ICP-ANACOM took the view, in the scope of the "market analysis", that it was appropriate to maintain the principle of cost orientation of prices in the offer of traditional wholesale leased lines (that is, not including the "Ethernet line offer"), given that:
(a) The majority of lines offered commercially in the market are made up of traditional lines and have been offered for various years, whereby their costs are relatively stable (as is the respective technology and entire set) and should be shown separately in PTC's accounting system.
(b) The prices of PTC's (traditional) wholesale leased lines offer have been regulated so far according to the principle of cost orientation of prices. In applying this principle, ICP-ANACOM has based its cost estimates on PTC's accounting system, audited annually, and also, additionally, by referring to current practices in the European Union. In assessing the prices, criteria of economic efficiency are also taken into account.
(c) The obligation of cost orientation of prices has objective justification, as it provides for the establishment of prices based on costs, preventing situations of excessive pricing and enabling the development of competition, while promoting, ceteris paribus, the application of reasonable prices in comparable competitive markets, thereby contributing to the protection of consumer interests.
According to the most recent data on costs of leased lines1, there is room for the reduction of prices of traditional leased lines, for any capacity and for any distance (except for terminating segments of 64 and N×64 Kbps, where the margin is very slightly negative). Without prejudice, it is noted that the greater the capacity and the distance, the greater will the margin be in general.
Graphic 1. Margin of national digital leased lines
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In fact, as regards traditional digital lines, the total margin of the leased line service, including curtailment costs, is [Start confidential information] [End confidential information], which exists both for terminating segments and for trunk segments.
In this context, and bearing in mind the margin that this service allows, and notwithstanding the fact that reductions of time-limits adopted in this decision may have an impact, although a limited one, at the level of costs, there is room for the reduction of prices by PTC for each and every element of prices (including CAM lines) for 2 Mbps, 34 Mbps and 155 Mbps lines by at least 35%, 40% and 45%, respectively. With this reduction, everything else remaining unchanged, the total margin of the leased line service would be [Start confidential information] [End confidential information].
Nevertheless, the adopted reduction does not correspond to a total suppression of the margin, as it is deemed to be prudent to leave room to accommodate any evolution that may have impact at the level of costs, as for example demand developments focused on more remote areas, where unit costs of line supply are higher and any impact arising from levels of service are more demanding.
D 31. PTC must decrease in LLRO each and every element of prices (including CAM lines) for 2 Mbps, 34 Mbps and 155 Mbps lines by at least 35%, 40% and 45%, respectively.
CAM lines
In the specific case of CAM lines, ICP-ANACOM referred in the "market analysis" and respective report, that it agreed with a significant price decrease, which would be analysed in greater detail in a separate determination.
Although such significant decrease was possible for any capacity especially in the light of cost accounting data before 2009, according to data for 2010 this is not so clear, mainly due to the increase of costs of this service. According to PTC, this increase is mainly due to an increase in costs of submarine cables. Note that PTC increased, in 2008, the capacity of the CAM ring by around seven times.
On the other hand, available data suggest that the price of CAM connections in traditional lines is not out of line with the price of a line of the same capacity between the Spanish mainland and the Canary Islands, which is the closest situation for comparison purposes (taking into account the distances involved).
In fact, CMT included in a determination taken on 10.09.20082, a comparative analysis of prices of several connections in submarine cables for a speed of 155 Mbps. It may be concluded from this analysis, the results of which are shown in the graphic below (including already the price reduction imposed at the time by CMT, of 22.47%), that prices of CAM lines compare well with prices of a connection between the Spanish mainland and the Canary Islands, as well as with prices of a connection between the French mainland and French overseas regions.
Graphic 2. Monthly fee of 155 Mbps lines in submarine cables
In case the distance involved in the different connections is taken into account, the price of a connection Azores-Lisbon, for the same speed of 155 Mbps, is still lower (in 17%) than the price of a connection between the Spanish mainland and the Canary Islands, however the price of a connection Madeira-Lisbon is higher.
According to above data, ICP-ANACOM thus decides to maintain the reduction by 35%, 40% and 45% for the price of each and every element of the leased line tariff (LLRO), for line speeds of 2 Mbps, 34 Mbps and 155 Mbps, referred to in D 31.
In any event, it was deemed, at DD level, that PTC should submit to ICP-ANACOM detailed information on:
(a) Tasks, materials and equipment used to expand the capacity of the CAM system, and date of implementation/purchase, with a particular attention to the conclusion of the ring expansion project in August 2008, and the impact in terms of variation of costs in the cost accounting for 2009;
(b) Total costs and investment incurred in that expansion, duly detailed;
(c) Depreciation period considered for the investment;
(d) Form of allocation of costs to the various capacities of CAM lines, including traditional lines and Ethernet lines.
Further to the analysis of that information and to a new request and response by PTC, in which that operator informs that in preparing its response to ICP-ANACOM's requests, it found that the entire set of installed lines was not being considered in the construction of the driver for allocation of cost of submarine cables landing in Portugal to PTC's various cost accounting products and services, it is deemed that PTC must review the price of CAM lines within 20 days from approval of the final decision, taking into account reviewed cost accounting results for 2010, and considering all lines supported in CAM connections, submitting to ICP-ANACOM a detailed reasoning for those prices.
D 32. Without prejudice to the preceding point, PTC must review the price of CAM lines within 20 days from approval of the final decision, taking into account reviewed cost accounting results for 2010, and considering all lines supported in CAM connections, submitting to ICP-ANACOM a detailed reasoning for those prices. Any subsequent review of those prices deemed by this Authority to be required will apply retroactively to the date of application of this point.
Ethernet lines
OSP did not make any comments as regards prices of Ethernet lines, except for ZON, which submitted a general remark concerning the price of CAM lines.
It should be referred in this regard that in the analysis of leased line markets, ICP-ANACOM referred that the prices for terminating segments of leased lines throughout the entire national territory and trunk segments of leased lines on "Routes NC" (including CAM) should be subject to a "retail-minus" rule.
In the same analysis, this Authority referred that, in a first stage, it was up to Grupo PT to demonstrate that there is no margin squeeze in the Ethernet offer, which would be assessed by ICP-ANACOM. Subsequently, after monitoring and evaluating the correct application of this rule, it will be possible for ICP-ANACOM to establish a more detailed specification of the "retail-minus" rule, including the level of effective margin to be guaranteed, which would always be subject to separate determination. For this purpose, Grupo PT would be required to provide ICP-ANACOM with details of the conditions of each and every retail Ethernet offer.
PTC substantiated RELLO prices taking essentially into account underlying costs. Without prejudice, PTC was requested to demonstrate to ICP-ANACOM that RELLO prices do not lead to a margin squeeze, and for this purpose the company was required to indicate the conditions of each and every Ethernet offer provided at retail level.
After having analysed information submitted by PTC, which was deemed to be insufficient, PTC was requested to submit missing information so that the issue could be properly assessed.
In case any issues that justify an intervention in this matter are identified, this Authority shall duly inform the market thereof.
