Likelihood of Entry by an Alternate FTTH Service Provider
Advisory Services
The Situation
The National Competition Authority in an EU Member State wanted to investigate the likelihood of entry by an alternate service provider on a FTTH network as part of a merger investigation.
NERA's Role
NERA constructed a business case model which estimates the profitability for an alternate service provider to enter and provide FTTH services under the assumption that the merger is unconditionally approved. We also produced a report setting out our conclusions based on the model, and participated in consultations with different stakeholders and merging parties.
The NERA business case model constructed for this project:
- Incorporates the "ladder of investment" concept and considers an alternate operator's business case for entry using a range of wholesale access products -- fibre bitstream, unbundled fibre, and dark fibre.
- Analyses the business case for an alternate service provider in different areas which allows the model to capture expected variation in profitability due to:
- The extent of fibre rollout;
- Expected take-up of NGA services;
- The competitive landscape -- for example, first mover advantage and competition
from other access networks; and
- Size in terms of the number of households. - Estimates for an alternate FTTH service provider: the network, service, and retail costs incurred; the expected service revenues generated; and thence the profitability of entering an area.
The Result
After an examination of the effects of the proposed merger on market shares and the likelihood of entry by alternate service providers in different areas, the Competition Authority decided to refuse the merger.
