The 2010 Next Generation Access (NGA) Recommendation and the 2013 Non-discrimination and costing methodologies (NDCM) Recommendation cover different aspects of the access regulation, essentially in relation to the obligations (often referred to as “remedies”) that national regulatory authorities (NRAs) should or should not impose on operators identified to have significant market power (SMP) on the broadband markets.
Background and objectives of the consultation
The targeted consultation aimed at providing all the interested parties with an opportunity to express their views and present their experience with current Recommendations. The stakeholder consultation took place in the period between 16 July 2020 and 7 October 2020.
As part of the measures fostering widespread high-speed and quality connectivity in the EU, the European Electronic Communications Code (“the Code”), provides for a new revamped and modernized framework for the electronic communications sector and aims at creating a pro-competitive and investment-friendly regulatory environment.
The Commission is considering the revision of the 2010 Next Generation Access (NGA) Recommendation and the 2013 Non-discrimination and costing methodologies (NDCM) Recommendation. with a view to provide up-to-date regulatory guidance, to ensure a consistent application of the access provisions of the Code, and to help NRAs and market players address the considerable challenges for the years to come in relation to investment in and, deployment of, very high capacity networks (VHCNs). Such new guidance would complement other sources of guidance on the Code (Commission SMP guidelines and the Relevant Market Recommendation, to be updated by 21 December 2020, as well as guidelines that are being issued by BEREC).
Who replied to the consultation?
A total of 24 replies to the targeted consultation were received.
Five national and European industry associations, whose membership include a large number of electronic communications providers, submitted replies. They are the European Telecommunications Network Operators' Association (ETNO), the European Competitive Telecommunications Association (ECTA), the Fibre to the Home Council Europe (FTTH Council), the Bundesverband Breitbandkommunikation e.V. (BREKO) and the Associazione Italiana Internet Provider (AIIP).
15 replies were sent by electronic communication providers. These include operators with SMP status in one or more countries and alternative operators (with their own network and/or those who use access to the network of other network providers). A reply was also provided by an economic consultancy firm specializing in these subjects.
Electronic communication regulators contributed to this targeted consultation, primarimy through a reply issued by the Body of European Regulators for Electronic Communications - BEREC, the EU body which gathers the national regulatory authorities (NRAs). In addition to this comprehensive and detailed reply from BEREC, two NRAs from EU Member States gave separate answers.
One can conclude from the above that given the targeted nature of the consultation the replies can be deemed as representative, and therefore provide a good basis for the work to be done on this project.
The graph below shows the number of replies by different respondent categories.
Preliminary findings observed in the replies
Non-discrimination obligation
There is a broad agreement among respondents that the non-discrimination obligation is an essential tool of ex ante regulation.
BEREC, in its reply, indicates that Equivalence of Input (EoI), which means the provision of services and information to internal and third-party access seekers on the same terms and conditions, including price and quality of service levels, within the same time scales using the same systems and processes, and with the same degree of reliability and performance - which is imposed to some degree by the majority of NRAs regarding NGA wholesale local access products - is essential to create a level playing field between operators. Although, according to BEREC, in individual cases and depending on the circumstances, Equivalence of Output (EoO), which means the provision to access seekers of wholesale inputs comparable, in terms of functionality and price, to those the SMP operator provides internally to its own downstream businesses albeit using potentially different systems and processes, could be more appropriate and proportional. BEREC expects that importance of the obligation of non-discrimination will continue to grow in the coming years. In this vein, BEREC indicates that Key Performance Indicators, Service Level Agreements and Service Level Guarantees play a key part to monitor the application of that obligation.
According to ETNO members, their experience throughout Europe shows that the principles from the NDCM Recommendation on EoI and on economic replicability tests in many instances are difficult to implement. This can sometimes lead to disproportional regulatory constraints in the given circumstances. In their opinion, EoO can be effective in dealing with discriminatory practices.
On the other hand, ECTA and alternative operators (e.g. Illiad) claim that further progress is needed to ensure non-discrimination on a solid ex-ante basis, based on Article 70 of the EECC and related articles. This is also needed to ensure that NRAs explicitly impose strict internal-external non-discrimination on SMP operators.
Economic replicability test (ERT)
The economic replicability test ensures that “the margin between the retail price of the SMP operator and the price of the NGA wholesale input covers the incremental downstream costs and a reasonable percentage of common costs” (point 64 of the recital of the NDCM recommendation). BEREC considers that the ERT plays a key role for the development of NGA infrastructures and the use of wholesale NGA offers. BEREC is of the view that the existing guidance is sufficient and that there is no need for more.
