Case SI/2009/0957: Wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location

Transcription

1 EUROPEAN COMMISSION Brussels, 11/09/2009 C(2009)7007 SG-Greffe (2009) D/5397 Agencija za pošto in elektronske komunikacije Republike Slovenije (APEK) Stegne 7, p.p Ljubljana Slovenia For the attention of: Mr Tomaž Simonič Director Fax: Dear Mr Simonič, Subject: Case SI/2009/0957: Wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location Case SI/2009/0958: Wholesale broadband access Comments pursuant to Article 7(3) of Directive 2002/21/EC 1 I. PROCEDURE On 12 August 2009, the Commission registered notifications (under case numbers SI/2009/ ) from the Post and Electronic Communications Agency of the Republic of Slovenia (APEK) concerning the third-round review of the markets for wholesale (physical) network infrastructure access (including shared or fully unbundled access) and for wholesale broadband access 2. The national public consultation 3 runs in parallel to the Community consultation under Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services, OJ L 108, , p. 33, (the Framework Directive). Corresponding to markets 4 and 5 of Commission Recommendation 2007/879/EC of 17 December 2007 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with the Framework Directive, OJ L 344, , p. 65, (the Recommendation). In accordance with Article 6 of the Framework Directive. Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2)

2 Article 7 of the Framework Directive. The deadline for the Community consultation is 14 September On 21 August 2009, the Commission services sent a request for information to APEK and the response was received on 26 August Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities (NRAs) and the Commission may make comments on notified draft measures to the NRA concerned. II. DESCRIPTION OF THE DRAFT MEASURES II.1. Background The market for wholesale unbundled access (including shared access) to metallic loops and sub-loops for the purpose of providing broadband and voice services (WUA) in Slovenia was previously notified to, and assessed by, the Commission under cases SI/2005/0142, SI/2005/0181 and SI/2006/0519. The market for wholesale broadband access (WBA) in Slovenia was also previously notified and assessed under cases SI/2006/0346 and SI/2007/0664. In the previously notified draft measures, APEK proposed to exclude services offered through non-copper-based technologies from both relevant markets, i.e. cable, wireless access, Wi-Fi, optical fibre and UMTS. It further identified Telekom Slovenije as having significant market power (SMP) and proposed remedies of access, non-discrimination, transparency, accounting separation, price control and cost accounting in both markets. As to price control, APEK first proposed a fully allocated costing approach using current cost accounting (FAC CCA) for WUA. The Commission commented on this inviting APEK to ensure that wholesale access seekers can compete effectively with the incumbent at retail level. In its second review, APEK proposed to switch to prices based on long-run incremental costs (LRIC) by 31 March For WBA, APEK also initially proposed a FAC CCA approach. In its second review, it proposed to switch to a retail minus method due to an inability to substantiate certain cost elements under the former approach. The Commission commented in the secondround review on the need for APEK to monitor potential developments affecting the market definition and on the appropriateness of the proposed price control methodology for ensuring effective wholesale regulation. II.2. Market definition II.2.1. Wholesale (physical) network infrastructure access At retail level, APEK concludes that broadband access through cable and fibre-optic networks are in the same relevant market as xdsl technology 4. At wholesale level, APEK is of the view that the relevant market includes the (self-supplied and external) provision of local loops and sub-loops (including full and shared access) over copper and fibre as well as shared use of facilities or collocation. 4 At the end of the third quarter of 2008, broadband access based on xdsl accounted for 68% of the number of broadband connections in the retail market, while access via the cable coaxial network accounted for 23%, fibre-optic broadband access accounted for 9% and the shares of other broadband access were insignificant. APEK noted the accelerated construction of fibre-optic networks over the relevant period and the fact that the number of broadband connections via fibre was increasing three times faster than connections through cable and xdsl access. 2

