Implementing the new Recommendation on Relevant Markets
WIK Conference, 18 November 2014
University Foundation, 11, Rue d'Egmont, 1000 Brussels
On 18 November, WIK held a seminar to discuss the European Commission Recommendation on Relevant Markets in the Electronic Communications sector. The workshop took place just one month following the formal adoption of the latest version of the Recommendation (http://ec.europa.eu/digital-agenda/en/news/explanatory-note-accompanying-commission-recommendation-relevant-product-and-service-markets) and provided one of the first opportunities for policy-makers, NRAs and operators to reflect on the implications of the Recommendation for approaches to market analysis in Europe.
Introducing the new Recommendation
The event began with keynote presentations from Anthony Whelan (Director for Electronic Communications at DG Connect, European Commission, and Goran Marby (Director General of PTS and Chairman of BEREC).
Mr Whelan described the main changes introduced by the new Recommendation. The main deregulatory measure is the removal of markets for access to the fixed telephone network and wholesale call origination, which is likely to result in the removal of obligations for Wholesale Line Rental and Carrier preselection over time. According to the European Commission, this has been made possible through increased competition in retail broadband bundles, and substitution for fixed voice by mobile (for residential customers) and voice-over IP.
Another change is the reshaping of markets relating to broadband services. In the revised Recommendation markets these markets (formerly markets 4-6) have been reorganised into:
3a. Wholesale local access, which is comparable to the previous market for wholesale physical unbundling, but now includes virtual unbundling, where this offers equivalent functionality
3b Wholesale central access, which includes mass-market bitstream; and
4. Wholesale high-quality access, which will focus on business-grade service and product characteristics encompassing both terminating segments of leased lines and high-quality bitstream
Mr Whelan noted that the Commission considered that bottlenecks in fixed and mobile termination still persisted, but had left a clear signal that they could be subject to deregulation in time, for example if the market pursued bill and keep arrangements.
Mr Marby brought insights from his home market of Sweden, a country in which take-up of speeds of 100Mbit/s or more (upstream as well as downstream) is rapidly progressing. Mr Marby highlighted the importance of demand in driving take-up and investment in high speed networks – noting that for his children, the essential facility is not a telephone line, but social media. He warned that traditional vertical business structures may not be the answer for future consumer demand in which consumers’ primary concerns were to have speed, mobility and quality in order to access content over the Internet. Although he saw a need to protect access competition, he highlighted the need to move beyond traditional telecoms concerns and also look to consumers’ requirements for integrity and security cross-border.
All-IP and the implications for voice regulation
In the first session, devoted to voice regulation, we heard presentations from the Director General of the Finnish Regulatory Authority Asta Sihvonen-Punkka and Scott Marcus, Director of WIK. Ms Sihvonen-Punkka explained that Finland had been one of the first countries to deregulate wholesale line rental and carrier pre-selection in June 2013, on the basis of strong substitution between fixed and mobile telephony in the country. She noted that Finland had one of the highest rates of mobile usage in Europe and that a substantial proportion of consumers relied only on mobile telephony – although fixed telephony was slightly more prevalent amongst business users. FICORA had also proposed the deregulation of fixed termination, on the basis that consumers could choose other ways to terminate calls such as mobile and that – as termination was an input to the retail call price – operators had mutual incentives not to charge excessive rates. However, this proposal was vetoed by the European Commission in November 2013, on the grounds that it would hamper the internal market.
In a presentation focused on interconnection, Scott Marcus of WIK noted that alternative models for termination such as the obligation for reciprocity in the US had led to a bill and keep model, which had avoided the need for detailed regulation of termination rates. In the absence of such an approach in Europe, Mr Marcus concluded that the termination bottleneck was likely to persist, irrespective of technological developments, because the bottleneck related primarily to telephone numbers rather than technologies. In an overview of international developments based on WIK research, Mr Marcus noted that the progression to all-IP by incumbent operators in Europe was slower than one might expect, and had been implemented only in Denmark and Italy to date, with plans in place in Germany and Norway. AT&T and Verizon had also announced a move to VoLTE connections from 2015.
