Demystifying Local Loop Unbundling

New Delhi | Updated: Mar 24 2004, 05:30am hrs
Many countries have resorted to unbundling the last mile or the local loop in order to increase the broadband penetration. Before proceeding any further, lets first demystify local loop unbundling. In the wireline segment, the widest fixedline network is owned by the incumbent operators. Since in order to provide broadband the copper wire needs to be worked upon and upgraded in various ways, the incumbents are asked to share the last mile copper wire with other players who want to provide broadband services. These players could be Internet service providers (ISPs) and/or other telecom operators.

At a time when the Telecom Regulatory Authority of India (Trai) is expected to announce its recommendations for increasing the Internet and broadband penetration, we take a closer look at the issue. Trai, in its consultation paper, talks of three methods of unbundlingfull access, line sharing and bitstream access.

Under full local loop access, competitive providers have access to both voice and data on incumbents line. Under shared unbundling, competitive providers have access to either voice or data portion of the line. Under bitstream access, the incumbent installs high speed access links to its customers and allows competitive providers access to this link, says Trai. In this arrangement, the incumbent maintains control of the technology and service provisions.

Japan, Korea have had successful experience in local loop unbundling
Now a look at the other countrys experience. According to Ovums senior analyst Michael Philpott, local loop unbundling in Europe is largely considered to be a failure, while Japan and Korea are the countries which have had successful experience. Even now, British Telecoms (UK incumbent) ISP owns around 48 per cent of the market share and the rest is owned by various ISPs, he adds. There has been a directive from the European Union (EU) asking countries to unbundle local loop, following which countries have started taking these steps. While local loop unbundling is mostly done after regulators mandate it, Norway is an interesting example where the incumbent did it before the regulator got involved.

Talking about the usual problems that operators face while unbundling the local loop, Mr Philpott said, Competitors argue incumbents have been slow and make it hard on the ground while sharing access. There are complaints that incumbents are pricing the local loop too high.

However, local loop unbundling does have its benefits. Since it leads to increased competition, it results in service differentiation, prices come down and it also results in improved quality of service (QoS). In effect, this creates better choice for consumers, he says.