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Business Connectivity Market Review

“Business Connectivity Market Review: Review of competition

in the provision of leased lines”

International Comparisons on the Provision of Passive Services for the Purposes of Leased Line Services

20 August 2015

REDACTED VERSION

Comments on this response should be sent to:

Matt Cherry, BT Group Regulatory Affairs, via email at matt.cherry@bt.com

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Section

1. Introduction: Response to the Claims of Towerhouse LLP ............................................................. 3

2. The Scope of Passive Services ......................................................................................................... 4

3. The Scope and Efficacy of Regulation in Business Markets ............................................................ 6

4. Conclusions ..................................................................................................................................... 7

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1. Introduction: Response to the Claims of Towerhouse LLP

1.1 In response to the Ofcom preliminary consultation of 5th November 2014, very strong claims were made by Towerhouse LLP on behalf of the Passive Access Group on the scope and efficacy of passive services in the rest of the EU. In their Report, Towerhouse LLP appears to link the provision of duct access and/or dark fibre to service innovation as if it were a major source of benefit to CPs more generally1.

1.2 Additionally, the Towerhouse report seems to indicate that there is a common ‘European theme’ in regulating passive services implying the UK is lagging behind. To try to bolster this suggestion, Towerhouse then makes selective reference to a handful of countries but without noting the many countries where there are neither any passive remedies at all and where the competitive situation in both upstream and downstream markets is manifestly inferior to that of the UK.

1.3 A second pervasive theme, is that economic and technical challenges of implementation of passive services are not great. Specifically, it was asserted that:

‘1.3 This report reviews the implementation challenges that have been identified by Ofcom in relation to passive remedies in business connectivity markets. It draws from past industry experience in the UK and the experience of other countries that have implemented passive remedies.’

1.4 Our position is that on both of these challenges, the Towerhouse Report is extremely misleading as it fails to set out the severe limitations of passive services in those countries in which they are mandated through regulation. Our understanding is that there are very few Member States that have obliged incumbent operators to offer duct access for the provision of leased line services and mandating dark fibre for such uses is even less frequent.

1.5 As such, the use of passive remedies in leased line markets in the UK would be highly novel and European experience cannot be used as an exemplar of this approach working, especially for dark fibre. Further the UK market is not displaying any of the regulatory shortcomings or market failures associated with provision of active services (in terms of availability of service, price, usage and SLAs) which BT experiences in a number of EU countries. Further evidence is provided below.

1.6 In fact, where passive services are offered, they are usually mandated under Market 4 of the previous (2007) EC Market Recommendation (Wholesale physical network infrastructure access at a fixed location) and principally limited for the provision of residential focussed broadband services and/or NGA services. This is the position in the UK.

1.7 In summary, there is no evidence that passive services provided under regulation are widespread or that they contribute in a material way to leased line services. Generally passive services are more likely to be duct access rather than dark fibre and are offered under bespoke commercially driven arrangements quite different to the EOI arrangements in the UK.

1 See paragraph 5.31 for example and 5.65-5.66.

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2. The Scope of Passive Services

2.1 Table 1 below provides our understanding of the scope of provision of passive services across Member States today as in 2015.

Table 1

Number of Member States with Provision of Passive Services under Market 4

Provision of Duct Access

No Partial Yes Total

Provision of Dark fibre

No 3 1 3 7

Partial 0 3 3 6

Yes 3 0 12 15

Total 6 4 18 28

2.2 Table 1 gives the distinct impression of widespread availability of passive services – roughly three quarters of Member States have at least one passive option open to entrants. However, this picture is largely not relevant to leased line services. With respect to Market 6 (Wholesale terminating segments), our understanding is the following:

There are only 6 Member States (Austria, France, Netherlands, Italy, Spain and part of Sweden) where either or both passive services are available for some element of the scope of what constitutes leased line services in the UK. Even in these countries this is not always a widespread obligation across the whole of the market in product and geographic terms.

Austria has partial provision of passive services but this only applies in a minority of the geography in typically rural areas and elsewhere there are no remedies of any sort.

In France, duct is regulated under M4 but there is no regulation for M6 for duct or dark fibre.