3 APEK does not anticipate timely provision of cable-based access services, comparable in price or functionality to an unbundled local loop, which would exert a sufficient constraint over its review. Furthermore, due to considerably lower coverage than Telekom Slovenije's xdsl network, APEK considers that cable offers (even if coordinated across operators) could only be a regional or local solution 5. As regards the inclusion of optical fibre, APEK notes that upgrading copper with Fibre to the Home (FTTH) is gaining importance in Slovenia 6 and, while FTTH coverage is still not comparable to copper networks, it can potentially be unbundled in an equivalent way to the copper local loop and the services supplied through both access types are technologically comparable. The geographic scope of the market is found to be the national territory of the Republic of Slovenia. II.2.2. Wholesale broadband access APEK concludes in its present draft measure that the market for WBA includes the bitstream access or wholesale service used for providing broadband internet access to end users via copper or optical access connections. Despite cable access being supplied at wholesale level, APEK notes that cable operators lease out infrastructure in its basic form to internet service providers which, according to APEK, is not substitutable from a technological or pricing perspective for bitstream access. Furthermore, such a solution would not be acceptable for operators requiring a unified service and price model at national level. As Telekom Slovenije uses optical fibre for the progressive substitution and expansion of its copper network, APEK includes it in the same relevant market as copper-based WBA. APEK concludes however that the optical network of the main alternative operator (T-2) does not have sufficient coverage to be considered a viable alternative to Telekom Slovenije's bitstream access 7 and excludes it from the relevant market. APEK notes in its response to the Commission's request for information that one of the key features of the WBA market is that it is the first rung on the ladder of broadband investment and should therefore provide ubiquitous access in order to facilitate efficient market entry. APEK considers that T-2's bitstream access product cannot be a substitute to Telekom Slovenije's bitstream access product and can only serve as an additional product for wholesale customers which have already acquired a ubiquitous presence based on Telekom Slovenije's bitstream access. APEK also excludes bitstream access via unbundled local loops from the relevant According to APEK, cable networks are present in 53.3% of all Slovenian communities; however the penetration of cable broadband access is lower than 20% in the majority of communities. During the observed period, active optical networks were present in 18.1% of all Slovenian communities (all optical networks, including non-active connections, were present in 20% of all Slovenian communities) while penetration of active FTTH connections totalled 9% on average. T-2 builds its own fibre optic network which is complemented by unbundled local loops. It has the highest number of both installed and active FTTH lines in Slovenia (for example T-2, accounts for 64.1% of all deployed FTTH connections while Telekom Slovenije accounts for 35.9%). However, according to APEK, T2 only offers limited fibre coverage overall. Its FTTH network covers a limited number of municipalities in Slovenia and a limited portion of the population in the municipalities where it is present (20-30% at best). 3

4 market 8. The relevant geographic market is defined as the territory of the Republic of Slovenia. APEK explored the possibility of sub-national geographic markets but did not find justification on the basis of such factors as prices, demand, marketing strategies, quality and functionality of the services, which are in general still nationally determined, nor on the basis of any clear differences in entry conditions across the national territory. II.3. Finding of significant market power II.3.1. Wholesale (physical) network infrastructure access On the basis of the analysis of the relevant market, APEK proposes to designate the incumbent operator, Telekom Slovenije, with SMP. The criteria used by APEK to assess SMP on this market include: i) market shares and their development over time (although declining, the market share of Telekom Slovenije still amounts to 91%); ii) barriers to entry and potential competition (including legislative/regulatory barriers such as property rights and structural barriers such as sunk costs, economies of scale and scope); and iii) vertical integration. II.3.2. Wholesale broadband access APEK proposed to designate Telekom Slovenije with SMP on the relevant market for WBA due to: i) market shares and their development over time (Telekom Slovenije holds a 100% market share); ii) barriers to entry and potential competition (including legislative/regulatory barriers such as property rights and structural barriers such as sunk costs, economies of scale and scope); and iii) vertical integration. II.4. Regulatory Remedies II.4.1. Wholesale (physical) network infrastructure access In the current draft measure, APEK proposes to impose the following obligations on Telekom Slovenije: Access; Non-discrimination; Transparency; Price control and cost accounting; Accounting separation. As regards the access obligation, this would apply to all relevant services including fully unbundled access and shared access to the copper local loop and subloops, access to optical fibre loops, in-house wiring 9, duct access, dark fibre and access to active Ethernet (or some other form of backhaul) needed for sub-loop usage, as well as to collocation and other capacities needed for appropriate installation and connection of equipment. An 8 9 While operators using unbundled local loops are present in 61.4% of all Slovenian communities, average penetration amounts to 11.3% and does not exceed 37.6% in any community. APEK also notes that there is no existing or planned supply of bitstream access by operators using unbundled local loops, with the exception of T-2 which plans to introduce such wholesale supply where its own optical network is built and technical possibilities exist. In its response to the request for information, APEK clarified that the distribution point for the purposes of accessing in-house wiring should be at the curb located at the end-user's building. 4

