Higher than expected tariffs for wholesale cable are included in the regulator’s draft decision, which has been submitted to the European Commission.
Belgium’s telecoms regulator, the CRC, submitted the draft nine months after the public consultation.
The regulator appears to have changed tack, and decided to encourage fibre deployment rather than creating competition through regulated wholesale pricing for cable.
In the July 2019 draft, it proposed a price reduction of about 20%, from to the currently paid price of €20.29, for 100Mbps cable connections via the infrastructure of Telenet, Brutele or Nethys.
The proposed new tariff incorporates the cost of cable operators having to deploy a new network. Orange Belgium argues this is not justified by the actual costs of the cable network, as the assets do not need to be renewed, as the CRC mentions in its draft decision.
Orange Belgium said in a pointed statement that it, “regrets the major change in the methodology of cost recovery leading to significantly over-compensate the actual costs of the cable networks”.
Damaged profitability
No doubt it does as the profitability of its planned converged offer looks to be at risk. Jefferies noted, “The new price list shows a material increase of almost every major component, other than the usage-related charge. In particular, the access price for a 150Mbps product would now be €16.31 on TNET, compared to €9.77 under the July 19 proposals.
“The €6.5 increase would probably be mitigated by lower usage charges – say around €1.8 – leaving a net increase of circa €5. Incidentally, that is not far from the difference between the mentioned €14.75 and €20.29.” In other words, it looks like the price will remain about the same as it is now.
The European Commission has until early May to reach a decision and then the Belgian regulators consider its recommendations and publish their final decision.
End customers will pay
It remains to be seen if it allows CRC to, in Orange’s words, “artificially increase the wholesale tariffs beyond their fair value to the detriment of the end customers”, to support FTTH roll out.
The operator added that if the Commission approves the proposal, it would “result in the extension of an unjustified deadweight…to the benefit of the cable owners” and argues that ultimately this “monopoly rent” will be paid by the Belgian customers.
It also argues that it put fair competition in the Belgian Internet and TV market at risk.
Jefferies concluded, “Cash burn in cable would not necessarily mean [Orange Belgium] would stop, in our view – after all, the company faces a strategic necessity to address fixed-mobile convergence offers from [Proximus] and [Telenet], in particular, and might well run this [entertainment and internet] business at a loss. Still, much of our optimism on [Orange Belgium] is predicated on improving cable profitability”