House of Commons - Eighteenth Report of Session 2013-14

Eighteenth Report of Session 2013-14 - European Scrutiny Committee Contents

9 The broadband investment environment

(35312)

13566/13

COM(13) 5761

Commission Recommendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment

Legal base —

Document originated 11 September 2013

Deposited in Parliament 1 October 2013

Department Culture, Media and Sport

Basis of consideration EM of 19 October 2013

Previous Committee Report None

Discussion in Council None

Committee's assessment Politically important

Committee's decision Cleared

Background

9.1 The Digital Agenda for Europe (DAE), a flagship initiative of Europe 2020 strategy for a smart, sustainable and inclusive economy, has set a goal to make every European digital and ensure Europe's competitiveness in the 21st century. The DAE broadband targets are:

basic broadband for all by 2013;
Next Generation Networks (NGN) (30 Mbps or more) for all by 2020; and
of households having 100 Mbps subscriptions or higher.

9.2 The Commission says that its policy framework to achieve these targets encourages both private and public investment in fast and ultra-fast networks.[26]

The Commission Recommendation

9.3 The Recommendation aims to promote competition, through the application of tougher non-discrimination rules; and investment, by allowing for flexibility in the pricing of new wholesale next generation access (NGA) services, while ensuring stable wholesale "copper access" prices. The Recommendation applies only to the market for wholesale network infrastructure access and the wholesale broadband access market. It consists of four sets of measures covering:

non-discrimination;
compliance monitoring of the non-discrimination obligation;
costing methodology; and
the non-imposition of regulated wholesale prices on NGA networks.

9.4 Each of these sub-headings is analysed and commented upon by the Parliamentary Under-Secretary of State for Culture, Communications and Creative Industries at the Department for Culture, Media and Sport (Edward Vaizey) in his Explanatory Memorandum of 10 October 2013 as follows:

NON-DISCRIMINATION

"The Recommendation states that an effective level playing field between an incumbent operator with a position of Significant Market Power (SMP) and alternative operators is best achieved through the application of Equivalence of Inputs (EOI).[27] It requires national Regulatory Authorities (NRAs) to examine whether it would be proportionate to provide relevant wholesale inputs on this basis.

"We agree that EOI is the surest way to achieve effective protection for non-discrimination. BT's NGA product (Virtual Unbundled Local Access -VULA) is already subject to the obligation of EOI and, as a result, the current UK regulatory framework already produces outcomes that are consistent with the Recommendation.

COMPLIANCE MONITORING OF THE NON-DISCRIMINATION OBLIGATION

"The Recommendation states that compliance with the non-discrimination obligation is to be assured through the use of Key Performance Indicators (KPIs) agreed between incumbent (SMP) operators and alternative access seekers. These KPIs should be fostered by the NRA if necessary. They should also be supplemented by Service Level Agreements (SLAs) and Service Level Guarantees (SLGs).

COSTING METHODOLOGY

"The Recommendation provides guidance on the costing methods that NRAs should adopt when modelling the costs of wholesale NGA and copper access products providing detailed guidance on the following important elements:

"How to calculate the costs of an NGA network;[28]
"How to value re-usable civil engineering assets, such as ducts;[29] and
"How calculate the costs of wholesale copper access services.
"The Recommendation anticipates that application of the proposed costing methods will lead to stable copper access prices within a band between €8 and €10 (net of all taxes) expressed in 2012 prices.[30]

"Overall, we share the aim of achieving stable copper prices during a period of technological change. Like the Commission, we see an environment of relatively stable copper prices as likely to be conducive to efficient investment in NGA and to provide a safeguard to access seekers and ultimately consumers. We also agree with the Commission that copper networks will be replaced by fibre (NGA) networks and from a UK perspective an FTTC network is the network topology being implemented by BT.

