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Re-monopolisation of the Swedish fixed broadband market?

The European Commission considers that Equivalence of Inputs (EoI) is the surest way to achieve non-discrimination, enabling access seekers to compete with a vertically integrated SMP operator. In Sweden, one of the member states with the highest broadband penetration, the Post and Telecom Authority (Sw. Post- och telestyrelsen) (PTS) published a decision concerning wholesale fibre access on February 19 2015. The decision is intended to secure the continued growth of fibre access in Sweden through applying an EoI approach, which comes into full effect on December 1 2016, instead of price regulation. However several market players disagree with the approach taken by PTS. This article details a few key points in PTS's decision and highlights some of the critical market responses.

PTS considers that the relevant retail broadband market is relatively broad, including broadband products based on copper, cable-TV and fibre. Similarly, on the wholesale level, PTS considers that copper based access products compete with fibre (access via cable-TV is not included due to limitations in technology). The geographic market is national in PTS' view.

PTS considers that the incumbent TeliaSonera has a very strong market position due in particular to its high market share and control of infrastructure. However, PTS does not view TeliaSonera's position as strong enough to motivate price regulation. PTS instead embraces the concept of EoI as a counter-balance to TeliaSonera's market power. PTS reasons that if TeliaSonera would start to price discriminate on fibre products customers would switch to copper instead, which is substitutable and remains price regulated on wholesale level (hence the existing price regulated copper constrains excessive pricing of fibre). In addition PTS reasons that the competition for fibre wholesale access has increased lately as a result of several smaller local/regional players being able to compete with TeliaSonera, and price regulation would risk dampening this fledgling competition.

The market responses to the PTS decision have been varied.

The Swedish Competition Authority agrees with PTS's market definition and embraces the concept of EoI, arguing it will increase transparency and is deemed to be important in the EU following a European Commission recommendation in the area.

Among the companies criticising the decision are access seekers, that is to say, potential wholesale customers to TeliaSonera, including the major operators Telenor , Tele2 and Com Hem .

Telenor considers that EoI alone is not enough to maintain competition for wholesale fibre access and will not work in practice in relation to TeliaSonera. Telenor claims that PTS has overestimated the competitive pressure copper based products have on fibre. Telenor advocates for price regulation combined with strengthened non-discriminatory obligations.

Tele2 is opposed to PTS's market definition, claiming that fibre and copper are not substitutable, notably because fibre enables higher transfer speeds. As a result, Tele2 questions whether copper could have any price constraining effect on fibre. Tele2 adds that the existing regulated price on copper in any event favours TeliaSonera.

Com Hem argues that sales of copper-based products have been declining whereas sales of fibre have been increasing and that this fact has not been fully reflected in PTS's decision. Com Hem also questions copper's constraining effect on fibre and points out that most of the copper products in Sweden are in fact sold by TeliaSonera and not competing operators. Besides criticising the decision as such, Telenor, Tele2 and Com Hem also criticise PTS for not having taken account of their views expressed in previous consultations.

Unsurprisingly, TeliaSonera broadly welcomes PTS's decision. TeliaSonera however underlines that imposing EoI will entail a heavy burden on TeliaSonera that will be proportionate only if price regulation on fibre is removed. The company argues that the competitive landscape has changed as a result of the shift from copper to fibre, and TeliaSonera faces competition from several local/regional players which all offer fibre access. TeliaSonera's response corresponds to the approach among other incumbents within the EU who have called upon regulators to allow higher prices for wholesale fibre access, arguing that higher margins will encourage investment in fibre. These incumbents have at the same time been accused of delaying investments in fibre due to their fear of losing customers in the transition from copper to fibre.

Interestingly, though, fibre operators competing with TeliaSonera have not all welcomed PTS's decision. For example, IP-Only, controlled by the private equity firm EQT, criticises PTS's decision, stressing that without price regulation TeliaSonera will be able to impose geographic sub-subsidisation, in terms of which higher prices could be charged in areas with low competition to compensate for the lower prices charged in more competitive areas. Municipality controlled fibre operators emphasise that their actions are limited by law, for example, their ability to expand outside their municipality preventing them from enjoying the same economies of scale as TeliaSonera.

It is impossible to predict the future of fibre wholesale access in Sweden. However, we know that when the access technology shifted from dial-up to copper-based ADSL broadband products PTS did not price regulate the market for ADSL products intended for wholesale users. This product later became margin squeezed by TeliaSonera, which is precisely what many rival operators now fear will happen to fibre technology.