Bitstream access intensifies competition by giving new market entrants control over end user relationships, at wholesale prices, and allowing them to offer DSL lines and ISP service including Internet access in one-stop shopping. The technical definition of what constitutes such access, however, will have a considerable impact upon the business models of both the incumbent operators and the new entrants. The incumbent's needs are different than those of mass-market service providers, which are unlike those for high-end service providers.
The development of the broadband market as the prerequisite for encouraging greater use of the Internet and other innovative services is being observed keenly in Germany and in other countries of the European Union. It is the task of the Regulatory Authority to create the general regulatory setting that will foster competition in the broadband market. Bitstream access plays a major role in this context for a number of different reasons. Relevance of bitstream access for Germany Broadband Internet access in Germany is implemented, by and large, on the basis of DSL lines. Alternative access technologies such as the cable network, WLL or Powerline play a less important role in Germany. At the end of 2002, for instance, the number of broadband accesses via cable modem totalled a mere 45,000. All in all, Germany is ahead of countries like Great Britain, France or Italy in absolute terms, boasting way over 3 million broadband accesses and a broadband penetration of 40 accesses per 1000 inhabitants. The 6 percent competitors’ share in the German DSL market in 2002 was, however, lower than the European average of 11 percent - despite a marked improvement vis-à-vis the previous year. Against this backdrop, wholesale broadband products in the fixed network such as bitstream access play an important role for the further development of competition in this market. This is also the view held by the European Commission: in its recommendation of 11 February 2003 on relevant product and service markets within the electronic communications sector, the EU Commission defined the wholesale broadband access market as a market that is susceptible to ex-ante regulation. This market covers bitstream access and other wholesale broadband products provided through other infrastructures (such as cable and satellites). According to the wording of the recommendation, it is currently confined to bitstream services. The regulatory instruments for liberalising markets available so far comprise unbundled access to the local loop and line sharing. Competitors currently offering DSL lines use unbundled access to the local loop almost exclusively. Line sharing has not been widely adopted in the market, at least up to now. Unless competitors have unbundled access to the local loop to use, they will not be able to make a bundled offer of DSL line and Internet access, known as one-stop shopping, either. Therefore customers who are purchasing Internet access from an ISP other than T-Online will have to buy DSL lines from Deutsche Telekom. At present, DTAG (Deutsche Telekom AG) is not offering unbundled end user T-DSL product that would enable independent ISPs to bundle their services with the line. Bitstream access constitutes a complementary access option. It is aimed at promoting gradual market entry and sustainable development. Bitstream Access in the EU Context The EU Commission has expressed its views on bitstream access in a number of documents starting with the definition included in the Communication from the Commission on unbundled access to the local loop of 23 September 2000. As defined, bitstream access consists of making available a high-speed access link to the DSLAM, together with transmission to a higher level in the network hierarchy, where the new entrant has a point of presence. As such, there may be different handover points for the DSL traffic between the incumbent and the competitor in order to enable competitors to make full use of their own network (DSLAM, ATM, PoP, IP). Each handover point defines a specific bitstream product. Conceivable handover points (cf. Figure 1) could be behind the DSLAM (bitstream 1), at an ATM network node depending on the network configuration of the concentrator network (bitstream 2 and 3), at the IP level on the broadband point of presence (PoP) at 74 interconnection points (bitstream 4 and 5) or at a single interconnection point (bitstream 6) including further traffic concentration on the IP backbone. According to our reading of the EU’s statements, bitstream access is characterised by two features in particular: it begins at the end user access, regardless of the handover point for the traffic (cf. where the arrow for bitstream products begins at the splitter). This means it includes control over the end user relationship, allowing competitors to offer DSL lines and ISP service including internet access in one-stop shopping. Secondly, competitors must be able to offer their own customized services on the basis of bitstream access. They can do this by using their own network thereby generating some added value themselves. Depending on the handover point, this can be accomplished either directly or indirectly via contractual arrangements with the bitstream provider. What obligations, then, does the EU set regarding grants for bitstream access? According to the Commission, bitstream access is