Telekomunikacije - STRUČNO-NAUČNI ČASOPIS REPUBLIČKE AGENCIJE ZA ELEKTRONSKE KOMUNIKACIJE | mr B. MAKAROVIČ: EU Regulatory Package Review and NGN in Regulatory Practice: The Case of Slovenia

EU Regulatory Package Review and NGN in Regulatory Practice: The Case of Slovenia

Boštjan Makarovič

ABSTRACT

Since 2004, Slovenian communications law has been based on the 2002 EU Regulatory Framework. The main ideas underlying this legal package are a high degree of flexibility for the National Regulatory Authorities (NRAs) and a strong focus on technological neutrality. In fact, the Framework enabled APEK, the Slovenian NRA, to successfully tackle several issues such as local loop unbundling, wholesale bitstream, and interconnection arrangements. On the other hand, the Framework is currently being subject to reform. The European Parliament and the Council are currently discussing the Commission proposal for further harmonising solutions on the EU level. This article addresses several important issues that have already been more or less successfully addressed by the current Framework, and that require specific attention in the light of the proposed reform.

1. INTRODUCTION

To begin with, the 2002 Framework has been designed largely on technology-neutral grounds. Its idea was to sustain the changes in the communications technology. Accordingly, there are hardly any references to specific technologies within the relevant EU directives. In addition, the Commission is given powers to set the relevant markets susceptible for ex ante regulation, which is done in an increasingly technology-neutral fashion. The NRAs are further obliged to seek technology-neutral regulatory measures. Nevertheless, several challenges of the development of Next Generation Networks (NGN) and Next Generation Access (NGA) seem to be attracting further interest from the European legislators and stakeholders. These challenges need to be evaluated, and decisions need to be made whether they should be tackled by measures of the NRAs or by means of reforming the current directives.

For example, it has been argued that functional separation of the former incumbent operators may provide for sustainable competition by enabling equivalent access to existing and new bottleneck access platforms to all market participants. In addition, ideas have popped up as to potential 'regulatory holidays' in respect of the newly constructed infrastructure, such as fibre to the home (FTTH). A further subject of discussion is whether alternative methods to existing cost-oriented termination rates such as 'bill and keep' can be imposed by the NRAs under the current directives.

Indeed, new developments in technology may require a special regulatory treatment in the future. Unbundling copper local loops that have been built under the condition of state monopoly may have market implications of a quite different kind than the unbundling of fibre loops that have been laid under tough competitive conditions for all market players. On the other hand, the use of existing ducts and manholes for the new FTTH connections is gaining relevance. Moreover, issues such as network neutrality are popping up on the European regulatory agenda and questions are being raised on both sides of the Atlantic whether they require special legislative attention or not.

As is the case with the EU Framework, solutions should primarily be sought within the flexible provisions of the current directives. One should bear in mind that the Commission and the NRAs are given a high degree of discretion as to market analysis and the setting of remedies. Towards the end of 2007, for example, the Commission issued a new recommendation on relevant markets susceptible to ex ante regulation. This recommendation has as such been an important move towards a higher degree of technological neutrality in regulatory practice. The market for 'metallic local loops' has been replaced with a broader market for 'physical network infrastructure access'. Furthermore, the leased lines market has been re-defined so as to expressly provide for the inclusion of Ethernet-based leased lines. European NRAs, including APEK, are following these developments and are contributing to them by means of cooperation within the European Regulators Group (ERG) and through their own analyses.

On the other hand, there are important reasons to push the harmonisation process in Europe further, in order to enable more efficient pan-European response to the challenges of the NGNs. One way to do it is definitely to enhance the cooperation of NRAs by means of an even more efficient structure than the current ERG. While the current association of European regulators integrates the knowledge and experience of 34 members and observers, there is still room for improvement as far as its institutional structure goes in order to enable even prompter responses to market developments. Consequently, ideas regarding what is referred to as ERG+ are currently being discussed by the European legislators.

