on the undertakings with coincide decision. Síminn owns and comments August 24 decision analysis. notified to (EEA) significant decision annex C.

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1 PTA no. 26/2007 on the designation of undertakings with significant market power and imposition of obligations in the market for wholesale unbundled access to copper local loops (Market 11) With reference to Article 17 of the Electronic Communica ations Act, no. 81/2003, with subsequent amendments set forth in Act no. 78/2005, the Post and Telecom Administration (PTA) has analysed the market for wholesale access to copper local loops (Market 11). In a letter dated 27 September 2006, a draft analysiss for Market 11 was sent to electronic communications undertakings, whereupon they were invited to submit comments on the market analysis and resulting conclusions. The following parties submitted comments on the preliminary draft: The Competition Authority, IP fjarskipti ehf. (Hive), Og fjarskipti ehf. (Vodafone), Síminn hf., and TSC ehf. The analysiss of Market 11 has now been updated to reflect the comments that were considered, and all statistical data have been updated to coincide with the most recent figures. The revised analysis of Market 11 can be found in Annex A to this. The comments that were received are addressedd in Annex B to this. Structural changes where made on Síminn in March 2007, where the electronic communications operations within the Síminn group were divided primarily between Síminn and Míla. Míla now owns and operates all of the copper local loops in the country that belong to Market 11. PTA updated the market analysis with regards to these changes and published the updated preliminary draft of the market analysis again for comments, from both Síminn hf. and Míla ehf. on August 24 th. No comments weree received from the parties regarding PTA to change of parties from Síminnn to Míla in the market analysis. On 9 November 2007, the PTA formally notified to the EFTA Surveillance Authority (EEA) of a draft on Market 11, with Article 7 of Directive 2002/21/EC (Framework Directive). The notification consisted of a summary notification form, a draft on designating undertakings with significant market power (SMP) and imposition of obligations, a market analysis (annex A) and a summary of the results of the national consultations in this market (annex B). On 10 December 2007, PTA received EEA opinion on PTA s draft and analysis on Market 11. It is stated in the opinion that The Authority has examined the notification and has no comments. The Market analysis on Market 11 is on annex A. The summary of the results of the national consultations in this market is in annex B and EEA opinion is in annex C. 1

2 1. Designation of undertakings with significant market power With reference to the definition and analysis of competition in Market 111 and in accordance with Article 17, Paragraph 2, cf. Article 18, of the Electronic Communications Act, PTA has decidedd to designate Míla ehf. as having significant market power in the market for wholesale access to local loops. 2. Imposition of obligations In accordance with the provisions of Article 27 of the Electronic Communications Act, PTA has decided to impose the following obligations on Míla ehf. because of the company s designation as having significant market power in the market for wholesale access to copper local loops. In the opinion of PTA, these obligations are consistent with the objectives set forth in the Framework Directive, the Access Directive, and the provisions of the Electronic Communications Act, and are appropriate for the time horizon of the market analysis. PTA is of the opinion that the obligations are conducive to increasing competition in the relevant market. For a more detailedd discussion of the obligations, PTA makes referencee to the updatedd analysis of Market Obligation to grant access to copper local loops and related infrastructure Based on the authority in Articles 28 and 34 of the Electronic Communications Act, PTA imposess on Míla ehf. the obligation to comply with normal and reasonable requests for unbundled wholesale access to local loops in the form of copper lines and related services, whether this involves full access or shared accesss to upper or lower frequency ranges. A reasonable request for full or shared access to a copper local loop is considered to be a request for a local loop that will not be otherwise in use on the day that new usage is planned. It is necessary to consider the right of each user to universal service via a network termination point and the necessity of preserving the integrity of the network. Míla ehf. is only authorised to limit access to and use of local loops on the basis of primary restrictions pertaining to the operational safety of the electronic communications network in cases of emergency, to network compatibility and, in well-grounded instances, to the operational integration of service systems and the protection of data. Míla ehf. shall comply with applications by electronic communications undertakings for high-frequency copper local loops for data transmission, even though the lower portion of the frequency spectrum is not in use for voice call services. Obligations to grant accesss to copper local loops shall also apply to sub-loops; for example, from connection cabinets on the street into the premises of the user. Míla ehf. shall comply with all reasonable requests for co-location of the equipment pertaining to copper lines and services. The obligation to offer joint utilisation and co-location is imposed on Míla ehf. with respect to the infrastructure that the company controls, ncluding 2