5 exception to the access obligation is foreseen for a two-year period in the case of Greenfield deployment of fibre optic loops following 1 September 2009 to points not previously connected to Telekom Slovenije's network 10. It is proposed that the non-discrimination obligation would entail a duty to provide advance information to operators and APEK on planned upgrades of its network. This would include an obligation to inform operators of any withdrawal of collocation at least 5 years in advance and of the withdrawal of each copper loop at least 2 years in advance. According to the transparency obligation, Telekom Slovenije would also be required to publish a reference offer (to be updated from the first day of the month following publication of the decision) for local loop and sub-loop services (based on copper or fibre) as well as including details on other elements such as collocation, shared access to buildings, or duct access. As to price control and cost accounting, APEK has developed a LRIC model based on current cost accounting which uses an engineering bottom-up model calibrated with Telekom Slovenije's data. Telekom Slovenije's weighted average cost of capital (WACC) is estimated at between 11.36% and 14.21%. APEK proposes to use the highest estimated WACC (14.21%) for FTTH access prices, based on an anticipated higher investment risk. For all other services such as fibre to the curb, duct access and Ethernet, a lower estimated WACC is proposed. According to the proposed LRIC+ methodology, APEK has identified prices for fully unbundled copper access ( 7.89), shared access ( 3.19), unbundled fibre access ( 9.74), duct access ( 5.12 per metre per month), dark fibre ( per metre per month) and Ethernet ( per month). II.4.2. Wholesale broadband access APEK intends to impose the following regulatory obligations on Telekom Slovenije: Access; Non-discrimination; Transparency; Price control and cost accounting; Accounting separation. Regarding the access obligation, Telekom Slovenije would be required to provide bitstream access at local level (access to DSLAM or broadband access node), at regional level (access through transfer to BRAS (or similar device), and at national level (in the IP/MPLS (or similar) backbone network). As to the non-discrimination obligation, APEK proposes to inter alia oblige Telekom Slovenije to provide advance information on planned upgrades of its network at the same time as its retail unit is informed 11. Telekom Slovenije would be further required to In this respect, APEK refers to the need to preserve Telekom Slovenije's incentives for further network investment, while also ensuring that such access does not remain unregulated for too long. A two-year period was considered appropriate on the basis of the typical duration of customer contracts. In its response to the request for information, APEK explained that the reason it proposes stricter obligations on the provision of information for network decommissioning plans in the wholesale physical infrastructure access market than in the WBA market is that such plans are less relevant in the context of the latter market since operators mainly use national (and eventually regional) interconnection points and not local ones which are likely to be decommissioned in the near future. 5

