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Local Loop Unbundling Measures and Policies in the European Union - INTRODUCTORY FRAMEWORK: THE CHALLENGE

access services copper market

Ioannis P. Chochliouros
Hellenic Telecommunications Organization S.A. (OTE), Greece

Anastasia S. Spiliopoulou-Chochliourou
Hellenic Telecommunications Organization S.A. (OTE), Greece

George K. Lalopoulos
Hellenic Telecommunications Organization S.A. (OTE), Greece


Recent European policies have very early identified (European Commission, 1999) the great challenge for the European Union (EU) to promote various liberalisation and harmonisation measures in the relevant electronic communications markets to support initiatives for competition, innovation, development, and growth (Chochliouros & Spiliopoulou-Chochliourou, 2003). In order to fully seize the growth and job potential of the digital, knowledge-based economy, it has been decided that businesses and citizens should have access to an inexpensive, world-class communications infrastructure and a wide range of modern services, especially to support “broadband” evolution and multimedia penetration. Moreover, different means of access must prevent information exclusion, while information technologies should be used to renew urban and regional development and to promote environmentally sound technologies. A fundamental policy was to introduce greater competition in local access networks and support local loop unbundling (LLU) in order to help bring about a substantial reduction in the costs of using the Internet and to promote high-speed and “alwayson” access.

The “local loop” mainly refers to the physical copper-line circuit in the local access network connecting the customer’s premises to the operator’s local switch, concentrator, or equivalent facility. Traditionally, it takes the form of twisted metallic pairs of copper wires (one pair per ordinary telephone line); fiber-optic cables are being deployed increasingly to connect large customers, while other technologies are also being rolled out in local access networks (such as wireless and satellite local loops, power-line networks, or cable TV networks). Although technology’s evolution and market development are very rapid, the above alternatives—even in a combined use—cannot provide adequate guarantees to ensure the sufficient and nationwide spreading of LLU in a reasonable time period and to address the same customer population, if practically compared to the digital subscriber loop (DSL) option, offered via the existing copper. Until very recently, the local access network remained one of the least competitive segments of the liberalised European telecommunications market (European Commission, 2001) because new entrants did not have widespread alternative network infrastructures and were “unable” with traditional technologies to match the economies of scale and scope of operators notified as having significant market power (SMP) in the fixed network (European Parliament & European Council, 1997). This resulted from the fact that operators rolled out their old copper local access networks over significant periods of time, protected by exclusive rights, and were able to fund their investment costs through monopoly rents. However, a great challenge exists as the Internet-access market is rapidly becoming a utility market. Prices for customer premises equipment (CPE) are based on commodity product pricing, while digital subscriber-line services are beginning to be considered by the consumer as a utility service in the same view as the telephone or electricity network.


The importance to new entrants of obtaining unbundled access to the local loop of the fixed incumbent across the EU (and the entire European Economic Area [EEA]) was strongly acknowledged by the European Commission, which has promoted early initiatives in this area, in particular, with its adoption in April 2000 of a recommendation (European Commission, 2000b) and then an associated communication (European Commission, 2000a) on LLU. These measures were reinforced by the announcement that a legally binding provision for unbundling would be included in the new regulatory framework (Chochliouros & Spiliopoulou-Chochliourou, 2003).

The basic philosophy of the proposed measures to liberalise the markets was the estimation that it would not be economically viable for new entrants to duplicate the incumbent’s copper local loop and access infrastructure in its entirety and in a reasonable time period, while any other alternative infrastructures (e.g., cable television, satellite, wireless local loops) do not generally offer the same functionality or ubiquity.

LLU has a large impact on both the deployment rules and the engineering of broadband systems (Ödling, Mayr, & Palm, 2000). The motivation for liberalising the European telecommunications market was to increase competition and, consequently, to provide faster development of services and more attractive tariffs. In order to achieve the projected target, and following the regulatory practices already applied in the United States, the European Commission obliged operators having SMP in the fixed network to unbundle their copper local telecommunications loop by December 31, 2000. This was, in fact, a first measure to promote the opening of the local markets to full competition and the introduction of enhanced electronic communications. The related argumentation was based on the fact that existing operators could roll out their own broadband, high-speed bit-stream services for Internet access in their copper loops, but they might delay the introduction of some types of DSL technologies and services in the local loop where these could substitute for the operator’s current offerings. Any such delays would be at the expense of the end users; therefore, it was appropriate to allow third parties to have unbundled access to the local loop of the SMP (or “notified”) operator, in particular, to meet users’ needs for the competitive provision of leased lines and high-speed Internet access.

The most appropriate practice for reaching agreement on complex technical and pricing issues for local loop access is commercial negotiation between the parties involved. However, as experience has demonstrated multiple cases where regulatory intervention is necessary due to imbalance in the negotiation power between the new entrant and those market players having SMP, and due to the lack of other possible alternatives, it should be expected that the role of national regulatory authorities (NRAs) will be crucial for the future (European Parliament & European Council, 2002b). NRAs may intervene at their own initiatives to specify issues, including pricing, designed to ensure interoperability of services, maximise economic efficiency, and benefit end users. Moreover, cost and price rules for local loops and associated facilities (such as collocation and leased transmission capacity; Eutelis Consult GmbH, 1998) should be cost-oriented, transparent, non-discriminatory, and objective to ensure fairness and no distortion of competition.


It is recommended that NRAs ensure that an operator having “SMP” provides its competitors with the same facilities as those that it provides to itself (or to its associated companies), and with the same conditions and time scales. This applies in particular to the roll-out of new services in the local access network, availability of collocation space, provision of leased transmission capacity for access to collocation sites, ordering, provisioning, quality, and maintenance procedures. However, LLU implies that multiple technical, legal, and economical problems have to be solved simultaneously, and decisions have to be made on all relevant topics, especially when market players cannot find commonly accepted solutions (European Parliament & European Council, 2000). Physical access should be normally provided to any feasible termination point of the copper local loop where the new operator can collocate and connect its own network equipment and facilities to deliver services to its customers.

