Case FR/2009/0993: terms and conditions for access to fibre optic electronic communication lines and location of the local connection point.

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1 EUROPEAN COMMISSION Brussels, 5/11/2009 C(2009)8692 SG-Greffe (2009) D/8543 Autorité de Régulation des Communications Electroniques et des Postes (ARCEP) 7, Square Max Hymans F Paris Cedex 15 France For the attention of Mr Jean-Ludovic Silicani President Fax: Dear Mr Silicani, Subject: Case FR/2009/0993: terms and conditions for access to fibre optic electronic communication lines and location of the local connection point. Comments pursuant to Article 7(3) of Directive 2002/21/EC 1 I. PROCEDURE The notification was received from the French national regulatory authority, Autorité de Régulation des Communications Electroniques et des Postes (ARCEP), on 5 October 2009 and became effective on that day. The draft measure consists in both a regulatory decision and a recommendation. It establishes the terms and conditions for access to fibre optic electronic communication lines and defines the cases where the local connection point can be located on private property. The national consultation 2 runs in parallel with the Community consultation under Article 7 of the Framework Directive. The deadline for the Community consultation is 5 November Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), OJ L 108, , p In accordance with Article 6 of the Framework Directive. Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2)

2 A request for information 3 was sent to ARCEP on 14 October and the reply was received on 19 October Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities (NRAs) and the Commission may make comments on notified draft measures to the NRA concerned. II. DESCRIPTION OF THE DRAFT MEASURE II.1. Background In June 2008, ARCEP notified to the Commission its review of the markets for wholesale physical network infrastructure access and wholesale broadband access in France. 4 ARCEP found that France Télécom had significant market power in both markets and imposed on it the obligation to grant access to its civil works infrastructure to allow alternative operators to deploy their own fibre networks. ARCEP also announced the adoption of a bill in France that would mandate the sharing of in-house wiring of any operator that has deployed a fibre network inside a building. ARCEP considered that the civil works access offer of France Télécom coupled with the symmetric obligation of access to in-house fibre wiring should allow for the competitive rollout of several fibre networks in the most densely populated areas for the relevant review period. The Commission welcomed the imposition of a duct sharing obligation on market 4 as a way to contribute significantly to the development of NGA infrastructure-based competition in France. The Commission however encouraged ARCEP to consider imposing other remedies in relation to Market 4, in case the adopted national law would not be sufficient to ensure effective competition in combination with duct access. In August 2008, France adopted the announced law ("Loi de Modernisation de l'economie", LME). The LME resulted in the addition of Article L to the French telecoms law ("Code des Postes et des Communications Electroniques", CPCE) foreseeing the obligation to share in-building fibre wiring at reasonable, transparent, and non-discriminatory economical and technical conditions, at a local connection point ("point de mutualisation") located outside the private property, unless decided otherwise by the regulator. The LME further provides ARCEP with the necessary legal competences to set the technical and pricing conditions for such access. II.2 The draft measure The draft measure consists in a regulatory decision and a recommendation. The draft decision establishes the general terms and conditions for access to fibre optic electronic communication lines and defines the cases where the local connection point for access to in-building fibre wiring can be located on private property. The draft recommendation complements the draft decision and provides operators with further guidance and implementation details for the actual application of the principles and rules foreseen in the draft decision. 3 4 Pursuant to Article 5(2) of the Framework Directive. These markets correspond to respectively Market 4 and Market 5 of Commission Recommendation of 17 December 2007 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with the Framework Directive. See cases FR/2008/0780 and

