The Dutch regulatory authority OPTA has published a letter which it has addressed to KPN (public version with sections marked as “business confidential”) regarding its position on KPN’s tariff proposal for a new retail service named Flat Rate Internet Access Call Terminating (FRIACT).

FRIACT is a retail service, in which KPN proposes to offer its own retail customers an unmetered Internet dial-up service. Customers pay a fixed monthly fee to KPN for which they can dial in to a special number, without limitation. The end-user tariff is based on (essentially the sum of) the ISP’s tariff plus a retention fee for KPN as the network operator. It is this retention fee which is the subject of discussion, since OPTA must agree on the level of this retention fee.

OPTA has investigated whether the retention fee proposed by KPN does not distort competition.

OPTA has done so by looking at the most expensive cost element of the proposed FRIACT (retail) service. This cost element is the KPN Flat Rate Internet Access Call Originating or FRIACO (wholesale) service.

OPTA has found that the FRIACO service is provided by KPN Carrier Services, but that in practice, the incumbent imposes such heavy conditions and penalties regarding congestion on its wholesale customers that these customers (i.e. potential competitors of KPN) do not find it a realistic product to use.

Therefore OPTA challenges the idea that FRIACO could act as a cost element for the assessment of the minimum (retention) rate in the FRIACT offer, as long as it contains an element of penalty. This reasoning, in combination with a rather technical argument regarding KPN’s proposed contention factor (i.e. the number of customers connected to one port) has led OPTA to conclude that the FRIACO service and the data as provided by KPN to-date are insufficient to make a well-founded decision with regard to the retention price proposed by KPN for FRIACT.

OPTA has decided that it does not have the proper data to perform a price squeeze test on FRIACT, and the regulator will only conduct a price squeeze test using FRIACO as an input if KPN eliminates the penalties from the FRIACO service.

The full text of the letter (in Dutch only) can be accessed by clicking here.