Analysing consumer broadband markets in the NGA transition
In the second session, devoted to consumer broadband, Ilsa Godlovitch of WIK presented an overview of approaches in Europe, followed by presentations of case studies in France by Romain Bonenfant and Belgium, by Axel Desmedt. Ms Godlovitch noted that the transition to next generation access networks had resulted in a greater diversity in approaches to regulation. Some countries with strong deployment by cable and/or the incumbent had focused on ‘hanging’ on the ladder of investment – adapting remedies to suit new circumstances, including in some cases virtual unbundling. In others – where entrants were better placed to climb the ladder of investment, NRAs had focused on passive access remedies such as duct access, symmetric access to terminating segments, and in a few countries copper sub-loop unbundling. Ms Godlovitch concluded that the diversity of approaches might be objectively warranted, but would create new challenges for the single market due to the resulting fragmentation. This might support the case for standardisation of certain remedies.
Romain Bonenfant of ARCEP described the detailed regulation established in France to support co-investment in FTTH. Measures have included detailed attention to duct access and symmetric obligations for all operators deploying fibre terminating segments to offer options for co-financing and access at points aggregating a given number of households. Mr Bonenfant noted that the regime was beginning to show results with nearly all households in dense areas and nearly two thirds of households outside dense areas having a choice of fibre operator. Mr Bonenfant noted that he expected the importance of FTTH deployment to continue following the merger between SFR (which had previously engaged in fibre deployments) and cable operator Numericable.
Axel Desmedt of BIPT described a very different situation in the Belgian market, which is characterised by near complete coverage of NGA through FTTC and Docsis 3.0. In a challenging environment in which access-based competitors had not gained significant scale prior to the deployment of NGA, the NRA has focused primarily on bitstream access and measures to support the resale of cable packages in order to foster greater competition in an increasingly bundled environment.
Scoping the market for business communications
In a session devoted to the new market for ‘high quality’ access, Johan Keetelaar from Dutch NRA ACM began with a description of the regulatory framework for business access in the Netherlands. A key differentiating feature in the Dutch analysis has been to analyse high quality bitstream alongside leased line terminating segments. This approach has now been broadly recommended in the new Recommendation on relevant markets and is likely to become more prevalent as new market analyses are completed. In addition to access obligations for leased lines, ACM has introduced a ‘near-net’ obligation, which obliges the incumbent to dig a final stretch of up to 250m to connect previously unfibred business premises. Mr Keetelaar also flagged the importance of multi-site provision in business markets, noting that the need for business providers to connect dispersed premises across the country may affect the geographic scope of the market.
James Allen from Analysys Mason, noted that the move to mobile data was putting increasing pressure on bandwidth requirements for mobile backhaul, yet not all countries had reflected this in their market analysis. Finally, Tanuja Randery, President for Strategy at BT Global Services presented an operator’s view of the business market in Europe. She noted that pricing, quality and coverage were fundamental requirements for their customers. Ms Randery cited evidence from research conducted by WIK which showed wide divergences in prices for Ethernet leased lines, as well as in provisioning and fault repair times. She concluded that more attention was needed to ensure a more uniform application of regulatory decisions.
Debating the future of ex ante regulation
In a closing session chaired by the incoming WIK Managing Director, Iris Henseler-Unger, participants from Orange, Microsoft, WIK as well as Georg Serentschy gave their views on the main challenges for regulation of the sector going forwards. A key conclusion from the debate was the need to better integrate symmetric and asymmetric measures in the regulatory framework for telecommunications. While most participants believed that network access bottlenecks were here to stay, at least in the medium term, market developments meant that applications and services might be supplied in an increasingly competitive environment. Georg Serentschy additionally put forward the idea that new bottlenecks might emerge in the processing of data, which competition law was not ideally equipped to handle.
The insights gained from the event may prove valuable as the European Commission begins a thorough review of the legislation governing the electronic communications sector.
The presentations of the conference will be available for download end of January 2015.