Regulatory uncertainty may be clearing

Nov. 1, 2008

by Kurt Ruderman

Efforts by the European Commission (EC) to put in place a new telecoms framework that focuses on broadband fibre access technologies have raised optimism at the FTTH Council Europe, whose members say clear, coherent regulation is needed to spur massive FTTH deployments.

"This is a major step," said Joeri M. Van Bogaert, president of the FTTH Council Europe. "A major change is that FTTH and FTTC have been separated and a graduated set of remedies have been made."

Today, European Union (EU) regulations cover traditional copper telecoms networks and do not address issues arising from fibre–based next–generation access (NGA) networks. The opening of telecoms networks, different market conditions, and the advent of a variety of FTTx technologies have created a very diverse regulatory picture in the EU. In northern Europe, where municipally owned companies are building FTTx projects, governments tend to favour service–based competition in which competing service providers all use the same network. In France, Spain, Portugal, and Italy, alternative carriers are driving infrastructure–based FTTx competition, which is favoured by the FTTH Council Europe.

"If you look at Europe at this moment, regulators are looking at regulations differently," Van Bogaert said during an interview in November. "This is a problem for suppliers from outside Europe, so centralised regulations would help. What we want to see is one coherent European regulation. This will help investment and investors to build pan–European projects. For the moment there are a number of investments that have been postponed because of regulatory uncertainty."

The EC intends to submit recommendations next year to enable the EU's 27 member–states to implement consistent legal frameworks that maximise benefits and minimise costs related to the regulation of NGAs at a European level. The commission's goal is to have a first proposal in place before France's presidential term ends in 2009.

Van Bogaert said that "most national regulatory authorities [NRAs] in Europe would like to remain independent. They would like to take EU recommendations and tailor them. In many countries, incumbents are still partly owned by the government. It will be a challenge for the commission to get all NRAs in line."

France, Portugal, and Spain have already established a number of rules that are in line with the proposed EC fibre recommendations.

The EU reform process began last year. On November 13, 2007, the EC proposed to the European Parliament and the Council of Telecoms Ministers reforms of the EU telecoms rules (in place since 2003) to reinforce competition and investment and to create a single EU telecoms market. Parliament began debating the package in early September 2008, and the debate in the European Parliament's plenary with its 785 members led to a vote on the Commission's entire EU Telecoms reform proposals in first reading on September 23.

The Parliament vote shot down the EC's proposal for creating a powerful regulator called the European Telecom Market Authority (EMTA), which had been spearheaded by EU Telecoms Commissioner Viviane Reding. The proposed EMTA has since been transformed into a less powerful institution based on the existing European Regulators Group, which comprises the regulators from the 27 EU member–states. However, the EC has kept Reding's proposal to terminate regulations in certain markets where competition is now robust, and her proposal for functional separation of network and service businesses. The EC wants operators to run their network and service businesses separately to help increase competition. The separation proposal has met opposition from some of Europe's leading incumbents, including Telefónica, Deutsche Telekom, and France Telecom.

However, functional separation, which unlike the ownership unbundling proposed in the debate on energy markets does not require divestiture of assets, has already been implemented in the UK. Several other EU countries, including Sweden, have taken steps towards implementation.

The Parliament approved several of the EC's fibre–specific proposals and recommendations. Following the vote, the EC launched a public consultation that ended November 14. The commission has since been reviewing comments and meeting with industry groups to fine–tune the proposals.

The proposals stress the need for national regulators to evaluate market share, or Significant Market Power (SMP), and geographic variations when analysing scenarios for NGA. An operator is presumed to have SMP if it has more than 25% of a telecommunications market in the geographic area in which it is allowed to operate.

FTTH Council Europe, which has been meeting with the EC, has identified three geographic segmentations, Van Bogaert explained. First, there are market–driven areas that include Europe's Tier 1 metropolitan areas. In these cities, market economics regulates itself. However, in many of Europe's small cities and villages, the market needs regulation to ensure investments. In this second market, deployments depend on public sector involvement. And finally there are rural areas, where the market needs smart policy involvement to ensure the elimination of the digital divide.

The EC is seeking to improve the rules for facility sharing by introducing in the EU's regulatory framework provisions that allow national regulators to impose access to building, ducts, manholes, and street cabinets to ensure a level playing field. The EC says that in an FTTH context, this objective can in principle be achieved subject to economies of density and scale as long as equivalent access is provided by the SMP operator to the relevant passive elements of its legacy network.

The EC says that duplication of infrastructure should be avoided where it is impractical or undesirable, such as in–building wiring.

The EC has identified concentration points as essential elements of the network topology, saying NRAs should seek negotiated agreements between an SMP and alternative operators.

The EC has also addressed fibre upgrades of existing SMP copper access networks. The commission wants to ensure that when SMPs replace copper networks with fibre to the node (FTTN) networks, competitors using the those copper networks will have a reasonable transition period to decide on how to cope with the changes.

Of all the countries that have introduced new NGA regulations, France is one of the most advanced. On August 4, 2008, France passed the "Law to Modernise the Economy," a package that includes laws on FTTx networks and building cabling issues. The package coincided with the finalisation of a duct offer by France Telecom, which had been required by ARCEP, the French telecoms regulator. ARCEP has demanded France Telecom provide access to its civil infrastructure (ducts, manholes, etc.) under transparent and non–discriminatory conditions, and at cost–oriented tariffs.

Under the modernisation law, the first FTTH operator to enter and cable a building must open the network to competitors on an equal access basis. Under the law, syndics (companies that manage buildings for apartment owners) cannot oppose the installation of FTTH networks by communications companies. The law also states that the mutualisation (network concentration) point will be outside the building. The mutualisation point has not yet been defined. ARCEP wants to wait and see what happens over the next year before making a decision.

At the request of the alternative carrier Group Iliad (Free), ARCEP also backed a process whereby the first operator to equip a building would install additional fibre in the last drop on behalf of other operators. The additional fibre would be pre–financed by the second operator.

Despite the regulatory revisions, France's operators say more has to be done. France Telecom CEO Didier Lombard said that his company would miss its 2008 FTTH target of 1 million homes passed because of regulatory delays involving the sharing of FTTH access.

In September, France Telecom and rival SFR signed a limited cooperation agreement for FTTx rollouts. Despite France's new law, only France Telecom and SFR have worked out such an agreement. France Telecom, SFR (Vivendi), Free, and Numericable have committed to major investment for their FTTx rollouts, but have been reluctant to exchange dark fibre in the buildings they have cabled or plan to cable. The lack of a fibre exchange plan among these operators and opposition from syndics has slowed FTTx deployments in France.

Disagreement over building access and fibre exchanges could stall FTTH deployments in Spain, where Telefónica had announced plans to launch FTTH at the end of October.

The Spanish telecoms regulator, Comisión del Mercado de las Telecomunicaciones (CMT) said early this year that Telefónica would not have to open its new FTTH networks to competitors. The decision sparked legal challenges from alternative carriers, including Orange Spain. Then in October, CMT proposed a regulation that would allow only one FTTH network per apartment building. The regulation, like the one implemented in France, would require the operator building the network to open it to its competitors. At press time, no agreement had been reached on the proposal.

Under its Trío Futura plan, Telefónica has said it will pass between 11 million and 12 million households by 2010. The initial rollout involves 13 cities: Madrid, Barcelona, Seville, Valencia, Santa Cruz de Tenerife, Las Palmas, Bilbao, Saint–Sébastien, Vitoria, Valladolid, Málaga, Tenerife, and Saragossa. Telefónica plans to invest 1 billion euros through 2011 and expects to reach 25% of Spanish households by 2010.

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