Theoretically, collocating companies should be allowed to place any equipment necessary to access (European Parliament & European Council, 2002a) the unbundled local loop using available collocation space, and to deploy or rent transmission links from there up to the point of the presence of the new entrant. Furthermore, they should be able to specify the types of collocation available (e.g., shared, caged or cageless, physical or virtual) and to provide information about the availability of power and air-conditioning facilities at these sites with rules for the subleasing of collocation space. NRAs will supervise the entire process to guarantee full appliance of the EU law requirements.

According to the technical approaches proposed (Squire, Sanders, & Dempsey L.L.P., 2002), three ways of access to the local loop of twisted copper pairs can be considered (European Commission, 2000a, 2000b). These can be evaluated (and applied) under certain well-defined criteria based either on technical feasibility or the need to maintain network integrity (OECD, 2003). These distinct solutions can provide complementary means of access and solve various operational aspects in terms of time to market, subscriber take rate, the availability of a second subscriber line, local exchange-node size, spectral compatibility between systems (due to cross-talk between copper pairs), and, the availability of collocation space and capacity in the exchange (Federal Communications Commission, 2001). The different means of access are listed as follows.

Full Unbundling of the Local Loop

In this case, the copper pair is rented to a third party for its beneficiary and exclusive use under a bilateral agreement with the incumbent. The new entrant obtains full control of the relationship with its end user for the provision of full-range telecommunication services over the local loop, including the deployment of digital subscriber-line systems for high-speed data applications. This option gives the new entrant exclusive use of the full frequency spectrum available on the copper line, thus enabling the most innovative and advanced DSL technologies and services, that is, data rates of up to 60 Mbit/s to the user using VDSL (very high speed DSL). Work on standardizing VDSL is currently taking place in the International Telecommunications Union (ITU) and the European Telecommunications Standards Institute (ETSI).

Figure 1a provides an example where the customer wishes to change telephone and/or leased-line service providers, and the new entrant benefits from “full” unbundling to provide competitive services (probably including multiservice voice and data offerings).

Figure 1b is an alternative case where the new entrant uses full LLU to provide high-speed data service to a customer over a second line using any type of xDSL modems. (In this case, the customer retains the incumbent as the provider of telephone services in the first line.)

Shared Use of the Copper Line

In this case, the incumbent operator continues to provide telephone service using the lower frequency part of the spectrum, while the new entrant delivers high-speed data services over the same copper line using its own high-speed asymmetric-DSL (ADSL) modems. Telephone traffic and data traffic are separated through a splitter before the incumbent’s switch. The local loop remains connected to, and part of, the public switched telephone network (PSTN).

The ITU has worked out technical specifications for ADSL full rate—with speeds up to 8 Mbit/s downstream and 1 Mbit/s upstream—in a relevant recommendation (ITU-T, 1997a). This includes a number of country-specific variants in order to accommodate regional local loop infrastructure differences. ADSL can achieve its highest speeds at a distance of 4 km or less. The connection also allows the provision of voice phone service on the basic frequency band of the same line. In addition, the ITU has elaborated a variant ADSL solution in its G.Lite recommendation (ITU-T, 1997b) that is very easy to deploy in the customer premises because it is splitterless (it needs a very simple serial filter that separates voice from data and does not demand any rewiring at the customer premises). Speeds are up to 1.5 Mbit/s downstream to the user, and 385 kbit/s upstream. Some PC suppliers are already marketing relevant equipment with integrated G.Lite-ADSL modems so that standard universal solutions can be rolled out in large scale in the residential market.

This type of access may provide the most cost-effective solution for a user wishing to retain telephone service being provided by the incumbent, but seeking fast Internet service from an Internet service provider (ISP) of his or her choice. The “shared use” provides the feature that different services can be ordered independently from different providers.

Figure 2 provides a relevant example where the new entrant supplies the customer with an ADSL modem for connection, and installs a DSL access multiplexer (which combines ADSL modems and a network interface module) on the incumbent’s premises based on a collocation agreement. (The inter-face between the incumbent’s system and the new entrant is at Point C.)


In the framework for the promotion of an advanced, harmonised, and competitive European electronic communications market, offering users a wide choice for a full range of communications services (also including broadband multimedia and local-access high-speed Internet services), local loop unbundling can be a necessary pre-condition (OVUM, 2003) for the healthy development of the relevant market(s) (Chochliouros & Spiliopoulou-Chochliourou, 2002). In particular, recent European regulatory measures have supported the perspective of unbundled access to the copper local loop of fixed operators having significant market power under transparent, fair, and non-discriminatory conditions. Significant progress has been achieved up to the present day, although various problems still exist mainly due to the great complexity of the relevant technical issues (Frantz, 2002). To supersede this obstacle, three alternative LLU methods are currently offered, each one with distinct advantages and different choices for both operators and users or consumers.

The European Commission has evaluated LLU as a means to encourage long-term infrastructure competition (European Commission, 2003) by allowing entrants to “test out” the market before building their own infrastructure and, consequently, to develop infrastructures that promote the growth of electronic communications and e-commerce innovations directly to end users. Thus, the corresponding sectors may offer multiple business opportunities to all market players involved.

Local loop unbundling will complement the recent provisions in EU law, especially to guarantee universal service and affordable access for all citizens by enhancing competition, ensuring economic efficiency, and bringing maximum benefit to users in a secure, harmonised, and timely manner.

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