Connectivity for a European Gigabit Society The Draft European Electronic Communications Code

UKCTA is a trade association promoting the interests of competitive fixed-line telecommunications companies competing against BT, as well as each other, in the residential and business markets. Its role is to develop and promote the interests of its members to Ofcom and the Government. Details of membership of UKCTA can be found at www.ukcta.com. UKCTA welcomes the opportunity to submit evidence to the Committee, we hope the following comments will be useful and stand ready to assist the Committee should further discussion be required.

1. Many parts of the draft Code aim to encourage investment in very high capacity (VHC) networks. What is your view on whether these measures will, in practice, encourage investment in VHC networks in the UK? Is there anything more that can be done?

2. Do the draft Code’s proposals do enough to ensure that non-competitive oligopolies (and monopolies) do not develop in under-served regions of the UK? For example, where an operator is able to benefit from lighter-touch regulation because it has developed very high capacity (VHC) networks.

3. Does the draft Code strike the correct balance between incentivising investment and promoting competition?

4. The draft Code would allow National Regulatory Authorities to impose obligations on operators controlling infrastructure to meet reasonable requests for access to, and use of, civil engineering (e.g. buildings, ducts and masts). Why isn’t there more sharing of civil engineering infrastructure in the UK currently?

5. Does the draft Code encourage and/or facilitate access seekers to move up the ‘ladder of investment’ and invest in infrastructure?

There is a range of opinions on this issue within the UKCTA membership. Those who have invested in their own network infrastructure tend to be more supportive than those who rely on wholesale access to networks of others, who tend to have more concerns.

UKCTA’s raison d’etre is the promotion of a level regulatory playing field to foster greater competition. UKCTA believes that a thriving UK communications sector is vital to the future success of the economy. Electronic communications services have very quickly become crucial to the everyday lives of the majority of businesses and individuals.

The successful development of the sector over the last ten years has been in part attributable to a regulatory regime that created conditions that were conducive for efficient investment and innovation and which led to effective and sustainable competition over large parts of the value chain.
We welcome the introduction and recognition of the importance of high capacity networks in the European Electronic Communications Code (EECC). We welcome the new code objective to promote access to and take-up of very high capacity data connectivity; this should be carefully balanced with the other code objectives, and should especially aim to not interfere with the promotion of competition in the context of “SMP” (Significant Market Power) regulation. In this respect, some fine-tuning may be needed with regards to the newly introduced approaches to co-investment which we support (ensuring it does not exclude non-participants from access to these new networks) and new proposals on wholesale-only SMP networks (as no price regulation may well lead to excessive pricing).

We further welcome the recognition that the Code forms part of a package of complementary measures and it is critical that these work in sympathy with one another. In particular, that these act collectively in a pro-competitive manner and do not drive unsustainable network investments or otherwise undermine existing deployments.

Throughout the proposed Code there are provisions that emphasise that certain commercial models (such as co-investment) are prima facie pro-competitive. UKCTA Is concerned that this appears to pre judge all models and assumes they are pro competition. UKCTA believes that there should not be a general presumption, rather national regulators (NRAs) should be able to assess each commercial model or market development on a case-by-case basis, looking solely on effects on competition in the context of the conditions in their national market. A code which is more prescriptive risks limiting NRAs’ ability to assess the market.

UKCTA is concerned that this may lead to NRAs making decisions which entrench incumbents’ control over investment and access rather than towards competition. This risks distorting the market by promoting certain business models and market structures over others.

UKCTA is concerned about the proposed code’s treatment of new network elements – Article 74 appears to be intended to drive co-investment models by allowing co-investors the ability to benefit from first- mover advantages. Article 74 would appear to act in effect as a carve-out for ‘new network elements’ from the requirement to impose remedies on SMP operators under Articles 66 and 67-72. UKCTA members believe that wholesale access to network is vital for competition. It is unclear why the Commission believes it is necessary to develop a regulatory carve-out for a single investment model. Such a remedy should be assessed on a case-by-case basis, as explained above, and by reference to the Article 3 objectives. Access seekers, like UKCTA members, should be able to access all products made available through any new network elements on fair and reasonable terms.

We are also concerned by the market analysis procedure. In assessing whether a market is tending towards effective competition under Article 65(1)(b), NRAs must, under Article 65(2), take into account (inter alia): ‘the existence of market developments which may increase the likelihood of the relevant market tending towards effective competition, such as those commercial co-investment or access agreements between operators which benefit competitive dynamics sustainably.’

This appears to involve the Commission not applying an evidence-based framework. There appears to be an assumption that co- investment or access agreements have a positive impacton competition. This may or may not be true but it is wrong to make a blanket assumption that the outcome will be positive in all cases. NRAs should consider the effects on competition rather than relying on generalised assumptions based on the type of business structures involved.

