The BEREC Opinion on the draft. methodologies. Dr Iris Henseler-Unger, Vice President BNetzA 8th EETT International Conference Athens, 16/17 May 2013

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1 The BEREC Opinion on the draft Recommendation on consistent nondiscrimination obligations and costing methodologies Dr Iris Henseler-Unger, Vice President BNetzA 8th EETT International Conference Athens, 16/17 May

2 Broadband Targets Digital Agenda of the European Commission 100% coverage of broadband access of EU citizens by 2013 Provision of all EU citizens with broadband access with at least 30 MBit/s and 50% of European households with at least 100 MBit/s by 2020 The Federal Government s Broadband Strategy of February 2009 Broadband access shall be available nationwide by the end of 2010 A total of 75 percent of households shall be provided with access with transmission rates of 50 MBit/s by 2014 and nationwide as soon as possible Bundesnetzagentur 2

3 What is needed? Setting the right incentives for investment in broadband! Bundesnetzagentur 3

4 Objectives of the Recommendation Promote competition and encourage the deployment of NGA networks across Europe. Intermediate objectives: - Provide for pricing flexibility for NGA services; - Ensure predictable and stable copper prices (in line with cost-orientation); - Ensure a level playing field through effective and proportionate non-discrimination obligations. BEREC shares these objectives. Balancing such different objectives is a matter of (fine) judgement and NRAs need to rely on their expertise and experience. Bundesnetzagentur 4

5 Four Pillars of the Draft Recommendation Ensuring equivalence of access Costing methodology Non-imposition of cost orientation on NGA wholesale access products Economic replicability Bundesnetzagentur 5

6 Equivalence of Access Draft Recommendation: Effective non-discrimination is best achieved by the application of Equivalence of Input (EOI) NRAs should examine proportionality of imposing EOI; If not proportionate, should impose Equivalence of Output (EOO). BEREC: Agrees that effective non-discrimination rules are essential to creating a level playing field. Recognises the potential effectiveness of EOI. Need for further clarifications: The proportionality test must inform the determination of the most appropriate form of non-discrimination (e.g. EOI or EOO). The outcome of the test should not be deemed or presumed. A voluntary offer to implement EOI is in itself not sufficient to determine an NRAs decision. Bundesnetzagentur 6

7 Costing Methodology Draft Recommendation: Asks for greater consistency in the costing methodology (BU LRIC+), and stable wholesale prices for LLU in the range of 8-10/month. BEREC: Supports the Commission s aim of achieving stable copper prices in line with the principle of cost-orientation But: - a single modelling approach need not deliver this. - Consistency over time and over the value chain is equally important. Proposes instead agreement on key principles of costing model: - Be future proof; - Reflect the need for stable and predictable copper prices; - Be capable of generating cost-oriented copper prices; - Deal appropriately with the impact of declining volumes. Proposes that the 8-10/month range be indicative. Bundesnetzagentur 7

8 Non Imposition of Cost Orientation Draft Recommendation: NRAs should not impose cost orientation on NGA services, under certain conditions: Provided on the basis of Equivalence of Input (non discrimination), Subject to technical & economic replicability, and Subject to significant competitive constraints. BEREC: Agrees that pricing flexibility has an important role to play in investments in high speed broadband networks. But keen to avoid possible unintended consequences of the link between cost orientation and non discrimination Need for further clarifications Other scenarios may also allow non imposition of cost orientation. NRAs have discretion over the timing of lifting cost orientation. NRAs can take measures in case of failure to meet agreed EOI/EOO milestone (administrative penalties / imposing costorientation) Bundesnetzagentur 8

9 Economic Replicability Draft Recommendation: NRA should impose an economic replicability obligation, on the basis of Equally Efficient Operator (EEO) test. Precondition for lifting cost orientation. BEREC: Agrees that competitive constraints may not always be sufficient to prevent anticompetitive strategies and abusive pricing. An ex-ante economic replicability test may be needed. Need for further clarifications: The ex-ante economic replicability test is without prejudice to the margin squeeze tests that NRAs already implement. While EEO may be the starting point for assessment, there may also be circumstances in which an REO test is appropriate to ensure dynamic efficiency and promote (retail) competition NRAs may employ a higher cost standard, such as LRIC or LRIC+ Bundesnetzagentur 9

10 Process and Next Steps BEREC opinion adopted and sent to the Commission on 26 March. A challenging project A broad and complex subject with many subtleties. An extensive 56-page opinion drafted, discussed & adopted in < 3 months. Involved two EWGs (Remedies & Regulatory Accounting). Next steps Commission to revise draft Recommendation, taking BEREC Opinion into utmost account. Revised draft Recommendation ( DG CONNECT Working Document ) was discussed in CoCom on 7 May. Next COCOM meeting for discussion scheduled for 3 June 2013 Bundesnetzagentur 10

11 Working Paper Presented in CoCom Inter Service Consultation still ongoing; Working Paper of GD Connect presented in COCOM on 7 May 2013 Some clarifications already included Has the Commission already taken utmost account of BEREC opinion? Bundesnetzagentur 11

12 Conclusion Creating a predictable regulatory environment is key to achieve both goals competition + investment in high speed broadband networks across Europe. BEREC is in favour of providing flexibility and therefore agrees with the Commission s overall approach in the draft Recommendation. NRAs must be provided with the necessary flexibility and discretion to respond to the needs of their national market situations. BEREC s opinion ensures consistency and took account of the updated 3 BEREC Common Positions on wholesale access products. However, we all need to be aware of the growing complexity of the regulatory framework which risks reducing the confidence of investors. Also, other factors are likely to be much more important than regulation, in particular a lack of willingness to pay by consumers. Bundesnetzagentur 12

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