QUESTIONNAIRE on the BB Guidelines ( Guidelines )

Transcription

1 Fastweb s response to the Commission consultation on the Revision of the Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks QUESTIONNAIRE on the BB Guidelines ( Guidelines ) Introduction FASTWEB is a fully integrated, multi-play telecommunications service provider in Italy, leveraging a countrywide full-ip broadband fixed network for offering voice, video, IPTV and data communications services to both the consumer and the business market segments. Fastweb has been among the first in Europe to roll out a proprietary NGA FTTH network, investing over 5 billion euros to pass approximately 2 million households in several Italian cities. In 2010 FASTWEB has undergone further investments to upgrade its network and provide 100 Mbps connections to residential as well as business customers (Fibra 100). Currently Fastweb has approximately 300k active customers on its FTTH network, whereas it serves the rest of its customers through LLU and other wholesale access services provided by the incumbent operator on its legacy copper network. 1. General questions 1.1. Have you been involved in projects of public funding for broadband deployment (for example, as aid recipient, access seeker, customer of the subsidized 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. There are currently several projects in Italy for broadband deployment that at some level involve some form of public funding. As a major broadband provider, Fastweb is directly involved or in any case has expressed an interest- in all of them: a. The Ministry of Economic Development (MISE) is promoting an initiative (the so called Tavolo Romani ) aimed at creating a private-public partnership involving the incumbent and the major fixed players to deploy an NGA covering 50% of the Italian population. The initiative aims at operating in areas in which operators will not invest in the next three years (so called principle of subsidiarity ).

2 b. The initiative has had the support of major operators in the Italian market and an MOU has been signed at the end of 2010 with a further period of negotiations to define operational agreements. Nevertheless, after signing the MOU, Telecom Italia has pulled back from the initiative asking for significant changes such as: a. the extension to 5 years of the period in which if operators announce the intention to invest, the private-public NewCo will not invest; b. the request of a disconnect fee to be recognised to Telecom Italia for each customer (both retail and wholesale) migrated from the copper legacy network to the NGA network; c. a call option to be recognised to Telecom Italia so that it can become the owner of the network at the end of the start up phase; d. the scope and price of the wholesale services to be provided by the NewCo, and specifically the request by Telecom Italia of charging different prices depending on the chosen architecture (i.e. higher for PtoP than for GPON). 2. The Region Lombardia is also promoting a public-private partnership to establish a Newco, participated by all fixed players and partially funded by public money. The project is still at an early stage and several issues, partly similar to the ones approached at the Tavolo Romani, have arised and are being discussed. 3. The Provincia Autonoma di Trento has set up a project to deploy NGA to 60% of the households in the area. It has destined 60 million euro of its budget to the project and signed an MoU with Telecom Italia to be its industrial partner in the project. The case is currently under the scrutiny of DG Competition as, although the Provincia di Trento has claimed to be acting as a market economy private investor, major alternative operators including Fastweb, have express doubts that the capital injection planned by the provincial in the project should instead be considered as a State Aid. 4. Several local authorities have promoted initiatives, in most cases involving state aid, for the upgrade of the existing copper network so to be able to deliver broadband services in digital divide areas. Those cases have been notified to DG Competition. As a general remark we d like to highlight that, although we agree in principle that the roll-out of NGA should be pursued primarily through private initiative, in the current scenario, public funding may play a critical role in triggering the deployment of high speed broadband. Fastweb s experience in the roll out on NGA indicates how the lack of a specific demand for high speed broadband and very marginal willingness to pay even a low premium price for NGA