ETNO and its members, as well as Liberty Global, believe that the ERT is still a valid tool, and that is important to preserve the flexibility to adapt the application of the ERT to national or regional circumstances.
According to ECTA and BREKO, the ERT has had limited success in ensuring effective access. ECTA members mentioned concrete problems they are facing with the ERT.
The FTTH Council considers that the concept of ERT should be reviewed in order to reflect the evolution of market conditions and the new regulatory landscape stemming from the Code, particularly the development of new operators deploying FttH networks, and the increasing shift towards infrastructure competition.
Promoting pro-investment and pro-competition approaches in relation to price control obligations
According to BEREC, price control obligation should be imposed on non-competitive markets but certain level of flexibility (i.e. pricing flexibility, anchor definition) could be useful to promote investments in new technologies together with sufficient safeguard mechanisms.
ETNO and some of its members (Deutsch Telekom and TIM) support the current guidance principles from the NDCM under which price flexibility may be imposed. Additionally, ETNO and its members ask for more support for co-investment schemes.
ECTA is of the opinion that the introduction of wholesale pricing flexibility for SMP operators has enabled the dominant telecom companies to limit competition. It also claims that effective non-discrimination obligations do not justify the lifting of price control obligations.
Some operators (Iliad and Open Fibre) expressed doubts about the lifting of wholesale price regulation (pricing flexibility) being a beneficial solution for the improvement of competition in wholesale and retail access markets. Iliad is of the opinion that the pricing flexibility approach could potentially be detrimental to the competition by discouraging investment by alternative operators.
With respect to the risk premium, according to BEREC and some operators (in particular Vodafone and Liberty Global) the guidance provided in the NGA Recommendation regarding the factors of uncertainty, such as uncertainty relating to retail and wholesale demand, to the costs of deployment, civil engineering works and managerial execution, etc. are still relevant. ETNO indicates that the imposition of price control on NGA/VHC services should be avoided in the presence of a retail constraint and effective non-discrimination, and that therefore the issue of risk premium should in principle concern only the less competitive areas. ECTA rejects the notion that project-specific risk premiums over and above the regulated weighted average cost of capital (WACC) of SMP operators should be applied and projected onto the wholesale tariffs that alternative operators are charged with. The WACC represents the value for which the investor needs to be compensated for an investment. In the context of telecoms regulation, the WACC is calculated by the relevant national regulatory authority and added to the maximum allowed wholesale price that the regulated operator can charge for access to its infrastructure.
Pursuant to point 6.c of the NDCM recommendation, the copper anchor is a cost oriented copper wholesale access product which constrains the NGA prices in such a way that NGA services will be priced in accordance with the consumers’ willingness to pay for the additional capacity and functionalities an NGA based retail product can provide in comparison with a copper based retail product. Regarding the regulated price anchor, as defined in the NDCM recommendation, most stakeholders agree that the copper anchor continues to be relevant in many Member States. Although the competitive pressure stemming from this regulated anchor will diminish in the years to come, many of the respondents (ETNO and BEREC in particular) agree that the anchor should be defined by the NRA, mainly based on the extent of NGA/VHCN coverage and demand patterns.
The economic consultancy firm Oxera believes that further specific guidance is needed on the notion of ‘fair and reasonable’ pricing. This is particularly the case given that certain business models, most notably wholesale-only businesses may not be subject to strict price control obligations and will instead be required to comply with the requirement to set prices that are ‘fair and reasonable’.
Cost methodology
BEREC believe that the BU LRIC+ (Bottom Up Long Run Incremental Cost Plus) cost modelling of a modern efficient network at current costs as recommended in the NDCM Recommendation is still relevant state-of-the-art principles. It provides the appropriate build or buy signals promoting efficient entry and maintaining incentives to invest in new and enhanced networks, in particular VHC networks.
Alternative operators (e.g. Vodafone, Liberty Global) would not change the current recommended approach based on long run incremental cost model, including a mark-up for common costs. On the other hand, SMP operators claim that NRAs in general should move away from the cost orientation on VHCNs as this may have a negative effect on investment in such networks.
Regulation of civil engineering infrastructure
Access to civil engineering infrastructure is regulated in many Member States, but the regulatory approaches vary. Almost all respondents agree that the non-discriminatory access to physical infrastructure is essential for an efficient fibre roll-out and effective competition.