For Italy passive services originate from undertakings given in the context of competition infringements but now formalised as part of ex ante regulation by the NRA. It is however linked to M4 (FTTP) rather than M6 and so of limited interest to many CPs who only provide business services and duct access and dark fibre are offered under 15 years Indefeasible Rights of Use i.e. it is a minimum 15 year contract.

For Netherlands the origin of passive services is not primarily driven by SMP regulation but merger control.

In Portugal there is no dark fibre offering at all under regulation but there are opportunities for duct access to serve residential customers. In particular, it appears that there are a small number of commercially driven agreements to provide FTTP services to consumers2.

In Spain, the primary obligation is to offer duct access and the obligation to provide dark fibre under reasonable request only if the duct access is not possible. Dark fibre prices are not regulated.

2 See ‘Broadband Coverage in Europe 2013 Mapping progress towards the coverage objectives of the Digital Agenda’ published by the EC 2014 available on the Commission website. See related discussion at - http://www.analysysmason.com/About-Us/News/Insight/Portugal-Telecom-fibre-infrastructure-Nov2012/

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In Sweden, the city of Stockholm has invested in its own infrastructure and provides dark fibre to operators. No SMP regulation mandates supporting passive infrastructure anywhere in the country for leased lines.

2.3 Quite part from the widespread statutory limitations of passive services excluding leased lines, there would often be severe practical limitations in many countries even if passive services were extended to encompass services falling within the leased line market. Most Member States do not have significant infrastructure competition and the extensive deep distributed presence of CPs which is especially strong and growing in the UK.

2.4 Without this distributed presence, passive services are not a viable economic option anyway in the main where the focus is on business sites. In some instances, by coincidence, an operator may be present at the same exchange to which the client is connected such that the operator could then use duct and/or fibre. However, this will likely be a distinct minority of situations; many CPs will not acquire economies of scope associated with presence in both the residential market (associated with LLU and Market 4) and simultaneously the business market associated with Market 6. Passives associated with residential broadband are hence wholly different to the economics of leased line passives.

2.5 Therefore the comparatively widespread provision of passive services under Market 4 shown in Table 1 above says little to nothing about their efficacy in the context of leased line services, contrary to the impression provided by Towerhouse.

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3. The Scope and Efficacy of Regulation in Business Markets

3.1 Table 2 provides more detail on the provision of passive services in Member States along with BT’s assessment of some of the features of active service regulation in Market 6 and more generally the market outcomes. The latter is based on experience of BT operating in these countries and the benchmarking exercise undertaken by WIK already shared with Ofcom3.

3.2 The five indicators of market outcomes are scored using a simple Red/Amber/Green coding indicating very poor, to average, to good assessments respectively. The particular outcomes are explained as follows:

Ethernet leased line take up. This is BT Global Services (BTGS) commercial experience as a corporate client purchasing Ethernet based access services principally from the incumbent operator.

Competitive offers. BTGS experience of the availability of competitive offers in the metropolitan business districts in the country.

The reference offer for a 100Mb leased line. This relates to the availability and price of the regulated supply of a 100Mbs Ethernet leased line.

Commercial price for 100Mb leased line. This takes a wider view of the availability and price of a new entrant supply of a 100Mbs Ethernet leased line.

SLAs. This is from an assessment of SLA of the service provided by the incumbent of a 100Mbs Ethernet leased line covering terms as well as penalties.

3.3 It is evident that there is very widespread variation both in the regulation of both passive and active services and also in market outcomes. Fundamentally, there is nothing to suggest that passive services are appropriate either as a widespread alternative to active products or that market outcomes are superior from their provision. There is no clear correlation between mandating passives and good market outcomes:

The incumbent in [] is not obliged to offer passive services for leased lines and there is no SMP regulation of active services above 150Mb.

[] and []have a wider offering of passive services but both have comparatively poor market outcomes. Specifically, prices are very high resulting in a very low take up of Ethernet leased lines amongst corporate clients.

In [], many exchanges are not Ethernet-enabled and a very high proportion of circuits are subject to the equivalent of very large ECCs.

The comparatively good market outcome in [] is likely nothing to do with either duct access or dark fibre but the density of the country has assisted in infrastructure based competition along with focussed regulation.