3 connectivity services by the end users create serious uncertainties on payback time of these investments and currently represent the major obstacles in the roll out of NGA by telecom operators. Fastweb s 100 Mbs connectivity service has been initially offered at a slight premium price, whereas currently it is offered at the same price of traditional 20 Mbps ADSL offers. Nonetheless (and despite a remarkable commercial push) only a limited number of users have chosen to activate 100 Mbs fibre services, indicating that currently there is very little understanding at consumer level of the advantages of high speed FTTH connectivity. As the roll out of fibre networks doesn t guarantee a strategic competitive advantage, it is obvious how there is very little incentive for alternative operators (and even less for the incumbent, interested in preserving the revenues of its depreciated copper legacy network) to be a first mover and start rolling out NGAs. It is evident how in this context, an active role played by the public and the policy makers can encourage all stakeholders to pool resources into a cooperative effort, i.e. the roll out of a unique network by Newcos participated by a large number of stakeholders, whose core business should be to roll out and manage the network and provide wholesale services to all access seekers that would then compete at retail level. Considered the context described in which it is highly unlikely that a single operator would act as first mover in massively deploying NGAs - such projects would have the huge advantage to maximize the revenues and minimize the risk (all end users would be connected to the same passive infrastructure). More details on the advantages of this approach will be provided in par 8.1. This would trigger a virtuous cycle: once NGAs are available and will have reached a certain degree of penetration, innovative services requiring high speed broadband will develop (i.e. high quality, premium Video on Demand services) stimulating a demand for high speed broadband connectivity and creating the conditions to roll out NGAs even in areas less densely populated. Therefore we believe that the major objective in the revision of the BB guidelines should be to allow public funding to play a key role in encouraging stakeholders to participate in cooperative projects involving the deployment of a single, open NGA infrastructure that minimise roll out costs and allows a high degree of competition downstream. Having said that, it should be remarked how a number of issues should nonetheless be carefully considered by the Commission while revising the Guidelines, in order to ensure that NGA and BB public funding is used in appropriate and pro-competitive way: reinforce mechanisms to ensure that public funding is used to support the deployment of networks whose topology allow the maximum openness and all kind of wholesale services

4 (including and especially full physical LLU) thus ensuring an effective competition at service level: open access rules (including and especially physical fibre LLU) are fundamental to ensure that public funding is used in a pro-competitive way and contribute to the maximum general benefit. However clear and timely establishment of such rules is frequently neglected. Public tenders do not clarify from the beginning the open access principles to be applied in conformity with the Guidelines and leave their elaboration to further negotiations with operators. As such negotiations involve the incumbents which have no incentive to establish a pro-competitive network topology, it is very likely that compromise solutions are identified, based on architectural and technological solutions which are sub-optimal and do not allow for a full range of wholesale services (such as full LLU) to be provided. - ensure that projects to upgrade legacy networks and provide basic broadband services in digital divide areas include adequate measures to avoid distortion of competition. It is evident how those funds are clearly destined to be intercepted mainly by the incumbent operators due to its control over the legacy copper network and civil infrastructures. In these situations, it should be guaranteed that the price of wholesale services offered to access seekers reflect the aid provided to the incumbent so that competition is not distorted 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 2.2 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? As explained above the current lack of investments in NGAs sector and the limited role that State Aid has played so far is not due to an excessive pervasiveness of regulation and of the Guidelines, rather to structural conditions of the market. Further details will be provided in 1.3. In general, the Guidelines strike a fair balance between promotion of investments and protection of competition ensuring priority to private investments while allowing member states to stimulate the roll out of NGA infrastructures when private investments are not willing to step in. Nevertheless two areas of improvement can be identified: (i) on one hand, it should be noted how currently there are high incentives for the incumbent operators especially in countries with no cable and in which there is no infrastructure competition to maintain the status quo, i.e. not to roll out NGAs and at the same time boycott other operators plans. This means that in many cases they there are high risks that the 3 years rule is used in an opportunistic way to

