WIK study: Open Fiber’s wholesale-only model is the best answer to accelerate FTTH investments in Italy

By 21 December 2020, EU Member States should implement the new European Electronic Communications Code at national level. The EECC introduces a specific regulatory regime for wholesale-only operators, which are favoured over vertically-integrated incumbents. objectives set by the Commission in its 2016 Gigabit Society Communication. In particular, all European households should have access to a connectivity offering speeds upgradable to Gigabit and the same Gigabit connectivity should be granted to all main socio-economic drivers.

The outbreak of the coronavirus pandemic made the objective set by the Commission for 2025 to provide access to a connectivity offering Gigabit speeds, such as the ones offered by FTTH networks, even more pressing. The road towards achieving them is still long for many EU Member States, but the adoption of certain solutions would definitely help in that direction. One of this is represented by the wholesale-only business model, as confirmed by a study that will be presented in the coming weeks by the German think-tank WIK, a frequent consultant for the European Commission on telecom issues. The study highlights the benefits of such business model for fibre deployment with a focus on the Italian example of Open Fiber, the largest operator of its kind in Europe.

As the case of Open Fiber shows, the wholesale-only model is very attractive to infrastructural investors, who are looking for initiatives that are focused exclusively on building new neutral very-high-capacity networks. Wholesale-only operators are usually established for that specific purpose and not having any conflicting interests on the retail market makes them focused on the rollout of the new infrastructures and necessarily open to all the players interested to use them without discriminating them. The benefits it offers in terms of competition, neutrality and openness justify the favorable regulatory regime granted to the wholesale-only model by the new European Electronic Communications Code.

On the contrary, as explained by WIK in the study, vertically-integrated operators cannot fully guarantee they will not discriminate against other operators even in the most radical cases of separation, as conflicts of interest between their wholesale and retail activities would still remain. Furthermore, if a vertically integrated operator owns a legacy copper network, as it is the case with the incumbents, it will hardly have the same incentives to build new networks as an operator that was exclusively established for that purpose, such as a wholesale-only one. The revenues that can be obtained from the sale of services connected to the legacy networks are often still too substantial to lead some incumbents to cut ties with the past.

WIK reports that, at the end of September, Open Fiber had connected more than 9.5 million homes with fibre, including more than 3 million in rural areas, providing access to its networks to over 130 operators from different sectors (telco operators, utilities, OTT, and others). These are remarkable results, if we consider that Open Fiber began its massive rollout operations only in 2017. Such a performance prompted the largest infrastructure fund in the world, the Australian Macquarie, to offer around 2.65 billion euro to ENEL for its 50% stake in Open Fiber. The offer assumes an Enterprise Value of between 7 and 8 billion euro on the basis of earn-out mechanisms.

The study also underlines the importance of the FTTH technology deployed by Open Fiber for the achievement of the EU’s climate and environmental objectives. FTTH is much more energy efficient than copper and coax cable and, according to estimations quoted in the study, a complete transition of existing networks to FTTH would result in savings of greenhouse gas emissions up to 88% per bit. Moreover, the widespread availability of FTTH networks would allow greater possibilities for teleworking, with a consequent decrease of commuter traffic and related pollution.

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