Consultation Response Public

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1 August 29, (11) Contact Phillip Malloch European Affairs Manager, TeliaSonera phillip.malloch@teliasonera.com TeliaSonera s Response to the European Commission Consultation: Revision of the Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks. TeliaSonera operates fixed and mobile networks in the Nordic and Baltic countries, the emerging markets of Eurasia, including Russia and Turkey, and in Spain. TeliaSonera International Carrier owns and operates more than 43,000 kilometres (~27,000 miles) of fibre network offering voice, mobile, IP and capacity services. TeliaSonera welcomes the opportunity to comment on the rules regarding state-aid and the potential need for a revision in light of the roll-out of broadband infrastructure. The deployment of next generation broadband infrastructure, as set out in the Digital Agenda for Europe is a pivotal policy goal in creating an environment where Europe can be a world leader in business, innovation and a plethora of other activities which benefit from high-speed connectivity such as e-health, e- government and many others. In general we believe that rules regarding state aid and that the general principles laid in Communication 2009/C 235/04* ( the Communication from here on out) are sound, namely: a. to preserve competition and to help creating more competitive and sustainable markets in the electronic communication sector; b. to avoid unacceptable distortions of competition, alteration of private incentives to invest and crowding out of commercial initiatives, c. to increase consumer welfare by a wide and rapid deployment of broadband networks; d. to incentivize public authorities to reduce the 'digital divide' where commercial operators have no incentive to invest; e. to help to achieve the ambitious goals of the EU2020 Strategy and the Digital Agenda. The problem often applies not to the guidelines themselves but the application of those guidelines in specific situations; revisions in the future should be based on advancing technology and an increased scrutiny of competitive situations. TeliaSonera believes that investment in infrastructure should, to the greatest extent possible, be delivered by the private sector. State funding should be only resorted to in very specific cases where persistent problems exist. Company information TeliaSonera AB Sturegatan 1, SE Stockholm, SWEDEN Registered office: Stockholm Business ID , VAT No. SE Company contact information Visiting address: Stureplan 8, Stockholm Sweden Postal address: SE Stockholm Sweden Tel Fax

2 August 29, (11) The rapid advancement in broadband technologies create a need to understand and take into account the development of new technologies, specifically wireless technologies such as LTE as well as others which enable the widespread and efficient delivery of broadband to previously white and grey areas. As with other areas of broadband policy an emphasis should be placed on collaboration between the parties concerned, including regulators, operators, investors and municipalities to reach an optimal and efficient solution that satisfy the needs of businesses and consumers. 1. General questions Have you been involved in projects of public funding for broadband deployment (for example, as aid recipient, access seeker, customer of the subsidised network, etc.)? If yes, please highlight what you consider to be the main achievements, challenges and issues which would be relevant in relation to the revision of the Guidelines. If you are familiar with more State aid Broadband projects, please highlight what you consider the main strengths and weaknesses of the different projects. TeliaSonera has been involved in one small-scale project in Finland as an aid recipient. The persons involved in the project criticised the amount of bureaucracy in relation to scale of the project (amount of public funding is less than in total). Possibly there should be a fast track and less bureaucratic procedure for small projects. Probably some safeguards would be needed to bloc a split up of projects aiming at circumventing the rules. Accounting and reporting requirements during several years after the investment were also seen as too detailed and burdensome. As regards Sweden, TeliaSonera has only to a very limited extent been involved in public funding broadband projects under the Guidelines. TeliaSonera has, however, learnt that the principles in the Guidelines are not always followed and TeliaSonera has in one case requested the Swedish authorities to reconsider the aid granted (see below). TEO LT, AB (hereinafter - TEO) has not been involved in public funding projects for broadband deployment in Lithuania. TEO is facing impact of the Rural Area Information Technology Broadband Network (RAIN and RAIN-2) project, which is being implemented by institution Plačiajuostis internetas. (See more below) 1.1 What is your assessment of the Commission's policy in the field of State aid to broadband in general? In your view, were the Guidelines able to achieve the Commission's policy objectives as detailed in section Error! Reference source not found. above? In your view, did the Guidelines strike the right balance between promoting investment in basic broadband and NGA networks and limiting the distortion of competition arising from public intervention? TeliaSonera believes that the Commission s policy in the field of State aid to broadband is reasonable and the Guidelines should in principle also be able to achieve the policy objectives detailed in section 2.2. In Sweden, there are specific geographical conditions as Sweden is large in area and has a relatively small population and approximately 15 % of the population live in rural areas (see description in the Commission s decision in case N30/2010 of 25 March 2010). The geographical situation in some areas in Sweden and also in Finland makes the prospects for a profitable investment in NGA networks poorer and TeliaSonera thus supports the need for public funding of such networks under a regime that is predictable, promotes private investment and does not distort competition.