part of the wholesale market for broadband services and is thus susceptible to ex ante regulation. If a service provider has a dominant position in the market, the regulators can order it to grant access and may also impose obligations in compliance with the Access Directive (2002/19/EC). Need for consistent decision-making The need to have a consistent regulatory regime and in particular consistent deregulation is, expressis verbis, part of the new EU regulatory framework. Pursuant to Article 8 (2b) of the Framework Directive, national regulatory authorities must ensure ""that there is no distortion of competition or restraints of competition in the field of electronic communication"". The need for consistency is also mentioned in Section 23 (2) of the ministry draft of the new Telecommunications Act, which says, ""It must be ensured that all regulatory measures are fully co-ordinated"". There are two consistency aspects in the debate on bitstream access: there must be consistency between wholesale broadband products and there must be consistency between wholesale broadband products and end user products (cf. Figure 2). In the first case, a distinction must be made between the options: if more than one bitstream product was to be implemented in Germany, the options will have to be mutually consistent. There must also be consistency between any bitstream products on the one hand and already existing wholesale broadband products - ZISP, GATE and OC - on the other. In our view, the ZISP product does not represent bitstream access, as it does not involve end user access in particular. This also applies to the other wholesale broadband products Gate and OC. Consistency means above all that the price relationships between the various products must be calculated “correctly” in economic terms and that there must be no gap between price and costs, otherwise this would provide the wrong incentives and lead to unwise investments. The problems involved here are much the same as those involved in traditional voice telephony. To estimate the price differences between the wholesale broadband products, economies of scale due to IP level traffic concentration must be accounted for, if they are not this could lead to distortion of the IP backbone market competition. Points of discussion issues on bitstream Market players tend to use a wide variety of business models. There are differing models, depending upon the use of their own or third party infrastructure, for access network operators, for platform operators, for Internet Service Providers and the like. Each model permits the operator to offer a different set of services to its customers. The type of business model and services to be offered determines a company’s demand for bitstream access. This applies to the handover point, the protocol used at the handover point and the desire to be able to influence quality of service parameters such as bandwidth, overbooking or transmission time. There is a close correlation between bitstream requirements on the one hand, and the competitor’s existing infrastructure or envisaged business models on the other. Competitors who are basing their business model on unbundled access to the local loop are voicing their concern that bitstream access may devalue their investment. Others, by contrast, see bitstream access as an opportunity. This applies both to competitors such as platform operators who invest mainly in the core area of networks and can provide a nationwide range of services and to ISPs. The critical fact is that bitstream access enables end user relationships to be controlled. Furthermore, bitstream access is supposed to enable competitors to provide their own range of products. There are, however, differing views on how competitors can implement their own range of products. It is clear that the interests of each would be bitstream access user varies considerably from that of its competitors. This explains why the debate on bitstream access parallels the discussions on service competition and not the discussions between access network operators and long distance carriers on infrastructure competition. It is not surprising that there is little consensus among competitors regarding access points or access protocols. Companies that cater to the mass market want an IP access interface. They do not need to guarantee bandwidth and they want to rely on existing interfaces to save time and expense. On the other hand, competitors who focus mainly on key accounts favour bitstream handover to an ATM interface, where it is easier to control quality, so they can guarantee service levels to their clients. Outlook The Regulatory Authority in Germany has engaged in an intensive dialogue with market players and has discussed legal, economic and technical aspects of bitstream access and the various points of view in a number of talks and workshops. Bearing all these aspects in mind, it is necessary to find a solution that will take the various business models into account, which can then be implemented swiftly and that is viable for DTAG. The Regulatory Authority will organise a written hearing on bitstream access shortly, giving all stakeholders the opportunity to outline their respective positions and to draw up a relevant catalogue of questions. The evaluation of the hearing will serve as a basis for conducting the market analysis of the wholesale broadband access market.