Comments pursuant to Article 7(3) of Directive 2002/21/EC 1

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1 EUROPEAN COMMISSION Brussels, 26/05/2011 C(2011) 3855 SG-Greffe (2011) D/8477 Autorité de Régulation des Communications électroniques et des Postes (ARCEP) 7, square Max Hymans F Paris-Cedex 15 For the attention of: Mr Jean-Ludovic Silicani President Fax: Dear Mr Silicani, Subject: Commission decision concerning Case FR/2011/1213: Wholesale network infrastructure access; Commission decision concerning Case FR/2011/1214: Wholesale broadband access Comments pursuant to Article 7(3) of Directive 2002/21/EC 1 I. PROCEDURE On 26 April 2011, the Commission received a notification from the French national regulatory authority, Autorité de Régulation des Communications Electroniques et des Postes (ARCEP), concerning the third review of the markets for wholesale physical network infrastructure access (WPNIA) at a fixed location and wholesale broadband access (WBA) in France 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 (Framework Directive), OJ L 108, , p. 33. Corresponding to markets 4 and 5 of the 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 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 (Recommendation), OJ L 344, , p. 65. See cases FR/2008/ , SG- Greffe (2008) D/ Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel

2 A national consultation 3 ran from 27 July 2010 to 30 September The deadline for the EU consultation under Article 7 of the Framework Directive is 26 May On 10 May 2011 the Commission services sent a request for information 4 to ARCEP and the reply was received on 13 May II. DESCRIPTION OF THE DRAFT MEASURES II.1. Background In June 2008, ARCEP notified to the Commission its second review of the markets for WPNIA and WBA in France. ARCEP found that France Télécom (FT) had significant market power (SMP) in both markets, and imposed on it, inter alia, the obligations (i) to grant access to its civil works infrastructure, (ii) cost-orientation of prices for access to civil works infrastructure and cost accounting, and (iii) accounting separation. Subsequently, France adopted a law (Loi de Modernisation de l'economie, LME), which resulted in the addition of Article L to the French telecoms law (Code des Postes et des Communications Electroniques, CPCE) which foresaw the obligation to share inbuilding fibre wiring. Accordingly, ARCEP notified to the Commission the proposed symmetric regulation 5, which laid down the general terms and conditions for access to fibre lines and the location of the local connection point, and also specified the details of the access obligation applicable in and outside the "very densely populated areas". 6 The Commission issued several comments on ARCEP's proposed limited SMP regulation and symmetrical measures. While the Commission welcomed the imposition of a duct sharing obligation, it encouraged ARCEP to consider imposing other SMP remedies in case the symmetrical regulation, in combination with duct access, would prove insufficient to ensure effective competition within a foreseeable timeframe. Furthermore, with regard to the imposed symmetrical regulation, the Commission criticised the omission of details on the pricing and conditions of access, which could give rise to a lack of legal certainty. The Commission also asked ARCEP to assess, in the course of the implementation of the access obligation in less densely populated areas, if the size of the proposed concentration points was adequate to ensure co-investment and to modify the minimum size threshold, if necessary. Furthermore, the Commission called upon ARCEP to ensure the consistency between symmetric regulation and SMP regulation and to impose additional asymmetric forms of access to the fibre infrastructures of the SMP operator, in line with the NGA Recommendation, if necessary In accordance with Article 6 of 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 (Framework Directive), OJ L 108, , p. 33. Pursuant to Article 5(2) of the Framework Directive. Case FR/2009/0993, SG-Greffe (2009) D/8543 and case FR/2010/1144, SG-Greffe (2010) D/ The "very densely populated areas" have been identified by ARCEP as being municipalities where, on a large part of the relevant territory, infrastructure competition is susceptible to emerge, i.e. where it is economically viable for several operators to rollout their own fibre access network in the proximity of the dwelling (see FR/2009/0993). 2

