators (BSOs).

The lion's share of the local loop, which connects the customer premise to the BSOs switch through traditional copper wires is owned by MTNL and BSNL. Since local loops require huge sunk costs, network duplication is neither compatible with the incentives of competitors nor efficient.

Hence, the ISPs have been leasing the local loop from BSOs. When local loop capacity is unavailable, then ISPs have to get permission from the DoT (Department of telecom) to establish their own last mile.

To provide an impetus to the growth of broadband access, TRAI recommended, and since then accepted by the DoT, that Internet Service Providers (ISPs) be allowed to deploy any media, especially copper cables, for their own last- mile to the customer. However, it remains to be seen how many ISPs will indeed deploy the expensive fresh copper based local loop infrastructure.

Instead of an ISP establishing its own local loop or wait for resources to be made available by the BSO for its exclusive use, it will be more efficient if the ISPs and the BSOs collaboratively offer both voice and Internet services through the same local loop. Hence, an alternative to this is the LLU and is being vigorously promoted as a major regulatory imitative by all countries with competitive basic services market. TRAI has also recommended the LLU for improving competition in broadband service.

Unbundling refers to the process in which incumbent BSOs lease, wholly or in part, the local loop components of their telecommunications network to other carriers or service providers. The LLU, in principle, provides new entrants access to the local loop and encourages the provisioning of complimentary services such as high-speed Internet connectivity and Internet Telephony.

Unbundling, as a policy, is built on the recognition that incumbent BSOs have a dominant position in the provisioning of local telecommunication services by virtue of their control over the local loop. Most often, it cannot be economically replicated by alternative service providers.

There are typically three types of unbundling:

Full unbundling, where the selected local loops are taken over by the new entrant completely at the main distribution frame before the switch of the incumbent

Line-sharing, where the local loop is used by both the incumbent and the entrant; voice telephony and data are separated by using a splitter, installed before the incumbent's switch; in contrast to full unbundling, the local loop remains integrated in the incumbent's network.

High speed bit-stream access, in which the entrant is granted access to a specified bandwidth of the local loop for the provision of its services; the entrant neither has access to the copper wire-pair nor can he influence the functionality of the access service as al these rest with the incumbent.

DSL technology allows the inter-mixing of voice and high-speed Internet data over the same telephone copper cables to the customer premise. Hence, instead of the ISPs pulling cables to the customer premise, they can potentially use the phone lines of the incumbent BSOs, if LLU is allowed.

In this case, the incumbent continues to offer voice telephony while the entrant can offer broadband services such as DSL using its own DSL access switch. However, this requires co-operation between BSOs and ISPs to collocate their terminating devices.

The BSO takes on the voice traffic from the customer premise while the ISP carries the data traffic to the Internet. The line sharing type of the LLU fits this description more closely. An appropriate revenue sharing/rental arrangement should be put in place between the incumbent and the entrant.

However, in this situation the incumbent and the entrant "cooperate closely" to "compete harder". The erstwhile monopoly BSOs often had the tendency not to relinquish control over the local loop and, hence, do not provide the ISPs equitable access. This was witnessed even in the US where the earlier monopoly Baby Bell companies refused the ISPs access to collocation space for the provisioning of DSL services.

This results in disputes between the service providers leading to long delays in settlement and high transaction costs. Hence, though most OECD countries have implemented the LLU, the unbundling ratio is still very low. Even in the US which has the longest history of unbundling since deployment of the Telecommunications Act, 1996, a mere 5.5 per cent of the incumbent local exchange carrier lines have been unbundled and provided to other carriers.

TRAI, in its recommendations, has indicated that non-discriminatory LLU (line sharing and bit-stream access) be executed in a time-bound manner by the incumbents. TRAI's recommendations also allow for the incumbent to franchise the broadband service and be marketed under its brand name.

MTNL has already tied up with ITI on a revenue-sharing basis along these lines. BSNL is also on the look-out for partners. These are definitely welcome steps. Unbundling gives a good opportunity wherein the infrastructure of the BSOs is combined with the expertise of ISPs to offer economic broadband access to subscribers. This is probably the best way to get the most out of 40 million copper cables.

This also brings us to the question of how and whether unbundling is applicable in wireless local loop as well. In a wireless local loop, sharing has to take place over the radio spectrum allotted to the service providers. This translates in to reselling or leasing whole or part of the spectrum by existing license holders (BSOs or unified access providers) to others for provisioning of enhanced services.

Europe and the US witnessed some cases of unbundling in wireless local loop. Even in India, where most of the competing BSOs acquired Unified Access Service licence are and deploying mobile services, this possibility cannot be underestimated.

However, the LLU brings us closer to facility and service-based licensing regulation as envisioned by TRAI in its consultation paper on Unified Licensing Regime. It is an enabler for provisioning of competitive value-added services. This will also spawn a new regime of service providers referred to as Virtual Network Operators (VNOs). The VNOs are operators that provide value-added enhanced services over the rented basic infrastructure.

There are some successful VNOs, such as Sense Communications in Norway and Virgin Mobile in the UK. Whether the LLU will be successful or not, it certainly will bring a new dimension of competition to the incumbents.

(The author is Professor, MDI, Gurgaon.)