Last week, the
German regulatory authority (the Bundesnetzagentur or BNetzA) issued a
consultation document with regard to a new analysis of Market 11, as well as a short document setting out future scenarios. In the subsequently published BNetzA Amtsblatt (an official paper-only publication, to which T-REGS subscribes), and now also the BNetzA website, a formal consultation on proposed remedies has also been published.

This T-REGS news item provides a
step-by-step overview of the actual content of BNetzA's 52-page main
draft market analysis and SMP assessment document (available in German only
and accessible by clicking here), BNetzA's 26-page draft decision on regulatory obligations ('remedies') as newly published by BNetzA for consultation (available in German only and accessible by
clicking here) and BNetzA's separate (published earlier last week) 3-page document setting out a few questions on
potential future scenarios (available in German only and accessible by
clicking here). 

Market Definition

BnetzA proposes to define
a nation-wide market for:

  1. Unbundled/bundled access to local
    loops in the form of copper pairs at the Main Distribution Frame (MDF),
    or another point, which is located closer to the user (T-REGS Note:
    this could be a street cabinet or local building). Bundled access is
    only considered by BNetzA in those cases where unbundled access (i.e.
    naked copper) solutions "are not justified (technically or
  2. Line sharing;
  3. Unbundled/bundled access to the local
    loop on the basis of OPAL/ISIS (hybrid fibre/copper loops deployed to
    some extent, mainly in Eastern Germany) at the MDF, or another point
    which is located closer to the user. 

Three Criteria Test

BNetzA, in conducting its
second analysis of Market 11, has (again) found high and non-transitory
barriers to market entry, and BNetzA, in its current draft analysis,
does not detect a tendency towards effective competition in the long
term (T-REGS Note: the actual market share figures are blacked
out in the public document). BNetzA also considers that the application
of competition law alone would be insufficient to address issues that
occur on the defined market. The regulatory authority foresees that
"positive regulations" will have to be issued and that constant
monitoring and frequent regulatory intervention will be required. It
adds that "reactive measures are insufficient in this market",
especially because their activation and effect is deemed to be too

Market 11 is therefore proposed to be
subject to further ex-ante regulatory intervention measures. 

Significant Market Power

The consultation document does not
disclose specific market shares, but it can be clearly ascertained that
Deutsche Telekom AG (DTAG) has a double digit market share, whereas the
other operators jointly have a single digit market share in the markets
for copper loops and hybrid (OPAL/ISIS) access networks. 

BNetzA considers that several players
have sufficient access to capital markets or financial means to
compete, but discards this criterion on account of DTAG's elevated
market share. BNetzA also establishes that DTAG controls infrastructure
which is difficult to duplicate, hereby underscoring that hurdles to
market entry exist. DTAG's high degree of vertical integration also
adds to the conclusion that the company has significant market power.
The regulatory authority also states that it has barely detected
competition on price and deems that there is a low degree of effective
and potential competition, as well as a lack of countervailing buyer

DTAG is therefore proposed to be
declared as having significant market power on Market 11, as defined.  

Proposed 'traditional' remedies (confirming, but slightly amending, the 1st round Market 11 Analysis)

BNetzA indicates, in its new consultation document, that DTAG,
as the operator that is proposed to be designated as having SMP, would be required to provide:

1. Fully unbundled access to the local loop, in the form of copper
loops "at the MDF or a point closer to the network termination point
" (e.g. street cabinet, end distributor - APL) as well as to shared
access to the network termination point by means of the division of the
usable frequency spectrum;

2. To the
required extent, bundled access to the network termination point in the
form of copper loops, including the variants OPAL/ISIS at the MDF;

3. For
the purpose of 1 and 2 above, to grant collocation as well as, in the
context of a request from either the requesting party or their mandated
representative, access to these installations at any time;

4. In
the context of the execution of the obligation as stipulated in 3 above, to allow possibilities for co-operation between the
undertakings that have a right to access in such a way that such
undertakings can connect with each other the collocation spaces they
rent from the SMP undertaking and which are at the same MDF location, if an
undertaking can guarantee one or several other undertakings the access
to its self-provided or leased transmission pathways;

