European Commission highlights regulatory approach for fiber to the home

European countries are now actively discussing the impact of the new generation of broadband networks to be put in place for the next decade. Last week, the European Commission issued a set of revised proposals for the regulation of Next Generation Access (NGA) broadband networks, in the form of a draft Commission Recommendation. This draft is put on public consultation for proposals and commentaries. The public consultation ends on 24 July 2009.

Telecom Commissioner Viviane Reding said: “High speed fiber networks are the new generation of broadband infrastructures in Europe. In order to give citizens and businesses across Europe access to fast broadband Internet, very large sums of private and also public money will need to be injected in the coming years. Investors therefore need to know the rules of the game. The aim of the planned Commission Recommendation on next generation access is to provide legal certainty for all players by providing national regulators across Europe with clear guidance on the regulatory approach to be taken.”

Competition Commissioner Neelie Kroes added: “ This consultation will help to ensure that the Commission Recommendation gives the necessary legal certainty to encourage large scale investment in new fibre infrastructure for very fast broadband internet services while safeguarding effective access to NGA networks for competitors.”

Bringing private and public money together

In fall of 2008, the Commission organized a first public consultation on a draft Recommendation on the regulated access to Next Generation Access networks. The results of the consultation confirmed the need to provide guidance on how the current regulatory framework should apply to NGA investment, in order to avoid Single Market distortions and to create legal certainty for investors. It also confirmed general support for the proposed balance between investment incentives (especially in this time of crisis) and the protection of broadband competition. However, there were also calls to consider alternative mechanisms to diversify the specific risk of NGA investment as a way to foster investment in fiber. Then the Commission decided to have a second consultation focusing on more specific points.

Part of the new European Telecom Pack

Today, broadband access in Europe is regulated by each country’s  National Regulatory Authority (NRA) and each country has its own regulatory practice in accordance with the European regulatory framework (also called the Telecom Pack). Observing the activity of regulators in Europe confirms that many operational differences exist among the European countries. They are based on local market conditions, policies put in place by governments, strength of lobbying by local operators, etc., even though national regulatory agencies are supposed to be independent. Indeed, very often, enforcement of regulations depend on the personality of the individuals heading up the agencies.

The objective of the Commission’s Recommendation, which Viviane Reding has been working on for some time, will be to increase the application of consistent access remedies on dominant NGA network operators. Last year, Reding amended a draft of the Telecom Pack to include the creation of a European Regulatory Body directly controlling the national regulatory agencies. The Council of Ministers and the regulatory agencies reacted strongly against this proposal, but they ultimately reached a compromise.

Trying to homogenize the European infrastructure

The Commission says that it is important to provide regulatory guidance to the NRAs at an early stage of NGA network 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 monopolize the broadband retail services.” These concerns have been raised Europe for many years, and the unbundling of the local loop for DSL access, decided in the early days of the DSL, has helped to foster competition in the market, which has resulted in a high rate of adoption and innovative new services.

Focused on operators with significant market power

The Commission’s Recommendation will provide a framework to examine the measures proposed by national regulators for the rollout of NGA networks under the Community consultation mechanism. For a key development such as the rollout of NGA networks, it is more efficient to provide overall ex-ante guidance to the national regulators than case-by-case comments. The recommendation is therefore mainly “asymmetric”, i.e. rules are imposed only on dominant operators with significant market power in order to prevent them from leveraging their dominant position to new broadband services markets. However, the Recommendation is without prejudice to stricter measures adopted by Member States.

Towards a non-discriminatory sharing of legacy infrastructure

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 fiber 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 Commission wants its final recommendations to be applied by all European NRAs before the end of 2009. Several countries as Portugal, France, UK or Germany have already adopted obligations concerning FTTH or FTTN networks build out. In France ARCEP is supposed to announce new dispositions next week.

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