3 II.2.1. Scope of the access obligation In its draft measure, ARCEP sets out the conditions for access to fibre lines and associated facilities on the French territory. 5 Fibre lines are defined as a passive connection of a very high speed local loop network consisting in one or more continuous optical fibre routes deployed to provide very high speed services to end-users. 6 In setting the terms and conditions for access to fibre lines imposed on "in-building operators", ARCEP distinguishes between "very dense areas" and the rest of the French territory. The "in-building operator" is defined by ARCEP as the undertaking which has laid or foresees to rollout fibre lines inside a building. ARCEP specifies in its response to the request for information that, in line with the LME, the draft decision applies not only to electronic communications operators but also to any undertaking having established or operating an in-building optical fibre line, since they control access to the end-users. ARCEP identifies "very dense areas" as being municipalities where, on a large part of the relevant territory, infrastructure competition is susceptible to emerge, i.e. where it is economically viable for several operators to rollout their own fibre access network in the proximity of dwellings. 7 According to ARCEP, the main criteria justifying network rollout in these areas are population density, potential demand for very high speed services and local factors such as the availability of ducts. 8 II.2.2. Access obligation applicable on the whole French territory ARCEP foresees that the in-building operator should meet reasonable requests for passive access to its fibre lines at a local connection point and to the required associated facilities at reasonable and non-discriminatory conditions, whereby the in-building operator provides the appropriate maintenance and management services. The inbuilding operator may, either before or after rolling-out its fibre lines into the building, upon reasonable request give access to a dedicated fibre line (for permanent access to the building's dwellings) or to a shared fibre line (for temporary access to the building's dwellings, in accordance with the subscriptions of the end-users). In accordance with the LME, the local distribution point is normally located outside the limits of the private Including overseas territories and departments where the French telecoms law (CPCE) applies. ARCEP specifies in its response to the request for information that the fibre lines may include the whole optical fibre loop between the dwelling of the end-user and the optical point of interconnection ("Noeud de raccordement optique", NRO) if the latter allows the delivery of a passive offer. This could for example be the case outside the very dense areas as defined in annex I of the draft decision. ARCEP defines these areas in three steps. First it retains urban units (in the sense of the French National Institute for Statistics and Economic Studies, INSEE) in metropolitan France with over inhabitants. Second, from this group it retains only those units in which at least 20% of buildings have more than 12 dwellings. Third it selects within these units, only central municipalities and peripheral municipalities in which at least 50% of buildings count more than 12 dwellings or for which fibre rollout projects have been announced. This selection procedure results in a list of 148 communes (listed in annex I of the notified draft decision) corresponding to 5.54 million dwellings, 3.5 million of which are located in large buildings or are accessible via sewage networks. ARCEP notes in its response to the request for information that, should all stakeholders converge on the need to extend the very dense areas by relaxing certain selection criteria, it will notify the corresponding revised draft decision under Article 7 of the Framework Directive. ARCEP explains that the less populated the habitat, the more difficult it becomes for multiple operators to secure a profitable return on the deployment of their own access network, even in the long term. 3