APEK is following the before-mentioned developments and is attempting to tackle regulatory issues by means of best practices, as recognised by the ERG. In addition, APEK is also actively participating in certain ERG project teams, where it is influencing the development of pan-European regulatory practices. For example, in the area of local loop unbundling, APEK was not only among the first NRAs to introduce monetary compensations (liquidated damages) for delays by the incumbent, but had also pushed for this practice to be included in the ERG document on Wholesale Local Access. As far as NGN and NGA issues are concerned, APEK has been among the first NRAs in Europe to expressly include termination to VoIP subscribers in the market for call termination on fixed networks. Currently, APEK is preparing the analysis of the markets for physical access infrastructure and wholesale broadband access, whereby it will also analyse the impact of FTTH and other modern access technologies on the relevant competition conditions.

Figure 1. Growth of managed VoIP lines over broadband; Source: APEK, 2008

There are good reasons for APEK to be proactive in the area of NGN and NGA regulation. In recent years, Slovenia has seen rapid growth in broadband, including VDSL and FTTH technologies and the take-up of VoIP. The results can be seen in Figures 1. and 2.

Figure 2. Growth in FTTH lines; Source: APEK, 2008

What is more, these developments are all the results of strong competition developing in the market. VoIP has become not only the main tool of alternative operators to access the stagnating fixed telephony market, but also one of the central market strategies of the incumbent operator Telekom Slovenije d.d. On the other hand, T-2 d.o.o., an alternative operator, is the market leader in FTTH. Competition conditions in the broadband market can be seen in Figure 3.

Figure 3. Broadband market shares Source: APEK, 2008

Accordingly, it is crucial that APEK address these developments in the best possible way in order to strike a proper balance between the need for new infrastructure investment and service competition. The examples presented in this article show how these developments can be conducted within the scope of the current regulatory framework and the recently reformed Commission Recommendation on relevant markets susceptible to ex ante regulation. In addition, where appropriate, they point to the planned review of the EU directives.

2. VOICE INTERCONNECTION OF IP NETWORKS

Regulated interconnection has traditionally been a key element of competition in telecommunications. In the “calling party pays” system (CPP), operators are obliged to pay for termination in other operators' networks. This enables the terminating operator to force the originating operator to pay excessive termination charges, thereby affecting competitive conditions.

With the emergence of managed VoIP services over broadband lines that serve as full functional substitutes of traditional PSTN and ISDN lines, the question has arisen whether termination to managed VoIP subscribers should be regulated in the same way. Before proceeding to the actual analysis, APEK conducted a survey among the ERG members and discovered that the approaches in the Member States differ in this respect. Whereas certain NRAs addressed the market for termination in a technologically-neutral way, the others believed regulation only applied to PSTN and ISDN lines.

The conclusion of APEK's analysis was that termination to subscribers of managed VoIP lines should be regulated despite it being a different technological solution. The main reason for such conclusion was the fact that the lines were functionally equivalent: those subscribers who purchased a managed VoIP line over broadband have usually given up their traditional PSTN or ISDN telephone. Even the incumbent operator used this type of substitution as its business strategy. However, this makes managed VoIP very distinct from say self-provided VoIP services such as Skype, whereby a subscriber would normally still want to keep their PSTN telephone in order to be accessible via a number in the national numbering plan. Termination to users of such services would therefore remain unregulated.

Accordingly, termination on managed VoIP networks can be regulated under the current EU framework, provided that the Commission and the NRAs approach the market by means of technology-neutral measures. However, there is currently some doubt as to whether innovative billing practices such as 'Bill and Keep' can be imposed as a regulatory measure under the current framework. If this were not the case, a change in the framework would be required to enable such regulatory solutions in the future.

3. THE CHALLENGE OF NGA NETWORKS

The distinct feature of newly built access networks is the laying of the fibre deep in the access network, possibly to the home of a consumer or to the company premises (FTTH). In Slovenia, T-2 d.o.o. and Telekom Slovenije d.d. have both adopted the strategy of FTTH.

Until recently, the Commission Recommendation on relevant markets was limited to copper pairs and did not in any way address fibre-based local loops. Ever since December 2007, however, the NRAs have been given the opportunity to include all relevant infrastructures, including fibre and ducts, into one relevant market for 'wholesale (physical) network infrastructure access'.