3 August 29, (11) Another feature in the Swedish market is that there is a widespread existence of municipality owned broadband networks ( urban networks or city networks, sw: stadsnät). According to the trade association for these networks, the Swedish Urban Network Association ( such networks are active in more than 170 (of 290 municipalities in total) and 84 % of them are owned by the municipality and are often vertically integrated with the municipality s local electrical grid company. Such urban or city networks compete head on with TeliaSonera and other private companies for building NGA networks in urban (black) areas and to provide services through open networks, also in competition with several private companies. They have also established basic broadband and NGA networks in what could be considered as grey areas and TeliaSonera believes that there also is an interest from the municipality owned networks to take part of the state aid aimed for white areas. Since 1 January 2010, the Swedish Competition Act includes the possibility for the Competition Authority to act in cases where e.g. municipality owned entities are engaged in competitive markets. The rationale for these provisions is that the publicly funded and owned enterprises may conduct their business without any apparent risks for the existence of the business and thus do not act on equal terms with privately owned enterprises acting on the market. The Competition Authority may according to these provisions initiate proceedings in order to prohibit e.g. municipality owned enterprises to act on a particular market or to behave in a way that is distorting competition or has anticompetitive effects. As provision of broadband networks and services is not seen as one of the typical areas for municipalities to act on, and is connected with significant risks, it has been questioned whether or to which extent municipality owned networks should be entitled. Even though these municipality driven city networks providing broadband or NGA services might not be considered to be funded through State aid, it is a feature on the Swedish market that should be taken into account in the discussion on to whom the state aid funding may be granted. If the State aid Guidelines allow publicly owned enterprises to be granted aid, it must be secured that it will not further distort competition. To exemplify the issue, TeliaSonera will highlight the Linköping case. The municipality of Linköping is the seventh largest city in Sweden with approximately inhabitants in the urban areas and inhabitants in the municipality. The municipality owns, through its energy unit Tekniska Verken, the company Utsikt Bredband AB which has established an open city network connecting both SDUs and MDUs within the urban areas. Linköping municipality applied at the relevant Swedish authorities for aid from the Structural funds and agricultural funds to build in total eight fibre connections between 16 minor villages within the municipality, to which e.g. network associations could connect access networks. Linköping was granted the aid from the County Administrative Board for two connections with 75% of the project costs from the European Agricultural Fund for Rural Development and from the Swedish Agency for Economic and Regional Growth for six connections with 35% of the project costs from the European Regional Development Fund. Linköping financed the rest of the costs for the connections itself. It also commissioned its city network Utsikt Bredband to build the connections, however without an open tender process. As Linköping municipality, in TeliaSonera s opinion, has not followed the terms under which the state aid was granted, TeliaSonera has requested the relevant deciding authorities to reconsider their decisions to grant Linköping the State aid. Whether this is a one time error or not, TeliaSonera is not in the position to say. Even though this particular State aid granted to Linköping municipality might be corrected, it is of utmost importance that any State aid granted for broadband in e.g. a white area will not limit or distort the overall competition in the area in which private and public companies compete, or further supports public