THE NON-IMPOSITION OF REGULATED WHOLESALE PRICES ON NGA NETWORKS (I.E. FIBRE NETWORKS)

"The Recommendation provides guidance on the conditions which need to be satisfied before NRAs can lift (or decide not to impose) strict wholesale pricing obligations on new NGA services. Regulators should decide not to impose, or to remove, pricing obligations on NGA wholesale inputs only when these inputs are subject to the EOI obligation and significant competitive constraints.

"The current UK regulatory framework already results in an outcome which is consistent with the Commission's recommended approach — BT's NGA product (VULA) is subject to the obligation of EOI, but not any pricing obligations.

"We agree with the Commission that (wholesale) pricing flexibility has an important role to play in investment in new technology, as it enables operators to trial different pricing arrangements in the early (uncertain) period of such investments. However the Recommendation goes further and stresses that such pricing flexibility is particularly important when, in addition to the competitive constraints, SMP operators have also implemented EOI effectively. While we recognise the strength of this argument, pricing and non-discrimination obligations affect the market in different ways and therefore are not necessarily substitutable. However, the text of the Recommendation is sufficiently flexible that, should competitive safeguards fail to constrain the wholesale price of new NGA services, NRAs could still consider the imposition of pricing obligations even where EOI was in place."

The Government's view

9.5 In addition to his comments above, the Minister notes that the Recommendation is adopted as part of a wider package which includes the Proposal for a Regulation laying down measures concerning the European single market for electronic communications and to achieve a Connected Continent.

9.6 He also says that the Recommendation was widely discussed and considered during 2012 and 2013, prior to which Ofcom had responded to an initial Commission consultation in October 2011 (through BEREC);[31] and that BEREC provided a formal Opinion on the draft Recommendation at the end of March 2013.

9.7 With regard to its implications, the Minister says that, as Commission Recommendations are only to be "taken utmost account of'", and as many of the specific recommendations are already consistent with the way that Ofcom approaches issues of costing and non-discrimination in the UK, he does not think that it will lead to the imposition of costs on business in the UK.

9.8 Finally, the Minister says that the Recommendation was adopted at the July COCOM meeting, and will not be considered by the Council.[32]

Conclusion

9.9 Given their non-legislative nature, it is not customary for such Commission Recommendations to be deposited, particularly if they are non-contentious. In this instance, however, the Minister chose to do so because of its being part of the Commission's latest "telecoms package", which we consider elsewhere in this Report.[33]

9.10 We therefore consider it warrants reporting to the House, and now clear it.

26 For full information, see https://ec.europa.eu/digital-agenda/en/about-broadband. Back

27 EOI means the provision of services and information to internal and third-party access seekers on the same terms and conditions, including price and quality of service levels, within the same time scales using the same systems and processes, and with the same degree of reliability and performance. Back

28 The proposed methodology is to be based on the incremental capital and operating costs borne by an efficient provider of access services and add a mark-up for recovery of common costs. Back

29 The proposed methodology is to value these at their indexed net book value. It is recommended that regulators employ a Regulatory Asset Base (RAB) which consists of the civil engineering assets valued at current costs reduced by elapsed economic life (and hence costs already recovered). Once an asset is fully depreciated it is no longer part of the RAB and no longer represents a cost for the alternative access seeker. Back

30 Full LLU monthly rental fee (voice + ADSL services) UK: €9.05 = GBP 7.66 at today's exchange rate. EU27 average €7.97 = GBP 6.74 (Cullen research March 2013). Back

31 Body of European Regulators for Electronic Communications http://berec.europa.eu/ . Back

32 The COCOM is a committee composed of Member State representatives. Its main role is to provide an opinion on the draft measures that the Commission intends to adopt. The COCOM deals with the current issues which form the Digital Agenda, such as:

Commission Implementing Regulation on Roaming;

The regulation on the measures applicable to the notification of personal data breaches;

The call for expressions of interest for the selection of the "EU Top Level Domain Registry";

The implementation of the single European emergency number 112.