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Vodafone sues KPN over triple play delays

As fiber access becomes critical for multiplay and mobile backhaul, cellcos are stepping up their actions to secure wireline assets

Access to fiber is becoming as important to Vodafone as extending its 4G networks, as the company casts aside the mobile-only model which made it great and chases European incumbents into the quad play. It has been vocal recently about the need for regulation to be eased to allow investment in wireline services, to support many business cases from mobile backhaul to fiber-to-the-home (FTTH) to smart cities. And when it finds the climate too tough, it will resort to the law courts, as it has done this week with a suit filed against Dutch telco KPN.

KPN is in turmoil of its own, with America Movil of Mexico putting its 21.1% stake in the telco up for sale, and France Telecom Orange rumored to be interested in a bid. Now the Dutch firm is facing accusations of anti-competitive behavior with the effect of artificially delaying Vodafone Netherlands’ launch of fixed-line and triple play services. That would clearly impact the UK-based giant’s ability to move towards a full quad play, leveraging its mobile networks to offer bundles of services.

In highly competitive markets, these bundles can enable an operator to secure a larger proportion of a consumer’s media and communications spend, even if individual module prices are falling, and they can also help reduce churn and support upselling.

So the stakes are high for Vodafone, which is often in the position of harnessing its mobile position to knock on the outer door of a fixed/mobile fortress heavily guarded by a former national telco.

The carrier’s Dutch arm alleges that KPN’s actions delayed the nationwide introduction of a triple play offering (TV, fixed-line broadband and fixed-line telephone), branded Vodafone Thuis, by three years. KPN owns and operates the Netherlands’ only nationwide copper telephone network and the country’s largest fiber network. So, unlike some markets, such as Germany and Spain, where Vodafone has been able to acquire its own wireline infrastructure, in this small but affluent country, it has to rely on access to the KPN network.

By delaying that access, Vodafone was unable to compete effectively with KPN, or with cable operators like Liberty Global’s Ziggo, until 2014, alleges the filing. In the meantime KPN itself launched a comparable triple play package under its own brand and that of its subsidiary, Telfort. The result was to prevent Vodafone Netherlands from securing significant market share in a period when more than 100,000 households per quarter were adopting bundles.

This amounts to abuse of a dominant market position, concludes Vodafone, which is calling for an estimated €115m in damages.

Rob Shuter, CEO of Vodafone Netherlands, said in a statement: “Markets cannot function without effective competition. Our challenge is that Vodafone relies on its biggest competitor – the incumbent operator – as a supplier in order to provide Dutch consumers with a competitive choice. KPN has repeatedly failed to deliver on its commitments and has instead seriously abused its dominant position. This is bad for consumers, bad for the development of the Dutch telecoms markets and bad for competition. We hope that taking this legal action will help to rectify the harm caused by KPN’s actions and alter its future behaviour.”
This is not the first time Vodafone has resorted to legal action. Vodafone Ireland recently joined fellow service providers Sky, BT and Magnet in a formal dispute with Eir (formerly Eircom) over its repair times for the fixed and broadband networks. This led to the Irish regulator announcing a review of Eir’s governance model.

Meanwhile, Vodafone has also been vocal in calling for tighter regulation of BT in the UK, especially the ability for mobile operators to access its fiber for backhaul and access services. UK regulator Ofcom is currently investigating BT’s wholesale arm, Openreach, over allegations that it avoided penalties for late fiber installation, and is also considering broader ideas for a possible break-up of the incumbent’s retail and wholesale activities.

Regulators in Spain, Italy, Czech Republic and Slovakia also have ongoing probes into alleged abuses of power by former monopolies, indicating that the long painful process of deregulation of the European telecoms market is still far from over.

And as fixed/mobile bundles are becoming so critical to the growth prospects of all operators, these wrangles are becoming more and more important for the competitive landscape. Earlier this week, Vodafone said in a filing with the European Commission that FTTH must be the norm in Europe, if the region is to be competitive with Japan and South Korea.

“The successful economies of the future will be founded on fiber. This needs to become the norm, not the exception,” it said in response to the EC’s just-concluded public consultation on a new regulatory framework for telecoms.
Vodafone called on the Commission to step up its efforts to ensure effective competition and complained that incumbents still remained too reliant on legacy copper networks.

“In an era of global competition for trade, business and investment, Europe’s continuing dependence on patchy and slow broadband over legacy copper telephone lines places it at a competitive disadvantage to advanced industrial nations such as Japan, Korea and Singapore that have facilitated widespread FTTH infrastructure,” the carrier said in its filing.

“European policymakers must focus on tackling the former state monopoly telecoms companies that have chosen to use their legacy copper networks to entrench their market dominance,” Vodafone added. As a minimum, the EC must insist that all operators have full and equivalent access to incumbents’ passive infrastructure, such as ducts and poles. It said that Portugal and Spain were strong examples of how effective passive infrastructure access regulations have stimulated investment in fiber, while the UK and Germany were stuck in a copper age.

Vodafone recently announced a €125m plan to expand its Portuguese FTTH network, and started offering gigabit FTTH services in Ireland via its Siro joint venture with electricity supplier ESB. It is also in talks with Italian electricity provider Enel about building a nationwide wholesale fiber network, indicating how new partnerships will come into play if modern broadband infrastructure is to be expanded cost-effectively and if former mobile-only operators are to control their own fiber destinies.

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