Regulation of NGA networks – the EU experience Inês Nolasco Senior Regulatory Affairs Manager European Competitive Telecommunications Association

Outline NGA networks Transition to NGA: investment & competition Regulatory tools – the EU experience

NGA networks – FTTH PON, FTTH P2P, FTTC, Docsis 3.0, 4G, Satellite

NGA conundrum – investment & competition? High investments required Risk – demand & take-up uncertainty? Regulatory uncertainty? The NGA conundrum: How to encourage timely and efficient investments in NGA & innovation while at the same time safeguarding effective competition (key driver of investment over time) and ensuring a level-playing field?

Competition has delivered significant benefits for consumers Source: Analysys Mason Research, ECTA Scorecard

Underlying dominance remains

NGA lines account for only 20% of total fixed BB lines at EU level, Jan 2013

Alternative operators use predominantly physical access New entrants’ DSL lines by type of access Source: Communications Committee

Competition & regulation in NGA - challenges Key bottlenecks remain in the transition to NGA. Network duplication not economically viable in all areas. Regulatory certainty needed. Art. 7 review experiences. Main EU NGA regulatory tools & instruments NGA Recommendation (2010) Costing & Non-discrimination Recommendation (2013) Relevant markets & the Art. 7 review

Promotes the consistent implementation of remedies in an NGA context NGA Recommendation Adopted on 20 September 2010 as part of the Broadband package (RSPP, BB Communication) Sets out a common EU regulatory approach for access to new high-speed fibre networks Promotes the consistent implementation of remedies in an NGA context

NGA Recommendation - Main features Piece of soft law – Not legally binding but NRAs obliged to take “utmost account” of the Recommendation. Any departures from the Recommendation need to be justified. Contains measures intended to safeguard competition & promote investment/ innovation No regulatory holidays!

NGA Recommendation - Main features NRAs able to select from the full range of access remedies available: Access to civil engineering infrastructure, terminating segment, sub-loop unbundling, fibre unbundling, bitstream access Cost orientation remains the pricing methodology of choice for all types of remedies but NRAs have specific tools to push investment: risk premium when setting regulated ex ante access prices (primium included in the cost of capital) pricing flexibility (long-term commitment contracts/ volume pricing) Co-investment schemes between operators diversify the investment risk and can lead to a relaxation of ex ante regulation

Continued validity of the ladder of investment essential to ensure competition in NGA Allows for new market entry and competition from alternative providers – essential to ensure access to key wholesale inputs

Recommendation on consistent non-discrimination obligations & costing methodologies (ND&CM) Adopted in September 2013 Follow-up to the NGA Recommendation. Guidance on the imposition of cost-orientation and non-discrimination obligations on SMP operators (Markets 4 & 5). NGA Recommendation suggested cost-orientation as rule. Limited exceptions (retail-minus for bitstream) Recommendation ND&CM ‘reverses’ this principle: NGA networks exempted from cost-oriented wholesale access pricing to incentivise investment.

Recommendation on ND&CM – key provisions No cost-oriented wholesale access on active & passive NGA wholesale inputs (pricing flexibility) if: supplied on the basis of equivalence of inputs (EoI/ technical replicability - altnets able to replicate new retail offers by the retail arm of the SMP operator) economic replicability test (margin retail price SMP operator & NGA wholesale input) demonstrable retail price constraint stemming from: Active wholesale inputs take-up of upstream M4 inputs/EoI, or presence of alternative infrastructures Passive wholesale inputs Legacy access network product offered by the SMP operator at cost-oriented prices Operators providing service over at least one alternative infrastructure not controlled by SMP operator BU LRIC+ as the recommended costing methodology for setting copper & fibre prices (specific asset valuation for reusable ducts).

Relevant markets & the Art. 7 review List of markets to be regulated ex-ante defined by the European Commission National Regulatory Authorities analyse the markets, identify the operator with Significant Market Power and impose regulatory obligations. European Commission has a veto power in some circumstances. Markets 4 & 5 related to the broadband markets (physical network infrastructure access and wholesale broadband access) List of 7 markets is currently under review

Competition & regulation in NGA – key challenges Incumbents commercial choices & inadequate regulation can impinge on access by alternative operatos to NGA networks Sub-loop unbundling vs vectoring – multi-operator vectoring? VULA vs fibre unbundling Unbundling of FTTH PON networks – availability of WDM? No cost-orientation for NGA access – margin squeeze?

Thank you for your attention inolasco@ectaportal.com