In September 2010, the EC adopted three complementary measures to facilitate the deployment and take-up of fast and ultra-fast broadband in the EU.
The package consists of the EC Recommendation on regulated access to next generation networks (see EC Recommendation on regulated access to NGA), which offers regulatory certainty to operators of electronic communications, ensuring a proper balance between the need to encourage investment and the need to preserve competition; a draft Decision establishing a radio spectrum policy programme, aimed at ensuring, inter alia, the availability of spectrum for wireless broadband; and a Communication on broadband, which defines the best way of encouraging public and private investment in high-speed and ultra-fast networks.
The draft Decision establishing a radio spectrum policy programme established a five-year political programme to promote the efficient management of the radio spectrum and, in particular, to ensure availability of sufficient spectrum up to 2013 for wireless broadband (contributing significantly to bringing fast broadband connections to the inhabitants of remote areas and to making innovative services available across Europe). The efficient and competitive use of the spectrum in the EU will also be a good base for innovation in other policy areas and sectors such as transport and the environment. 1
The Communication on broadband presents a coherent framework for achieving the objectives of the Digital Agenda in this respect and, in particular, defines the best way to incentivise public and private investment in fast and ultra-fast broadband networks. In its Communication, the EC calls on EU Member States to approve operational plans for broadband networks in relation to high and very high-speed networks with specific implementation measures, provide guidance on how to reduce investment costs and indicate how public authorities can support investment in broadband, including through better use of EU funds. Moreover, the EC and the European Investment Bank announced plans to create instruments for broadband financing 2.
EC Recommendation on regulated access to NGA
Community guidelines on state aid
The position of the ERG/ BEREC
EC Recommendation on regulated access to NGA
In September 2008, the EC launched a public consultation (considered crucial by the industry, in favouring legal certainty and promoting investment) on the draft Recommendation on NGA - "Draft Commission Recommendation on Regulated Access to Next Generation Access Networks (NGA)" 3 - in order to compile information that would allow:
a) The issuance of guidance to NRA as to the regulatory treatment of NGA access;
b) The prevention of the fragmentation of the internal market;
c) The encouragement of investment in NGA;
d) The promotion of competition.
This consultation closed in November 2008 and, after incorporating changes suggested by respondents 4, a new version of the draft recommendation was released in June 2009, whereby it was re-submitted to consultation. 5
Although the objectives in respect of the first consultation remain valid, the second draft included greater focus on promoting consistent implementation (in the EU) of remedies with respect to NGA, subsequent to Directive 2002/19/EC 6 of the European Parliament and of the conclusions of the European Council, held in March 2009. 7
In May 2010, and after incorporating changes suggested by respondents to the second consultation and a long period of analysis and discussion, particularly with the ERG, the EC presented a provisional version of the Recommendation on NGA to BEREC.
In its opinion, adopted at its plenary meeting of May 2010 (2010b), on this new version of the EC draft recommendation, BEREC recognised it as an improvement over the previous version, but still requiring several amendments, particularly with regard to aspects concerning, among others, the primacy given to market analysis procedures in relation to the procedures established in the Recommendation, in terms of price flexibility and cost orientation, in terms of risk assessment and in terms of the possibility of price differentiation according to different geographical areas.
The final version of the EC Recommendation on regulated access to next generation access networks (NGA) 8, formulated following comments from the EC's Communications Committee (COCOM), was released on 20.09.2010.
The goal of this Recommendation remains to accelerate the development of the single market, enhancing legal certainty and promoting investment, competition and innovation in the market for broadband services, particularly in the transition to next-generation access networks (NGA), ensuring a consistent regulatory approach in terms of the ex ante imposition of obligations by NRA on operators with SMP on Market 4 and on Market 5.
In particular, note is made of the guidelines, focusing, in respect of market 4, on types of "passive" access to NGA (access to ducts, access to the terminal segment (including cabling in buildings), unbundling of fibre loops and unbundling of copper sub-loops) and, in respect of market 5, on "active" access to NGA in the context of wholesale offers.
In this context, the Recommendation focuses mainly on remedial measures, establishing that the obligations of operators with SMP on markets 4 and 5 should be maintained and should not be invalidated by alterations to the network architecture and technology, unless the SMP operator agrees a suitable alternative with the operators benefiting from access to its network. Failing such an agreement, the NRA is bound to guarantee that alternative operators are advised, a least 5 years in advance (or less if fully equivalent access is provided at the point of interconnection), prior to any de-commissioning of points of interconnection, such as the local loop exchange.
