7 January 2008

MADRID - Companies in the fixed-line telephony market no longer sell calls; they give them away with an internet connection. More than 70 percent of Spanish households now have mixed contracts offering internet, along with telephone calls and cable TV.

In total, some 6.5 million homes - 42 percent of the total - now have broadband. For those already connected to the web, suppliers are laying fibre optic cables to speed up and increase the size of downloads, based on the growing demand for peer-to-peer (P2P) sharing, and internet TV. As a result, net traffic has grown 20 times in the last two years. Telefónica says it intends to invest EUR 4 billion until 2014 on its network, boosting download speeds to 100 megabytes per second (MBS) from the current 3MBS most users are limited to. The competition, led by Ono and Orange, has similar plans.

At the same time, the phone companies are turning their attention to the still-significant chunk of the population that is yet to sign up. In a bid to bring them on board, they are being bombarded with offers of cheaper internet connections, albeit with less megas. Telefónica fired the first salvo with a monthly rate of EUR 29.90 for 1MBS, sparking a price war.

Last year also saw renewed criticism by consumers - backed by the European Commission - about the price of internet in Spain. Brussels fined Telefónica EUR 151 million for abusing its virtual monopoly on the broadband market, following a complaint by Orange's owner, France Telecom. Competition Commissioner Neelie Kroes says broadband is expensive in Spain - 20 percent higher than the European average - because of lack of competition: Telefónica controls 56.3 percent of broadband lines, and makes up 61 percent of earnings from internet access.

But the Spanish government is backing Telefónica, and has appealed against the fine. A report carried out by the CMT telecommunications watchdog says that broadband in Spain is actually cheaper, or at least in line with, European averages. Specifically, it says that Spanish consumers only pay more for 1MBS deals than users elsewhere.

Nevertheless, prices are expected to fall further this year, as Telefónica opens up its lines to its rivals. In response to complaints from the main operator's competitors - who say that as they cannot economically duplicate Telefónica's local loop, they cannot provide broadband - the CMT is also pressing ahead with Local Loop Unbundling (known as OBA in Spain), the regulatory process of allowing multiple telecoms operators the use of connections from the telephone exchange's central office to the customer's premises. The implementation of OBA is a requirement of EU policy on competition in the sector and has been introduced, at various stages of development, in all member states.

With so much at stake, the only option open to Telefónica's rivals is to join forces. An unprecedented process of consolidation is now underway. France Telecom bought Ya.com, the Spanish affiliate of Deutsche Telekom for EUR 320 million. This has now put Orange in third place with more than one million customers, behind Telefónica and Ono. The other big story from last year that will shape the future of the sector was Vodafone's purchase of Tele2, giving it a stronger presence in the fixed-line market, and allowing it to pool resources. Tele2 Spain has some 550,000 customers, of whom 250,000 are broadband.

[Copyright El Pais / RAMÓN MUÑOZ 2008]

Subject: Spanish news