Pricing flexibility – the proposed Code promotes the use of pricing flexibility to encourage investment in next generation networks. For example, Article 72(1) states that ‘[i]n determining whether or not price control obligations would be appropriate, national regulatory authorities should take into account long-term end-user interests related to the deployment and take-up of next-generation networks, and in particular of very high capacity networks’ and that NRAs must ‘take into account the benefits of predictable and stable wholesale prices in ensuring efficient entry and sufficient incentives for all operators to deploy new and enhanced networks.’ This would appear to represent a change of policy towards preferring investment over competition, even though investment in very high capacity networks is often dependent on maintaining strong competition. While it may be appropriate to not impose price regulation on significant, risky fibre investments – at least for a period – in order to encourage appropriate investment, there is a strong risk that competition and consumers will be harmed in the long run from high ongoing prices for wholesale access to such new fibre services. Strong retail competition is a key component underpinning consumer demand and is therefore key to the success of any such new fibre investments. It is therefore inappropriate to prioritise pricing flexibility over price regulation in order to promote investment. In practice, an NRA will need to consider, based on the available evidence, both pricing forbearance and charge controls in order to best meet its objectives, including the promotion of appropriate investment and competition. NRAs already have the power to do so. We do not believe it is necessary for the proposed Code to elevate the use of one remedy over the other.

In terms of barriers to further rollout of VHC networks in the UK specifically, we note that wayleaves are a particular issue for communications providers in the UK, and can cause substantial delays and costs to be incurred when providing network. While the UK Electronic Communications Code aims to improve this for future wayleaves, this does nothing for the vast number of agreements which are currently in place which typically prohibit such sharing. The need to obtain separate wayleaves for every company installing fibre in an existing duct simply adds needless bureaucracy, cost and delay.

Furthermore, we believe that the proposed separation of BT and Openreach will go some way to address the current concerns regarding rollout of network. In particular, we would like to see:

• Strategic independence: Openreach’s network roll-out should be determined completely independently of BT Group interests, and should serve both business and residential consumer needs. This means that rollout to business parks should be a priority.

• Financial independence: Openreach should have complete control of its own finances, especially distribution of profit. Budget autonomy will help to ensure that Openreach profits are reinvested in extending and improving the network, rather than being used for other purposes.

• Transparency: Openreach should become far more transparent. Improved industry consultation should include full transparency of costs and details of intended future roll-out so that we can give greater clarity to customers as to what is available and when. One way to solve this would be through a formal consultation process requirement. This would also provide an ability for competitors to influence Openreach’s decisions, no matter their size.

Finally, we consider that not all access seekers will want or be able to move up the ladder and invest in infrastructure, as such a decision will depend on their business plan. B2B providers often have concentrated pools of large enterprise customers with multiple sites across the country – it is simply not economical to rollout to every single individual site, and therefore such B2B providers must rely on infrastructure operators such as BT Openreach. In this context, it is concerning that Article 71 has been amended to remove from the list of forms of access that NRAs may require from SMP operators the item that referred to providing specified services on a wholesale basis for resale by third parties. A significant element of the competitive landscape in providing service for end users is likely to continue to require high level wholesale infrastructure access products.

Ultimately the market structure must be sustainable and the economics of particular geographies, or markets may mean that these are likely to be service driven rather than being based on competing infrastructures. Under the provision that competitors are not prevented from moving up the ladder of investment this is simply the equilibrium outcome.

Access seekers are a valuable form of competition in the UK telecoms market, and do provider choice to consumers – this is particularly true of niche areas such as providers to large business customers who want full solutions which combine a variety of different types of connectivity and service. Such competition should not be devalued

6. What are the benefits and drawbacks to the proposed harmonisation of key aspects of spectrum management across the EU for the industry and the end-consumer?

7. Are there are areas of divergence between the Digital Economy Bill 2016-17 and the draft European Electronic Communications Code that will be challenging for your members?

There may be some concerns around the design of funding for the universal service. Generally we support the EC’s view that it should be funded as proposed by the code by the use of public funds. In the UK, we would reject funding options for a rollout by BT that would include sourcing funds from its industry competitors.

8. What is your view on how the proposed challenges will affect the balance of power between the European Commission and National Regulatory Authorities?
We are generally supportive of harmonisation, and against allowing Member States discretion to determine the rules. However we have no specific opinion on the balance of power.

9. How significant would the introduction of the ‘double-lock procedure’ be for competition measures and the ‘peer review’ process for spectrum management be for your members’ operation in the UK?

10. Will the additional powers granted to BEREC address any areas where BEREC may currently be considered ineffective?

We welcome the introduction of an analysis of transnational end-user demand and the ability of BEREC and EC to respectively adopt Guidelines and harmonised technical specifications for certain wholesale access products to meet the demand for cross-border communications. It would however be better if BEREC Guidelines are binding to ensure further harmonisation.