RD307 - ETNO Reflection Document in response to the Commission Recommendation on regulated access to Next Generation Access Networks (NGA)

Next generation access (NGA) networks are a key prerequisite for Europe’s future competitiveness and the participation of its citizens in the global information society. ETNO welcomes the Commission’s ambition to provide a policy framework for NGA deployment with the present Recommendation on access to NGA and the forthcoming guidelines on state aid for broadband networks. The Commission guidance should promote private investment in NGA networks through a consistent approach in both documents. 

ETNO supports the objectives of the draft Recommendation to foster investment and innovation in new and enhanced infrastructure while preserving strong market competition. We welcome the Commission’s recognition of the increased risks incurred by undertakings investing in NGA networks.

ETNO is concerned that the Recommendation, if adopted in its present form, will not achieve the stated objectives of innovation, competition and, in particular, investment in next generation access networks. The draft foresees extensive access and price control obligations imposed on operators of new NGA network as the standard regulatory solution, and largely transposes the current regulation of copper networks to the NGA environment. This approach is not in line with the conclusions of the spring European Council and the preliminary agreement by the European Parliament and Council on the legislative review proposals aimed at adapting the current regulation to yet-to-be-built NGA networks in order to encourage investment in these networks.

• Next generation access (NGA) networks are a key prerequisite for Europe’s future competitiveness and the participation of its citizens in the global information society. ETNO welcomes the Commission’s ambition to provide a policy framework for NGA deployment with the present Recommendation on access to NGA and the forthcoming guidelines on state aid for broadband networks. The Commission guidance should promote private investment in NGA networks through a consistent approach in both documents.
  
  
• ETNO supports the objectives of the draft Recommendation to foster investment and innovation in new and enhanced infrastructure while preserving strong market competition. We welcome the Commission’s recognition of the increased risks incurred by undertakings investing in NGA networks.
  
  
• ETNO is concerned that the Recommendation, if adopted in its present form, will not achieve the stated objectives of innovation, competition and, in particular, investment in next generation access networks. The draft foresees extensive access and price control obligations imposed on operators of new NGA network as the standard regulatory solution, and largely transposes the current regulation of copper networks to the NGA environment. This approach is not in line with the conclusions of the spring European Council and the preliminary agreement by the European
  Parliament and Council on the legislative review proposals aimed at adapting the current regulation to yet-to-be-built NGA networks in order to encourage investment in these networks.
  
  
• The Recommendation should be redrafted to give proportionate guidance to NRAs on potential access obligations for NGA networks.
  
  o The guiding principle for access to new high-speed networks should be a gradation of remedies, ensuring, where necessary, access to the identified bottleneck in a given area to achieve effective competition in the market. A cumulative imposition of access obligations within markets 4 and 5 as foreseen in points 15, 19, 34, 36 would be disproportionate and would results in inefficient and unwarranted obligations, raising the regulatory burden imposed on the investing company. Several NRAs follow the approach to target access obligations to the relevant access bottleneck in new NGA networks to promote the emergence of sustainable infrastructure competition wherever feasible. For example, in denser areas an effective duct access regime may suffice to ensure effective competition, alleviating the need for unbundling obligations.
  
  o The Recommendation should ensure that NRAs fully take into account the conditions of competition in different geographic areas. Geographic differences may be more important in an NGA context as deployment depends upon geographic factors, such as population density and
  existing network coverage of entrants. A failure to take into account geographic differences would hold back investment and competition in more competitive areas to the detriment of consumers.
  
  o The Recommendation should recognise that access to facilities in the ‘terminating segment’ should be symmetric in principle, i.e. not linked to a position of significant market power (SMP) in current market 4, to ensure a level playing field for investors and promote choice for consumers. The draft Recommendation remains limited to a discussion of asymmetric remedies imposed on operators with SMP in current markets 4 and 5 without addressing the possible need for access to facilities such as ducts in the access network regardless of an SMP position. The obligation contained in point 15 - 17 should apply symmetrically and only to the extent proportionate in view of market
  demand. Access to in-house wiring (point 15) should not be addressed under market 4.
  
  o The draft Recommendation should be amended to not grant a ‘2nd mover advantage’ by mandating a blanket six-months advance availability of wholesale products for new services (point 33).
  
