Bad technology, poor economics, and incumbent stonewalling will prevent unbundling’s success. With all the hype in Europe around local loop unbundling, users have been forgotten and the benefits will be too little, too late, Forrester Research predicts. A new Report from Forrester Research B.V. (Nasdaq: FORR) outlines how firms must look instead to technologies like fixed wireless and fiber networks as well as improved market conditions to deliver lower prices and more choices.

On 10 November, 1999, the European Commission (EC) requested all member states to mandate local loop unbundling. “According to the EC and new telcos, unbundling will drive increased competition, resulting in greater choice, lower prices, new services for users, and the possibility to use one global provider for corporate users,” stated Lars Godell, analyst for European Corporate Technologies with Forrester Research B.V. “But the evidence shows that, to date, no country can point to successful unbundling implementation. In the US, only 0.22% of all loops have been unbundled three years after regulators mandated it. In Germany and Finland, the figure is also less than 1%.”

Forrester believes that unbundling has a bleak future in Europe. Telcos lack the incentive to act: incumbents because of competitive reasons and implementation costs, and new entrants because of the poor economics. Similarly, the manual order and fault handling interfaces cause capacity and quality problems — electronic OSS interfaces have yet to be introduced in Europe. The 100-year-old copper network can only support 2 Mbps, when 155 Mbps is increasingly required. Neither incumbents nor new entrants can guarantee the 99.5% uptime required in today’s competitive environment. As a result of all these problems, Forrester predicts that only 0.5% to 1% of all fixed lines will be unbundled by 2004 in Scandinavia, while 3% of the lines will be unbundled in Spain and Italy.

“Relief for IT directors is in sight; new technologies and competition will provide solutions,” explained Godell. “Falling fiber prices and increased availability will mean loops with more bandwidth and assurances of 99.999% uptime. Meanwhile, new fixed wireless technologies like local multipoint distribution system (LMDS) will deliver cost-efficient, reliable services. Satellite developments like very small aperture terminal (VSAT) will add to the bandwidth and integration relief.”

Forrester believes that market and other regulatory conditions will ease some of the pain for users. Despite recent improvements, Europe is still burdened with lack of choice and inflated prices for many telecom services. Deregulation has meant a dramatic increase in choice for telecom services; Deutsche Telekom now faces 170 competitors. EU prices for 2 Mbps leased line prices declined on average 21% from 1998 to 1999. Forrester expects 2 Mbps and 34 Mbps leased line prices to come down on average 50% or more in the next 12 to 18 months. Carrier pre-selection (CPS) and resale will push prices down further, and new switched broadband services will give users more power.

For the Report “Europe Moves Beyond Unbundling,” Forrester Research B.V. spoke with 40 corporate IT managers and 37 telcos, ISPs, regulators, equipment manufacturers, and industry experts.