Brussels, 12 th June 2009
Broadband : Commission consults on regulatory strategy to promote very high speed Internet in Europe – frequently asked questions
What are Next Generation Access networks?
Currently broadband is provided by telecommunications operators to their subscribers via the same copper wires that have been used for telephony since its invention in the 19 th century. However, new broadband services such as online gaming, high-definition TV and interactive applications require enhanced network characteristics including higher bandwidths 1 that cannot be provided over copper infrastructure. To provide these services it is necessary to replace the copper infrastructure connecting the end-users to the local switches (the "local loop") by optical fibre. These new fibre-based access networks are referred to as "Next Generation Access networks" or "NGAs".
Two main forms of next-generation fibre access can be distinguished, depending on how close the fibre is brought to the end-user. Fibre can be rolled out all the way to the customer's premises (Fibre To The Home, "FTTH" also designated as Fibre to the Building "FTTB"), or it can be rolled out to an intermediary concentration point (Fibre To The Node, "FTTN" also designated as Fibre To The Cabinet "FTTC") and copper wires remain in use for the final connection to the customer 2 . FTTN architecture allows download speeds of up to 50 Mbit/s depending on the configuration. FTTH architecture allows download speeds of 80 Mbits/s or more with current technologies, and almost unlimited bandwidth in the long term with technological advances in photonics equipment.
Why regulate NGAs?
In the EU Member States, national telecoms regulators currently regulate broadband to avoid distortions of competition. Incumbent operators are required to provide access to their networks, which cannot be duplicated in a reasonable time period, to enable consumers to choose between broadband providers. The roll out of NGA networks does not remove the existing competition concerns regarding broadband, i.e. that incumbents could leverage the dominant position they enjoy as owners of non-replicable legacy access infrastructure to monopolise new broadband services provided over this infrastructure and thereby limit consumer choice.
Currently, the wholesale broadband markets warrant ex-ante regulation, under the Commission Recommendation on relevant markets (see ). Unless it can be established that NGA access services are markets different from the current regulated wholesale broadband markets, dominant operators with significant market power (SMP) in these markets are within the scope of the Recommendation and access to their NGA networks should be regulated. Proper broadband regulation remains a necessity to ensure a level playing field amongst NGA investors and brings benefits to consumers, including better services, more choice and lower prices.
Who regulates NGAs?
The regulation of broadband in each Member State is the responsibility of the national regulatory authority (NRA). In accordance with the EU's Telecoms Rules, where an NRA determines that a relevant market is not effectively competitive, it shall identify operators with significant market power and impose appropriate regulatory obligations (see ).
Some NRAs have already adopted obligations concerning access to the NGA infrastructure of the dominant national operator (including France and Portugal in the case of FTTH and Germany in the case of FTTN). Other NRAs have further specified obligations concerning infrastructure sharing.
The national regulators have started reflecting on the regulation of NGA and published a position paper on this issue at the occasion of the review of the EU electronic regulatory framework 3 .
Why is the Commission now intervening?
The Commission believes that it is important to provide regulatory guidance to the NRAs at an early stage of NGA rollout to ensure a smooth transition. Inconsistent regulatory responses throughout the EU would undermine national and cross-border investment in NGA. Moreover, competition may be harmed due to improper regulation or the absence of regulation which would allow incumbent operators who own most of the infrastructure and have the largest customer bases to monopolise the broadband retail services.
The Commission's Recommendation will provide a framework to examine the measures proposed by the national regulators for the rollout of NGAs under the Community consultation mechanism (the so-called procedure). For a key development such as the roll out of NGA networks, it is more efficient to provide overall ex-ante guidance to the national regulators than case-by-case comments.
What will be the potential effects of the Commission's intervention?
So far, f ibre networks have been deployed slowly across the EU, covering often only a marginal share of national markets. The deployment of NGA networks will occur gradually. Regulatory predictability is clearly one of these conditions. The Commission's Recommendation will provide regulatory certainty to investors by ensuring a consistent application of regulatory remedies throughout the EU, thereby facilitating cross-border investment, and consolidating the internal market for electronic communications.
As importantly, the Recommendation will guarantee fair competition during the roll out of NGA by ensuring that national regulators mandate appropriate access to the infrastructure of the SMP operators. This will ensure long term sustainable competition and increase consumer choice and innovation.
How will consumers benefit from the Commission's intervention?