4 August 29, (11) enterprises competing in black areas. For such reasons TeliaSonera suggests that the revised Guidelines include guidance on under which circumstances State aid may be granted to e.g. municipality owned broadband companies. It would, in TeliaSoneras opinion, be reasonable that State aid to such companies should be the last resort, i.e. if no privately owned company after an open tender process is willing to build the broadband or NGA network even with full public financing. In Lithuania we believe objectives of the Guidelines, in our opinion, have not been achieved in the field of preserving competition. State aid has been used to create a competitor providing broadband connection, i.e. the competitor, who is not regulated by obligations to provide services and is capable of offering extremely low (dumped) prices. Unless the primary goal of the publicly funded network is not altered somehow through regulatory measures then it is clear that competition in the market will remain limited. Given the fact that the institution Plačiajuostis internetas participates in the public procurement tenders organised by the State, the bid price offered by this institution is extremely low compared with the cost-based price offered by an efficient operator. In this way, competition is distorted. Regarding Finland, with the limited experience we have, we would argue that the current system is not ideal to promote investments. In Finland the projects are very small scale and they are not tempting commercially, even without the bureaucracy. We would consider it to be beneficial if there were a fast track and less bureaucratic procedure for small projects. 1.2 In your view, what are the main technological, market and regulatory developments in this field since 2009 that should be considered and should have an impact on the content of the revised Broadband Guidelines? In Sweden, there has been an increase in demand from customers and willingness from private companies to build and provide NGA-networks. This development is more significant in urban areas but the customer demand has increased also in less populated areas. Fibre access networks are built also in rural areas through local initiatives (Byalagsmodellen) and often cofinanced through State aid. Such increased demand and initiatives also indicate an increased possibility for private companies to invest in rural areas well. The continued deployment of wireless technologies, specifically investment in LTE will allow previously underserved white and grey areas to be covered by high speed broadband access thus mitigating the need in some cases for investment in fixed wired access. We believe that the targets of the digital agenda and the future of high speed internet access will be served by a mix of technologies and in that vain the principle of technology neutrality, as set out in 51 (d) of the communication is essential when looking at the main technological advances. 2 Subject of the aid The current version of the Broadband Guidelines distinguishes between basic broadband and NGA networks as subjects of State aid measures Do you consider that distinction is justified in light of current economic, technological and regulatory developments in this field? No, Services through basic broadband and NGA are substitutable and are also regulated technologically neutral. Different regimes for State aid for NGA and basic broadband might by itself cause distortion of competition. However, in specific cases in some MS there may still be a need to make the distinction.

5 August 29, (11) 2.2 Would you consider it useful to devote specific sections of the Guidelines to the rules and conditions applying to the use of public funding to subsidize specific infrastructure elements (for instance, ducts, dark fibre, backhaul networks, etc.) or to other activities related to broadband network roll-out (such as civil engineering costs, upgrade of in-house cabling, etc.)? In general, No. In line with the NGA Recommendation 1, the Broadband Guidelines define very high speed, Next Generation Access ("NGA") networks in paragraph 53 as follows: "NGA networks are wired access networks which consist wholly or in part of optical elements and which are capable of delivering broadband access services with enhanced characteristics (such as higher throughput) as compared to those provided over existing copper networks." 2.3 Do you think that this definition is still adequate? In other words, at this stage of technological and market development, besides fixed, mainly fibre based networks, would you consider any other broadband technologies as falling into the definition of NGA networks? Please provide detailed justification and examples of commercial utilization to motivate your answer. No, the definition should be technology neutral. There is competition in Sweden and Finland between fixed and mobile broadband (mostly 3G) services, and for a significant part of the customers mobile broadband is a substitute to fixed broadband. In Sweden and Norway, TeliaSonera launched a 4G network in December Three mobile networks today provide commercial 4G services through LTE technology on the Swedish market with the prospect of delivering very high speed services to end users. The new frequency allocation through the digital dividend will enhance the rollout of 4G networks to more rural areas and these networks should also be considered in a State aid context. With regards also to the consideration of future investment in white areas of 3 years as laid out in paragraph 42 of the Guidelines, it would certainly be pertinent to take into account the advancement of LTE and 3G technologies. Certainly in many countries such as Sweden and Germany much of the problems of coverage of broadband in white areas have been taken into account when issuing spectrum licenses. This represents a clear change in approach to the coverage of underserved areas, specifically white areas. 2.4 In your opinion, shall the Commission change the current qualitative definition of NGA (i.e. mainly fibre based solutions) to a more quantitative one (for instance by setting explicit thresholds for download/upload speeds or defining any other technology criteria)? Please motivate your answer. State aid rules should be technology neutral and the rules should not pick winners in the technology race. Quantitative thresholds do not guarantee technology neutrality. E.g. in Finland the requirement used is 100 Mbps symmetrical speed, leaving fibre the only possible technology as of today. 3 Areas of public intervention The Broadband Guidelines identify so-called "white", "grey" and "black" areas depending on whether there are already adequate private infrastructures in place /572/EU: Commission Recommendation of 20 September 2010 on regulated access to Next Generation Access Networks (NGA) - C(2010) 6223.