4 property. 9 ARCEP indicates that in the case where at least four fibre lines are installed per dwelling and all four lines are activated by operators, the building's operator may propose (passive or active) access at a point higher up in the network than the local connection point. 10 Where an operator has obtained the authorization to equip a building with optical fibre, ARCEP stipulates that all other operators must be informed of all necessary details regarding the relevant building 11 within one month after the conclusion of the convention with the building owner and three months prior to the activation of the local connection point. II.2.3. Access obligation applicable only in "very dense areas" In the "very dense areas", the operator equipping a building is obliged, upon reasonable request, and provided the request is formulated prior to the rollout of the fibre lines, to (i) install an additional fibre to each building dwelling if the requesting operator is willing to participate ab initio to the total installation cost 12 and (ii) to guarantee the installation of a distribution panel inside or in the proximity of the local connection point. 13 According to ARCEP, these provisions allow operators to choose either a point-to-multipoint (PON) or a point-to-point (P2P) network architecture. They meet the technological neutrality objectives of the regulatory framework and allow operators to independently choose their access technology and subsequently differentiate their services. Overall it will ensure innovation and sustainable competition for the emerging very high speed fibre services. II.2.4. Terms and conditions for access to fibre optic electronic communications lines As to the pricing conditions for access, ARCEP stipulates that the charges applied by operators equipping buildings must be established in line with the principles of nondiscrimination, objectivity 14, pertinence 15 and efficiency of investment 16. According to ARCEP clarifies that the in-building operator must ensure the accessibility of the local connection point. When the local connection point is located outside the limits of the private property, where part of the network rollout may be aerial, the in-building operator must ensure that the deployment of several aerial fibre cables is possible. Conversely when the local connection point is located inside the building, the in-building operator must ensure that the fibre entry point of the building is not saturated. In the framework of commercial agreements between operators access may in any event be provided at other points than the local connection point in the local loop network of the in-building operator. A list of items is provided in annex II to the draft decision. If necessary, ARCEP may review this list via subsequent decisions. ARCEP explains neither experimental or evaluation works, nor information collected during the first public consultation have lead them to believe that there are considerable differences between the installation costs of multiple fibre and single fibre inside a building. ARCEP insists that multiple fibre deployments may induce installation and operation cost savings. In addition the industrialization of the multiple fibre deployment process may lead to a further cost decrease. In its recommendation, ARCEP suggests that a transparent process is put in place, in the form of annual consultations at municipality level, allowing for (i) the identification of operators interested in co-investing ab initio in the rollout of multiple in-building fibre lines, and (ii) the specification of the conditions for access to the fibre lines (be it dedicated or shared access). ARCEP also suggests that each operator commits to participate in the pre-financing of the in-building fibre wiring in the concerned municipality for a period of three years. Tariffs must be justified in the light of clear and opposable costs. 4

5 ARCEP, adherence to these principles ensures the maximum benefit to end-users as infrastructure competition is stimulated and leaves sufficient margin for commercial operators to set their retail tariffs. ARCEP considers that in those cases where commercial operators request the installation of additional fibre lines prior to the rollout of fibre into the building, the host operator may require a financial participation ab initio. In this regard, ARCEP considers it appropriate to distinguish between (i) the equitable costs to be shared by all operators, i.e. the infrastructure costs used by all connected operators including, where appropriate, the costs engaged to provide access to operators arriving later on the market, and (ii) the individual costs pertaining only to a given connected operator, i.e. the infrastructure costs derived from their deployment modalities and choices, which are to be established in line with the above mentioned principles. Instead, where operators connect to the fibre network local connection point after the rollout of the in-building wiring, ARCEP foresees that the tariff charged contains a rate of return on capital that takes account of the initial investment risk and attributes a premium to the hosting operator. ARCEP stipulates that access to fibre lines should be provided under transparent conditions. To this end, operators rolling-out fibre into the building are required to publish, within one month from adoption of the present draft decision, an access offer containing the conditions for the installation of a dedicated fibre or of a distribution panel, for the access to dedicated or shared fibre lines and for access to associated resources. This offer will constitute in principle a national framework offer, which may be adjusted to form communal offers. Furthermore, the host operator is subjected to a cost accounting obligation which traces all investments carried out on the terminating segment of the fibre line so as to comply with the transparency obligation as well as the non-discriminatory principle enshrined in the proposed price regulation. II.2.5. Location of the local connection point The LME stipulates that local connection points should be located outside the limits of private property except in those cases where ARCEP decides otherwise. It is in the remit of this responsibility that ARCEP proposes in its draft decision that the distribution point should be located within the limits of the private property when a building located in the areas defined as very dense accommodates at least 12 dwellings or is linked to an accessible sewage network (independently of the number of dwellings in it). 17 II.2.6. Legal basis and justification of the draft measure Article L of CPCE resulting from the relevant specifications in the LME pursuant to Article 12 of the Framework Directive, foresees a right for undertakings providing electronic communications services to have access to the fibre line deployed inside a building to connect end-users. In order to implement such symmetrical access regulation, ARCEP has adopted complementary obligations on the basis of Art L.34-8 of CPCE Costs incurred by the operator requesting or using the corresponding infrastructure or services must by supported by that operator. The costs charged to the commercial operator must correspond to the costs incurred by an efficient operator, i.e. excluding undue or excessive costs. ARCEP is currently analysing where the distribution point for small buildings in very dense areas and for less dense areas should be located. 5