3 II.2. The notified draft measure II.2.1. Market definition Wholesale (physical) network infrastructure access Similarly to its previous market analysis, ARCEP considers that the relevant wholesale market consists of two segments depending on speed, i.e. access to the wired local loop for the provision of (i) broadband services, and (ii) high speed broadband services. 7 As to the broadband segment, ARCEP includes in the relevant market full unbundled and shared access to local copper loops and sub-loops but excludes access delivered over cable networks 8, wireless or other alternative technologies, as well as active types of access (bitstream). As to the high speed broadband segment, ARCEP includes access to civil works infrastructures including overhead cables, whether they are rolled out by operators or by local authorities, and passive access to fibre local loops provided at a concentration point by operators or by local authorities, in the context of network sharing. Similarly to its previous market analysis, ARCEP considers both segments to be substitutable. All of the above mentioned access products are therefore part of the WPNIA market, which ARCEP considers to be national in scope. Wholesale broadband access ARCEP includes in the relevant product market DSL wholesale broadband services for the provision of services to residential and business customers as well as wholesale broadband services delivered over fibre-based infrastructures (FTTx), at regional access points, independently of the interfaces' technology. WBA provided at a single national point, leased lines provided either over DSL or fibre and WBA provided over cable, wireless local loops (WIMAX, WiFi), satellite power lines and passive fibre access offers are excluded from the market. With regard to cable, although at least one cable operator already provides a bitstream service 9, ARCEP argues that such offer is not substitutable to DSL-based bitstream since (i) it is delivered at national level (and not at regional level, as the DSL offer) and (ii) the deployment of a network by cable operators, with the requested capillarity (at regional or municipal level), would entail significant costs given the historically limited footprint of cable operators. 10 As for the geographic scope of the market, ARCEP identifies two geographic areas with specific competitive conditions - (i) an area where only one operator is able to provide a On the retail broadband market ARCEP also distinguishes between the provision of broadband services and the provision of high speed broadband services. According to ARCEP, the latter segment encompasses retail offers with speeds above 50 Mbt/s (download) and 5 Mb/s (upload) which are delivered over fibre (FttLA Fibre to the Last Amplifier-, FTTH -Fibre To The Home). Given its specific network architecture deployed to deliver primarily TV signals, cable-tv networks cannot, to date, be subject to unbundling in a comparable technical and economical manner as copper local loops. Even though one cable operator provides a fibre wholesale access on the horizontal part of its network (i.e. the terminating part is still FTTLA), no wholesale passive offer exists in France so far. Numericable provides a bitstream service over its FTTLA network. In particular, ARCEP points to the costs of backhaul which may make the offer economically unattractive. 3

4 wholesale offer, and (ii) another one where more than one operator is able to provide a wholesale offer. In this regard, ARCEP explains that the first geographic area encompasses all the MDFs where FT is the only operator providing DSL WBA delivered at regional level; the second geographic area concerns all the other MDFs where, in addition to FT, at least one alternative operator provides a DSL wholesale bitstream offer based on local loop unbundling (LLU). Furthermore, given that the FTTx network deployment is at the moment still limited to the biggest cities and that alternative operators' demand for fibrebased bitstream is national, ARCEP maintains that only the DSL-based wholesale offers are taken into account in the geographic delineation analysis. ARCEP stresses that precise and stable boundaries between the two areas cannot be distinguished since the number of unbundled MDFs may substantially change in the timeframe of the current market analysis. As a result, ARCEP defines a single national wholesale market for broadband and high speed broadband access services delivered at regional level, corresponding to the metropolitan territory and the overseas departments and territories. 11 II.2.2. Finding of significant market power (SMP) Wholesale (physical) network infrastructure access ARCEP finds that FT has more than 99% of the copper access loops in France and that alternative operators would have limited options to deploy their networks without making use of FT's civil works infrastructure 12. ARCEP also points to other criteria such as the level of sunk costs, vertical integration, the control of an infrastructure not easily duplicated and the limited countervailing buyer power. Wholesale broadband access delivered at regional access points ARCEP finds that FT has overall a market share above 79%, although it recognises the different competitive conditions found in the two abovementioned geographic areas. 13 Furthermore, ARCEP points to criteria including the control of an infrastructure not easily duplicable, the vertical integration of FT and the absence of potential competition. 