6 August 29, (11) 3.1 According to your experience with State aid broadband schemes, would you consider other criteria (for instance download/upload speeds or other technology, regulatory or market criteria) as relevant to identify areas with non-adequate broadband coverage? Do you consider an adequate criterion that if a minimum (download) speed of 2 Mbps is not available at affordable prices, the area shall be considered as "white area"? ly funded super-fast network is a competitor to existing xdsl networks. An xdsl network in rural areas (with long subscriber lines) cannot deliver comparable speeds and therefore IPTVservices cannot be offered. With bundled retail offers in place, provision of broadband services only is not tempting for all customers in the area. The existing xdsl network will lose customers and may mean the end of xdsl business in the area. Naturally, open access to the publicly funded network is an opportunity for all service providers. The criteria for allowing State aid for broadband should be easy to apply, but need in any case to be investigated in detail before any public aid is granted. Whether a specific speed, e.g. 2 Mbps, is available or not at affordable prices imply a difficult assessment that, in TeliaSonera s opinion, is less suitable as it adds another complex issue (cf Article 1.2 in the USO-directive 2002/22/EC). Another aspect when assessing affordability is that the installation of a fibre (FTTH) access might cost a lot for the end users even in urban (black) areas. The Guidelines distinguish between different types of "white NGA areas" - depending on the existing basic broadband infrastructures in place (white NGA/basic white in paragraph 79, white NGA/basic grey in paragraph 73 and white NGA/basic black in section of the Guidelines) to ensure that distortions of competition are limited. 3.2 In your experience, has this distinction and the ensuing differences in the applicable compatibility conditions helped preserving competition and private incentives to invest? In Sweden, it has probably been positive when it comes to using state or EU funds for building broadband networks in the black areas, however private initiatives are still facing competition from municipality owned city networks in black areas, which affects the incentives to invest there. We believe that in order to preserve competition and private incentives to invest, in addition to the existing distinction there should be effective control and supervision of the implementation of the primary objectives and the use of the funds. The Guidelines request that the investment plans of private operators in the next 3 years shall be taken into account when defining the target areas for public intervention (see footnote 31). 3.3 Do you consider that the defined 3 years period is still an adequate time horizon? In your view, what proofs private operators can put forward to demonstrate their investment plans in a certain area? A practical problem may be that investments are not decided three years beforehand, so there is no proof to show. When determining directions, account should be taken of the directions of market participants long-term strategic investments, which cover the period from 5 to 10 years.

7 4 General compatibility criteria August 29, (11) The Guidelines list the general compatibility criteria in paragraph 51 that all State aid broadband measures have to comply with. 4.1 In your experience, have these conditions reached their objective to foster investments, preserve private incentives to invest and to support effective competition on the subsidized networks? TeliaSonera has understood that State aid for broadband is generally granted on terms which are equivalent to the criteria in paragraph 51 of the Guidelines. It is however not clear to TeliaSonera how these criteria have been fulfilled in practice. As mentioned earlier, TeliaSonera has requested the deciding authorities in a Swedish case to reconsider the aid granted as the recipient has not, in TeliaSonera s opinion, fulfilled the terms for the aid. In paragraph 51(e), the Guidelines encourage Member States to use existing infrastructure to avoid duplication of resources and to reduce the aid amount but without giving an undue advantage to the existing incumbents (who typically have significant existing infrastructure in place). 4.2 Do you have experience or examples on the implementation of such condition? In your opinion, how should such condition be implemented in practice to be effective in achieving its objective? Under what circumstances do you consider that access to the incumbent's infrastructure in line with the applicable regulatory framework is a sufficient safeguard? TeliaSonera has limited experience on the implementation of such condition, which in itself is unclear. However it is questionable why existing infrastructure should be singled out and not taken into account in this context (if the issue is not to create redundant capacity). The criteria may have the effect that neither of the two infrastructures established in a white (or grey) area is economically viable. In Lithuania, infrastructure (especially in densely populated areas) is quite well developed, but it is not used sufficiently, and with the use of the State aid there is duplication of infrastructure. If such criteria should apply, the terms regulated or unregulated for using the existing infrastructure (irrespective of its ownership) should be benchmarked with other providers of similar services. Only if the terms would turn out to be significantly worse than the average in the market, the criteria could apply. 5 Aid to Next Generation Access networks The Guidelines require that the subsidized NGA networks shall support effective and full unbundling and satisfy all different types of network access that operators may seek (see paragraph 79). 5.1 Do you have experience with the implementation of the "open access" (i.e. full and effective access) requirement of the Guidelines in case of subsidized NGA networks? Do you have examples for difficulties or disputes and for good practices? The projects TeliaSonera has been involved in naturally includes open access requirements, but so far we have no experiences of interpretation of these rules. 5.2 Do you consider it adequate that all technologically possible access products are requested from the aid beneficiary to compensate for the advantage obtained by the public funds? Would you consider that certain access remedies could under certain