5 carve out more densely populated areas from the potential target of intervention for public initiatives, therefore reducing the interest of the public intervention and other stakeholders potentially interested in the project. (ii) Fastweb s experience in rolling out NGA highlights how PtoP networks, while being only marginally more expensive than GPon networks (below 10%) have a number of advantages that make them the most rational choice from an economic and technical point of view. When State aid is involved, the competitive considerations should be added to this assessment as the level of openness allowed by PtoP is not comparable to GPon. Incumbent operators are instead deliberately choosing, when selectively deploying NGAs, architecture that do not allow for physical full LLU, so to scale back competition to the mere reselling of high speed broadband product that they develop (without LLU Altnets would not be able to develop autonomous strategies and innovate, but would be forced to simply sell at retail level the same broadband product that the incumbent provide at wholesale level). In this sense it is extremely important to make very clear how, when State Aid are involved, the architectures chosen by the beneficiary of the aid should without any exception allow for full fibre LLU at the Mpop, therefore allowing the aid to produce the objectives of common interest and to maintain a degree of competition such to guarantee consumers interests in the medium/long term 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? There are no relevant regulatory developments since 2009: both the European Framework and the NGA Recommendation approved after the BB guidelines adoption are in line with the principles enshrined in the BB Guidelines and do not per se require any update of the latter. Neither are there significant technological developments which may influence the revision of the BB Guidelines. The most important developments concern the market. While during the period of negotiation of both the European Telecom Framework and the NGA Recommendation institutions and stakeholders looked for the best balance between preserving competition and promoting investments, it has now become clearer that there is very little relation between the level of regulation aimed at ensuring competition in the NGA scenario and the incentive to NGA investments. This has largely been proved in countries such as Germany and Spain where

6 regulatory holidays granted to incumbents which despite their SMP would have in theory been able to deploy fibre networks with no obligation to provide wholesale services to their competitors have failed to produce the mass deployment of NGA networks: Deutsche Telekom has deployed some VDSL (mainly as a response to cable upgrading to DOCSIS), while Telefonica s announced NGA investments were scaled back in 2009, few months after CMT s decision to lift regulation. Instead, it became clearer that incumbents have no incentive in rolling out NGA networks, irrespective of the NGA regulation in place. The traditional business model of incumbents is based on exploitation of their legacy copper networks, deployed decades ago thanks to public investments. Current pricing methodology adopted by NRAs for wholesale services (based on so called LRIC, which calculates the cost of these infrastructures as if they had to be built from scratch at current prices, not taking into account that they were built many years ago and are largely depreciated) allow incumbents to get relevant extra-profits from both the provision of wholesale services to their competitor and the provision of retail services to consumers. Taking into account this context, there is no incentive for incumbents to engage in the deployment of NGAs, which require heavy sunk investments upfront and imply writing off their legacy assets while not providing to them any substantial advantage (as explained, the demand for high speed broadband is not robust and the capability to extract a premium price from the commercialization of high speed broadband services is uncertain). As a result, the incumbents first best is not to roll out NGAs and not have those same NGAs rolled out by others, as they have utmost interest in preserving the profitable status quo with the basic BB business. This strategy is pursued via various instruments: lobbying for the increase of wholesale services prices to weaken the financial capability of Altnets to invest; conducting price squeeze and margin squeeze strategies in more profitable areas were Altnets may be interested in rolling out NGAs; announcing NGA investments with no concrete follow-up with the sole aim of excluding specific areas (normally the potentially profitable ones) from the target of potential co-investment initiatives, with the objective of delaying negotiations. 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? Although from a consumer perspective basic BB and NGA services are still perceived partially as substitutes (due to the fact that the services currently accessed by the average consumers were

7 conceived for ADSL) they have extremely different technical specificities and quality features and even the perception by end users is destined to change quickly with the development of NGA-based innovative services which will require higher speeds and performances. A similar process was observed during the transition from Internet dial-up to ADSL, when the first ADSL broadband connections were perceived by consumers as a substitute to basic dial-up. Based on what we said before (no technological and regulatory developments since 2009) and the need to ensure a key role for public funding and state aid as a trigger for NGA roll out, it s critical to maintain a distinction between basic broadband and NGA, to ensure that some form of public involvement is allowed in areas that would be considered grey or black as far as basic broadband is concerned, but where there is little chance that NGA would be rolled out relying solely on market forces. It should also be taken into account how financing NGA networks which involves rolling-out a new network, is far more complex and heavy than financing basic broadband (which in certain cases may solely consist in upgrading an existing network). As a result, NGA roll-out may imply more sophisticated financing vehicles and especially co-investment instruments, requiring the participation of a plurality of different investors (incumbent, new entrants, private and public investors) 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.)? Yes, the Guidelines should identify all the networks segments and facilities receiving public funds and clearly specify the most appropriate and effective conditions that should be attached to the state aid, to ensure that the objective of common interest are achieved and at the same time competition is preserved. If in financing NGA networks the most relevant condition is that the effective wholesale access is granted (including full LLU), specific remedies should be implemented if the state aid supports the upgrading of the copper network so to ensure to a digital divide area to be provided with broadband services. In that case, considering that in most cases access obligations are already established, the BB guidelines should indicate how the price of wholesale service should be adjusted to reflect the aid

