Regulating discounts in wholesale fibre markets

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Executive Summary

Encouraging the rollout of new fibre-optic networks is a policy priority across all European countries. One of the ways that regulators seek to achieve this is through encouraging entry by new fibre network operators who then compete with the incumbent telecommunications operator and cable networks. The establishment of sustainable fixed network competition between would bring widespread benefits to customers in the form of investment, innovation and lower prices.

But we are not there yet. Most countries are in what could best be described as an intermediate stage. Competition is developing but there remains a need for some form of regulatory controls in the wholesale market. In such a context, how should regulators deal with discounting by incumbent operators? These discounts can benefit customers through lower prices and reduce the incumbent’s investment risk. However, in some cases, discounts could be used to exclude upstream competitors and ultimately damage competition.

This is fairly new territory for sector regulators who have traditionally been more focused on preventing operators with market power from charging excessive prices. But some authorities are already addressing this issue. Ofcom in the UK, for example, has laid out a framework for evaluating discounts proposed by BT Openreach and applied it twice.

Other regulators will need to think about how they deal with operators who are facing competitive pressure in the wholesale fibre market but still have a degree of market power. How this is done will have an important impact of the development of wholesale fibre markets across Europe.

Read the full report here.