Preventing discrimination

Transcription

1 Preventing discrimination Vodafone Group plc April 2017

2 Executive summary An effective non-discrimination regime is essential to meet the Commission s objective of a European Gigabit Society In September 2016 in the course of the implementation of the EU Digital Single Market Strategy, the Commission set out its strategic connectivity objectives for Vodafone welcomes the Commission s vision. To achieve these objectives an ambitious programme of investment in Gigabit networks is required. The Commission estimates that around 500 billion of investment over the coming decade is needed, with this money coming primarily from private sources. Incumbents have the ability and incentive to discriminate against their rivals Vigorous competition in communications markets leads to additional investment, innovation and significant consumer benefits, which are vital if Europe is to become a Gigabit Society. However, due to the economic and technical characteristics of communications networks, it is difficult to achieve full competition for the local access segment. Apart from this segment, competition is possible and desirable both at the network and the service level. Vodafone believes that sustainable, infrastructure competition is the ultimate tool to remove incumbents incentives to discriminate. This outcome can be achieved by co-investment in new Gigabit networks. However, in countries, or parts of countries, where this is not viable or does not materialise, a reinforced non-discriminatory regime is required to prevent abuse of dominance by operators with significant market power (SMP). The rollout of state-of-the-art fibre networks provides an opportunity to introduce new, transparent platforms at a wholesale level that promote sustainable, infrastructure-based competition and accelerate progress towards a Gigabit Society. The decision by some incumbents not to invest in future-proof fibre networks suggests that those operators may not value transparency and the consequent benefits to consumers from competition. Given that fixed line communications markets are characterised by single incumbent firms that are dominant over significant parts of the local access network, challenger operators need to secure access in order to provide services to their own customers and ensure they move up the ladder of investment. To achieve these objectives, challenger operators need both passive access (use of basic infrastructure such as ducts and poles) and active access (services that include electronic equipment, such as bitstream). Passive access enables rivals to provide innovative services by building out their own Fibre-to-the-Premises networks, and facilitates network to network competition. On the other hand, active access is necessary in areas where large scale infrastructure investment is not yet viable and challenger operators need to build scale before undertaking such investments which are inherently risky. Page 2 of 43

3 Without regulatory intervention, incumbents have the ability and incentive to use their dominance of the access network (upstream) to stifle competition. The fact that incumbents own the local access networks which are largely non-replicable supports their ability to discriminate. They also retain incentives to discriminate where they would like to prevent challengers from establishing a strong position in retail markets (which would, in turn, allow rivals to move up the ladder of investment). As well as holding back the benefits of competition, this behaviour stops challengers building the scale which would increase the prospects for competitive investment in local access fibre networks. Discriminatory behaviour is detrimental to the consumer as challenger operators that rely on incumbents networks to provide their services struggle to compete. It directly affects the consumer experience and gives the wrong perception about the quality of services that can be delivered by challenger operators, also damaging their reputation. These practices reduce consumer choice and prevent them from accessing competitive and innovative services, jeopardising competition and putting connectivity goals at risk. The Gigabit Society will never happen if these practices remain. Incumbents can discriminate in favour of their own retail business both by price and non-price means. For example, through margin squeeze they can prevent rivals from competing on price. Alternatively, by engaging in non-price discrimination incumbents can disadvantage rivals along the remaining product dimensions (for example, by offering inferior product quality). This paper deals with non-price discrimination. Guidance given has been insufficient to address discrimination The European Commission, and national regulators, have rightly sought to address the issue of discrimination by (i) requiring incumbents to provide access to the parts of their networks over which they are dominant and (ii) outlawing discriminatory practices. The Commission provided guidance on the application of SMP obligations in relation to nondiscrimination in its Non-discrimination and Costing Recommendation. This recommendation was adopted in response to the Commission s concerns about the lack of consistency in the application of these two remedies by national regulators and was intended to increase the predictability and certainty of regulation across the EU. However, to date regulatory activity to prevent discrimination has been unsuccessful. In Vodafone s experience discrimination by incumbents is pervasive across the EU. This paper provides many compelling examples showing proven serious anti-competitive behaviour in countries including Bulgaria, France, Greece, Ireland, Italy, the Netherlands, Poland, Slovakia, Spain and the United Kingdom. It also presents examples of alleged discrimination based on the direct experience of Vodafone s operating companies across Europe. Page 3 of 43

