Digital economy-legal-updates-webinar-co-investment-in-new-infrastructure-roll-out
1. Digital Economy Legal Updates
Webinar Series
Co-Investment in New Infrastructure Roll-Out
Presented by Luigi Minerva, Felipe Florez
Duncan & Francesco Liberatore
19 June 2017
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Economic rationale for co-investment
• Rolling out full fibre networks is costly…
• FTTH Council estimate: €137bn across EU28 for 100% coverage
• … and carries significant risks
• Demand uncertainty; cost/ deployment risks; regulatory uncertainty
• Co-investment solves some of the problems (demand & cost)
• “a problem shared is a problem halved”
• European Commission is now proposing changes to the regulatory regime
• proposed Article 74 in the Electronic Communications Code: co-investment
initiatives will be exempt from regulation if they satisfy certain criteria: they invest
in very high capacity networks; have open, transparent and non-discriminatory
terms of participation; offer old generation access to non-investors
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Many different business models can be used to
rollout ultrafast fibre networks
CityFibre’s ‘anchor tenant’
model
Oxera’s co-investment
‘NetCo’ model
Participating
service providers
OAOs
End-customers
NetCo
Ownership structure
evolving over time
P
A
P
End-customers
Anchor tenants/Service providers
Vehicle holding fibre assets
Participating investors
P
- structurally separate, independent
ownership model, open access
- anchor tenants obtain favourable
conditions and limit demand risk
- similar characteristics to NetCo, but
addresses underinvestment through
private investment and contracting
- commercial network entity owned by
operators and other investors,
supplying mainly passive access
- addresses underinvestment by avoiding
duplication and long-term regulatory
stability, achieving commitment through
ownership stakes
Investment supported by long-term
contracts with anchor tenants
sales of passive
or active access
sales of retail
services
wholesale/retail
payment
investment
dividend
After five
years
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BEREC strongly against current proposals
BEREC’s preferred option:
Delete Article 74
Alternative option:
Water down Article 74
• Co-investment already takes place
commercially
• Regulators already take account of such
networks in their market analyses
• No need to explicitly encourage it in the Code
• Current rules already allow regulators to
reflect risk of investments
• Criteria for regulatory forbearance too weak
• Scope for tactical gaming by operators could
reinforce market power
• Regulators empowered (not compelled) to
forebear
• Greater clarity on “new network elements”
• Co-investors must be ‘real’ competitors in
retail market
• Co-investment offer must be taken up (not
just made available)
• Non-investors should also benefit from
access to new network elements
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What does the future hold for the co-investment
regulatory proposals?
• Whether Article 74 survives discussions in Parliament or not, expect
many more discussions on these models across Europe
• for example, in the UK, Ofcom has given strong signals that they expect to see a
legally separate Openreach more open to discuss and pursue co-investment
initiatives with willing investors
• could this lead to a relaxation of (price) regulation on Openreach?
• How will competition authorities react?
• first, there was outright consolidation (M&A)
• then, there was network sharing (live case at the Commission being investigated)
• will be co-investment models be next in the firing line?
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Market Definition
Wholesale
Market
Fixed wholesale broadband access
Separate market for new ultra-fast fibre technology?
Retail
Market
Fixed broadband services
Fixed-mobile substitution?
Geographic
Market
National
Separate regional markets at wholesale level?
Additional
Guidance
SMP Guidelines and Recommendation on Relevant Markets
BEREC Position Papers and Precedents
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Case Study: Italy (cont.)
Market shares
• Wholesale level
• TI: 96% (volume) and 87% (value);
• Others: 4% (volume) and 10% (value)
• Retail level
• TI: 40%; Fastweb: 27%
Competition concerns
• Direct Limitation of Competition between the Parties, Coordination
and Input Foreclosure
• Exclusivity, long duration;
• IRU (30 years) on Fastweb’s network and Passive access to TI’s
network
• Spill over effects
• Price coordination at retail level;
• Reduction of competition on quality
High Market
Shares
High
Proportion of
Variable
Costs in
Common
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Conclusion
Specific block exemption and guidelines ?
Full function joint venture may provide more legal certainty, but in practice
limited application so far
Competition law assessment is needed from the outset and at regular
intervals
Incentive for co-investment under sector-specific regulation must be
reconciled with the need to comply with competition law