APEK is currently conducting the analysis of this newly defined market. In particular, substitutability between copper, fibre, cable, and other access infrastructures will have to be investigated. In addition, APEK will have to analyse the role of ducts in the construction of alternative access infrastructure by new entrants.

The market for wholesale local access is closely related to 'wholesale broadband access' market. Accordingly, APEK is conducting the analysis of both markets in parallel. It should be stressed that the 'wholesale broadband access' market has been defined in a technology-neutral manner from the very beginning. Accordingly, it may include wholesale bitstream services via xDSL, cable, fibre, or other infrastructure. In its last analysis, however, APEK found that FTTH networks were not yet sufficiently widespread to pose as an alternative, whereas cable networks were unable to offer a uniform bitstream product across the country. However, these findings will need to be reassessed in the present analysis. In particular, speedy developments in the laying of fibre and the consumer take-up of FTTH products will be considered. On the other hand, recent acquisitions by large cable companies will be observed. In addition, geographic aspects such as the differences between urban and rural areas will be taken into account.

In either case, the current framework seems to provide a good basis for regulation of NGA. As long as proportionality of access obligations imposed upon infrastructure operators is observed, there should not exist a need for 'regulatory holidays' i.e. provisions that would per se prevent regulation of new fibre infrastructure. One should bear in mind that it is not only the investment in fibre, but also genuine market competition that needs to be safeguarded. The regulators will have no reason to be satisfied if new infrastructures are used in such a way that would create new monopolies and bottlenecks.

In this respect, the proposed remedy of 'functional separation', which may soon become part of EU directives, may be considered. This remedy, which has most prominently been tested in Britain by means of the establishment of BT Openreach, provides for the setting up of a separate wholesale unit of the incumbent operator, which supplies certain wholesale products such as local loops or bitstream on equivalent basis for all the operators, including the incumbent's retail unit. Despite the costs of this remedy that should be weighed against the benefits, one should bear in mind that this remedy may ensure sustainable NGA competition in the long run. In particular, it may prevent the incumbents from shifting from the previous monopoly in the copper access network to the new monopoly of fibre.

4. CONCLUSIONS

To sum up, the European NRAs seem to be well equipped to tackle the issues linked to the NGN and NGA under the current regulatory framework. However, it is also the European Commission that can play a vital role by means of defining appropriate relevant markets and accepting harmonised and progressive approaches to regulation. Simultaneously, it is the ERG that provides the key expertise work in connection with market definition and the setting of remedies. This role may be further strengthened by the setting up of the future ERG++.

Nevertheless, there is always room for moving forward. The Framework should not prevent the emergence of future settlement mechanisms such as 'Bill and Keep'. If this is currently the case, a legislative review of currently available pricing remedies may be required. Furthermore, functional separation should be available to NRAs as an option in the reviewed Access Directive. Of course, it should not be used for the regulation’s sake only. Instead, its benefits should be carefully weighed against the costs. On the other hand, should this option not be available at all, we may risk the emergence of new monopolies in NGA. This would be incompatible with the regulatory efforts so far and would, at least in the long run, act to the detriment of consumers.

Author

Boštjan Makarovič obtained his LLM degree at Queen Mary, University of London in 2001 and is currently conducting his PhD research in communications law with the same institution. He is the head of telecommunications division with APEK, the Slovenian electronic communications market regulatory authority. He is involved in the management of market analysis and other regulatory proceedings conducted by the regulator. Previously, he worked as legal expert in the regulatory department of Telekom Slovenije. In addition, he acted as an external advisor to the Slovenian Ministry of Justice in the preparation of the Slovenian Data Protection Act provisions related to the Internet. In the course of the Slovenian Presidency of the EU Council, he was involved as expert to the Presidency in the preparation of the EU electronic communications regulatory framework. He also acts as an arbitrator in alternative domain name ’.si’ dispute resolution proceedings. Mr. Sc. Makarovič has published articles in UK communications law reviews and is co-author of two Internet law textbooks.

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