3 that inside buildings, as well as other facilities. Fees for access shall be based on historical costs or other methods specified by PTA at the time. Míla ehf. shall authorise other electronic communications undertakings to install new copper cables in those of its casings that are not fully utilised. The obligation relating to co-location and joint utilisation applies to reasonable requestss that do not entail a substantially increased financial burden. A reasonable request for co-location is considered to be a request for free space on the premises of Míla ehf.; however, such a definition could also include a request requiring the construction of new premises or the expansion of existing premises. If the obligation to offer joint utilisation or co-location requests. If requires changes or expansion, Míla ehf. shall comply with normal and reasonable the parties concerned are unsuccessful in reaching an agreement concerning access for joint utilisation or co-location, PTA may determine appropriate and fair prices and terms for such access. Míla ehf. shall grant access to infrastructure and any information that is necessary so that the copper local loops can be used for the purpose for which they are leased. Such access could include: 1) Operational support 2) A database for gathering information prior to ordering 3) Delivery 4) Orders 5) Maintenance 6) Handling of malfunctions 7) Invoicing. Míla ehf. shall process applications for access to copper local loops and related infrastructure such as physical premises as soon as possible, provided thatt the applications are sent by electronic means. Míla ehf. is not authorised to give priority to affiliated companies or its own departments at the expense of other electronic communications undertakings. Refusal of access shall be communicated in electronic form and shall contain a reasoned explanation of the. The reasoning shall include all information necessary to assess the lawfulness of the rejection. Applicants for access shall have access equal to that of companies within the Síminn group to the Míla ehf. service system so that they can track the status of their applications and obtain information on repair and maintenance of locall loops, as well as information on invoicing. The access provided by Síminn and, later, Míla to other electronic communications undertakings, whether through the supply of leased local loops or through access to infrastructure, may not be withdrawn without the approval of PTA. Míla ehf. shall ensure that the service offered remains available for a suitable length of time. It is only permissible to discontinue a service following consultation with the users in question, and such discontinuation shall be subject to the approval of PTA. If a service is to be discontinued, the 3

4 users in question shall be informed of proposed changes as soon as is possible, and no later than six (6) months prior to the intended change Non-discrimination Based on the authority contained in Article 30 of the Electronic Communications Act, PTA imposess on Míla ehf. the obligation to observe non-discrimination in the leasing of copper local loops. Míla ehf. shall provide services to all lessees of local loops, including its own departments and affiliates, based on the same terms, time frames, prices, quality, and supply. Before 1 July each year, Míla ehf. shalll send PTA a written summary from its accounting documentation, demonstrating the observation of non-discrimination with respect to price. The information that Míla ehf. has obtained from other undertakings, either during the preparation of contractual agreements for access or thereafter, shall only be used for the purpose intended and shall, at all stages of handling, be treated as confidential. The information may not be delivered to other parties, including other divisions of the company, its affiliates, or its partners Transparency Based on the authority contained in Article 29 of the Electronic Communications Act, PTA imposess on Míla ehf. the obligation to maintain transparency in the leasing of copper local loops. Míla ehf. shall publicise information concerning access to copper local loops; for instance, that pertaining to accounting for local loops, technical specifications, network characteristics, terms and conditions for supply and use, and price lists. Míla ehf. shall maintain and update, as needed, reference offers for the wholesale leasing of copper local loops. A publication on the Míla ehf. website is considered sufficient. Reference offers shall be itemised in accordance with the Annex to Regulation no. 199/2002 on unbundled access to local loops. Reference offers and amendments to them shall be submitted to PTA for approval prior to publication. An updated reference offer shall be submitted to PTA no later than six (6) months after the publication of this. Míla ehf. shall publicise, in co-operation with PTA, accounting information concerning the performance of its copper local loop network operations. With reference to Article 28, Paragraph 2, Subparagraph (c) of the Electronic Communications Act, PTA imposes on Míla ehf. the obligation to grant others open access to technical interfaces, protocols, or other technologies that are necessary to guarantee interoperability of services (connections to other networks). 4