4 These examples are purely illustrative, rather than exhaustive. Vodafone strongly believes that they are the tip of the iceberg both in terms of countries and activities. A serious lack of transparency makes it very difficult for challenger operators to develop clear evidence of discrimination. Nevertheless, at a high level: Incumbents continue to have the ability and incentive to discriminate and continue to find new ways to ensure their own retail businesses receive preferential treatment in the supply of wholesale services. In particular, incumbents are able to introduce differences in actual products supplied, the arrangements for provisioning and fault repair and the interfaces and ordering systems used to procure new services and for in-life management. Gaps in transparency make transgressions difficult to detect. When discrimination is discovered, the weaknesses of the enforcement and penalty system mean that there is never sufficient incentive to prevent other forms of discriminatory behaviour from emerging. Discriminatory practices by incumbents continue to stifle competition in retail markets and prevent the positive benefits for consumers and the economy that it would otherwise deliver. Recommendations for the Electronic Communications Code Vodafone broadly welcomes the regulatory reforms that the Commission set out in September 2016, including the proposed Electronic Communications Code (Code). However, based on the analysis and evidence set out in the remainder of this document, Vodafone has a number of important recommendations for how the Commission can build on the existing Code proposals to more effectively address discrimination by incumbents. Vodafone s specific recommendations fall into three main categories: (i) full equivalence of inputs (EOI) for critical wholesale access products; (ii) rigorous monitoring and effective enforcement of non-discrimination obligations; and (iii) the need for non-discrimination remedies to remain fit-forpurpose. Full equivalence of inputs for critical wholesale access products Recommendation 1 The Commission should mandate full equivalence of inputs for wholesale access products that are critical to ensuring effective downstream competition, and that represent future growth of the market, in all aspects of the product lifecycle. Incumbents continue to have the ability and incentive to discriminate against their wholesale customers. This gives incumbents unwarranted advantages in retail markets, weakening retail competition and harming consumers directly through the poorer quality of the product offering and indirectly through the reduced ability of rivals to invest in new products and networks. Page 4 of 43

5 As can be seen from the examples discussed throughout this document, and in detail in Section 1, incumbents discriminate at every step of the product lifecycle including in areas such as: Deciding which strategic investments to make, products to develop and how and when they should be rolled out; Determining which products are available to their wholesale customers and whether these allow wholesale customers to replicate the incumbent s own retail offers; Providing incomplete information to wholesale customers about the extent and timing of product availability; Misusing information regarding wholesale customers retail plans that is gathered through their requests for the incumbent s wholesale products to support their plans; Discriminating in the access to IT systems and processes; and Providing poor quality provisioning, repair and migration services to wholesale customers. In order to deal with such discriminatory behaviour the Commission should mandate full EOI for all aspects of the product lifecycle: At a minimum, the Commission should mandate EOI for passive infrastructure access (i.e. access to the incumbent s duct and poles) and for whichever active NGA access product(s) are most relevant for the market being considered (e.g. VULA). In order to reach its Gigabit networks roll out targets, the Commission should mandate EOI for accessing the incumbent s passive infrastructure. This has the potential to unlock significant competition and investment benefits by allowing challengers to provide innovative services, by investing and building their own networks. In order to promote sustainable competition, the Commission should also mandate EOI for the active NGA access product(s) that are most relevant for the market being considered (e.g. VULA). For other wholesale access products (e.g. legacy copper products), the Commission should include in the Code a presumption that national regulators will implement EOI. Given the huge benefits to competition, Vodafone considers that in principle all wholesale access products should be provided on an EOI basis. Vodafone anticipates that such an approach will encourage greater engagement on, and debate about, the proportionality of EOI in different Member States, and therefore should contribute to a more effective regulatory regime. In circumstances where the decision is finely balanced (for example, on the basis of quantifiable benefits) the Commission should support national regulators in erring on the side of requiring EOI (rather than not). However, Vodafone recognises that this approach may not be appropriate, or proportionate, for products which are approaching the end of their life. For wholesale access products where full EOI is not proportionate or practical for all parts of the product lifecycle, the Commission should require that national regulators mandate that the incumbent uses the same systems and processes for its own retail business and wholesale rivals in as many cases as possible. Given incumbents strong incentives to discriminate, unless their retail businesses use exactly the Page 5 of 43

