2. Analysis

According to LLRO in force up to May 2012:

“Prices of 2 Mbps digital lines apply to speeds at 1920 Kbps, 1984 Kbps and 2048 Kbps.

In case the OSP wishes a speed between N × 64 Kbps and 2 Mbps, exclusive, not covered by the price list, it shall be provided, and charged as if it were the next higher speed.”

PTC has thus integrated N × 64 Kbps lines of speed higher that 1536 Kbps in the generic term of 2 Mbps in the LLRO published and made available since 14 June 206.

In line with terms in the offer in force at the time, the reference in the determination to “2 Mbps lines” concerns N × 64 Kbps lines of a speed higher that 1536 Kbps and 2048 Kbps lines.

The assessment which motivated the determination for reduction of prices ordered by ICP - ANACOM was based on the offer and tariff of the LLRO in force and, consequently, the framework of N × 64 Kbps lines of a speed higher that 1536 Kbps and 2048 Kbps lines as 2 Mbps lines.

As such, and for all purposes, the reduction of prices of 2 Mbps lines included in the determination of 14 June 2012 also applies to N × 64 Kbps lines of a speed higher that 1536 Kbps, as referred in the offer and consequently an assumption of the analysis which led to that determination.

Further information addressed to ICP - ANACOM by PTC also supports this view. In fact:

(a) The information submitted by PTC on levels of performance in LLRO includes information of the set of lines (amounts), broken down by speed, however N × 64 Kbps lines of a speed higher that 1536 Kbps have not been specified, which indicates their integration in the information for 2 Mbps lines.

(b) Information available in the CAS, compared to information on levels of performance in LLRO, also shows that N × 64 Kbps lines of a speed higher that 1536 Kbps were integrated in the 2 Mbps product and not in the N × 64 Kbps product.

PTC confirmed, in its reply to the DD, that lines with speeds higher than 1536 Kbps and lower than 2 Mbps had been reported in the information on PTC’s CAS, in the product “Lines Leased to other Operators - Digital at 2 Mbps”, on an aggregate basis with 2 Mbps lines.

In this context, the only possible interpretation of point D 31 of the determination is that the reduction of prices by at least 35% covers N × 64 Kbps lines of a speed higher that 1536 Kbps and 2048 Kbps lines, known as 2 Mbps lines. In fact, all these lines are integrated in PTC’s CAS in the product “Lines Leased to other Operators - Digital at 2 Mbps” and charged, since the first version of LLRO, at the same price of 2 Mbps lines.

It should also be stressed that the reference, in determination of 14 June 2012, to “each and every element of prices” includes monthly fees of internal extensions ¹.

However, in its reply to the DD, PTC showed that products concerning internal extensions of partial lines and internal extensions for traffic interconnection exist autonomously in PTC’s CAS, with negative margins. Moreover, the available data indicates that products concerned are not integrated in profit and loss accounts used by ICP - ANACOM for establishing the determined price reductions and consequently, the failure to reduce the prices of internal extensions does not affect the margin deemed to be appropriate by this Authority in the scope of the determination of 14 June 2012.

In any event, regardless of internal extensions of partial lines and internal extensions for traffic interconnection being autonomous from products “Lines Leased to other Operators - Digital at 2 Mbps”, any increase of prices would not be allowed, either for set up or for monthly fees, without a new global and consistent review of leased line pricing, which would result in the margin deemed to be appropriate and which was introduced in the determination under consideration.

In fact, the reduction imposed by ICP - ANACOM maintains a positive margin for the leased lines global service which is deemed to be appropriate to accommodate:

(a) A possible difference of costs between lines with main section in non-competitive routes and lines with main section in competitive routes, which has not yet been reflected in PTC’s CAS.

(b) Evolutions, namely a demand more focused in more remote areas, which may have an impact at the level of costs.

With the above-mentioned alterations, with impact both at the level of setup and monthly fee, which PTC carried out on its own initiative, the company increased the margin which was deemed to be appropriate. Moreover, according to available information, the billing of the main LLRO user outside the Grupo PT increased ², instead of decreasing, as one would expect given the determination.

It must be stressed in this context that operators that lease to PTC N × 64 Kbps lines of a speed higher that 1536 Kbps made investments, took network options and developed retail offers based on a set of assumptions and expectations that would be hindered if the tariff applicable to those lines, especially as regards internal extensions, was suddenly and unexpectedly increased. It should be noted that any migration at the present time for 2048 Kbps lines would involve very high and intolerable costs at the level of interfaces on the side of final clients and consequently of the respective terminal equipment.

Lastly, it should be clarified that the reference to “each and every element of prices” does not cover the set up of (i) local extensions, (ii) internal extensions of partial lines and (iii) internal extensions for traffic interconnections, which has been reflected in the changes made by PTC to the LLRO tariff.

In fact, the changes determined are based on and refer to a graphic (considered confidential in the public version of the determination) that does not cover setup prices/costs, as the setup element has a negative margin as a general rule. However, the margin estimated on the basis of price reductions ordered in the determination - also referred to in the confidential version of the determination - takes due account both of the monthly fee element and of the setup element.