5 2.4. Accounting separation Based on the authority contained in Article 31 of the Electronic Communications Act, PTA imposess on Míla ehf. the obligation to separate its accounting for the leasing of copper local loops from other operations. The separation shall be handled in the manner described below. In carrying out accounting separation, Míla ehf. must enter its bookkeeping in such a way that it is possible to allocate all revenues and expensess to operating units that can be linked to various services. Accounting separation is based on the fundamental rule of cause and effect; that is, expenses and revenues shall be allocated to the servicee or product that generates the expensee or revenues. Expenses for the operation of networks and/or services shall be allocated to operating units with a work-based cost analysis that is based on analysing expenses according to the actions carried out in the operating unit in question. The portion of expenses that cannot be allocated on the basis of direct or indirect division of costs that is, expenses that cannot be categorised through comparison with other expense items shall be labelled specially in Míla ehf. s accounts. Accounting separation shall be carried out with respect to revenues, expenses, assets, and liabilities for copper local loops. Míla ehf. is required to submit to PTA, on an annual basis, a specially itemised profit and loss account and balance sheet for the leasing of local loops, together with a summary of the allocation of indirect expenses that cannot be categorised throughh comparison with other expense items. The above-described summary for the prior year must be received by PTA by 1 April each year. Míla ehf. shall submit to PTA an opinion from an independent auditor, stating that the cost allocation descriptions the company has submitted to PTA are consistent with the execution of its accounting separation. It shall contain an examination of whether the accounting data that Míla ehf. is required to submit to PTA are in accordance with regulatory provisions, give a clear picture of the company s performance and financial position, and are consistent with generally accepted accounting principles. The opinion must contain the following, at a minimum: 1. The conclusions drawn by the party who carries out the examination. 2. A summary of all instances wheree inconsistency can be found. 3. The examiner s proposals for improvements and their impact. 4. A detailed description of how the examination was carried out. 5. Summarised financial and accounting information (for example, conclusions regarding distribution of joint costs and changes in the value of assets to the business). The above opinionn shall be published on Míla ehf. s Internet website as soon as possible following the end of the accounting year. 5

6 2.5. Price controls Based on the authority contained in Article 32 of the Electronic Communications Act, PTA imposess on Míla ehf. the obligation to determine a cost-oriented price list for the leasing of copper local loops and related infrastructure and to submit to PTA s surveillance of the price list. The price list for access to copper local loops and related infrastructure shall be based on costs, ncluding a normal return on capital employed. The itemisation of the lease price for access shall be as follows: A monthly base price that may always be charged, independent of use of the local loop An extra monthly fee for shared access; thatt is, for access to the upper portion of the frequency spectrum of the local loop with xdsl or corresponding technology Fees for hosting and access to infrastructure related to access to copper local loops. When access is divided between two different electronic communications undertakings, the undertaking with access to the lower end of the frequency range shall pay the base price, and the other shall pay the fee for shared access. The base price for copper local loops shall be based on the annual operating expenses for the local loop system all over the country, which shall in turn be based on historical costs. It is permitted to add depreciation of assets that have not been written off, as well as a profit deemedd reasonablee by PTA, to annual operating expenses. The result shall apply as an averagee base price for the entire country. The extra fee for shared access shall be based on the extra expenses incurred by Míla ehf. in providing shared access. All amendments to Míla s price lists for leasing of local loops must be reported to PTA. No amendments will take effect unless approved by the Administration. In accordance with Article 32, Paragraph 3 of the Electronic Communications Act, PTA imposess on Míla ehf. the obligation to prepare a cost model for local loops, showing how expensee items are allocated to various cost-bearers and locations. Furthermore, PTA reserves the right to exercise its statutory authorisation pursuant to use the operations of a comparable, efficiently run service as a guideline. PTA will also assess, based on the results of the cost analysis, whether it is more suitable to use the LRIC 1 method rather than the historical cost method of determining the price list. Míla ehf. shall complete the cost model no later than six (6) months after the publication of this. For its copper local loop operations, Míla ehf. is obliged to carry out cost accounting that apprehends, identifies, assesses, and allocates the expenses in question. Míla ehf. shall submit to PTA a description of its cost accounting and shall publicise its principal expense categories, 1 Long-run incremental costs. 6

7 as well as the rules used to allocate costs. It shall submit to PTA an independent auditor s report stating that Míla ehf. s descriptionss are consistent with its accounting practise. 3. Effective date of and appeal process This shall take effect on the date it is published and shall remain in effect until a new is reached by the Post and Telecom Administration. This may be appealed to the Rulings Committee for Electronic Communications and Postal Affairs, cf. Article 13 of the Act on the Post and Telecom Administration, no. 69/2003. Appeals shall be received by the Rulings Committeee within four (4) weeks from the time the of the Post and Telecom Administration was made known to the appellant. Reykjavík, December Hrafnkell V. Gíslason Inga Helga Jónsdóttir Attachements: Appendix A Market analysis on Market 11 Appendix B Summary of the results of the national consultations in Market 11 Appendix C EEA Opinion Copy sent to: Competition Authority ESA 7