6 same systems, processes and functionality as their wholesale customers, and unless access to information on wholesale orders is restricted, it is almost inevitable that incumbents will discriminate against their wholesale customers. For EOI to be meaningful and successful in preventing discrimination, there need to be distinct units within the incumbent that engage in each EOI transaction and these transactions need to be identical to those that take place with external wholesale customers. Implementing a degree of separation alongside EOI should reinforce the nondiscrimination regime by further reducing the incumbent s ability and incentive to discriminate, or to do so undetected. Rigorous monitoring and effective enforcement of non-discrimination Recommendation 2 The Commission should ensure adequate transparency of arrangements between the incumbent s upstream and downstream businesses, and how these compare to arrangements for challenger operators through key performance indicators. In most Member States there is very little transparency of the arrangements that exist between the incumbent s upstream and downstream businesses, and how this compares to the regulated wholesale services delivered to challenger operators. This can be seen from the examples discussed throughout this document, and in detail in Section 1. The result is that it is nearly impossible to detect when the incumbent is materially favouring its own downstream business. Given the incentive and ability of incumbents to discriminate, it is essential that there are arrangements for transparency of the absolute and relative quality of wholesale services, so that discriminatory practices can be detected and punished. Specifically: In consultation with stakeholders, national regulators should specify a full set of key performance indicators (KPIs), covering all major parameters of product quality, including provisioning and repair. The KPI data must enable a thorough analysis of the quality of the incumbent s regulated wholesale service. In particular, the metrics should enable comparison of the performance available to the incumbent s retail business and how that compares to the performance experienced by the incumbent s retail competitors. The Commission should require KPI data to be audited by an independent third party, and to be published and made available to competitors to ensure scrutiny by those who experience the product as customers. Page 6 of 43

7 Recommendation 3 It needs to be likely enough that breaches of non-discrimination obligations will be detected and punished for the incumbent to take compliance seriously. The Commission should require national regulators to invest more in detection and enforcement, and to show a willingness to impose financial penalties which are sufficient to deter bad practice. If discrimination is to be prevented, it is essential that there are sufficient adverse consequences for non-compliance. Vodafone s experience of the enforcement practices of national regulators across Europe shows that suspicions of non-discrimination are not investigated sufficiently, as documented in this paper. Further, when breaches are found either no financial penalty is imposed or there is a penalty of insufficient magnitude. Combined with the difficulties in detection resulting from a lack of transparency, the lack of adequate enforcement and financial penalties means that incumbents are not sufficiently deterred from engaging in practices that allow them to discriminate against their competitors. In order to combat these issues the Commission should oblige national regulators to invest in enforcement. The Commission should also consider additional measures that could improve the effectiveness of enforcement activity, including the use of financial penalties, given the impact this has on the incumbent s overall incentives to comply with non-discrimination obligations. For example: The Commission should provide guidance to national regulators on the evidence needed to launch an investigation. The Commission should impose time limits on investigations into discrimination, as currently exists under dispute resolution provisions. If necessary, such arrangements should include a tightly specified process for allowing exceptions to time limits where required by more complex cases. Given the harm that is observed where discriminatory practices continue pending the outcome of an investigation, the Commission should ensure that national regulators have the necessary powers to impose interim measures while investigating complaints of discrimination. The Commission should provide guidelines for national regulators on setting fines for breaches of non-discrimination obligations. To be effective, the compliance regime should provide a sufficiently strong financial incentive to deter discriminatory conduct. This would align the incumbent s incentives with the policy goal of ensuring equal access and should reduce the incidence of discrimination. The deterrent effect of the enforcement regime will depend upon: The probability that discriminatory conduct is detected. The likelihood that the regulator will take timely enforcement action. The size of the financial penalty for non-compliance. Page 7 of 43

8 It is important that incumbents believe that regulators will vigorously pursue potential breaches in a timely manner. The size of the financial penalty will also play a key role in the strength of the deterrent effect of the enforcement regime. Recommendation 4 Regulators need to have a particular focus on ensuring that the incumbent invests in the quality of provision and repair, and that their performance in these areas does not favour its own retail businesses. The Commission should therefore include in the Code a requirement for national regulators to accompany KPIs with an effective SLA/SLG regime and one that ensures direct compensation for consumers and enterprises. As documented in Section 1, there is a particular theme across Europe of arrangements for provision and fault repair by the incumbent s wholesale operations that lead to unacceptably poor quality of service, or favourable treatment of the incumbent s retail customers, or both. Regulators should seek to learn from the extreme difficulty faced by challengers in securing contractual arrangements to improve the situation. To do this, regulators need to develop adequate service level agreement (SLA) and service level guarantee (SLG) regimes that go beyond contractual provisions and are instead designed by regulators to ensure high quality wholesale service and equal treatment for all wholesale customers. Vodafone also considers that national regulators should have the ability to mandate compensation for consumers and enterprises affected by discrimination, given they are the true victims of such bad practice. To address the deficiencies of existing SLA/SLG regimes, Vodafone recommends that the Commission sets out the principles that should underpin such a regime: SLAs should be applied in a non-discriminatory manner (i.e. are the same for all retail operators including the incumbent s own retail businesses), should be comprehensive and appropriately demanding with due consideration given to better commercial SLAs that are available at an additional cost to wholesale customers. The appropriate set and level of SLAs should be determined by the regulator and reviewed regularly, in consultation with the incumbent and its wholesale customers. There should be appropriate SLG penalties where SLA levels are not met. Such penalties should be set to provide a sufficient incentive for the incumbent to invest in the delivery of adequate service standards. SLG penalty payments should be paid automatically without undue delay, through established payment and billing processes. Consumers and enterprises affected by discrimination should be compensated directly. The mechanism for direct compensation should ensure that customers are paid quickly and avoid lengthy disputes between operators which would leave challenger operators paying out for the incumbent s poor performance. The level of SLG penalties for the incumbent needs to reflect the costs of paying out compensation to end users. SLAs should not allow the incumbent to unilaterally invoke exceptional circumstances that exempts it from liability for breaches given that incumbents routinely abuse such contractual provisions. Page 8 of 43