The deployment of NGA is necessary to allow EU consumers to use various new broadband services. Therefore, the NGA rollout will contribute to long term consumer welfare. It will also offer large growth opportunities to the IT and content industries and to the European economy as a whole.
Enhanced competition between operators helps to encourage service innovations and to convey broadband prices to the lowest level, as illustrated already in the French or the UK market. More competition and choice for consumers are the essence of the new EU Telecoms Rules proposal (see and ).
Will regulation only be imposed on dominant operators (SMP operators)?
The overall objective of the Recommendation will be to foster the application of consistent regulatory remedies on dominant NGA operators in broadband markets in order to prevent them from leveraging their dominant position to new broadband services markets. The recommendation is therefore mainly "asymmetric", i.e. rules are imposed only on dominant operators with significant market power.
However , the Recommendation is without prejudice to stricter measures adopted by Member States.
What type of access will be imposed on dominant operators?
In general, the Commission considers the facilitation of infrastructure competition as the preferred regulatory option. It allows sustainable competition in the long term and increases consumer choice and innovation. With civil works representing up to 80% of the total rollout costs of NGA, an efficient remedy would be to ensure a cost orientated non-discriminatory sharing of legacy physical infrastructure. In most cases however the deployment of parallel fibre networks is not viable because no ducts are available or because the population density is too low for a sustainable business model. Access to other passive elements (unbundling of the fibre loop) or access to active elements - service based competition ("bitstream") - should also be mandated, according to the draft Recommendation.
The draft Recommendation requires NRAs to analyse the entire telecoms value chain in a consistent manner and in particular to analyse markets 4 & 5 in a coordinated way. This should lead to a minimum, proportional and consistent set of remedies resulting in effective competition on the downstream market.
How is the question of NGA investment risk addressed in the Recommendation?
The draft Recommendation recognises the risk involved in certain NGA investments and the need to properly allocate it between access seekers and providers in order to foster investment in fibre.
In particular, the deployment of FTTH networks normally entails considerable risks given the demand uncertainty for enhanced services which can only be delivered via fibre and the possibility of large irreversible investments. In such cases, the draft Recommendation provides that NRAs should assess whether a higher risk premium should be granted when deriving access prices. IfAdditional mechanisms to distribute the risk between investors and access seekers could also be used, such as long-term commitments or volume discounts. Such adjustments should however only reflect the reduction of risk for the investor.
Co-investment in NGA also allows distributing the risk between co-investors. Co-investment schemes will foster the deployment of NGA networks, in particular outside densely populated areas. The draft Recommendation defines the conditions under which such co-investments can be deemed pro-competitive.
Is the Commission not granting a form of "regulatory holiday" to the incumbent operators by allowing co-investment or risk-sharing mechanisms?
Incumbent operators with SMP will remain subject to regulation and will have to provide appropriate access to their NGA infrastructure. The draft Recommendation acknowledges however that under specific circumstances, co-investment schemes are likely to lead to effectively competitive situations and thus to the absence of SMP. In addition, co-investment schemes should in all cases be regulated proportionally to the objective of promoting efficient competition and investment. In certain conditions, listed in the draft Recommendation, less restrictive regulation will be sufficient to attain these objectives.
In all cases of more flexible regulation, additional safeguards will ensure that the SMP operator cannot engage in abusive practices, be it unilaterally or in collusion with co-investors. The draft Recommendation provides therefore that NRAs should control the SMP operator's pricing behaviour by applying a properly specified margin-squeeze test to ensure that a sufficient margin remains to allow entry. NRAs should also co ntrol possible collusive behaviour between NGA co-investors. In any circumstance NRAs will reassess the competitive situation at each periodic market reviews (every 2/3 years) and impose stringent access conditions if deemed necessary.
Why is the deployment of multiple fibre lines important?
With Multiple fibre FTTH, an investor deploys more fibre lines than needed for its own purposes in order to sell access to the additional fibre lines to other operators. The deployment of new networks provides a unique opportunity to develop long-term sustainable infrastructure-based competition. Multiple fibre deployment costs marginally more than single fibre infrastructure and will from the outset allow for infrastructure competition and consumer choice. Multiple fibre deployments will also preclude operational difficulties of sharing one access line between several operators, as is still experienced today for copper loop unbundling (10 years after the first unbundling regulation was adopted). In contrast to single line unbundling, multiple fibre allows immediate access to the end-user (no unbundling procedure) and full independence between the operators to provide high-speed broadband offers and to compete on the retail market.
See exhibit 2 (Source idem)