14 II.2.3. Regulatory Remedies ARCEP proposes to impose on FT the following obligations: ARCEP will monitor changes in the market and reassess the geographic market definition, if needed. ARCEP states that FT operates around km of ducts nationwide, which account for the vast majority of such infrastructure. Furthermore, FT owns around 13 million poles and, in addition, can use an equivalent number of other poles (primarily dedicated to electricity distribution) to deploy nationwide electronic communication infrastructures. The competitive situation is very different in areas where FT is the only wholesale provider (around 20% of the population), where it de facto holds 100% of the wholesale market shares, and areas (around 80% of the population) with one or more additional alternative wholesale offer(s) based on LLU (where FT's wholesale market shares are inferior to [ ]%). In this regard, ARCEP explains that alternative operators cannot supply a wholesale offer with the same coverage as FT and that competition in small MDFs rests on limited projects by municipalities. 4

5 Wholesale (physical) network infrastructure access (i) Access FT is required to grant alternative operators unbundled access to copper loops and subloops, (i.e. with tailored wholesale offers for serving residential customers and for serving business customers) and to provide ancillary services 15. With regard to sub-loop unbundling, FT must provide access seekers with collocation of their active equipments at the new access points 16 (i.e. injection point) and with a fibre backhaul link to the Main Distributions Frames (MDFs). Furthermore FT is requested to maintain its current commercial offer (LFO) for providing a fibre link between two MDFs and between an MDF and an alternative operator's point of presence (PoP). 17 In case of network topology modifications, FT must set migration rules and provide alternative operators with all necessary information at least six months prior to the network modification (and five years prior to the closing of a MDF or a street cabinet) and set an automatic operational process for implementing the migration of the wholesale offers. Furthermore, FT is requested to grant access to its civil works infrastructure, including any underground, chambers, and overhead infrastructures allowing the deployment of electronic communications networks. In relation to fibre lines access, ARCEP refers to the imposed symmetrical regulation which foresees co-investment in the roll-out of fibre infrastructures in dense and in less dense areas 18 and which mandates the provision of passive wholesale access offers. ARCEP also indicates that it sets a review clause according to which it will assess the necessity to impose additional SMP remedies, with regard to the fibre lines, within 18 months after the entry into force of the adopted measure. Therefore ARCEP does not consider it necessary to impose access to FT's unbundled fibre loop in the notified draft measure. (ii) Non discrimination, transparency and quality of service FT is asked to implement the same processes for self-provision and for provision to access seekers. Key Performance Indicators (KPIs) must be measured and published monthly with respect to wholesale unbundling access, sub-loop unbundling access, access to civil engineering infrastructures, and ancillary services. Financial penalties will be applicable in case KPIs are not respected. Furthermore, FT is obliged to publish a Reference Unbundling Offer, a Reference Offer for access to the civil works infrastructure, as well as some information on specific services 19. (iii) Price regulation, cost accounting and accounting separation ARCEP intends to impose on FT an obligation to apply cost oriented prices for access to Including physical and distant co-location (also for connecting radio base station). In the reply to the request for information ARCEP clarifies that the tariffs for collocation and connection to the new access point are cost-oriented and, in addition, should be comparable to the average unbundling tariffs applied to recently unbundled MDFs of equivalent size. In this respect, FT is asked to implement reasonable tariffs and to always provide such a backhaul at the MDFs from which FT provides DSL-TV, in order to allow replication of this service by alternative operators. See footnote 5. In particular the terms and conditions of the LFO offer and the access, collocation and backhaul concerning the new injection point in case of sub-loop unbundling. 5