9 Keeping non-discrimination remedies fit-for-purpose in the future Recommendation 5 The Commission should establish periodic reviews to ensure these are implemented and remain fitfor-purpose given that non-discrimination obligations are essential for enabling competition in downstream markets and sufficient challenger scale to ensure competitive investment in Gigabit networks. Given the extent of discrimination concerns across many countries, Vodafone is concerned that many national regulators are failing to appropriately consider the continued effectiveness of the non-discrimination regime they have originally put in place. Given the lack of in-depth engagement on this important issue by most national regulators, Vodafone recommends that the Commission includes in the Code a requirement for national regulators to undertake a detailed strategic review of non-discrimination remedies to ensure they remain fit-for-purpose to address likely future strategic priorities, informed by a transparent consultation process. Vodafone believes this to be the most appropriate approach given such strategic issues cut across many markets. Given their strategic relevance across markets, individual market reviews are unlikely to be the best vehicle for such considerations. A holistic review would be better at capturing consistent and systemic failures in the non-discrimination regime. As part of this, national regulators should determine whether the non-discrimination regime can be further strengthened to ensure it remains fit for purpose to address future challenges. In this regard national regulators should also consider whether to introduce new or untested remedies, such as separation remedies, which might be most appropriate in light of national circumstances. In addition, the Commission should implement the following actions: Codify in legislation its Non-discrimination and Costing Recommendation, applying this to broadband and enterprise markets. By making the recommendation legally binding, the Commission will ensure all national regulators appropriately engage with it. Commit to a future review of the non-discrimination regulations to ensure they remain fit-for-purpose. The review would provide an opportunity to consider further reforms in light of changing technological or market circumstances and an incentive for national regulators to take appropriate action now. Ensure BEREC plays a more significant role in promoting consistency and best practice across Member States. Vodafone is looking forward to engaging directly with the Commission over the coming months to explain and support the implementation of its recommendations. Page 9 of 43

10 Introduction This paper identifies the key elements of an effective regime to prevent non-price discrimination. The introduction of the Code provides an important opportunity to embed regulatory best practice in legislation. This should cover both broadband markets and enterprise connectivity where concerns arise. Failure to strengthen the statutory basis for addressing discrimination will undermine the Commission s ambition to achieve widespread deployment of Gigabit networks by The structure of this paper is as follows: Section 1 summarises over 20 examples of competition and regulatory cases regarding findings of discrimination across many EU countries. It also presents Vodafone s experience of alleged discrimination across many of its European operating companies. Section 2 discusses why the Commission should mandate full equivalence of inputs for key wholesale access products. Section 3 discusses why the Commission should ensure rigorous monitoring and effective enforcement of non-discrimination through KPIs, SLAs and SLGs. Section 4 discusses the avenues the Commission and national regulators should pursue to ensure non-discrimination remedies remain fit-for-purpose. Page 10 of 43

11 Section 1: Evidence of discrimination in EU countries This section summarises over 20 examples of competition and regulatory cases regarding findings of discrimination across many EU countries. It also discusses Vodafone s own experience of alleged discrimination across many of its European operating companies. Examples of competition and regulatory cases There are numerous examples of the European Commission, national competition authorities and national regulators bringing cases against incumbent operators for discriminatory behaviour. In many cases, the incumbents were reoffenders, having committed similar infringements before. Examples of such cases include: BT was found by Ofcom to have misused contractual terms through the late delivery of leased lines services to wholesale customers without their consent and to have failed to pay compensation for those delays. In March 2017, Ofcom fined BT 69 million, reduced by 30% to 48 million due to BT s admission of liability and agreement to pay its affected wholesale customers in full. The amount that will be paid to BT s wholesale customers in compensation is estimated at 347 million. Telefónica was fined 3 million in March 2017 by Comisión Nacional de los Mercados y la Competencia for discriminating in favour of its own downstream business during its work force strike. It was also fined 5 million in December 2016 for breaching its SLAs and discriminating in favour of its downstream arm in the provision of local loop unbundling (LLU) maintenance services. Eir was found by ComReg in 2016 to have breached its regulatory non-discrimination obligations in relation to Next Generation Access through discriminatory provision of information to its retail arm. ComReg found that eir had provided information regarding its plans to roll out Fibre to the Home to the Director of Managed Network Services (i.e. a downstream arm of eir) three weeks before it was provided to eir s downstream rivals. No fine has yet been imposed, as far as Vodafone is aware. Orange was fined 350 million by the French Competition Authority in August 2015 for discriminatory provision of information relating to wholesale local loop access. Orange exploited its dominant position in the wholesale LLU market through providing challenger operators restricted and slow access to technical information essential for offering a good quality of service to enterprise customers, while allowing unrestricted access to such information by its own retail subsidiary. KPN was fined 8 million by the Authority for Consumers and Markets in July 2015 for failing to disclose information to challenger operators about certain wholesale business services guaranteeing quicker resolution of service disruptions and providing fast internet and television services and consequently failing to supply these services to challenger Page 11 of 43

