Regulating Fibre-to-the-Office in the Netherlands

Plum provided an opinion on the ACM’s December 2012 ruling on how KPN should be regulated in the fibre-to-the-office (FTTO) market in the Netherlands. Plum assessed whether the ruling was reasonable and in the public interest.

This ruling stipulated that KPN must supply its existing passive fibre connections to access seekers (and specified a price cap for these connections), and supply high quality active wholesale broadband access services. The ruling also specified three margin squeeze tests for KPN’s FTTO-basd products, which would apply to the differences between:

  • KPN’s retail prices and its passive fibre connection prices
  • KPN’s retail prices and its active wholesale prices
  • KPN’s active wholesale prices and its passive fibre connection prices.

Plum argued that, by requiring KPN to unbundle its passive fibre loops, the ACM ruling would limit the scope for price and product differentiation – in other words, it would flatten the price-bandwidth gradient. This would lead to a narrow range of retail products which would not match the wide range of price and product needs of different types of business sites, and would especially limit the ability of suppliers to serve the bottom end of the market. This would have damaging consequences for the public interest.

Moreover, Plum noted that the ACM’s proposed price cap was likely to be too low to compensate for the risk associated with investment in an FTTO network. This is likely to be damaging to infrastructure-based competition in the FTTO market, for which there is significant potential in the Netherlands.

Plum’s analysis also indicated that the ACM’s margin squeeze tests alone are a powerful deterrent to KPN supplying and competing in the FTTO market. Passing the margin squeeze tests would require KPN to set prices for passive fibre connections at a level which would disincentivise further investment (or require KPN to set its retail prices at an uncompetitive level).