6 transposing Article 5 of the Access Directive. 18 Therefore ARCEP notifies its draft measure on the basis of Article 5 of the Access Directive, as a necessary complement to the co-location and facility sharing arrangements imposed pursuant Article 12 of the Framework Directive. 19 ARCEP considers that the proposed symmetric regulation is justified and proportionate in the light of the objectives set out in Article 8 of the Framework Directive in that it does not create an excessive constraint on the operators, does not favour a particular norm, imposes the minimum set of obligations necessary, and to the extent possible lets operators come to commercial agreements. In particular, ARCEP considers that the proposed measure ensures (i) access and interconnection conditions guaranteeing equal competitive conditions, (ii) technological neutrality vis-à-vis the different choices operators of fibre lines may make (PON vs. P2P), (iii) similar treatment of operators in similar circumstances, (iv) efficient investment in infrastructures and innovation, (v) effective and fair competition in the sector of electronic communications to the benefit of the consumer in terms of availability of competitive end-user products, and (vi) development of employment opportunities. III. COMMENTS On the basis of the notification and the additional information provided by ARCEP, the Commission has the following comments 20 : Justification of the draft measure under Article 5(1) of the Access Directive monitoring of the results of the symmetric regulation imposed on in-house operators. The Commission reiterates, as in previous cases concerning other draft measures taken under Article 5 of the Access Directive 21, that NRAs must use this legal basis with caution and in exceptional circumstances, for example when imposing obligations for access or interconnection to all market players, in order to comply with Community law. 22 NRAs should take into account the strict requirements for this provision to apply, namely that (i) the access and interconnection and interoperability of all services shall only be ensured where appropriate, (ii) NRAs must exercise their responsibility in a way that promotes efficiency, sustainable competition and gives the maximum benefit to end-users 23, and (iii) that the conditions imposed are objective, transparent, proportionate and non Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (the Access Directive), OJ L 108, , p. 7. ARCEP explains in its draft measure that whilst the relevant regulatory framework with respect to fibre investment was adopted in August 2008, following the review of the wholesale markets for physical network infrastructure and broadband access, the main operators have for the moment postponed their investments due to disagreements concerning the precise access conditions to inbuilding fibre wiring. Operators have requested a clarification of access obligations and rights in this regard, which they regard as essential to free fibre investments. In accordance with Article 7(3) of the Framework Directive. See for example cases NL/2003/0017, UK/2003/0019, FR/2006/0608. Recital 14 of the Access Directive. Article 8 of the Framework Directive. 6