12 operators. The ACM noted that this was not the first time KPN had been fined for this type of conduct. Orange was ordered to pay 7 million in damages by the Paris Court of Appeals in 2015 for refusing a retail rival access to its network to provide high speed internet service, causing untimely exit of the challenger operator from the market. Bulgarian Telecommunications Company was fined 1.9 million by the Commission for the Protection of Competition in Bulgaria in 2015 for imposing unfair and discriminatory terms in the interconnection contract for voice calls and unilaterally terminating the agreement with a challenger operator based on such unfair terms. Eir was found by ComReg in 2014 to have breached its regulatory access obligations in relation to Wholesale Line Rental (WLR) service. Eir rejected reasonable orders for WLR from retail rivals in areas where eir s Retail Virtual Private Network services existed. No fine has yet been imposed, as far as Vodafone is aware. Slovak Telekom and Deutsche Telekom (Slovak Telekom s parent company) were jointly fined 38.8 million and Deutsche Telekom (DT) was fined an additional 31.1 million by the European Commission in October 2014 for refusing to provide local loop access to challenger operators. Slovak Telekom withheld network-related information from challenger operators, artificially reduced the scope of its unbundling obligation and imposed unfair terms and conditions in its reference offer for local loop access. Additionally, Slovak Telekom engaged in a margin squeeze for wholesale local loop access. DT s repeated abusive behaviour was described as recidivism as it had already been fined in 2003 for a margin squeeze in broadband markets in Germany. Telecom Italia was fined 88.2 million by the Italian Competition Authority in May 2013 for discriminatory provision of wholesale access to its infrastructure. Telecom Italia engaged in high levels of rejection of rivals requests for access, often citing inaccurate reasons for the rejection and provided preferential treatment to its own retail division. KPN was fined 20,604 by the Authority for Consumers and Markets in 2013 for providing discriminatory VDSL access to its own retail division. This was in breach of its nondiscrimination obligation. KPN was fined 22,000 by the Commission of the Independent Post and Telecommunications Authority in 2012 for discriminatory practices in relation to the number of engineers required for the installation of a new technology that increased the capacity of copper lines. Telecom Polska was fined 127 million by the European Commission in June 2011 for impeding the access of challengers to its wholesale LLU and bitstream services. Telecom Polska imposed unreasonable contractual conditions on its rivals, engaged in various tactics to delay and frustrate negotiations, rejected a high number of rivals access requests for unjustified reasons, provided inflated cost estimates for establishing collocation and provided incomplete and inaccurate access information. Page 12 of 43

13 KPN was fined 30 million by the Commission of the Independent Post and Telecommunications Authority in 2011 for discriminatory provision of information to its own retail arm on changes in tariffs and terms of wholesale line rental service prior to a government tender. This limited the challenger operators ability to submit a competitive bid for the tender. OTE was fined 5.7 million by the National Telecommunications and Post Commission in 2010 for causing unjustified delays in the provisioning of LLU and imposing unreasonable access conditions. Telecom Polska was fined 3.5 million by the Office of Electronic Communications in 2009 for failing to comply with its access obligations for passive infrastructure within the timeframe defined in its reference offer. Telecom Italia was subject to an antitrust proceeding opened by the Italian Competition Authority in May 2010 on the suspicion that it had engaged in anti-competitive refusal to provide information to one of its retail rivals. The information withheld was crucial for the retail rival to prepare bids for large scale government and private tenders and related to changes in wholesale prices, the wholesale terms that Telecom Italia was willing to offer, development plans relating to optical fibre, etc. Telecom Italia also refused to offer certain wholesale services to its retail rival. In this case in 2012 the ICA accepted commitments from Telecom Italia to change its conduct, therefore there was no fine imposed. Telecom Polska was fined 20 million by the Office for the Protection of Competition and Consumers in December 2007 for engaging in discriminatory practices which decreased the quality or prevented the transmission of data by challenger operators. France Telecom was fined 45 million by the French Competition Council in 2007 for providing more geographically granular and up to date information on ADSL availability to its own internet service provider (Wanadoo) compared to retail rivals. It also shared with Wanadoo customer data held by it as a wholesale operator, and its agents promoted Wanadoo services and talked down those of rivals. Bulgarian Telecommunications Company was fined 102,000 in 2007 for refusing to approve a retail rival s request for negotiating technical and commercial conditions for interconnecting to the incumbent s network. Telefónica was fined 20 million by Comisión del Mercado de las Telecomunicaciones in 2006 for refusing to provide local loop access to its retail rivals. It delayed the provision of cost estimates and the preparation a reference offer and refused to provide access to its local loop infrastructure due to unjustified reasons. This was found to be a breach of Telefónica s Service Level Agreements. Bulgarian Telecommunications Company was fined $61,000 in 2005 for refusing to provide bitstream access to competing Internet Service Providers (Internet Bulgaria, BINA), thus limiting their ability to provide ADSL internet service to retail customers. This was done through delays in making an offer after the initial access request, imposing Page 13 of 43