8 that has been provided to the owner of the network and avoid that the aid introduces a distortion in the competition. In line with the NGA Recommendation, 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. The current definition remains valid in the context of BB guidelines because only fixed networks enable the provision of ultra-broadband connectivity services and can represent an effective tool to achieve common interest goals as identified in the Digital Agenda. Although 4G technologies do have in theory the capability to provide very high speed broadband services and will without doubt play a significant role, it should be kept in mind how the performances of wireless networks (due to capacity not being allocated to each user but shared among many) decrease as the number of users increases. Relying solely on 4G wireless networks in the provision of high speed broadband may therefore not prove effective in creating the most appropriate and state of the art infrastructure to encourage the development of a digital society and economy. From a legal point of view, it should be kept in mind that mobile operators have specific obligation to roll out their networks that are attached to their frequency licenses, therefore, the request of state aid may in theory be applicable only residually in areas that would be outside the coverage obligation. Finally, it should also be remarked that from the economics of wireless networks are very different from fixed networks. The costs of deploying such networks are much lower than fixed networks and historically market forces alone have always proved very effective in ensuring the deployment of several mobile networks in competition with each other, even in rural areas. Identifying a market failure determining a need for state aid to deploy a single network even in remote areas seem unlikely,

9 provided the number of options in terms of wireless networks available for this kind of situations (3 and 4G networks, Wi-max, satellite) 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. As stated above, only fixed fibre based networks enable de facto the provision of ultra-broadband capacity and related services in a manner that is able to deliver a significant advantage for EU citizens creating the conditions for a digital economy to thrive and ensuring that state aid is provided to project that will deliver that advantage in the long term. The advantages of FTTH networks is that they are state of the art, future proof and totally scalable as the performances of fibre can be increased by connecting the passive network to improved equipment. Therefore, connecting NGA definition to fibre based solution is still the most appropriate choice. Should a quantitative definition be introduced instead, the qualifying thresholds should reflect the specific performances of a fibre-based high speed broadband service, so to avoid that state aid may be granted to technologies that are not able to deliver long term advantages to the EU citizens. Such threshold should not be less than 100Megabit in download e 50Megabit in upload in order to guarantee the creation of an environment in which services based on the availability of symmetric capacity can develop. 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 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"? Yes, it could be possible to use quantitative criteria to identify areas for both basic BB and NGA. We agree with the proposal of the Commission, although the notion of affordable price should be clarified.

10 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 In your experience, has this distinction and the ensuing differences in the applicable compatibility conditions helped preserving competition and private incentives to invest? Yes, this distinction is useful and correct, because it reflects the reality that in many areas where a basic BB network exists. 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) 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? Although in theory the mechanism envisaged is appropriate to guarantee that public intervention is focused in areas where market failure prevents private intervention and not used in areas where market forces alone can deliver the benefits of NGA networks, it should be remarked that in the past two years the investment plans announced by private operators and in particular incumbent - have been a very powerful tool to reduce the target areas for public intervention and weaken the effectiveness of specific public-private partnership that could have been key in triggering the roll-out of NGA. In fact, announced plans have in many cases been dramatically scaled back, indicating how the original announcements, rather than reflecting the real intention to roll out NGAs were meant to reduce the areas of public intervention. Italy provides a perfect case of this. Telecom Italia has a regulatory obligation to disclose its investment plans in NGA. This obligation became even more relevant when the so called Tavolo Romani was established, and in line with the broadband guidelines, the Ministry required Telecom Italia and other operators to disclose their plans to roll-out NGAs in specific areas, so to identify the target for public-private partnership without crowding private investments. As clearly demonstrated by the table below, the number of HH that Telecom Italia announced in 2009 it would pass with NGA by 2011 ( ) has constantly been reduced (number of hh effectively passed as of today is less than ).