  
• ETNO notes certain positive statements on pricing principles and welcomes the mention of new pricing models for risk diversification in NGA in Annex 1. The practical guidance contained in the draft Recommendation, however, foresees cost-orientation, i.e. the strictest form of price regulation, for NGA wholesale products as the standard remedy.
  
  o Freedom to set the level of wholesale access prices (‘pricing flexibility’) is an important factor for a successful NGA business case. This is recognised in the draft Recommendation, but only in a very specific context (point 29). Points 22 and 33 - 40 should foresee pricing flexibility whenever effective non-discrimination is in place and sufficient pricing constraints on the investor are present in the market.
  
  o The Recommendation should give coherent guidance on the new pricing models to drive investment and penetration (Annex I points 7, 8). In particular, the margin squeeze test should not undermine the effectiveness of long-term contracts and volume discounts. To this end, wholesale prices used as the input to the margin test should be those based on volume and term commitments, net of any option premiums for late entry or early exit.
  
  o ETNO is concerned with statements on an ‘ex-ante’ margin squeeze’ test in Recital 27. The preference for a “reasonably efficient operator” test is not in line with competition case law and contradicts the regulatory objectives of supporting service penetration and NGA investment.
  
  o The instruments to take account of increased investment risk in the access price including a risk premium should also apply to civil engineering works carried out for the purpose of installing NGA
  networks.
  
  
• NGA deployment should be market-led. Regulation should be careful not to ‘pick a winner’ be it a particular technology, network architecture or form of commercial cooperation. At the same time, different technology and network topology have to be taken into account in regulation, reflecting
  their competitive outcomes, which the draft in principle recognises. The Commission does not strike the right balance on this point, however, and inter alia wants to impose specific network solutions in the terminating segment (multi-fibre, point 18), which would further raise the regulatory burden for potential investors. No specific network topology or architecture should be mandated – de jure or de facto - by NRAs.
  
  
• In an NGA environment, welfare-enhancing commercial agreements are in principle better suited to market needs than ex-ante economic regulation. Negotiated arrangements for network access and commercial sharing of risk between investors and competitors should be viewed favourably and not be substituted by regulation, unless they are anti-competitive. These arrangements will take various forms in different Member States or geographic areas and should be business-driven.
  
  
• The draft Recommendation acknowledges the need for regulatory certainty and attempts to provide certainty on specific regulatory responses to market outcomes. Investors need to be able to anticipate regulatory decisions over the lifecycle of the investment. Regulatory principles should
  thus be clear before investment decisions are made. This implies a strong commitment by the NRA, for example on pricing principles for taking into account increased investment risk (s. above). The possibility for such commitment should not be limited to situations where market conditions
  stay broadly constant, as the current draft does under point 6.
  
  
• The Recommendation should not assume unchanged market definitions. In the draft Recommendation, this assumption leads to erroneous guidance on the need for new wholesale access products. Even though the question of market definition is not directly covered in this Recommendation, the draft assumes that new NGA-based services will be included in currently existing relevant product market definitions (points 32, 33, 34), requiring the imposition of corresponding wholesale products. It also assumes that there will be a single SMP operator for NGA services and that this operator coincides with the SMP operator in current market 4. ETNO maintains that a proper demand and supply side substitution analysis is required before any conclusions on the scope of the relevant market can be drawn. The recommendation should emphasise the need to analyse the geographic dimension of markets and to possibly define new or more segmented product markets within the scope of current markets 4 and 5 in terms of
  capacity, pricing or functionality of NGA products. NRAs would in that case be required to carry out the ‘three criteria test’ before new obligations for NGA-based services are introduced.
  
  
• ETNO agrees that an effective migration form current generation broadband to NGA is essential to ensure a non-disruptive development of competition. The Recommendation should clarify that bilateral or multilateral commercial agreements regarding the appropriate migration paths, among investing SMP-operators and alternative operators currently enjoying access to the network, are the most efficient means to ensure network evolution. A ‘blanket’ five year period for maintaining existing obligations should not be specified in the Recommendation.