14 discriminatory conditions in the access contracts and outright refusal to provide access. There was a repeat fine of $130,000 in 2006 for continuing abusive behaviour. Telecom Polska was fined 2.3 million in November 2005 by the Office of Telecommunications and Post Regulation for refusing to establish interconnection with a challenger operator. Vodafone s experience In Vodafone s experience discrimination by incumbents is endemic. In many cases the structure of decision making in the incumbent is discriminatory. Decisions are made in the interests of the incumbent s own retail businesses. Provision of wholesale services to challenger retail operators is viewed as a necessity due to regulatory obligations, but purchasers of wholesale inputs are not viewed as customers for whom high quality services should be developed. Vodafone s European operating companies have experienced many instances of discrimination. Recent examples of alleged discriminatory behaviour are grouped below by the main activities within the product lifecycle that were affected. Strategic investment, product development and roll out decision-making In most European countries in which Vodafone operates, including for instance Germany, Italy and Spain, the incumbent s wholesale product development process is discriminatory. Vodafone is not an equal stakeholder alongside the incumbent s retail businesses in determining the incumbent s strategic access network investment decisions (such as the deployment of VDSL or G.FAST instead of FTTP) or in the development of access services based on those network investments. While there may be voluntary industry working groups or similar in some of these countries for certain products, they appear to have little or no material influence on key incumbent access network and product decisions. Incumbents have an incentive to make decisions based on their own priorities, sometimes without due regard for the interests of paying wholesale customers. Although in the UK and Ireland, for example, there are formalised industry fora which are intended to influence the incumbent s product development process, these fora do not consider strategic investment decision-making. 1 In Ireland in particular, it is unclear how eir prioritises and assesses the product developments raised through the forum Vodafone therefore has little confidence that the process follows non-discrimination best practice. In Spain, Vodafone is often unable to replicate the incumbent s retail offers using available regulated wholesale products. For example: - Telefónica s wholesale regulated service on NGA (NEBA) had a technical limitation of 30 Mbps as the maximum available speed which was not removed until May As recognised by Ofcom in its 2016 Strategic Review of Digital Communications in the UK. Page 14 of 43

15 - Vodafone has encountered examples where Telefónica appears to provide enterprise customers with a lower cost, but also lower quality of service (i.e. poorer SLAs) for which there is seemingly no equivalent wholesale offer. As a result, Vodafone is not able to provide an equivalent retail offer and therefore is not able to compete effectively with Telefónica for these enterprise customers. In Germany, the recently defined Layer 2 bitstream product does not provide a multicast option, which is available to DT. In a number of countries Vodafone has requested but has been refused general and unrestricted access to dark fibre and/or passive infrastructure. For example, in Germany access to passive infrastructure is granted only between the MDF and street cabinet and can only be used to access LLU or VULA at the street cabinet. Access to information for product operation and management In Germany, Italy, Spain, Ireland and Greece Vodafone is concerned that the quality, reliability and format of VDSL or fibre availability information received from the incumbent is inferior to that provided to its own retail businesses. - For instance, Vodafone is aware of examples in a number of countries where VDSL or fibre services do not appear to be available for a customer, based on the information provided to Vodafone by the incumbent, and therefore Vodafone is unable to supply the customer. However, the same customer s premise does appear on the incumbent s retail business availability checking system when the customer approaches the incumbent directly. - Vodafone is also concerned that incumbents provide information on planned VDSL roll out to its own retail division before it notifies Vodafone with the same information. Vodafone is often provided with roll out information only four to six months before roll out and with a limited degree of granularity. This may provide incumbents retail businesses with greater opportunity to market retail VDSL products before Vodafone can do so. Vodafone has such concerns in Italy, Ireland and Germany. In Italy, Vodafone is concerned that Telecom Italia provides discriminatory access to information on wholesale product availability and pricing to its own retail division. Telecom Italia announced on its wholesale website that would launch 200 Mb/s wholesale and retail products based on enhanced VDSL technology. Telecom Italia maintains that it is a simple new wholesale access product so information is provided to competitors 90 days in advance, in compliance with regulation. As a result, while Telecom Italia retail was ready to launch this new product because of their privileged access to the information prior to the 90 days notification period, its retail rivals were not in position to be ready to use this new wholesale product due to the need to implement changes to the database used to request the new service, and therefore cannot replicate it in the retail market. Page 15 of 43