6 local copper loops and sub-loops as well as for ancillary services and cost accounting and accounting separation on both its copper and passive fibre wholesale offers. Wholesale broadband access (i) Access FT will be obliged to meet reasonable requests for access to its copper network. For that purpose, FT shall maintain the wholesale broadband offers currently in place and ensure that WBA is available at different levels of the network: IP, ATM and Ethernet. FT shall furthermore offer WBA services to residential and business customers, naked DSL access and bitstream access for the purpose of connecting Mobile Switching Centres. 20 FT shall also grant access to associated facilities, including backhaul and collocation, and provide the relevant information, as well as the appropriate migration procedures. ARCEP does not mandate fibre-based bitstream access. In this regard, it explains that access to civil engineering infrastructures, coupled with symmetrical regulation, have so far led to lower entry barriers on the wholesale access markets and fostered parallel network rollout in dense areas (in less dense areas, given the very limited fibre network deployment, ARCEP cannot yet conclude on the sufficiency of the symmetrical regulation in place). ARCEP notes that at least one operator, Numericable, has already proposed a commercial bitstream offer over its fibre-based network. In light of the above, ARCEP does not mandate fibre-based WBA but will revise its market analysis and introduce SMP remedies before the end of the market review, if needed. (ii) Non discrimination, transparency and quality of service FT is asked to provide non-discriminatory technical and tariff conditions to the access seekers and to ensure that the latter are not treated less favourably than its own retail arm through prior information, KPIs, SLAs and a Reference Offer. Performance Indicators must be measured and published monthly for the WBA offer and the ancillary services. Financial penalties will be foreseen in case those are not respected. Furthermore, FT must publish a Reference Offer for the provision of WBA delivered at regional access points and ancillary services. (iii) Price regulation, cost accounting and accounting separation On the business segment, ARCEP proposes to maintain on FT an obligation to apply cost oriented prices given that (i) its wholesale market shares (around [ ]%) as well as its retail market shares (between [ ] and [ ]%) remain high, (ii) that alternative bitstream offers based on LLU are present at a limited numbers of MDFs (around 2000) and (iii) that alternative operators' bitstream offers are restricted in terms of functionalities. Furthermore, ARCEP considers it appropriate to prevent the application of eviction tariffs 21 and guarantee the coherence between the prices applied for WBA and for access to the local loop. On the residential segment, ARCEP proposes to differentiate price remedies according to the two geographic areas characterised by different competitive conditions, as identified in the product market definition. In the geographic areas where FT is the only operator providing DSL WBA delivered at regional level, ARCEP considers it justified and However, ARCEP explains that imposing a multicast obligation on FT would not be proportionate given that it will adapt its LFO offer to deliver TV signals, and because FT will complement its DSL offer by a satellite-based TV offer in those areas which have not been unbundled. I.e. tariffs that would not incentivise the unbundling of the local loop by alternative operators. 6

7 proportionate to impose an obligation to apply cost oriented prices. In the geographic areas where at least one alternative operator, in addition to FT, provides a wholesale bitstream offer (based on LLU or on alternative infrastructures such as FTTx or cable), ARCEP explains that there is a sufficient constraint on FT's access tariffs and as a result, it proposes to lift the current ex ante price regulation. ARCEP will thus intervene ex post only in case of eviction tariffs. ARCEP intends to yearly revise the boundaries of the two geographic areas on the basis of FT's cost data. Finally, ARCEP intends to maintain cost accounting and accounting separation on FT's copper and passive fibre wholesale offers. With regard to business offers, this entails the transmission, on a quarterly basis, of the technical and price description (including internal transfers and protocol) of the ad hoc offers. III. COMMENTS On the basis of the present notification and the additional information provided by ARCEP, the Commission has the following comments 22 : Lack of SMP remedies on fibre infrastructures in the WPNIA and WBA markets The Commission notes that, in relation to FT's fibre infrastructures, ARCEP does not consider it justified or proportionate to mandate SMP remedies at this stage. ARCEP specifically discards the imposition of fibre unbundling and fibre-based bitstream access. To substantiate its approach, ARCEP explains that the use of FT's civil engineering infrastructure by alternative operators has grown significantly since the previous market analysis. Furthermore ARCEP explains that the symmetric obligations related to the access to the terminating segment of fibre networks have allowed for market entry and that