11 October HH Jan HH Sept HH Jan * HH *The number of HH actually passed at July 2011 is , of which actually ready for connection (NGA reaching the building and not simply the area cabinet) are The graph gives an idea of the huge difference between the number of HH passed announced by TI in 2009 and the HH actually passed as of today. Therefore we would advise not only not to extend the 3 years further, but possibly shorten the period to ensure it is not used to block public initiatives.

12 In addition, the respect of the investment plans announced by incumbent should be monitored on a six months basis in order to verify that the operators does effectively roll out the NGAs as planned and announced. In case of failure, a mechanism of sanctions should be introduced and the areas previously excluded from the target of public initiatives should be reintroduced and all legal effects deriving from the investments announcements on the basis of the Guidelines, should be terminated. 4. General compatibility criteria The Guidelines list the general compatibility criteria in paragraph 51 that all State aid broadband measures have to comply with 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? The general compatibility criteria have in general worked well and they should be preserved. Some of them may need some reinforcement or clarification, however. As regards condition 51c regarding the most advantageous offer, it should be clarified that such a notion should take into account the specificities of the project and its capability to deliver public interest such as competition. When confronting different projects which for instance involve different network topologies, the Member State should not take into consideration solely the cost involved but also the qualitative features an specifically whether the architecture planned allow effective full unbundling. The BB guidelines should specify that network topologies allowing full unbundling should be given priority points. While evaluating the overall economic advantage of the network to be funded, the member State should not consider simply the overall capital expenditure, but also operative costs in the medium long term, as specific NGA architecture may involve more relevant maintenance costs compared to others. As far as condition 51f is considered, the obligation to provide effective wholesale access should be reinforced by specifying that any kind of passive and active wholesale access must be guaranteed, including physical local loop unbundling. 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).

13 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? We agree in general with the principle that existing infrastructure should be used in order to avoid duplication of resources. This is specifically true for civil infrastructures, as in most case the existing ones (ducts, manholes, vertical ducts in the buildings) can be used to roll-out NGA, significantly reducing the cost of NGA deployment. In order to access the existing infrastructure which is typically owned by the incumbent the beneficiary of the aid should do the necessary buy/make assessment to identify the most economical approach. In most countries the access to the civil infrastructures is regulated therefore the beneficiary of the aid can access the ducts at regulated prices by stipulating a IRU contract, without the need to acquire that asset. Therefore contributing such infrastructure to a notified project as suggested by the guidelines may not be necessary and instead give the incumbent an unjustified advantage. Guidelines should specify that such a solution (incumbent contributing to a notified project through its civil infrastructure rather than the project being based on regulated access to those infrastructure) should be residual (only when regulated access is not available or not effective) and robustly justified when adopted. 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) 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 Guidelines should specify that in order to achieve the objective of common interest and reduce the risk of competitive distortion, the aid should be granted only to network topologies which allow full physical LLU access at the MPoP, therefore enabling an infrastructure competition to thrive. It should be remarked how LLU has been in the past years a powerful mechanism that has allowed competitors to climb the ladder of investments, increasing the level of infrastructure-based competition without useless and wasteful duplication in the market (that would have been in any case not sustainable by the Altnets). LLU, unlike active wholesale access mechanisms in which

14 the competitor resells the same broadband product developed by the owner of the network, allows for a high degree of differentiation: only if the Altnets have the capability to acquire the copper or the dark fibre at an economically viable aggregation point and activate it with technology of their choice (therefore developing their own broadband services), they can compete on quality of services and innovation rather than just on prices. Thanks to LLU Altnets were able to innovate, launch services that the owner of the access network had not yet developed (10 and 20 Mbs connectivity, IPTV were launched by Altnets before the incumbents) It is evident how LLU was key to stimulating investments, growth and technological innovation and its critical to maintain the same mechanism in the NGA environment too, especially when state aid is involved. Virtual forms of unbundling such as WDM, VULA or bitstream should not be considered enough for the infrastructures financed through state aid to comply with the open access principle as they do not allow the same degree of autonomy and innovation. In order to comply with the open access principle, the guideline should make specific reference to full fibre LLU in par 51(f), i.e. the capability for the access seeker to unbundle a single fibre at the Mpop (or equally economically viable point aggregating no less than 5000 lines) dedicated to a specific end user and that can be activated by the Altnets own equipment 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 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 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. When full physical LLU is effectively and successfully implemented, other remedies such as duct access and dark fibre obligations may eventually become redundant as a competitive playing field has been created thanks to LLU. Wholesale broadband access (bitstream) instead could still be necessary because it is a complementary tool for Altnets which are climbing the ladder of investments or do not have sufficient scale in some geographic areas. Therefore, a careful proportionality test should be carried out, preferably with the involvement of the local NRA.