Also in this context, it is noted in particular that the NRA is likewise bound to guarantee a transparent framework for the migration of copper networks to fibre networks, especially in relation to the procedures adopted by the SMP operator related to operating support systems and to the provision of timely and relevant information to alternative operators.
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Access to civil engineering infrastructure of the SMP operator |
Access should be provided in accordance with the principle of equivalence. Based on a reference offer. NRAs should, in accordance with market demand, encourage, or, where legally possible under national law, oblige the SMP operator, when building civil engineering infrastructure, to install sufficient capacity for other operators to make use of these facilities. NRAs should work with other entities with a view to establishing a data-base, accessible to all operators, containing information on geographical location, available capacity and other physical characteristics of all civil engineering infrastructure which could be used for the deployment of optical fibre networks. |
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Access to the terminating segment in the case of FTTH |
Access must be ensured in accordance with the principle of equivalence and at cost-oriented prices. Provision of detailed information on access network architecture. Access to the distribution points of the terminating segment of the access network, determined following consultation with potential access seekers. NRAs should, in accordance with market demand, encourage, or, where legally possible under national law, oblige the SMP operator to deploy multiple fibre lines in the terminating segment. |
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Unbundled access to the fibre loop in the case of FTTH
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Mandatory (except in geographic areas with alternative infrastructures and competitive access offers) and cost-oriented prices (considering also investment risk) assess by the NRA. Given, normally, at the Metropolitan Point of Presence and complemented with site/resource sharing and backhaul. With conditions established in the RUO. In cases of co-investment, the NRA should examine whether the capacity of installed ducts is sufficient for third parties and whether the co-investors are effectively competing on the downstream market. |
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Access obligations in the case of FTTN
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Obligation of unbundled access to the copper sub-loop, at cost-oriented prices Supplemented, where appropriate, by backhaul measures (fibre and Ethernet) and by non-discriminatory access to facilities for co-location, or in their absence, equivalent co-location. With conditions established in the RUO. |
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VDSL Wholesale Supply by SMP operator |
The supply of wholesale broadband access over VDSL should be considered as a chain substitute to existing broadband access over copper-only loops and should be maintained as a remedy. |
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Time interval between launch of wholesale and retail products |
The NRA should oblige the SMP operator to make new wholesale broadband access products available at least 6 months before the SMP operator begins selling its own retain products (unless there are other effective safeguards to guarantee non-discrimination).
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Enabling competition in retail services through NGA wholesale products
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NRAs should in principle impose cost orientation (unless equivalence of access is guaranteed by other means, for example through functional separation or other forms of separation) on wholesale products, that best reflect in terms of bandwidth and quality the technological capabilities inherent in the NGA infrastructure |
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Bitstream access |
Where NRAs consider that, in a given geographic area, there is effective access to the unbundled fibre loop of the SMP operator’s network, NRAs should consider removing the obligation of wholesale bitstream access in the area concerned. |
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Competition in cases of co-investment |
In cases of co-investment, the NRA should examine whether the capacity of installed ducts is sufficient for third parties and whether the co-investors are effectively competing on the downstream market. |
Community guidelines on state aid
In September 2009 the EC published a Communication, "Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks" 9, in the context of the European Economic Recovery Plan 10 of 2008, where the aim should be to reach 100% coverage by high-speed internet by 2010 for all citizens, supported by overall financing from the EC totalling 1.02 billion euros. 11
These guidelines - in line with the "Altmark" criteria 12 - focus on the allocation of state aid to broadband projects and NGA 13, emphasizing aspects related to the reasoning for public intervention to accelerate NGA deployment, to type of public intervention which is desirable and the assessment of compatibility of State aid with the EU regulatory framework.
In respect of the grounds for public intervention to accelerate NGA deployment, while state intervention for the deployment of broadband infrastructure has focused on rural areas (with low population density and high capital costs) or economically underdeveloped areas (with limited ability to pay for services), the economic conditions of the NGA model discourage deployment not just in sparsely populated areas, but also in certain urban areas.
In fact, the main problem affecting the rapid and widespread deployment of NGA seems to be cost and, to a lesser extent, population density. Accordingly, from the standpoint of public authorities, intervention would be justified to ensure that areas considered by operators as unprofitable benefit from the substantial positive effects of NGA and do not fall victim to a new (and/or further) digital divide.
It is in this context that public authorities shall have the right to intervene under certain conditions and in certain areas to address issues of social cohesion and regional development or to correct a market failure, when it can be demonstrated that private investors do not intend to deploy NGA networks in these areas over the next three years.