3.4 These are the countries which Towerhouse cites as the models of performance when in fact they are not associated with passive services for leased lines and the active services are very patchy. More generally, very many Member States offer an extremely poor range of active services for the provision of downstream leased lines services.

3 BT response to the Ofcom Preliminary Consultation on Passive Services November 2014.

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4. Conclusions

4.1 Passive services are generally mandated not for the provision of leased lines but in the context of consumer broadband services. Even here take-up appears to be very limited and little different to the position in the UK.

4.2 International comparisons therefore do not support the proposition that provision of passive services for leads to widespread take up of leased lines or that any innovation has been associated with passive services. In the vast majority of Member States there are neither passive services nor anything like a comparable range of active services as in the UK.

4.3 Certainly we can find no parallel to a dark fibre ‘boxless EAD’ equivalent anywhere. International experience therefore provides no support for such an approach nor any obvious failing of the UK market which the imposition of any business connectivity passive remedy would remedy.

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Table 2: International Benchmarking of Passive and Active BCMR Services

Country Regulation of Duct Access

M4/M6* Regulation of Dark Fibre

M4/M6* Position of Active Services

BT’s Overall Assessment

Of Market Outcomes+

Ethern

et

Take up

Co

mp

etitive

offers

Re

feren

ce

Offe

r 1

00

Mb

Co

mm

ercial

Price

10

0M

b

SLAs

Austria M4 – Duct and Fibre available (exceptions in areas where incumbent deploys VDSL vectoring); practical limitation focussed on NGA deployment. M6. Partial availability of dark fibre (no duct remedies). 359 of 1995 municipalities are wholly deregulated (no remedies at all); this accounts for significantly more than 50% of businesses.

[]. []. [] [] []. [].

Belgium No requirement to offer Duct Access under either Market.

No requirement to offer dark fibre under either Market.

[]. []. [] [] []. []

Denmark M4 – obligation to offer Duct limited to VULA roll out. No requirement to offer Duct or Dark Fibre Access under M6.

M4 – Dark Fibre distance limited to 30 meters connecting end customer with nearest fibre node.

[]. []. [] [] []. []

France M4. Duct access is offered under regulation of 2007 Market 4 Wholesale (physical) network infrastructure access at a fixed location.

No requirement to offer Dark Fibre under either Market.

[]. []. [] [] []. []

* Regulation associated with Market 4 (physical infrastructure) or Market 6 (leased lines) on 2007-2014 definitions for the provision of leased lines. + 1 = Ethernet leased line take-up. 2 = Competitive offers in business districts. 3 = Reference offer for 100Mb leased line. 4 = SLAs with regulated service.

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Country Regulation of Duct Access

M4/M6* Regulation of Dark Fibre

M4/M6* Active Services

Overall Assessment of Market Outcomes

Ethern

et Take

up

Co

mp

etitive

offers

Re

feren

ce O

ffer

10

0M

b

Co

mm

ercial

Price

10

0M

b

SLAs

Germany M4 – Duct available between street cabinets and the main distribution frames “for the purpose of getting access to the subscriber line at the street cabinet” i.e. defined from a M4 perspective. The right to cable duct access is subject to availability of the required capacity. DTAG must grant access to dark fibre on a subsidiary basis, i.e. when access to Duct is impossible due to technical or capacity reasons. VDSL2 roll out limits provision of passive remedies. No requirement to offer Duct or Dark Fibre under M6.

[]. []. []. []. []. [].

Ireland M4. Duct access offered with the understanding that it is limited to broadband or NGA.

M4. Dark fibre only required where reasonable and it is not possible to offer duct access and subject to certain conditions. Associated with NGA.

[]. []. []. []. []. []

Netherlands Duct is mandated via statutory obligation.

M4 – Dark Fibre defined from a M4 perspective (ODF to end user) and limited for residential, not business, use. M6. Dark fibre is available. Understanding is that Dark Fibre became available at time of KPN acquisition of Reggefiber (which was an independent investor in duct and fibre).

