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Summary

The universal service provider (USP) in Ireland, Eir, has launched a legal challenge to remove the universal service obligation (USO) imposed on it to provide basic telephone services to rural areas. This follows the publication in May 2016 by the Irish telecoms regulator, the Commission for Communications Regulation (ComReg), of consultation results on the USO and its renewal of Eir's USP designation for another five years. Eir argues that the ongoing trend of fixed-to-mobile substitution and voice-to-data substitution renders the USO for telephony services obsolete. ComReg and Eir have also previously held discussions regarding the decommissioning the operator's PSTN network. Due to its USO, Eir must seek ComReg's approval first before it can switch off its copper network.

Fixed-to-mobile and voice-to-data substitution renders the fixed telephony aspect of the USO obsolete and financially unviable

Eir has argued that with current and future advancements in fixed broadband and mobile services, a USO for basic telephone services in rural areas is unnecessary because the network is becoming obsolete. Instead, it would like to focus its efforts on providing high-speed Internet cables to these locations. Ovum's Consumer Fixed Voice Forecast: 2015–20 highlights the ongoing decline in traditional fixed telephone demand in Ireland, predicting connections to fall from around 914,000 (a penetration rate of 64.1%) in 2016, to 882,000 (a penetration rate of 57.5%) in 2020. ComReg already allows Eir to deliver telephone services wirelessly via a fixed cellular solution (FCS) when the cost of installing a physical line is prohibitive. However, Eir would like to be completely free of the obligation and therefore intends to launch a legal challenge with the High Court to have the fixed voice obligation in rural areas removed. In particular, Eir has argued that the financial constraints of the requirement are unfair because many of the areas are economically unviable.

Under existing regulation, Eir is obligated to provide, at an affordable price and upon reasonable request, access to telecoms services at a fixed location. These are provided up to a threshold expenditure of €7,000 ($7,903) (or greater than €7,000 if the applicant agrees to pay the additional charge), and the lines must offer a minimum upload and download speed of 28.8Kbps. Unlike in some other markets that offer a universal service fund for the provision of these services, Eir generally has to fund projects itself and is only reimbursed for any net costs that the regulator feels are unfair. In August 2016, for example, ComReg ruled that Eir should not be compensated for its USO for the period of 2009–10 because it did not constitute an unfair burden.

For some time, there have been talks in Ireland around decommissioning Eir's entire copper network and ComReg launched a consultation on the matter in January 2016. The operator had previously stated its intention to replace its PSTN narrowband network with a managed voice-over-broadband service, which it could deliver as part of a broadband bundle. However, due to its USO obligation, the operator currently requires the consent of ComReg before it can phase out its copper network. The regulator has suggested that consent would only be considered with a five-year notice period. Therefore, by legally challenging the traditional telephone service USO requirement, Eir could reduce the hurdles it faces in phasing out its PSTN network.

To reduce the impact on customers, especially in rural areas, the withdrawal of the copper network would need to coincide with the rollout of National Broadband Plan services/the USO for broadband, which was announced in June 2016 by the new communications minister. The USO for broadband would see minimum download speeds of at least 30Mbps becoming a legal right for all citizens by 2017. Unlike the existing USO, the new National Broadband Plan will be supported by government funding of €275m initially, rather than being solely funded by the contract winners.

In the UK, BT has also been trying to persuade Ofcom to relax its USO obligation. The operator has previously outlined plans to close its traditional telephone network by 2025 through the introduction of a sunset clause and will then move customers to a new Internet-based system instead. PSTN switch-off discussions are already happening in a number of other countries, including the US (which plans to transition away from PSTN by 2020) and Germany (which plans to migrate by 2018). As more and more users substitute fixed-to-mobile and voice-to-data, and as PSTN switching technologies approach the end of their life, fixed operators will increasingly want to transition to IP-based networks to reduce costs and remain competitive. Therefore, calls by USPs to end traditional fixed voice USOs will become more frequent.

Appendix

Further reading

Universal Service Obligations for Broadband, TE0007-001038 (August 2016)

Ireland (Country Regulation Overview),TE0007-000988 (February 2016)

Consumer Fixed Voice Forecast: 2015–20, TE0003-000911 (February 2016)

"Broadband speeds of 30Mbps will soon become a legal right for all Irish citizens," TE0007-001033 (June 2016)

"PSTN switch-off discussions should become a priority over the next five years," TE0007-000997 (March 2016)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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