Regarding types of public intervention, given that majority of the cost of deploying fibre network consists of civil engineering works, in accordance with the regulatory framework for electronic communications, Member States may decide, for example, to facilitate the process of acquiring rights of way or require network operators to coordinate their construction works and/or share some of their infrastructure. They may also stipulate that optical fibre links be installed in new constructions (including new water, energy, transport or sewerage networks) and/or new buildings.
For the purposes of assessing state aid for NGA, areas where such networks do not exist now and where it is unlikely that such networks will be constructed by private investors and be fully operational in the near future, should be considered NGA "white areas"; areas with only a single broadband network operator are considered "grey areas" and areas with at least two providers of broadband services are "black areas" (areas currently considered competitive).
The EC accepts that financial support may be provided to the supply of broadband services in white areas and, where necessary and justified (especially in terms of market failure and or territorial cohesion) in grey areas.
In terms of the compatibility of aid with the EU regulatory framework, the EC shall apply the balance test. That is, in assessing the proportional character of a notified measure, it will assess whether conditions are fulfilled in respect of the detailed mapping and coverage analysis, open tender process, most economically advantageous proposal, technological neutrality, use of existing infrastructure, wholesale access obligations, benchmarking pricing exercise and claw-back mechanism - that is, whether conditions are aligned with the "Altmark criteria".
In exchange for receiving state aid, the beneficiary should be required to provide third parties with effective wholesale access for at least seven years. In particular, the access obligation imposed should also include the right to use ducts or street cabinets so that third parties may have access to passive and not only active infrastructure.
An "open access" obligation is all the more crucial in order to deal with the temporary substitution between the services offered by existing ADSL operators and those offered by future NGA network operators. An open access obligation will ensure that ADSL operators can migrate their customers to a NGA network as soon as a subsidised network is in place and thus start planning their own future investments without suffering any real competitive handicap.
Moreover, in setting the conditions for wholesale network access, Member States should consult the relevant NRA. NRAs are expected in the future to continue either to regulate ex ante or to monitor very closely the competitive conditions of the overall broadband market and impose where appropriate the necessary remedies.
In addition, irrespective of the type of NGA network architecture that will benefit from State aid, it should support effective and full unbundling and satisfy all different types of network access that operators may seek (including but not limited to access to ducts, fibre and bitstream).
In this respect, the EC notes that "multiple fibre" 14 architecture allows full independence between access seekers to provide high-speed broadband offers and is therefore conducive to long-term sustainable competition. In addition, the deployment of NGA networks based on multiple fibre lines supports both "point-to-point" and "point-to-multipoint" topologies and is therefore technology neutral.
Finally, it is good to highlight that the EC communication provides for a "claw back” mechanism, to compensate the State in the event that financial results exceed forecasts.
The position of the ERG/ BEREC
In October 2007, the ERG published an opinion requested by the EC, "ERG Opinion on Regulatory Principles of NGA", setting out the ERG's Common Position on the regulatory approach to NGA 15. This document examines and discusses (two) scenarios of NGA deployment (FTTC and FTTH/B) according to their economic and regulatory aspects, including the implications for the definition of retail relevant market 1 16 and 2 17 and wholesale markets 11 18 and 12 19, also defining a broad set of principles and guidelines regarding (any) imposition of obligations in these markets (in the context of the outlined scenarios) as well as a set of procedures to be adopted in migration to NGA.
Following this common position, in June 2009, the ERG published its "Report on Next Generation Access - Economic Analysis and Regulatory Principles 20", with the aim of verifying the type of strategies followed in the development of the NGA since the publication of the document "ERG Opinion on Regulatory Principles of NGA". The ERG also sought to verify the respective regulatory "responses" of the NRA, presenting a set of summary conclusions in respect of investment in NGA, obligations of access and investment ladder, measures to control prices and co-investment projects.
According to this report, in the area of investment, a tendency is observed in certain countries towards a "migration" from FTTC to FTTH (in terms of deployment projects), although both scenarios remain valid (also taking into account existing networks on the ground). It has likewise been confirmed that the deployment of fibre projects tends to enhance economies of scale and scope, with limited replicability (by alternative operators), thereby exacerbating certain economic bottlenecks.
According to the ERG, the distinction between Market 4 and Market 5 remains valid, even if developments are expected in terms of new bitstream products which offer additional features (e.g. "advanced bitstream", supported over optical fibre).