The vast majority of respondents think that the principles identified in Annex II of the NGA recommendation (on the application of the principle of equivalence for access to the civil engineering infrastructure of the SMP operator) continue to be relevant. A majority of respondents (including ECTA and its members, BEREC, Vodafone, Open Fibre and Orange) agree, with some nuances, that EoI is generally appropriate for access to civil engineering infrastructure. ETNO believes that the proportionality of EoI for access to civil engineering infrastructure should be assessed on a case by case.
On the issue of a possible differentiated regulatory treatment of non-legacy civil engineering infrastructure (in particular ducts that are being built for fibre deployments), ETNO and several of its members consider that the same regulatory framework should apply to legacy and non-legacy infrastructure, although ETNO suggests that a first mover advantage should be granted for new investments. BEREC highlights that the existing recommendations already foresee a differentiated approach between legacy and non-legacy infrastructure and considers that it is still relevant today. The majority of respondents (including ECTA, the FttH Council and different alternative operators) share the view that the Broadband Cost Reduction Directive (BCRD) should not replace obligations based on the SMP regime, which are seen by many stakeholders as more effective. A limited number of respondents (Deutsche Telekom and TIM) suggest that access to civil engineering infrastructures should in principle not be regulated on the basis of the SMP regime but through symmetric provisions, and in particular the BCRD. ETNO and several of its members insist on the need to ensure that SMP obligations and BCRD obligations are coherent and well balanced between telecom operators and the other physical infrastructure owners.
Almost all respondents recognise that, in accordance with the EECC (Articles 72 and 73), priority in terms of access obligations should be given to the physical infrastructure access. However, most of them believe that important preconditions must be met, i.e. access to civil engineering will be the appropriate stand-alone remedy where there is a realistic prospect for infrastructure-based competition.
Commercial agreements, cooperative arrangements and commitments
None of the respondents has prior experience in commercial and cooperative arrangements leading to a review of the market analysis. While ETNO suggests that longer regulatory cycles require some flexibility (and in their view SMP operators can request an early review of the market in case of significant changes to market dynamics), BEREC and some operators (in particular Vodafone) and associations (ECTA) insist on the need to foster regulatory predictability. Consequently, they suggest that the standard for market changes leading to a market review before the end of the market analysis cycle should be very high.
Migration
For ECTA and BEREC, non-discrimination during the migration process is an important aspect, pointing among other things to the risk that the timetable of the switch-off could be used strategically by the SMP. On the assessment of comparability of new and legacy products, ETNO suggests that this assessment should be based on the retail offers of the SMP operator. ECTA and BEREC mention that factors at wholesale level should also be taken into account (for instance KPIs/SLA/SLGs). BEREC mentions that some parameters might be market-specific (e.g. for the market for wholesale high-quality access provided at a fixed location). In cases where the NGA/VHCN network is not rolled out by the SMP, BEREC points out that this could have an impact on the SMP assessment. In case NGA/VHCN is rolled out by alternative operators, ETNO calls for relaxed obligations on the copper switch-off (for instance regarding the notice period for transition), while ECTA insists that obligations should be fully maintained. FttH Europe is of the opinion that too restrictive conditions for copper switch-off might hamper migration. There is a consensus that pricing incentive is a good way to foster migration, but divergent views on which direction to go (e.g. ETNO considers copper prices should go up, while ECTA believes the opposite).
Geographic differentiation of remedies
Among the respondents that recognize the potential benefits of a geographic segmentation of remedies to tailor regulatory treatment to local circumstances (BEREC, ETNO, DT, TIM), some of them express the need for caution on this issue (BEREC, ETNO, Orange). ECTA is rather against this approach. On the setbacks, some respondents argue that it undermines predictability and that it represents a heavy burden for operators and NRAs. In any case, should a remedy segmentation take place, it should be defined and reasoned in the market analysis (a view shared by all respondents). For ETNO, a geographic differentiation of remedies - instead of market - should be applied where the boundaries of competitive areas are not stable (a view shared by ECTA). An operator active on the business markets, expressed its opposition vis à vis any kind of segmentation on dedicated business connectivity market (or on mass-market products that serve businesses), as it would prevent them from having a nationwide offer. As regards the specific case where the criteria for geographic segmentation of remedies would be used to review remedies periodically, a majority of respondents (ECTA, Orange, UKE, FTTH council) are rather against such an approach that would be burdensome and lack predictability.
The remaining responses will be published soon