6 supply information at least 6 months prior to the launch of a new service. Following the transparency obligation, Telekom Slovenije would be required to publish a reference offer (to be updated from the first day of the month following publication of the decision) including all relevant information necessary for bitstream access via copper and fibre optic networks. As regards price control and cost accounting, APEK proposes a retail minus methodology due to concerns regarding potential exclusionary behaviour in the form of a margin squeeze, especially when bundled offers are in question. Due to retail pricing constraints from cable operators, local loop unbundlers and T-2, on the basis of its FTTH network, APEK finds it would be disproportionate to impose cost-oriented prices. In addition, APEK imposes a prohibition on margin squeeze between the retail and wholesale price of all broadband-based packages. The "minus" is calculated on the basis of a combination of cost orientation (including the costs of fibre local loops and MSAN and BRAS equipment), benchmarking data on retail costs and the retail price of Telekom Slovenije. III. COMMENTS On the basis of the present notification and the additional information provided by APEK the Commission has the following comments 12 : Market definition for WBA APEK proposes to include Telekom Slovenije's fibre-based network in the relevant market but to exclude the fibre optic infrastructure of the alternative operator T-2. In its response to the Commission's request for information, APEK notes that bitstream access provided over T-2's fibre lines could be useful for operators wishing to combine the ubiquitous wholesale access provided via Telekom Slovenije's network with fibre where necessary. However, according to APEK, the relatively poor coverage of T-2's optical network prevents it from being a substitute for Telekom Slovenije's network. In this respect, the Commission would like to remind APEK that, as noted by the SMP Guidelines, the relevant product/service market comprises all those products or services that are sufficiently interchangeable. Thus for products to be considered close or effective substitutes for market definition purposes, it is not required that all customers would necessarily switch between the products in question. What is rather more decisive is whether a sufficient number of consumers would be likely to switch between the products in response to small but significant price changes to the extent that the relevant price increase would not be profitable owing to the resulting loss of sales. Given the demand for ubiquitous WBA products in Slovenia, the Commission recognises that the actual coverage of T-2's network may limit its substitutability with WBA products provided over the copper network of the incumbent operator at this stage. Moreover, the regulatory outcome does not appear to be affected by the exclusion of T-2's network from the relevant market 13. As a result, the In accordance with Article 7(3) of the Framework Directive. In its response to the request for information, APEK noted that if T-2's self-supplied optical network was taken into account at the end of the third quarter of 2008, T-2's share would have been 10.2% and 6

7 Commission does not propose to challenge APEK s finding. The Commission nevertheless invites APEK to closely follow the development of separate fibre networks in Slovenia and the development of WBA products supplied over them, bearing in mind also that T-2 has indicated plans to introduce WBA supply over its own optical network. In case alternative fibre networks would reach a sufficient coverage, it is possible that the WBA products supplied over these networks would pose a significant constraint to WBA provisioning via copper networks 14. Should this arise, such constraint should be taken into account by APEK in the analysis of the relevant WBA market. Remedies imposed in the context of NGA development and need for a consistent European approach The Commission notes that in the market for WBA, APEK proposes a retail minus methodology where the discount factor is independent of the type of access deployed (i.e. copper or optical fibre) as Telekom Slovenije's retail offer does not distinguish between the underlying access type. Furthermore, the "minus" is calculated on the basis of a combination of cost-orientation and benchmarking data. The Commission would like to recall that it is currently working towards a Recommendation on NGA remedies with the aim of ensuring a consistent regulatory approach to the roll-out of Next Generation Networks across Europe. In the light of this, the Commission invites APEK to revisit its analysis when carrying out its next review of these markets along the lines of this Recommendation once adopted so as to avoid undesirable divergences of regulatory approaches in the internal market. Pursuant to Article 7(5) of the Framework Directive, APEK shall take the utmost account of comments of other NRAs and the Commission and may adopt the resulting draft measures and, where it does so, shall communicate them to the Commission. The Commission s position on this particular notification is without prejudice to any position it may take vis-à-vis other notified draft measures. Pursuant to Point 15 of Recommendation 2008/850/EC 15 the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission 16 within three working days following receipt whether you consider that, in accordance with Community and national rules on business confidentiality, this document contains % at the end of the second quarter of Despite sub-national rollout of an alternative fibre network, it is possible that a sufficient number of access seekers would switch lines between WBA copper and WBA alternative fibre products in response to small but significant price changes by the copper WBA provider, to the extent that the relevant price increase would not be profitable owing to the resulting loss of sales. Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 301, , p. 23. Your request should be sent either by INFSO-COMP-ARTICLE7@ec.europa.eu or by fax:

8 confidential information which you wish to have deleted prior to such publication 17. You should give reasons for any such request. Yours faithfully, For the Commission Fabio Colasanti Director General 17 The Commission may inform the public of the result of its assessment before the end of this three-day period. 8