With respect to access obligations and the investment ladder, the ERG states that the paradigm of the investment ladder in infrastructure 21 appears to remain valid, but with changes in the relative importance of the rungs (see Figure 66).
Figure 66 - NGA Investment Ladder
The left side of Figure 66, shows the different access products (linked to the type of access and the access points). This model is applicable to both the copper and fibre network. The concentration point is an access point located between the street cabinet and the building (possibly inside the building). When an alternative operator ascends the ladder, it will have to progressively invest more in its own infrastructure, but not all rungs have to be used (there may be "jumps", for example, if an operator co-located for LLU access decides to develop its own optical fibre access/infrastructure). Depending on the development scenario to be implemented - FTTC or FTTB/H - different rungs on the infrastructure investment ladder are relevant.
The right side of Figure 66 shows the different wholesale products on the access/concentration network that an alternative operator can use to reach the access points (to interconnect its network).
Various combinations of access products and wholesale products are possible, depending on the network architecture and topology. However, the highest level "Direct access to the end-user") can only be achieved through use of own infrastructure (e.g. optical fibre) and access to ducts (possibly with their construction, where no infrastructure is available).
According to the ERG, the promotion of effective competition at the deepest level of the network - effective competition in terms of infrastructure - encourages investment and continues to be the proper attitude of the NRA, although the balance between competition in infrastructure and its economic viability can be different in different Member States, depending on their (regional) characteristics and specifications 22. When replication of access is not feasible, the promotion of competition in terms of services should be a (priority) objective for the NRA, whereas, while conditions remain competitive (in the various markets), the "mere" development of NGA is no reason to change the regulation of currently available services.
With respect to price control measures, new pricing models suggested by incumbent operators (loyalty periods, initial payment, volume discounts) require verification to ensure the principle of non-discrimination and prevent margin squeeze. Also according to the ERG, to encourage efficient investment, a reasonable rate of return needs to be calculated, including a risk premium to reflect the risks involved, whereas existing methodologies remain valid.
Moreover, the NRA may facilitate investment planning, instilling regulatory predictability and stability, by announcing regulatory strategies and determining the duration of the regulatory period (taking into account, in the period of price calculation, the technology and the market’s development), thereby achieving a balance between certainty and flexibility.
The ERG also notes that co-investment projects, in their various forms, limit the risk by reducing the capital expenditure of all parties involved.
Subsequently, in March 2010, BEREC (successor to the ERG) published a new report on NGA, "Next Generation Access - Implementation Issues and Wholesale Products" (BEREC, 2010a), following up on the ERG Common Position of 2007 referred to above. This report addresses, among other aspects, current practices (also reinstating some principles of best practice previously prescribed by the ERG - see below) relating to wholesale products (Markets 4 and 5 and infrastructure, such as access to ducts) currently available and in an environment of NGA development.
Recognizing that it was too early to conduct a detailed analysis in this area, given the early stage of implementation of regulatory decisions in this respect and the early stage of NGA deployment, BEREC considers that all the best practice principles as identified in the 2007 document ERG (07) 53 "Report on ERG Best Practice on Regulatory Regime in Wholesale Unbundled Access and Bitstream Access" remain valid 23 and should be also applied. This document describes best practices on regulatory regimes in wholesale infrastructure access market as well as the wholesale broadband access market, setting out a broad set of "best practices" incorporated into three key aspects:
a) Operational: Quality of Service - associated with wholesale access is a key issue and is particularly crucial for process industrialisation. On one hand this has a direct impact on the service provided to the end-user and on the other hand it is a key factor for process optimisation and rationalisation for operators.
There should be reasonable certainty that entrants will be able to compete according to the same conditions, whereby there should be assurance that access products will be of reasonable quality and that service levels (delivery times, cut-off period, repair times etc.) will be reasonable and comparable with that provided to the SMP player's own business units (especially its "retail arm").
b) Functional: Migration and Richness of reference offers - two main functional issues are essential to allow new entrants to progressively extend their own network closer to the customer:
b.1) Appropriate migration processes that allow them to pass from one wholesale access product having a given number of access/interconnection points to another wholesale access product requiring more access/interconnection points;
b.2) Completeness of reference offers that allow them at least to offer the same service as the incumbent and richness that render them able to differentiate their services from that of the incumbent retail arm and even to be the first mover by offering new and innovating services.
c) Economic: Pricing issues - prices of wholesale broadband offers are set to create incentives for both SMP player and new entrants to invest in broadband infrastructure.