[]. []. []. []. []. []

* Regulation associated with Market 4 (physical infrastructure) or Market 6 (leased lines) on 2007-2014 definitions for the provision of leased lines. + 1 = Ethernet leased line take-up. 2 = Competitive offers in business districts. 3 = Reference offer for 100Mb leased line. 4 = SLAs with regulated service.

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Country Regulation of Duct Access

M4/M6* Regulation of Dark Fibre

M4/M6* Active Services

Overall Assessment of Market Outcomes

Ethern

et Take

up

Co

mp

etitive

offers

Re

feren

ce O

ffer

10

0M

b

Co

mm

ercial

Price

10

0M

b

SLAs

Italy M4. SMP decision provides access to Duct and Dark Fibre, in logical segments or as an end to end service from the local exchange to the end curb/basement. Hence M4 focussed definition. Additionally, Duct access is offered consequential on Undertakings given in 2008 in response to regulatory breaches and subsequently incorporated into market review remedies in 2009 under M4. If access to duct is not feasible incumbent agreed to offer access to dark fibre under reasonable and non-discriminatory terms.

[]. []. []. []. []. [].

Portugal M4 and 6. Ducts and masts are regulated as a result of a legal provision that imposes a reference offer on ducts under certain circumstances.

M4. NRA has powers to mandate Dark Fibre under M4 if no Duct access is not possible. No requirement to offer Dark Fibre underM6.

No information No information

Spain M4 and M6. Duct is provided.

M4 and M6. Only mandated if duct access not possible or for backhaul from some exchanges. No price controls on dark fibre and does not appear to be taken up by industry and NRA will not intervene.

[]. []. []. []. []. [].

* Regulation associated with Market 4 (physical infrastructure) or Market 6 (leased lines) on 2007-2014 definitions for the provision of leased lines. + 1 = Ethernet leased line take-up. 2 = Competitive offers in business districts. 3 = Reference offer for 100Mb leased line. 4 = SLAs with regulated service.

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Country Regulation of Duct

Access M4/M6*

Regulation of Dark Fibre M4/M6*

Active Services

Overall Assessment of Market Outcomes

Ethern

et Take

up

Co

mp

etitive

offers

Re

feren

ce O

ffer

10

0M

b

Co

mm

ercial

Price

10

0M

b

SLAs

Sweden M4. Duct is made available for, in practice, M4 NGA roll out. M4 focussed market delineation. M6. No regulation.

M4. Various fibre products available suitable for NGA roll out. M6. No Regulation. Stokab (Stockholm city council funded and owned entity) provides dark fibre (only) in the Stockholm area, using its own duct network). 200+ part state funded municipal networks provide dark fibre (FTTP) connections to residential and SME customers. No provision of dark fibre to CPs directly.

[] [] [] []. []. []

Bulgaria, Croatia, Cyprus, Estonia, Finland, Greece,

Latvia, Malta, Poland, Romania, Slovakia, Slovenia.

No requirement to offer Duct Access under either Market.

No requirement to offer Dark Fibre under either Market.

N/A [] [] [] []. []

Czech Republic, Hungary,

Luxembourg.

No requirement to offer Duct Access under either Market.

No requirement to offer Dark Fibre under either Market.

[]. [] [] []. []. []

* Regulation associated with Market 4 (physical infrastructure) or Market 6 (leased lines) on 2007-2014 definitions for the provision of leased lines. + 1 = Ethernet leased line take-up. 2 = Competitive offers in business districts. 3 = Reference offer for 100Mb leased line. 4 = SLAs with regulated service.

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Country Regulation of Duct

Access M4/M6*

Regulation of Dark Fibre M4/M6*

Active Services

Overall Assessment of Market Outcomes

Ethern

et Take

up

Co

mp

etitive

offers

Re

feren

ce O

ffer

10

0M

b

Co

mm

ercial

Price

10

0M

b

SLAs

UK M4. Duct and pole sharing available for NGA roll out. M6. No requirement to offer Duct.

No requirement to offer Dark Fibre under either Market 4 or 6.

Highest level in EU of corporate use of ≥20 Mb services. Full suite of corporate connectivity services provided at EoI with published KPIs. EU leader in terms of availability, price, contracted SLAs with automatic and EU-leading penalties for provisioning and fault repair.

[] [] [] [] []