WIK Investment Workshop 2017
Regulatory Tools to boost Gigabit broadband
7 March 2017, Brussels
On 7 March in Brussels, WIK held an Investment Workshop at which participants discussed regulatory tools to boost gigabit broadband. The event was opened with keynote speeches from Anthony Whelan, Director for Electronic Communications, DG Connect, and Pilar del Castillo, MEP and rapporteur on the Electronic Communications Code proposed by EU-Commission. There followed technical sessions discussing (i) physical infrastructure access; (ii) co-investment and commercial offers; and (iii) separation and wholesale only model. The event closed with a debate on implications for the proposed Electronic Communications Code. A summary of the speeches and presentations follows.
Anthony Whelan, Director for Electronic Communications, DG Connect, noted that the ambition of the Code was not only to achieve more competition and end user benefits but also focus on deployment and uptake of high capacity networks. A key development was that the Code seeks to support efficiency in the deployment of very high capacity networks (including in rural areas) and to provide more space for commercially negotiated terms. However, Whelan also stressed that there was no silver bullet. For example, not every Member State has ducts, there are different digital propensities and some countries are lucky to have a cable network in place. According to Whelan the existing SMP regulation will still be the focus of regulatory scrutiny. Symmetric regulation should focus on ensuring access to non-replicable networks. Beyond that, in terms of sequencing duct and pole access should be made available, but if that isn’t sufficient than other regulatory options should be put in place. Whelan notes, that pricing flexibility should be granted. In that regard, commercial access is highly relevant for regulators and co-investment schemes are very interesting for the market.
Pilar del Castillo
Pilar del Castillo MEP, the rapporteur on the Electronic Communications Code for the European Parliament's ITRE Committee noted that the debate in Parliament has not yet started but that the feedback of stakeholders has been positive so far. She expects to present the Draft Report to the ITRE Committee on March 22nd 2017.
Pilar del Castillo stressed that, from a political perspective, the European Union is going through a difficult time and that is precisely why digital technologies are more needed and more important than ever. Today, Digitalization in the EU is facing two major problems/difficulties - fragmentation and connectivity. With regard to fragmentation a number of actions have been taken to tackle the problem. As for connectivity, it is crucial and one of the major drivers of the Digitalization process in the EU. For connectivity, investments of € 500-600 billion will be needed in the near future. Pilar expects that 90% of those investments will have to be contributed by private investors.
In order to support investments two aspects are important. First, regulatory requirements need to be strengthened, but under the condition that access cannot be imposed on SMP operators in the absence of consumer harm. Second, access to civil engineering should be imposed before anything else.
Pilar del Castillo sees another future challenge in the area of spectrum. The new framework consists of three pillars: access spectrum and communication services. While the first two pillars are crucial for investment, she stresses that, every time there are harmonization efforts with regard to spectrum national governments block them. But harmonization will be necessary in the future, as increasingly smart applications require more spectrum. Pilar hopes that in the future there will be more room for Member States to come together on this point, as spectrum decisions will be key measures.
Physical Infrastructure Access
Ilsa Godlovitch and Thomas Plückebaum, WIK
Ilsa Godlovitch, Director of WIK-Consult’s Brussels office, and Dr. Thomas Plückebaum, Head of department Networks and Costs at WIK, presented first results from a study on the terms of access to ducts, poles and in-building wiring across sample European markets (DE, ES, FR, PT and UK). The research compares regulatory approaches to infrastructure access and operational processes in order to identify best practices and implications for regulatory practice and the European Electronic Communications Code. The study concludes that infrastructure access conditions are most developed in FR, ES, PT where there are some operational innovations like automated information on location and availability of infrastructure and/or greater autonomy for access seekers in conducting surveys, decongesting infrastructure and installing and repairing cables. However, in general, conditions for pole access were less well developed than for duct access. In these countries there are also detailed provisions for symmetric in-building wiring obligations which are essential complements to SMP infrastructure access and therefore represent an important aspect of the strategy to foster VHC broadband.
Andrea Weissenfels, EWE TEL
Andrea Weissenfels, a regulatory counsel at EWE TEL, presented the company and its plan to connect 1 million homes with FTTH/FTTB within a 10 years roll-out period. She noted that this large-scale deployment is one of the largest investment projects in EWE’s history and that it will be a basis for a sustainable and competitive region of very high data connectivity in Northwest Germany. Furthermore, Weissenfels commented on the proposed EECC and suggested that there were a number of factors which needed to be taken into account when deciding on the appropriate regulatory solution including economic factors (build or buy decision, urban vs. rural areas), topology of existing infrastructures, and market situation. She concluded that duct access was not a ‘one size fits all’ solution and that NRAs should be provided with an equally ranked "tool box" rather than prioritizing particular remedies such as duct access.
Session 1: Co-investment and commercial agreements: practical cases
Ben Wreschner, Vodafone
Ben Wreschner, Head of Network and Economic Regulation of the Vodafone Group, stated that regulatory policy should push towards infrastructure competition and highlighted that co-investment is part of the process towards reaching sustainable competition. Co-investment and commercial agreements are part of Vodafone’s business strategy in several countries. In Spain, Vodafone co-invests with Orange in an agreement based on each operator covering the same number of households in specified regions and providing reciprocal access services on the basis of bitstream. This agreement expressly permitted the parties to wholesale. In Portugal Vodafone cooperates with MEO sharing passive network infrastructure, while with two other operators there are commercial agreements on wholesale bitstream access to their networks. In Ireland Vodafone established a Joint Venture with the ESB for the deployment of an open fibre network - SIRO. Ben Wreschner noted that co-investment arrangements can face challenges. While Vodafone favours reciprocal arrangements, in the case of multi-party co-investment, there is the need for a leader, which may be in a position of power if it is the incumbent. Vodafone also procures wholesale access on a commercial basis. However, alternative operators using wholesale products based on commercial agreements typically have less flexibility over the product and terms than under a co-investment. In most countries a mix of solutions is needed to achieve national coverage.