15 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 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. Mandating wholesale access for a 7 year period is a proportionate measure and adequate to open up competition. Considering that in most of the areas where a publicly funded NGA network is roll-out there will likely be no alternative for access seekers as private investments would not occur in any case, such period appears reasonable and once the 7 years period has elapsed, access remedies will very likely be imposed following a market analyses. 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? If it is true, in principle, that multiple fibre architecture allow full independence, this approach poses a number of issues that should be carefully considered and do not represent the most effective choice to achieve the objective of common interest, compared to a different option, which is to implement a single open Point to Point network architecture allowing all operators to provide services through full LLU at non-discriminatory and cost-oriented terms. In multiple fiber infrastructures, the entity deploying NGA in a specific area (a city, a neighborhood, etc.) rolls out several fibre (3 to 4) for each end user from the household up to a specific aggregation point. The overall cost of the infrastructure is then shared among the operators interested in using the network. It is evident how such an approach may work well only in under specific circumstances: (i) when the incumbent and the Altnets have similar market shares. Otherwise, the operator with the largest market share will bear lower unitary costs (it will pay the same upfront costs as the operator with a lower market share and will connect a

16 higher number of end users to the network) therefore gaining a structural competitive advantage that will allow it to increase even further its market share (it will be able to make more aggressive retail offers). (ii) if operators investing with the incumbent have for historical reasons their own network reaching the aggregation point (usually very close to the buildings)only if this is the case they can connect their network to one of the GPons, so to control the FTTH end to end. Since such conditions are found very rarely in the fixed market, the multi-fibre model has few chances to succeed. Fact is, there are no historical evidence of multi-fibre ventures being deployed extensively and successfully, except from Switzerland and some metropolitan areas of France. 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 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? Fastweb has for many years supported FTTH/P2P architectures which: (i) Deliver significant advantages as they: allow full and effective LLU whereas GPon doesn t (with GPon architecture only active wholesale product are available to Altnets, whereas technologies like WDM - wavelength unbundling - are not mature and will not be operational in the medium term). are future proof and scalable as without any technical intervention allow for virtually unlimited bandwidth which only depends from the active equipment that any operator chooses to connect to the passive network in the MPop (whereas with GPon, the bandwidth is shared among a number of users, therefore reducing the scalability; also the performance depends from active equipment that is in the network itself (the so called splitter) which need to be upgraded to reach higher speed). Being based on a completely passive infrastructure, allow for a total standardization: each operator using the network is capable in theory to opt for a different vendor or a different technology for its active equipment (on the contrary, with a GPON the active

17 equipment are inherent the network itself, therefore there is a technological lock-in mechanisms and only the vendor that has provided the network technology will be able to provide subsequent upgrades and the other active equipment); are technologically neutral allowing for operators to opt for PtoP or also for GPons (an operator can connect the PtoP access network to its GPon at the Mpop) whereas the contrary is not possible; involve lower maintenance costs: since the technology is not proprietary the related costs are expected to decrease (as several provider can constantly be put in competition to provide maintenance and equipment); on top of that PtoP, being a totally passive network, involves less maintenance than GPON and mainly at the Mpop. GPONs inherent active equipment (splitters, usually located in several parts of the network) needs significant maintenance, therefore involving more expensive onfield activities. involve lower operative costs: with PtoP the activity to switch customers from one operator to the other is managed at the Mpop, where all the operators are co-located. With GPons, the switching involves both activities at Mpop and at the base of the building (the fibre local loop after the last splitter needs to be connected physically to the network of the operator that is acquiring the customer), again requiring expensive on field operations; allow for a higher degree of security, since each user is connected through a single fibre entirely dedicated to his communications needs (whereas with GPON, all information to and from a group of users is delivered through the same fibre, therefore increasing the security and privacy risks). (ii) Do not involve significant higher investments compared to GPON architectures, being approximately 10% more expensive in terms of Capex involved. In order to test on field the advantages of this topology and the correctness of the above assumptions, Fastweb has launched a test trial in a neighborhood of Rome ( the Fleming area) where together with Wind and Vodafone a PtoP network has been deployed, passing approximately 7 thousands households. The trial was extremely successful in confirming the advantages highlighted above and the costs forecasted, which, as we already remarked, are only marginally higher than a GPon and compensated by the lower operative expenditure.