the implemented symmetric regulation will, in principle, promote the emergence of wholesale offers. Finally, ARCEP argues that, so far, a cable-tv operator appears to be the leading operator at retail level on the high speed broadband market segment and will remain so for the timeframe of the market review. The Commission reminds ARCEP that where the SMP operator deploys FTTH, NRAs should in principle mandate unbundled access to the fibre loop. Exceptions from this general rule could only be justified where several alternative infrastructures are present and competitive access offers (in principle on the basis of unbundling) are likely to result in effective competition at retail level. Further to that, where SMP is found on market 5, and where there is no effective access to the unbundled fibre loop resulting in effective retail competition, wholesale broadband access remedies should be maintained. Against this background, the Commission notes that while several co-investment projects for deploying FTTH networks are being implemented or developed in very dense areas, no such co-investment projects have been implemented or developed outside the very dense areas. The Commission would also like to stress that FT's market shares on the retail broadband markets segments remain high, particularly outside the very dense areas 23. Moreover, it is not clear whether In accordance with Article 7(3) of the Framework Directive. According to the data provided by ARCEP in its reply to the request for information, Orange holds around [ ]% of the retail broadband market shares and accounts for the major part of the broadband 7

8 investment in very dense areas will be completed during the period covered by the present market review and whether there will be competitive access offers. Furthermore, even if FTTH co-investments were to occur outside the very dense areas within the timeframe of the review, FT' would remain the sole operator with a nationwide access network and an established customer base in those areas and, in some instances, the only operator able to supply the necessary ancillary infrastructures (backhaul link). Consequently, the Commission considers that, absent any SMP remedies, FT could foreclose the retail broadband and the emerging high speed broadband market segments, particularly outside the very dense areas. The constraints stemming from the cable operator appear limited or non-existent outside the very dense areas, and the emergence of non-regulated wholesale offers in the communes, in which only a limited number of operators will initiate coinvestments, may be doubtful. In this regard, the Commission notes that ARCEP proposes to revise its market analysis before the end of the market review period, if necessary, and that ARCEP sets a review clause according to which it will assess the need to impose additional SMP remedies with regard to the fibre lines 18 months after the entry into force of the final measure. However, the Commission reiterates, in line with its previous comments 24, the need to establish without delay a clear and predictable SMP regulation in line with the NGA Recommendation 25 according to which NRAs should, in principle, mandate unbundled access to the fibre loop and wholesale broadband access remedies. The Commission therefore calls on ARCEP to re-assess the need, in line with Article 8 of the Access Directive as well as Recommend 22 and Recommend 31 of the NGA Recommendation, to impose, already for the time frame of the current market review, wholesale fibre access remedies on both markets at hand, especially in those geographic areas which ARCEP has identified as being non-competitive and not prone to fibre network duplication within the time frame of the market review. Need to appropriately assess the differences in competitive conditions between geographic areas and impose or adapt SMP regulation The Commission notes that on the WBA market, ARCEP has found differences in the competitive conditions between two geographic areas on the basis of the presence of one or more operators providing wholesale offers (including cable and FTTx), and proposes to vary DSL remedies accordingly. However, ARCEP does neither include the number of LLU operators per MDF, nor market shares, as a relevant criterion. The Commission invites ARCEP to undertake a more thorough assessment on the basis of all relevant structural and behavioural factors (including markets shares and their evolution over time, differences in prices, products/service functionalities and marketing strategies) and to assess the need to impose connections in the less dense areas, especially in the areas which are not unbundled yet. FR/2009/0993 and FR/2010/1144. Commission Recommendation of 20 September 2010 on regulated access to Next Generation Access Networks (NGA), OJ L 251, p