Johan Keetelaar, ACM Netherlands
Johan Keetelaar, Director of ACM, presented a historic case of co-investment in the Netherlands (2008 JV between KPN and Reggeborgh – since acquired by KPN), and the numerous commercial agreements that have been entered into. Many commercial agreements are in unregulated markets such as bitstream. However, there is also a commercial agreement in the Netherlands for VULA, which was incentivized by regulation. In the case of VULA, KPN was obliged to provide a VULA service to be allowed to upgrade its network, and did so, as its network upgrade was central to its business plans. According to Johan Keetelaar, on many (deregulated) markets commercial agreements are common while the regulation of non-competitive markets might stimulate commercial agreements by enhancing downstream competition. However, some agreements only result from regulatory obligations or threats. In general, regulators should be careful when applying common rules as market conditions and commercial agreements differ significantly. When assessing commercial agreements a case-by-case analysis is always required.
Philippe Distler, ARCEP
Philippe Distler of ARCEP stressed that the co-investment model creates a new rung on the investment ladder. As co-investment is more efficient than pure infrastructure duplication with a smaller OPEX per line it provides incentives for investment in FttH. In France, FttH rollout in private initiative networks is expected to cover up to 54 % of households. The rest of the territory is to be covered by Public Initiative Networks (PINs) supported by public funds. Currently there are 84 wholesale only operators (mostly Public Private Partnerships), subject to symmetric regulation. This model enables private operators to co-invest into PINs, benefitting from financial and technical access conditions similar to those of privately funded networks. There is a set of symmetrical rules imposed on the operator deploying the last segment of the network, including the provision of passive access at a concentration point, the publication of an access offer including co-investment & line rental options, the application of access prices based on principles of non-discrimination, objectivity, relevance and efficiency and the implementation of structured exchanges of technical information with commercial operators. Symmetric regulation for fibre in France varies with area density to strike a balance between competition and efficient investment (minimizing duplication where this would be unviable).
Session 2: Separation and wholesale-only models
Steve Unger, Ofcom UK
Steve Unger highlighted that when considering the advantages of wholesale only models, it was important to distinguish the objectives of promoting competition and supporting investment. While separating an incumbent could be expected to support certain forms of competition, it might not support investment, if the separated incumbent can ‘sweat the assets’ of a legacy infrastructure. However, there may be a case that by being autonomous and answerable to multiple retail customers, it may place greater focus on enhancing its assets. Steve Unger explained the BEREC concept that differentiates eight degrees of separation, with accounting separation and structural separation on either side of the spectrum. Openreach is currently a functionally separate division of BT. However, Ofcom has proposed that Openreach should take separation to the next level and become a legally separate, wholly-owned subsidiary of BT Group. Steve Unger highlighted that there are various routes towards separation, which can encompass regulatory sticks and carrots, public funding, and commercial drivers. Various tools had been used in the UK, Sweden, Czech Republic, Singapore, Australia and New Zealand.
Per-Olof Gustafsson, Stokab
Per-Olof Gustafsson presented the business model of Stokab in Sweden - a wholesale-only network provider. Founded in 1994 in Stockholm, Stokab aims for ubiquitous coverage in the area. It has achieved market-driven expansion without using public funds. Additionally, the open and neutral IT-infrastructure enables free and fair service competition. Per-Olof Gustafsson noted that Gigabit bandwidth is available at low cost in Stockholm and demand for dark fiber in Sweden is growing rapidly. Per-Olof Gustafsson described high investment requirements, many operators’ preferences to control their network, the regulatory framework, and market confidence as main challenges for the implementation of wholesale-only models.
Debate on implications for the EECC
In the final session of the conference, Heads of four pan-European trade associations came together to debate the implications of the Code for investors in electronic communications infrastructure and services.
Luc Hindryckx, ECTA, Matthias Kurth, Cable Europe, Erzsebet Fitori, FTTH Council Europe and Lise Fuhr, ETNO shared the view that more investment in very high capacity networks is needed, although some panellists argued that it should not be seen to ‘mandate’ investment, but rather let the market deliver. All panellists supported the role of competition as a key incentive for investment. However, Fuhr expressed concern that in focusing on certain kinds of models such as co-investment, the Code did not support investment by individual investors. Kurth also highlighted the dangers of the regulation applying a ‘central planning’ approach, which puts the views of regulators in the place of those of the market. Hindryckx nonetheless argued that it was necessary to provide a complete toolbox for regulators, including SMP -regulation (significant market power) as bottlenecks still exist. The panellists agreed, that the situation in member states differs substantially. In this sense the Code should not aim to achieve one business model, but integrate new business models which have appeared since the last review of the framework in some member states and highlight their positive implications.
As regards rural areas, the panel generally supported state aid solutions. The role of wholesale only models in this context was also highlighted. There were different views amongst the panel, on the idea that the Code should be amended to allow for greater intervention in oligopolistic situations. The session was closed with a remark by a national regulator that regulators are increasingly become market facilitators rather than ‘dictators’.