Introduction ● EU communications regulatory Framework stuck somewhere half way between monopoly dismantling and ‘utility’ access regulation ● This results in a regulatory mess: European Commission pushing for regulation of incumbent fibre, while many regulators desperately try to avoid it at as much as possible at the access obligations level ● Rethinking the EU regulatory approach ● Can we fit all regulatory strategies into the SMP / non-SMP formula? ● Is non-regulation really the right way to incentivise investment as implied by some EU regulators?
Some recent case studies • Fibre included in the market, but there are no costing remedies that would make its use feasible for new entrants BULGARIA • FTTH regulated, but the only costing remedy that BNetzA has foreseen is the prohibition of margin squeeze, a rule already GERMANY applicable under general competition law • OPTA’s decision not to regulate KPN’s wholesale service via fibre- to-the-office for the purpose of business broadband service THENETHERLANDS provision by new entrants challenged by the Commission
…and some important market differences • In several countries, such as Slovenia, new entrants may be stronger in fibre than incumbents. Incumbents may have contributed to this situation byNEW ENTRANT keeping their networks closed (e.g. in Bulgaria) FIBRE • Parallel cable TV networks may be largely or even ubiquitously present (e.g. in the Netherlands) and can be upgraded with fibre / DOCSIS 3.0 CABLE PRESENCE • In some countries fibre-related remedies followed only after a large-scale fibre roll out (e.g. in Slovenia), in others the regulators planned regulation before theROLL OUT scale and exact type of FTTx investment could be predicted (e.g. Sweden) STAGE
Additional considerations ● The presence / expectation of fibre roll out wholly or partially based on public funding in certain areas (e.g. local communities, EU funds). This implies positive public externalities. ● Different geographies e.g. the Netherlands (flat / dense population) v. Slovenia (mountainous / scarcely populated) ● Forward-looking analysis beyond ‘the next round’: how would the market really look like with fibre fully rolled out? Any room for parallel networks? Would these parallel networks enable access for several service providers?
Perverse incentives? ● Does the decision of incumbent operators not to regulate new fibre investment imply a reward in the form of a future monopoly margin? ● Or is this a trick to get the fibre investments going and impose tighter price controls later on? ● Both scenarios seem bad: while the first one sacrifices competition for new, better infrastructure, the second one tampers with legitimate investor plans ● Most importantly, they both serve as a warning that regulation is not a yes/no game, but a way more complex game involving multiple players and both private and public benefits
Players, incentives and best regulatory approachesWHO ROLLS OUT THE INCENTIVES TO DISCRIMINATE REGULATORY APPROACHNETWORK?Incumbent operator Usually strong in order to keep Access and costing remedies the market position likely to be necessaryAlternative operator Depending on market strategy Depending on factors such as the level of competition, network reach and available alternativesLocal community None if local government is As a safeguard, contracts with working in the public interest the (co-)financing authorities such as EU Commission should include non-discrimination obligationMultiple players Normally at least on the part of Ubiquitous network reach still the incumbent operator likely to require remedies to be imposed on the incumbent operator
Actual regulatory options under EU law COSTS BENEFITSSINGLE DOMINANCE Can be used as an excuse on the part Tight controls on the incumbent of the incumbent operators not to operator to prevent re-emergence of invest the monopolyJOINT DOMINANCE Extremely difficult to prove More end-users potentially enjoying the ability to choose their service providerSYMMETRIC Burdensome for smaller new entrants All end-users with infrastructureREGULATION who are not able to choose their enjoying the ability to choose their wholesale strategy service providerNO REGULATION Risk of market re-monopolisation, Allowing all operators to choose their less choice and likely higher prices own investment strategy, although this is problematic, as regulation could become inevitable later on
Do specific geographical differences justify differentunbundling regimes?The incumbent only rolling out FTTx in urban areas NO. This is simply a characteristic of the incumbent’s network that does not increase choice.Some areas having local networks rolled out by local YES. These networks should always enjoy special equalcommunities access regimes for all commercial service providers.The incumbent faces fierce competition by new local FTTH IT DEPENDS. One should assess whether these networksinvestors in selected urban areas exercise sufficient (direct) competitive pressure at the wholesale level. Note that penetration levels are likely to be low and dependence on the incumbent’s infrastructure , at least copper and ducts, therefore still high.Cable networks that can be / actually are being upgraded NORMALLY NOT. Cable networks are difficult to unbundle,are present in certain areas in addition to the incumbent which makes them less likely to be wholesale substitutesoperator’s network to local loop unbundling. They were not treated as such in the ‘copper age’ and are for the same reason not likely to be given such treatment in the NGA environment.
Conclusions ● Presenting regulation as a yes / no game is misleading ● On the other hand, the EU mantra of effective competition may not be applicable to NGA infrastructures requiring huge upfront investment. Copper local loops were unbundled precisely for this reason. ● Therefore, the ‘utility’ / ‘functional separation’ approach may be the best option for some infrastructures, at least ducts and existing copper. ● When symmetric regulation is offered as an alternative, this should not discourage investment by new market entrants whose networks cannot compete with the one of the incumbent in terms of penetration.