9 wholesale residential or business remedies (independently of the underlying technology) if appropriate. In particular, the Commission invites ARCEP to assess the real technical and economic ability of access seekers to switch to an alternative (cable- or FTTx-based) bitstream product to obtain conclusive evidence on the degree of competition. In this respect, it may be relevant to address the constraints stemming from the presence of cable-based bitstream at regional level rather than at each MDF. ARCEP does not identify differences in competitive conditions on the WPNIA market. Based on the observed difference in parallel infrastructure deployment, the Commission invites ARCEP to identify areas where fibre-based infrastructure duplication is underway and where, on the basis of wholesale offers, the retail market is likely to show signs of effective competition already in the coming 18 months. The specific competition conditions due to co-investments in parallel FTTH networks, in combination with competitive access offers, may justify, in some instances, the absence of regulated wholesale access imposed under the SMP regime. Conversely, where those specific competitive conditions are not met, the Commission would like to call upon ARCEP to ensure market entry and avoid foreclosure by imposing appropriate wholesale access remedies as well as ancillary services on the SMP operator. Exclusion of cable from the wholesale broadband access market In view of the above, the Commission asks ARCEP to closely monitor the supply and demand characteristics for bitstream products in France. In particular, ARCEP could examine whether access seekers would not have the incentive and the ability to complement, and even replace in some geographic areas, their DSLbased bitstream offer with a cable-based bitstream offer. ARCEP itself recognizes that the supply of cable-based bitstream may constrain DSL-based bitstream. Should such a substitution arise in the timeframe of the market review, ARCEP should modify the proposed market definition to include cable-based bitstream. Appropriateness of the non-eviction obligation and notification requirements as to the price control obligation The Commission notes that ARCEP imposes on FT cost-oriented bitstream tariffs coupled with a non-eviction obligation only with regard to the provision of services to business customers. This aims to guarantee coherence between the prices applied between wholesale broadband and local loop access prices (economic space). However, the Commission also notes that according to ARCEP unbundling by operators solely active on the business segment has considerably slowed down as the optimal coverage has been reached and that unbundling over the past review has essentially been carried out by mixed residential/business operators. While ARCEP itself indicates that it would no longer be appropriate to maintain a non-eviction tariff for operators solely active on the business segment, it nevertheless proposes to implement a revised non-eviction rule to protect third parties and public entities already having invested in unbundling. ARCEP thus proposes to continue preventing FT from practicing eviction tariffs for its WBA offers addressing business customers. The Commission considers ARCEP's justification for maintaining the noneviction obligation to be insufficiently substantiated. The Commission therefore invites ARCEP to provide further reasons for maintaining this obligation. ARCEP should clearly demonstrate, against the nature of the problem identified, that such 9

10 obligation is justified and proportionate in the light of the objectives laid down in Article 8 of the Framework Directive. Furthermore, should ARCEP maintain, on the basis of its further assessment, that its current cost models underlying FT's regulated tariffs require updating to reflect the costs corresponding to those of an efficient operator providing both residential and professional offers in their respective geographic areas, then ARCEP is reminded that any regulatory measures imposing or amending wholesale access prices are required to be consulted nationally in accordance with Article 6 of the Framework Directive and to be notified under Article 7(3) of the Framework Directive. Pursuant to Article 7(5) of the Framework Directive, ARCEP shall take the utmost account of comments of other NRAs and the Commission and may adopt the resulting draft measure 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 26 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 27 within three working days following receipt whether you consider that, in accordance with EU and national rules on business confidentiality, this document contains confidential information which you wish to have deleted prior to such publication 28. You should give reasons for any such request. Yours sincerely, For the Commission, Robert Madelin Director-General 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: The Commission may inform the public of the result of its assessment before the end of this three-day period. 10