7 discriminatory. The Commission notes that the relevant provisions contained in the LME, adopted in August 2008 foresee a right for operators to have access to in-house fibre wiring at the distribution point outside the limits of the private property, except in those cases identified by ARCEP. The Commission also notes that ARCEP intervenes, under Article 5(1) of the Access Directive, to specify the terms and conditions for access to optical fibre lines as set out in the LME, so as to attain the objectives set out in Article 8 of the Framework Directive. The Commission appreciates that the proposed measure, coupled with the civil works access offer of France Télécom, seeks to promote infrastructure competition in France, particularly in the so-called very dense areas, and to create the right framework to avoid reconstituting a bottleneck on in-house fibre wiring. Under such circumstances, the Commission can agree to the appropriateness of applying Article 5 of the Access Directive in conjunction with Article 12(2) of the Framework Directive to regulate access to in-house fibre wiring in France. However, the Commission invites ARCEP to carefully monitor the development of NGA investment and competition in France, in particular in the very dense areas of the French territory, so as to evaluate whether the proposed symmetric regulation scheme remains sufficient, justified and proportionate to attain the objectives set out in Article 8 of the Framework Directive, and not to unnecessarily prolong the imposition of the proposed symmetric ex ante regulatory measure. In particular, if the proposed measures do not lead to the envisaged infrastructure competition in the very dense areas, or in the rest of the French territory (where only the deployment of a single fibre infrastructure may prove to be economically viable), then asymmetric forms of access to fibre infrastructures might also have to be considered by ARCEP. In this regard, the Commission also refers to ARCEP's fibre-related regulatory measures imposed on wholesale broadband markets in France 24 which were limited, in the light of the symmetric fibre line access obligation imposed by the LME, to the obligation on France Télécom to provide access to its civil works infrastructure (ducts). The Commission invites ARCEP to consider imposing other remedies, such as for example unbundled access to the fibre loop, in relation to these two markets, in case the currently proposed measure coupled with the ducts access obligation would not be sufficient to ensure effective competition within a foreseeable timeframe. Finally, the Commission invites ARCEP to consider whether the imposed obligations are in accordance with the principles set out in the NGA Recommendation once adopted. Potential lack of legal certainty as regards pricing terms and conditions The Commission notes that in-building operators are required to publish reference offers in order to allow competing operators to elaborate their business case in full knowledge of technical and commercial details. The Commission also notes that ARCEP proposes that tariffs for access to the distribution point are set according to the principles of non-discrimination, objectivity, pertinence and investment efficiency, broadly meaning that tariffs shall be set taking account of the actual costs incurred by efficient operators, including risk-adjusted cost of 24 See section II.1 above. 7

8 capital, and the need to avoid a situation where investment choices are biased and total welfare is lowered. In this context, ARCEP informed the Commission that it does not intend to validate the in-building operators' access offers prior to their publication. However, ARCEP also notes that in the frame of the multilateral working meetings, operators can present the principles underlying their respective offers and may raise questions to ARCEP with regard to the conformity of such offers with their obligations. The LME further provides ARCEP with the competence to intervene in case of disputes. The Commission considers that the lack of an official endorsement of access offers prior to their publication may give raise to an undesirable lack of regulatory certainty. Whilst the Commission appreciates that the costs underlying the rollout and sharing of fibre lines in the French territory, and particularly outside the identified very dense areas, may prove to be, at this stage, still rather difficult to estimate, the Commission also notes that it is generally expected that the deployment of NGA networks requires substantial investment. Investment decisions depend on a number of factors, one of which is regulatory predictability. In the light of what precedes, the Commission invites ARCEP to foresee in its final measure that it may, in case of persistent disagreements between stakeholders on the actual implementation of the currently notified pricing principles and obligations, provide further details on the pricing terms and conditions in the recommendation accompanying the notified draft measure, or require operators to submit their access offers, particularly with regard to the very dense areas, prior to their publication to ARCEP. With the support of the imposed cost accounting obligation ARCEP should be in a position to evaluate swiftly the compliance of the offers with the obligations and pricing principles set out in the draft decision. Pursuant to Article 7(5) of the Framework Directive, ARCEP shall take the utmost account of comments of other NRAs and the Commission and may adopt the resulting draft measures and, where it does so, shall communicate them to the Commission. The Commission s position on this particular notification is without prejudice to any position it may take vis-à-vis other notified draft measures. Pursuant to Point 15 of Recommendation 2008/850/EC 25 the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission 26 within three working days following receipt whether you consider that, in accordance with Community and national rules on business confidentiality, this document contains confidential information which you wish to have deleted prior to such publication 27. You Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 301, , p. 23. Your request should be sent either by INFSO-COMP-ARTICLE7@ec.europa.eu or by fax: The Commission may inform the public of the result of its assessment before the end of this three-day period. 8

9 should give reasons for any such request. Yours faithfully, For the Commission, Fabio Colasanti Director General 9