18 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? As regards the compatibility condition of 79, ad hoc rules about the switch-off of the copper networks should be imposed in case the incumbent (owning the copper network) is the beneficiary of the NGA public grant. In fact, in such a scenario there might be an interest for the whole sector, including customers and Altnets, to migrate towards the new platform in the smoothest way. Specific incentives should be introduced to facilitate the migration and compensate the alternative operators connected to a copper network that is dismissed for the costs of such migration. These incentives can be, for instance, introduced through a substantial discount for a specific period for the wholesale access fee, so to compensate the Altnets for the stranded investments connected to the colocation in the copper central office. 6. The role of the National Regulatory Authorities ("NRAs") 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? Without doubt the NRAs has an high level of competence in the definition of access condition to the network, therefore it is normal that they are involved in the process. It should nevertheless be remarked that a clear distinction needs to be made between the regulatory remedies imposed

19 normally on the SMP operators and those applied in specific situation, i.e. when state aid is involved, and that the NRA must not deviate from the guidelines of the Commission. Especially when the incumbent is the beneficiary of the aid, the overlapping between access remedies deriving from the its SMP status and those connected to the aid may create confusion and be detrimental, especially in a phase when many NRAs, in the attempt to encourage incumbent operators to deploy NGAs are choosing a very light regulatory remedies for NGAs, sometimes deviating significantly from the NGA recommendation. In order to guarantee that the objective of common interested are achieved and that the competition is not distorted and to maintain a sufficient degree of harmonization - it should therefore be made very clear that the conditions applied to the beneficiary of state aid may in no way be derogated by the regulatory regime applied by the NRA in that specific member state, as the underlying rationale is completely different. 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? Since the state aid is authorised on the basis of a scrutiny of the European Commission, it would be advisable, for a matter of consistency, that also the disputes are solved by the same offices, eventually in coordination with the Art. 7 Task Force of the Directorate Digital Agenda, which has a specific competence and knowledge for access regulation. The affected NRA should be involved and consulted. Against this background, empowering the NRA to solve autonomously the dispute could create inconsistency throughout Europe, a situation which already exists due to the diverging decisions of NRAs in the matter of NGA. 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 Public Procurement Directives, respecting all conditions for transparency and non-discrimination.

20 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? Although transparency and procedural requirements have been properly applied in some national/local initiatives, there are important cases where public bodies are not acting in the appropriate way. In particular, the Telecom Italia-Provincia di Trento project, notwithstanding its strategic important and the relevant amount of public resources involved, was not notified to the EU Commission, nor was subject to the transparency requirements prompt by the BB Guidelines (e.g. mapping, public consultation etc.). In that case, indeed, the public body involved set up a project with the Italian incumbent operator and started to implement it circumventing all the above mentioned principles and rules; that is why the alternative operators were obliged to draw the EU Commission s attention on the case. In case of advising or consultative role of the NRA, the Guidelines should recommend that the relevant opinions are published immediately. 8. Other points 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? Considering that the vertical integration has been very commonly leveraged in the telecom and broadband markets to put in place discriminatory behavior, when State aid is provided to roll out a NGA network, vertical separation is without doubt the most effective way to avoid the risk of competitive distortion and guarantee that the aid produce the utmost positive effect in the market, especially when the beneficiary of the aid is an incumbent and its track record indicates that it may put in place again that kind of discrimination. This is why we consider that State aid should mainly be targeted at supporting and facilitating the establishment of separated companies solely focused on the roll-out of NGN passive infrastructures, ( Netco ) in charge of offering wholesale services and not involved directly in the provision of retail services. As the core business of the Netco would be to provide wholesale services to any to