16 In Greece, OTE does not provide adequate information to Vodafone regarding the availability of street cabinets, access to local backhauling and availability of passive infrastructure. Where information is provided, it is provided to Vodafone in a cumbersome format. Vodafone is concerned that OTE retail may receive better quality information through a more user-friendly interface. In Greece, Vodafone provides OTE information about its planned roll out in advance of LLU roll out. Vodafone is concerned OTE may be using this information (that it receives as a wholesale operator) to aggressively target areas before Vodafone can launch its services, renewing contracts with its existing customers or signing-up new customers. Vodafone has similar concerns in other countries such as Spain and Germany. Similarly, in Ireland Vodafone is concerned that eir provides customer information that it receives as the wholesale operator, to eir retail. This may be used by eir retail for targeted marketing activities, inhibiting Vodafone s ability to compete effectively. Access to systems and processes for product operation and management Vodafone s experience is that wholesale customers are commonly required to use separate wholesale systems and processes. A severe lack of transparency of the systems used by incumbents own retail businesses means that it is extremely difficult to verify whether these different systems provide the same experience. Vodafone is concerned that in many cases they do not. In Germany, DT imposes various barriers to Vodafone ordering its wholesale services, such as claiming a lack of available capacity. Vodafone has been limited to making a specific number of requests (to date in the low thousands) per hour to DT s live database containing VDSL availability. This information is needed in order to give accurate information to customers that request superfast broadband services from Vodafone. Vodafone regularly requires a higher amount during busy hours and has to rely instead on a backup system which the evidence suggests has poorer quality information. Using the backup system therefore means a greater number of potential Vodafone customers have a negative experience as a result of being provided with inaccurate information. There is no evidence that DT s retail business is subject to the same limitations. In Germany, Vodafone uncovered evidence that DT was offering its retail customers twohour time slots when engineer visits are required to provision new lines, while Vodafone was only offered morning and afternoon times slots. Shorter time slots give much more flexibility and a higher quality of service and Vodafone would like them to be available for all operators. DT has announced that it plans to offer a two-hour time slot in future at a wholesale level but there is no time frame for general availability of this improved technical service. In Greece, when broadband customers served with unbundled local loops change suppliers, there is a switching process which is controlled by the incumbent, OTE. Vodafone analysed the time taken for broadband customers to port between it and other operators. Vodafone s analysis showed that it was being systematically disadvantaged compared to Page 16 of 43

17 OTE because it was taking customers 6.5 working days to port to Vodafone from OTE but only 4.0 working days to port away from Vodafone to OTE. This gave OTE greater time to win back customers that it had lost to other operators by making them so-called save offers, whilst reducing the time that Vodafone had to save its own customers when these had been won by OTE. In May 2016, after a hearing before the national regulator and with extensive data provided by all challenger operators, the incumbent reduced the porting time to 3.0 working days. In the six months following this change, Vodafone saw a 4% increase in customers activated due to a 10% decrease in cancelled orders. In Greece, Vodafone is concerned that OTE requires it to follow an extremely cumbersome and discriminatory ordering process for new services. Vodafone has to engage in a complicated translation process to convert customers addresses into a specific OTE address format. This causes delays in ordering and leads to increased order rejections. Engineering force In Germany, Vodafone has concerns related to DT s provisioning, repair and migration issues: - DT has two groups of engineers, one for customers of its own retail business, and a second one for wholesale customers. Vodafone is concerned that organizing the engineering force in such a manner inherently risks discrimination and there is no clear operation or other rationale for doing so. - Almost 30% of DT s visits to Vodafone s customers are unsuccessful. DT s engineers frequently do not turn up to customer appointments during the designated appointment window, and worse, often seem to blame the unsuccessful visit on the customers. The resulting rescheduled visits mean customers experience poor customer service, and those customers are significantly more likely to cancel their order or switch to other operators. In the period January 2014 to August 2016, Vodafone estimates that between 33,000 and 66,000 rescheduled visits for its customers could have been avoided. Similar behaviour by the incumbent s engineers has been observed in other countries such as Greece and Italy. In Ireland, Vodafone is concerned that eir unjustifiably delays the migration of enterprise voice customers from eir s retail businesses to Vodafone. In Italy, Telecom Italia has unreasonably rejected Vodafone s orders citing technical issues with the order as the reason for rejection. Telecom Italia does not provide a clear explanation for the rejection and Vodafone has to engage in a cumbersome process to identify the problem and re-submit the order. This results in delays in provisioning the order and a poor experience for Vodafone s customers. Vodafone suspects that Telecom Italia s own retail business is not subject to the same requirements. The national regulator, AGCOM, has recently opened an industry roundtable process to address these issues. Page 17 of 43

