Co-operation Among Competitors in Spanish Fiber Optic Broadband Market

Co-operation is the sign of a healthy competition and one of characteristics of a professional market. In telecom business and changed global scenario, it is almost impossible to do business without co-operating with existing competitors. The recent best example is the agreement between Telefonica , Vodafone and Orange in Spain. All three are telecommunication giants having their own business strategies and worldwide presence.

Telefonica has extensive network in Spain and as per agreement it gives permission to Vodafone and Orange to use the network to provide broadband services to subscribers. Vodafone and Orange have to make a one time payment per installation to Telefonica. This payment will permit Vodafone and Orange to use the network for 20 years. The pricing will be decided by a third party, in this case, Spain’s telecommunication regulatory authority CMT. As per the agreement Telefonica can utilize Vodafone’s or Orange’s fiber optic networks, wherever they do not have, meaning the agreement is reciprocal in nature. That makes a good business sense.

The agreement signed among the parties details the types of buildings in which Riser infrastructures will be shared and the technical procedures for implementation. The competitors will gradually specify the cities, areas and building in which they want to deply optical fiber. The agreement also includes the option to transfer existing undertakings or for each company to build its own.

This Co-Co business style (Compete and Co-operate) in fiber optic business will make the broadband deployment faster. Fiber optic networks can be shared among broadband service providers that makes effective utilization of existing infrastructures and also helps to reduce carbon footprint. This Co-Co business model is different from Open Access business model that being in practice in many countries. We can say this agreement is a Limited Open Access model. Since Telefonica’s fiber optic networks passes more than 2 million houses in Spain, Orange and Vodafone would be the major beneficiaries. CMT figures show that more than 250,000 houses in Spain have Fiber to the home connection out of a total of 9 million broadband connections.

Hit by economic recession, 27 percent of Spain’s workforce is unemployed currently. Telecommunication service providers have started offering reduced monthly charges as a measure to retain subscribers. The dropping service charges tightens the competition in the telecom market. Telefonica slashed their broadband service charges this year. It was in this scenario, both Vodafone and Orange approached the telecommunication regulation authority to intervene to reach an amicable solution. Vodafone and Orange together plan to construct high speed fiber optic networks by investing around US$1.3 billion. These networks will take optical fibers to 6 millions more homes in Spain.

Telefonica offers quad play service package to its subscribers in Spain. The quad play package includes Internet, Television, Mobile and Land line telephone.

CMT’s intervention made the negotiation possible for the competitors to co-operate, which will be beneficial to the broadband subscribers in Spain. The competition will ensure reasonable monthly charges and the co-operation will ensure faster deployment of broadband services. This business model in fiber optic broadband market could be tried in other countries where fiber optic infrastructure is already built by an operator and other service providers without a network feels the pressure of competition, but are ready to reach to customers. Network sharing is not a new thing, but what makes this a news is the role of CMT to effectively intervene to make a co-operation among the competitors that finally benefits consumers.

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