From New Zealand Connections

Local loop unbundling (LLU) is the regulatory process of allowing multiple telecommunications operators use of connections from the telephone exchange's central office to the customer's premises. The physical wire connection between customer and company is known as a "local loop," and it is owned by the incumbent local exchange carrier, (also referred to as the "ILEC," "local exchange," or in the United States, "Baby Bell").

Policy background

LLU is generally opposed by the ILECs, which in most cases are former state-funded monopoly enterprises forced to open themselves to competition. ILECs argue that LLU amounts to a regulatory taking, that they are forced to provide competitors with essential business inputs, that LLU stifles infrastructure-based competition and technical innovation because new entrants prefer to 'parasitise' the incumbent's network instead of building their own and that the regulatory interference required to make LLU work (e.g. to set the price) is detrimental to the market.

New entrants, on the other hand, argue that, since they cannot economically duplicate the incumbent's local loop, they cannot actually provide certain services, such as ADSL, without LLU, thus allowing the incumbent to monopolise the respective market and stifle innovation. They point out that alternative access technologies, such as Wireless local loop (WLL) have proven uncompetitive and/or impractical, and that under current pricing models, the incumbent is guaranteed a fair price for the use of his facilities, including an appropriate return on investment. Finally, they argue that the ILECs generally did not construct their local loop in a competitive, risk-fraught environment, but under state monopoly protection and using taxpayer money, which means - according to the new entrants - that ILECs ought not to be entitled to continue to extract monopoly rents from the local loop.

Most developed nations, including the USA, Australia and the European Union Member States, have introduced regulatory frameworks providing for LLU. Given the above-mentioned problems, regulators face the challenging task of regulating a market that is changing very rapidly, without stifling any type of innovation, and without improperly disadvantaging any competitor.

The process has been long - the first action in the EU resulted from a report written for the European Commission in 1993. It took several years for the EU legislation to require unbundling and then in individual EU countries the process took further time to mature to become practical and economic rather than simply being a legal possibility.

The 1993 report referred to the logical requirement to unbundle optical fibre access but recommended deferral to a later date when fibre access had become more common. In 2006 there were the first signs that (as a result of the municipal fibre networks movement and example such as Sweden where unbundled local loop fibre is commercially available from both the incumbent and competitors) policy may yet evolve in this direction.

Unbundling developments in New Zealand

The Commerce Commission recommended against local loop unbundling in late 2003 as Telecom offered a market-led solution. In May 2004 this was confirmed by the New Zealand Government, despite the intense "call4change" campaign by some of Telecom's competitors. Part of Telecom's commitment to the Commerce Commission to avoid unbundling was a promise to deliver 250,000 new residential broadband connections by the end of 2005, one-third of which were to be wholesaled through other providers. Telecom failed to achieve the number of wholesale connections required, despite an attempt by management to claim that the agreement had been for only one-third of the growth rather than one-third of the total[1]. That claim was rejected by the Commerce Commission, and the publicised figure of 83,333 wholesale connections out of 250,000 was held to be the true target. The achieved number was less than 50,000 wholesale connections, despite total connections exceeding 300,000.

On the 3rd of May 2006 the New Zealand Government announced it would require the unbundling of the local loop. This was in response to concerns about the low levels of broadband uptake. Regulatory action such as information disclosure, accounting separation of Telecom New Zealand business operations, and enhanced Commerce Commission monitoring was also announced. [2]

New Zealand is now the 29th out of 30 OECD countries to unbundle the local loop (although not completely unbundled 17/10/2007). The only country that has not yet unbundled its local loop is Mexico.

See med.govt.nz for more information regarding telecommunications regulation in New Zealand.

On Thursday 9th August 2007, Telecom released the keys to two exchanges - in Glenfield and Ponsonby. ihug announced that they will be releasing 24 megabits per second broadband for $29.95 in these areas. Click here to view ihug's Press Release

On 13 March 2008, Orcon officially launched their LLU product, called the 'Orcon+ Network' which spans 5 exchanges. (Orcon+ Network, Geekzone forum thread)

On 3 June 2008, Vodafone launched their unbundled product, Red network, which was available with 19 exchanges at launch. (Vodafone Red network)

External links

• OECD, Developments in Local Loop Unbundling
• EU telecommunications liberalization framework