Margit Vanberg, Local access regulation relevant to Internet service provision in:

Margit Vanberg

Competition and Cooperation Among Internet Service Providers, page 156 - 157

A Network Economic Analysis

1. Edition 2009, ISBN print: 978-3-8329-4163-5, ISBN online: 978-3-8452-1290-6

Series: Freiburger Studien zur Netzökonomie, vol. 14

Bibliographic information
156 Regulatory remedies Once an NRA has defined a relevant market and assessed SMP the NRA is obliged to impose appropriate regulatory remedies as suggested in the Access Directive (for wholesale markets) and Universal Service Directive (for retail markets). While the NRAs can independently choose and implement regulatory remedies, they must be justified in relation to the objectives of the regulatory framework and must be proportionate to the problem to be solved (EC, 2002: §117). Regulatory remedies are, for instance, transparency obligations and accounting separation, non-discrimination requirements, access obligations, and price control (with or without cost orientation). When SMP is not found, any existing regulations are to be removed. Article 7 procedures Article 7 of the Framework Directive extends supervisory powers to the European Commission with regard to the notifications made by the NRAs. Within a onemonth period the Commission can either approve of a notification or issue a veto. The veto power applies to the market definition of an NRA as well as to the SMP analysis. A veto right does not exist for the remedies proposed by an NRA. Should the Commission require more time for an in-depth investigation into the NRA analysis, it can append two months of further investigation. 9.2.3 Local access regulation relevant to Internet service provision Of the wholesale markets on the European Commission’s list, the markets most important as wholesale products for Internet service providers are: • unbundled access to the local loop (market 11), • call origination (market 8) and • wholesale broadband-access (market 12). Experience so far shows that in their SMP analysis, NRAs tend to confirm the assumption that these markets warrant sector-specific regulation. All of the 20 countries that have notified market 11, the market for unbundled local loops and sub-loops, have found the incumbent operator to have SMP. The NRAs base their analysis mostly on high market shares and the existence of barriers to entry into the market. Almost all of the notifying NRAs impose the entire catalogue of possible remedies (from transparency, non-discrimination, accounting separation to access, price-control, and cost orientation) (Kiesewetter, 2006: 42). The market for callorigination, which encompasses the dial-up connections to service platforms of independent ISPs, has been notified by 21 European countries. All found the incumbent operator to have SMP, based mainly on high market shares and control over not easily duplicated infrastructure. Most of the notifying countries imposed the whole catalogue of possible remedies suggested by the Commission (Kiesewetter, 2006: 31). 18 countries have notified the market for wholesale broadband-access, which includes bitstream access for independent ISPs. All notifying countries find at least 157 the incumbent carrier to have SMP based on high market shares and control over not easily duplicated facilities. 13 of the 18 countries impose the entire spectrum of possible remedies on the incumbent (Kiesewetter, 2006: 46). 9.2.4 Current developments The 2002 regulatory framework has recently been reviewed by the European Commission. The Commission adopted reform proposals in November of 2007. These proposals will be debated by the European Parliament and by member-state governments in the coming two years. The Commission hopes to adopt a revised framework by 2010, which could then be incorporated into national laws in order to become effective. In its reform proposals, the Commission has identified two areas needing fundamental reform and some areas in which minor changes can improve the framework (see EC, 2006). The first area for fundamental reform is spectrum management. Perhaps most important, the Commission wants to strengthen the rights of service providers by giving them the freedom to use any technology of their choosing in combination with spectrum and the freedom to offer any services of their choosing on this spectrum. The second area identified for fundamental reform is the procedure for the review of relevant markets. The Commission plans to simplify the market analysis and notification requirements for those markets that were found to be competitive in a previous analysis or whenever the notification features only small changes compared to the previous notification. Among the further changes proposed by the Commission is the intent to enlarge the catalogue of remedies by the possibility of functional separation. NRAs could then require incumbent operators to split their service divisions and their networkinfrastructure divisions. The Commission also seeks a reduction in ex-ante regulation by reducing the list of relevant markets. The revised list proposes a removal of regulation in 11 of the 18 markets. The only retail market to remain on the list is the market for access to the public telephone network. The Internet-related wholesale markets (currently markets 8, 11, 12 and 13) all remain on the list. The regulation of NGNs The Commission’s guidelines for the 2002 regulatory framework state that emerging markets ...should not be subject to inappropriate ex-ante regulation. This is because premature imposition of ex-ante regulation may unduly influence the competitive conditions taking shape within a new and emerging market. At the same time, foreclosure of such emerging markets by the leading undertaking should be prevented (EC, 2002: §32). This vague instruction leaves much room for interpretation by the member-states. Are next generation networks (NGNs) to be considered as new and emerging markets? How is foreclosure to be prevented when the application of regulation to new markets is viewed so skeptically?

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Die Konvergenz der Netztechnologien, die dem Internet, der Telekommunikation und dem Kabelfernsehen zu Grunde liegen, wird die Regulierung dieser Märkte grundlegend verändern. In den sogenannten Next Generation Networks werden auch Sprache und Fernsehinhalte über die IP-Technologie des Internets transportiert. Mit den Methoden der angewandten Mikroökonomie untersucht die vorliegende Arbeit, ob eine ex-ante sektorspezifische Regulierung auf den Märkten für Internetdienste wettbewerbsökonomisch begründet ist. Im Mittelpunkt der Analyse stehen die Größen- und Verbundvorteile, die beim Aufbau von Netzinfrastrukturen entstehen, sowie die Netzexternalitäten, die im Internet eine bedeutende Rolle spielen. Die Autorin kommt zu dem Ergebnis, dass in den Kernmärkten der Internet Service Provider keine monopolistischen Engpassbereiche vorliegen, welche eine sektor-spezifische Regulierung notwendig machen würden. Der funktionsfähige Wettbewerb zwischen den ISP setzt jedoch regulierten, diskriminierungsfreien Zugang zu den verbleibenden monopolistischen Engpassbereichen im vorgelagerten Markt für lokale Netzinfrastruktur voraus. Die Untersuchung zeigt den notwendigen Regulierungsumfang in der Internet-Peripherie auf und vergleicht diesen mit der aktuellen Regulierungspraxis auf den Telekommunikationsmärkten in den Vereinigten Staaten und in Europa. Sie richtet sich sowohl an die Praxis (Netzbetreiber, Regulierer und Kartellämter) als auch an die Wissenschaft.