18 Section 2: Full equivalence of inputs for critical wholesale access products Recommendation 1 The Commission should mandate full equivalence of inputs for wholesale access products that are critical to ensuring effective downstream competition, and that represent future growth of the market, in all aspects of the product lifecycle. The Commission should mandate EOI for passive infrastructure access (i.e. access to the incumbent s ducts and poles) and for whichever active NGA access product(s) is most relevant for the market being considered (e.g. VULA). For other wholesale access products (e.g. legacy copper products), the Commission should include in the Code a presumption that national regulators will implement EOI the exception to this rule being declining markets where it may not be proportionate to implement EOI for all products in all parts of the product lifecycle. For wholesale access products where full EOI is not proportionate or practical for all parts of the product lifecycle, the Commission should require national regulators to mandate that incumbents use the same systems and processes for their own retail businesses and challenger operators in as many cases as possible. For EOI to be meaningful and successful in preventing discrimination, there need to be distinct units within the incumbent that engage in each EOI transaction and these transactions need to be identical to those that take place with external wholesale customers. This section provides evidence which shows that not only has EOI rarely been adopted by national regulators, but in many Member States there is neither a clear definition of what equivalence means nor a requirement to implement it. However, a non-discrimination regime based on EOI has the potential to drive the greatest benefits for competition and innovation by supporting a regulatory regime that promotes investments by challenger operators. EOI/EOO regimes are not being implemented properly The Commission itself recognises the clear superiority of EOI over EOO in delivering genuine equivalence. For instance, in its Non-discrimination and Costing Recommendation, 2 it notes that: The Commission considers that equivalence of inputs (EoI) is in principle the surest way to achieve effective protection from discrimination as access seekers will be able to compete with the downstream business of the vertically integrated 2 Available at Page 18 of 43

19 SMP operator using exactly the same set of regulated wholesale products, at the same prices and using the same transactional processes. In addition, and contrary to an Equivalence of Output (EoO) concept, EoI is better equipped to deliver transparency and address the problem of information asymmetries. 3 The Commission reiterated this position in the draft Code. 4 However, in Vodafone s experience, EOI has rarely been adopted by national regulators across Europe. It appears that EOI has currently only been adopted in: Sweden since the end of 2016 TeliaSonera has been required to provide certain fibre local access products on an EOI basis following a decision by PTS in It is understood that other TeliaSonera products, including enterprise services, are not covered by the EOI requirements. 5 Ireland in 2013 ComReg required eir to provide Next Generation products (e.g. Next Generation Bitstream and Virtual Unbundled Access) and facilities (including ordering, provisioning, fault reporting and repair) on an EOI basis as part of its review of Next Generation Access Markets. 6 However, eir s other access products, such as current generation WCA products and enterprise products, continue to be provided on an EOO basis. 7 France since 2008 Orange has been required to grant access to its local loop civil engineering infrastructure on an EOI basis. 8 However, Orange s LLU and copper-based bitstream access are both provided on an EOO basis. UK in 2005, following a strategic review of the UK telecommunication sector, Ofcom accepted undertakings from BT which included applying EOI to a broad range of its consumer and enterprise access products (e.g. its NGA wholesale product, wholesale line rental, LLU and certain Ethernet leased lines). 9 3 European Commission, Commission recommendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment, Commission Decision C(2013) 5761, September 2013, paragraph European Commission, Proposal for a directive of the European Parliament and of the Council establishing the European Electronic Communications Code, Commission Decision COM(2016) 590, paragraph See 6 Available at 7 In its latest consultation on the review of the WLA and WCA Markets, ComReg has proposed all CGA WCA products, services and facilities are to be supplied on an EOI basis from 1 November 2018, unless otherwise agreed by ComReg. ComReg s final decision is expected shortly. 8 ualite_pi1%5bannee%5d=&tx_gsactualite_pi1%5btheme%5d=&tx_gsactualite_pi1%5bmotscle%5d=&chas h=0f686f795c26cb2d78ad0abf7207cd32 9 Available at Page 19 of 43