The level at which prices of wholesale broadband offers are set, compared to each other and to the incumbent retail offers, should create incentives for new entrants to climb the ladder of investment. Access transparency and non-discrimination obligations may help to create the necessary conditions. Nevertheless, price control obligation is required to guarantee fair and sustainable competition.
In terms of good practice, in the report of 2010, it is noted that the powers conferred on the NRA by the Framework Directive, allow them to impose specific obligations on wholesale markets, in respect of NGA. This indicates that, in addition to the existence of a reference offer in this/these market(s), wholesale operator customers should also have access to relevant information about the development of new infrastructures or technologies in their geographic area of interest; as such, a mechanism needs to be created for the publication of this information. Likewise, information regarding the discontinuation of services/infrastructure should be announced in advance and in an appropriate manner, to avoid situations of discrimination.
Finally, it is reiterated that BEREC (2010b) adopted an opinion, in response to the request of the EC, on the 3rd version of the EC on Recommendation on NGA.
1 MEMO/10/425.
2 MEMO/10/427.
3 Commission Recommendation on regulated access to Next Generation Access Networks (NGA) (draft)http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/nga/dr_recomm_nga.pdf.
4 See responses at Commission launches public consultation on Next Generation Access Networks (NGA)http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/nga/index_en.htm.
5 Commission Recommendation of 12 June 2009http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/nga_2/090611_nga_recommendation_spc.pdf (draft).
6 Directive 2002/19/EChttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:108:0007:0020:EN:PDF of 7 March 2002.
7 In which the key role of telecommunications and broadband development was highlighted, in terms of investment, job creation and economic recovery.
8 COMMISSION RECOMMENDATION of 20/09/2010 on regulated access to next generation access networks (NGA)http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:251:0035:0048:en:PDF.
9 Communication from the Commission Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks 2009/C 235/04 of 30.9.2009http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:235:0007:0025:EN:PDF.
10 Communication from the Commission to the European Council, COM (2008) 800.
11 Applied through the “European Agricultural Fund for Rural Development (EAFRD). Part of this amount will be used for deploying broadband infrastructures in rural areas to help rural areas get online, create new jobs and help business grow further", according to the EC's Guidelines.
12 Judgement of 24 July 2003. - Altmark Trans GmbH and Regierungspräsidium Magdeburg vs. Nahverkehrsgesellschaft Altmark GmbH, and Oberbundesanwalt beim Bundesverwaltungsgericht. - Preliminary ruling request: Bundesverwaltungsgericht - Germany - Regulation (EEC) No. 1191/69 - Operation of urban, suburban and regional scheduled transport services - Public subsidies - Concept of State aid - Compensation for discharging public service obligations. - Case C-280/00.
13 For the purpose of this document, NGA networks are access networks which consist wholly or in part of optical elements and which are capable of delivering broadband access services with enhanced characteristics (such as higher speeds) as compared to those provided over existing copper networks.
14 FTTH topology with various optical fibres installed in parallel (per house/customer).
15 ERG Opinion on Regulatory Principles of NGAhttp://www.berec.europa.eu/doc/publications/erg07_16rev2_opinion_on_nga.pdf.
16 Market 1 - Access to the public telephone network at a fixed location for residential customers.
17 Market 2 - Access to the public telephone network at a fixed location for non-residential customers.
18 Market 11 - Wholesale unbundled access (including shared access) to metallic loops and sub-loops for the purpose of providing broadband and voice services, now Market 4.
19 Market 12 - Wholesale broadband access, now Market 5.
20 Report on Next Generation Access - Economic Analysis and Regulatory Principleshttp://www.berec.europa.eu/doc/publications/erg_09_17_nga_economic_analysis_regulatory_principles_report_090603_v1.pdf.
21 The ladder of investment in infrastructure is a regulatory model developed, among others, by Prof. Martin Cave. It is assumed that investment is made step by step by new entrants. In order to allow them to gradually invest in their own infrastructure, a chain of (complementary) access products would be required to build a customer base by offering their own services to end-users.
22 Indeed, it is likely that one of the most effective strategies for the development of NGA is the use of various technologies to provide specific services with varying characteristics according to the site, leading to a market - in EU Member States and in different regions within States - with a heterogeneous structure, given that the development of NGA does not take place at the same pace and in the same way in all locations.
23 Report on ERG best practices on regulatory regimes in wholesale unbundled access and bitstream accesshttp://www.irg.eu/streaming/erg_07_53_wla_wba_bp_final_080604.pdf?contentId=544650&field=ATTACHED_FILE.
