Policy for access regulation of last mile networks - PTS-ER-2006:26

10/07/2006

PTS strives to ensure that consumers have access to affordable electronic communications services with a large supply and good function. Ensuring that competition prevails between providers of services and networks is one way of satisfying this goal. The long-term objective of PTS’s regulatory efforts to promote competition is to achieve sustainable competition. Where sustainable competition prevails, the market may be expected to achieve economic efficiency on its own with, among other things, prices that reflect competition and a broad supply of goods and services.

Taking into consideration that mentioned above, the authority has formulated a number of overall policies to help guide its regulatory efforts to promote competition in all markets.

1. PTS is working to promote the development of sustainable competition by formulating regulations that eliminate barriers for market entry and gradually promote own establishment of replicable1 network elements and network parts. The goal of sustainable competition can often be achieved through a combination of own infrastructure and efficient co-use of existing infrastructure2, rather than through replication of infrastructure.
2. PTS is only introducing regulation to promote competition to markets that have such characteristic features that ex ante regulation is justified, i.e. where competition problems prevail that the market typically cannot resolve itself.
3. PTS’s regulation aims to promote innovation and development. Entry rules regarding the co-use of infrastructure, which can often be socioeconomically efficient, should not be formulated so that they may risk impeding technical development and the upgrading of networks. A party that leases networks to others should have the opportunity to make commercial investments in these. PTS’s regulation should also be designed to prevent keeping market stakeholders restricted to old structures and services and should be technology-neutral to the greatest possible extent.
4. PTS is working towards the increased harmonisation of the system of rules for electronic communications. A new inner market for electronic communications services can be achieved through harmonised regulation of networks and services in Europe. For this reason, PTS is participating actively in European harmonisation work. PTS is also participating actively in other harmonisation and standardisation work.
5. The regulations for access to networks and services should be clear and foreseeable for those operating in the market. They should satisfy the needs of the market and resolve any competition problems that the market stakeholders experience. PTS should consult the market stakeholders on its proposals for action and conduct an active dialogue with every party dependent on or affected by the regulation.
6. Rules for access to networks and services should establish the best possible preconditions for compliance. PTS should work actively with supervision that follows up inadequate compliance and ensures that the rules are observed. It should also be possible to establish rights and obligations through PTS’s dispute resolution activity.

The following policies have been formulated regarding regulation to promote competition in relation to last mile networks:

1. Obligations should be imposed on those undertakings that are dominant in a market where effective competition does not prevail to enable new entrants to continue their development (ascend the ladder of investment) in order to ultimately be able to establish competing infrastructure when such establishment is feasible. A supply of regulated access products at various levels of the value chain must be available to enable new entrants to ascend the ladder of investment.
2. Access products must also have a price structure that is suited to the purpose. As far as possible, this means that price levels should reflect the differences in the costs of the various access products. Pricing that reflects the long-term and future-orientated costs that an efficient operator with significant power incurs to provide access is recommended for LLU.
3. Migration processes must also be available for the ladder of investment to function in practice, that is to say, processes prepared that facilitate a new entrant changing from another access product higher up the ladder of investment without disrupting the operator’s relationship with existing end users.
4. LLU may be viewed as a long-term means of promoting sustainable competition, i.e. a type of infrastructure-based service competition. The ADSL market may be mentioned as an example. The establishment of LLU, where this is financially profitable for demographic, technical or other reasons, results in lower dependence on the network owner than a ADSL wholesale product does.
5. A bitstream product for broadband constitutes an important overarching regulatory measure that should enable new entrants to compete in a powerful way until they can achieve more of their own infrastructure, that is to say invest in LLU or other access network technology. Regulated bitstream access is exceedingly important as a supplement to LLU in those geographical areas where there are insufficient economies of scale for competition to arise between several operators on the basis of LLU.
6. Resale products in the broadband sector should not be subject to ex ante regulation assuming that regulated bitstream access is available in the market, as it cannot then be deemed necessary in order to promote sustainable competition. The regulation of bitstream access is more preferable than the regulation of resale products, as bitstream access requires a higher level of own investment by the new entrant and can therefore be viewed as an appropriate measure to achieve the long-term objective of sustainable competition.
7. By formulating the regulation described in the above items in a wellbalanced way, better conditions will be created for gradually reducing the scope of ex ante regulation in this area.
8. In order to ensure that there is a gradual transition (on the ladder of investment) of the overall position for new entrants, it is also of importance that stakeholders in the market receive signals that there will be market deregulation in the future and that it is most likely that this will primarily involve the lifting of regulations for those products that require the least investment in infrastructure.
9. In conjunction with the regular market reviews that the authority is required to conduct according to EkomL3, PTS intends to evaluate the market situation with the aim of determining the need for regulatory measures on the basis of several criteria. Changed conditions in the market may have consequences for one or more of the components included in the regulatory authority’s work on market analysis and the imposition of obligations.
10. PTS applies technology-neutral regulation. Technology-neutral regulation of services within broadband and telephony should continue, even if the dominant undertaking changes the technology with which the services are provided.

‘Replicable’ is the term generally used within regulatory theory to describe network elements that are possible and desirable to replicate, i.e. establish in parallel. All networks and network elements are possible to replicate in parallel from a purely technical perspective, but from a business or socio-economic perspective, it may be more or less desirable to replicate infrastructure.

Fully owned infrastructure, i.e. parallel networks, of course reduce the dominant network owner’s bottleneck resources and could therefore be more sustainable than strong service competition, where dependence on the network owner’s networks and services is substantial. In the area of mobile communications, there is, to a large extent, parallel infrastructure in Sweden. In other markets, it is not always profitable for an operator to establish its own parallel network, nor socioeconomically justifiable.

However, this does not mean that all criteria must necessarily be evaluated at one and the same point in time; certain criteria can, for example, be monitored continuously and at regular intervals. Instead, the issue involves the criteria needing evaluation before a decision is made to change the regulation.

However, it should be noted that LLU regulation, at least for the time being, is not technologyneutral. It is stated in the Commission’s Recommendation that the market encompasses access to metallic loops and sub-loops.