8 August 29, (11) circumstances be deemed to be redundant (e.g. duct access and dark fibre access) and therefore there is no need to request them in all circumstances to ensure a sufficient level of competition? Do you consider that a proportionality analysis shall also be carried out in analogy with the existing Telecoms Regulatory Framework 2 and that only a minimum set of access remedies should be imposed to meet the objective of increasing competition and reducing distortion of competition arising from public intervention? If yes, please explain in detail. We consider that such an analysis is necessary. We believe that for the aid received by way of public funding it should be possible to provide only physical access (not traffic). Other technological solutions will usually be short-term investments and will only increase inefficient investments, and will create exclusiveness only for individual market participants. Pursuant to paragraph 79, the wholesale access obligations on the aid beneficiary should last for at least seven years - without prejudice to any other regulatory obligations. 5.3 Do you consider this 7 year period adequate to ensure competition in the areas concerned without discouraging private investments? Would it be justified to require a longer period, for instance in case of passive access products (e.g. ducts)? If yes, please explain in detail. In Finland, the period is ten years, which may or may not prove to be too long in a rapidly developing industry. In ten years time, mobile technologies may develop to deliver super fast broadband. Therefore, there should be a possibility to revoke access obligations if developments have remarkably changed the market situation. The Guidelines expresses its preference for multiple fibre networks: "In this respect it should be noted that "multiple fibre" architecture allows full independence between access seekers to provide high-speed broadband offers and is therefore conducive to long-term sustainable competition. In addition, the deployment of NGA networks based on multiple fibre lines supports both "point-to-point" and "point-to-multipoint" topologies and is therefore technology neutral." 5.4 What is your experience with multiple fibre infrastructures? Do you share the view that it may not be economically justifiable to deploy multiple fibre networks in rural areas? Or would you see multiple fibre infrastructures as an essential investment to achieve competition in the concerned area in the long run? Certain types of network architectures (e.g. FTTH/P2P networks) are argued to be better in promoting competition as they allow full and effective unbundling (as compared for instance to FTTH/GPON infrastructure), albeit being generally regarded as more costly technological choices. 5.5 Have you been involved in NGA projects? Do you have experience with requesting effective unbundling, perhaps on different technology architectures? Do you have examples of good practices using one or the other technology? No response. 5.6 Besides the conditions specified in paragraphs 75 and 79, do you consider any other conditions that beneficiary companies constructing subsidized NGA networks shall comply with in order to increase competition and reduce the distortion to competition arising from the public intervention? The condition that a company which has received State aid shall have the right to provide physical access only in "white" and "grey" areas and subject to coordination with the operators providing services in these areas shall be complied with 2 See:

9 6 The role of the National Regulatory Authorities ("NRAs") Consultation Response August 29, (11) The Guidelines foresee an important role of the NRAs in helping granting authorities to set the wholesale access conditions. According to paragraph 79, "in setting the conditions for wholesale network access, Member States should consult the relevant NRA. NRAs are expected in the future to continue either to regulate ex ante or to monitor very closely the competitive conditions of the overall broadband market and impose where appropriate the necessary remedies provided by the applicable regulatory framework. Thus, by requiring that access conditions should be approved or set by the NRA under the applicable Community rules, Member States will ensure that, if not uniform, at least very similar access conditions will apply throughout all broadband markets identified by the NRA concerned." 6.1 In your opinion, how could NRAs help (national or local) authorities with their State aid broadband measures? Do you consider appropriate that access conditions should always be approved by the NRAs? Do you consider any limitations for the involvement of the NRAs in State aid broadband measures? If you have been directly involved in aid projects, did you experience any difference when the access conditions were imposed as a regulatory measure as opposed to an access obligation deriving from the State aid rules? NRAs could, based on clear guidelines from the Commission, support authorities granting State aid for broadband networks. It should however be avoided that another formal step is included in the process. In several State aid cases, the NRAs undertook to solve disputes between the operator of the subsidized network and the access seekers, should any such dispute emerge. Do you have experience with such procedure? How do you see the role of NRAs to solve disputes between the access seekers and the operator of the subsidized network? No. 7 Transparency of State aid measures According to the Commission's case practice in this field, granting authorities shall share all the important information of the schemes with stakeholders. Inter alia, they have to publish on a central webpage the mapping information on the target areas, the planned State aid measure, and all information shall remain public for minimum 1 month to allow all third parties to comment. The tender procedures for granting aid have to be conducted in line with the principles of EU Procurement Directives 3, respecting all conditions for transparency and nondiscrimination. 7.1 Do you consider that the information made available in the described ways is adequate to ensure transparency? Do you have suggestions on how the transparency of State aid broadband schemes could be further improved? Can you provide examples of good practice when it comes to information provided on the State aid broadband measures in different stages of the procedure? Transparency requirements are adequate. 3 Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts.

10 8 Other points August 29, (11) Several Member States requested vertical separation on the subsidised networks (the wholesale operator of the network shall not engage in retail service provision) to avoid risk of discrimination, support competition and push take-up rates as a result of public intervention In your view, what would be the costs and the benefits of requesting this condition? In what circumstances would you consider vertical separation to be an effective remedy? Vertical separation is not suitable in an environment where there are several networks each covering a small area. It would be a very costly and burdensome model to vertically separate these. Vertical separation would risk further decreasing the economical viability of a project in the white/grey areas concerned and by itself reducing private incentives. However, there is a need to ensure openness and equal access to these networks. Some public authorities argue for a need of "strategic role" of the State in the broadband sector to achieve their social and economic objectives. In most cases, that is translated in the choice of retaining public ownership of the subsidised broadband networks (mainly passive infrastructure elements, like ducts, manholes, dark fibre) while the wholesale and retail operation of the networks is tendered out to private operators. 8.2 In what circumstances would you consider that public ownership is justified? What are in your view the advantages/disadvantages of public ownership of the infrastructure? In general, public ownership should not be encouraged. In limited situations where no commercial networks of any technology would be built, this could be used. It should be kept in mind, that mobile operators invest in nationwide mobile broadband coverage. 9. Non-aid measures: MEIP and SGEI The Guidelines provide clarifications on broadband measures falling outside the scope of State aid rules, in particular when public funding for the roll-out of broadband is carried out at market terms ("MEIP" Section of the Guidelines) and when Member States consider that the provision of a broadband network should be regarded as a service of a general economic interest ("SGEI" Section of the Guidelines). 9.1 Do you have any experience with "MEIP" or SGEI" instruments used in European countries? No, but please see TeliaSonera s reply to question Do you consider that the current level of detail provided in the Guidelines on MEIP and SGEI is sufficient? Do you have any comment on the applicability of these provisions? See TeliaSonera s reply to question The Guidelines insist on a strict definition of what constitutes an SGEI in the liberalised telecom sector (universal and compulsory nature, open and neutral network, separation of wholesale and retail operations etc.). Have you experienced special difficulties with the implementation of this type of measures? No response. 4 See examples of Commission decisions in cases of N407/2009 Optical fibre Catalonia (Xarxa Oberta), Spain; N183/2009 RAIN project, Lithuania or N196/2010 EstWin project, Estonia.

11 August 29, (11) 9.4 Do you consider it adequate that for SGEIs all technologically possible access products are requested or would you consider that certain access remedies could under certain circumstances be deemed to be redundant (e.g. duct access and dark fibre access) and therefore there is no need to request them to ensure a sufficient level of competition? If yes, please explain in detail. No Response. 10. Final Remarks. No Response..