Contracts with regard to access according to 1-4 above must be
objective, must grant
equivalent access and must fulfill the imperatives of equal opportunity
and fairness;

6. The
fees for access according to 1-4 above are subject to approval of the regulatory authority BNetzA.

Proposed 'additional' remedies

BNetzA indicates, in its new consultation document, that DTAG,
as the designated SMP operator, would, in addition, be required to provide: 

1. For
the purpose of access to the network termination point, grant access to
the cable conduits between the cable distributor (street cabinet or other local building) and
the MDF, insofar the required empty space is available (T-REGS Note: This amounts to a specific duct access obligation, restricted to the specific context of access to street cabinet level, insofar this is technically possible);

2. In
case that, for technical or capacity reasons it is not possible to
grant access to the cable conduits, to allow access to unlit fibre
strands (dark fibre) (T-REGS Note: This clearly indicates that dark fibre access is proposed to be a secondary obligation, in case duct access would be confirmed to be impossible);

Contracts with regard to access according to 1-2 above must be objective, and must grant
equivalent access and must "fulfill the imperatives of equal opportunity
and fairness";

4. The
fees for access according to 1-2 above would be subject to approval of the regulatory authority BNetzA.

DTAG would also be required to publish a
reference offer covering the points listed above.  

The Document Associated with
the Market Analysis

The substantive documents
are accompanied by a separate 3-page document (available in German only and
accessible by clicking here). This document contains a set of questions pertaining to
possible future scenarios. 

In this document, BNetzA is essentially
addressing a few questions to market participants, with regard to their
views and plans in a scenario in which copper loops would become
shorter due to new investments by the incumbent operator DTAG in its
network. In this scenario DSLAM or MSAN equipment is no longer (or
would no longer be) installed in the Main Distribution Frame (MDF)
locations, but closer to the network termination points, for example in
street cabinets or local buildings, thereby shortening the local loop

For those operators that would not wish
or not be able to undertake the (considerable) investment to
build/equip street cabinets with DSLAMs/MSANs, and that have, for
example, already made considerable investments in installing DSLAMs in
the DTAG MDFs and arranging backhaul, it could be/become necessary or
useful to have access to not only the copper local loop (which would
run from the network termination point up to the street cabinet and no
longer to the MDF), but also to the infrastructure between the street
cabinet and the (former) MDF. 

BNetzA indicates three possible options
for DTAG competitors to gain access to the (shortened) local loop
(essentially at street cabinet level): 

  1. Competitors could invest in their own
    fibre backhaul (including the civil works and supporting
    infrastructure, such as ducts) up to street cabinet level;
  2. Competitors could rent empty
    (DTAG) ducts leading to street cabinet level in order to reach these
    locations, and equip these with their own fibre and transmission
    equipment (T-REGS Note: the BNetzA press release contains a
    citation of Chairman Matthias Kurth indicating that use of ducts of
    third parties (i.e. others than DTAG) is a "theoretical possibility
    which is impracticable");
  3. Competitors could lease dark fibre
    (in particular from DTAG) to street cabinet level. 

T-REGS Notes: No mention is
made, either in the substantive 26-page draft decision on regulatory obligations ('remedies'), or in the 3-page consultation paper, of access to street cabinets, sharing of street cabinets, or
sharing of active equipment inside street cabinets as such. 

The German regulatory authority suggests
in its 3-page separate document that, in the absence of additional investments in
network build-out by alternative operators, bitstream access (Market 12 of the EC Recommendation on Relevant Markets) may offer a solution in order to ensure competitor
local loop access in the future. BNetzA openly raises the question as
to whether it would be possible to enable (or mandate) bitstream access
at MDF level (which would presumably encompass access to a network node
aggregating the traffic from multiple DSLAMs/MSANs located in street
cabinets, since DSLAM/MSAN card sharing is not mentioned). Such
bitstream access would consist of two parts: 

  1. the network segment between the
    network termination point and the street cabinet (single end-user
    traffic); and
  2. the network segment between the
    street cabinet and the MDF (consolidated end-user traffic). 

BNetzA confirms in this context that
current German bitstream regulations do not comprise access at the
street cabinet level. 

Interested parties are invited, until 5
May 2007, to respond to the consultation documents and to address the
accompanying questions. 

For a discussion of this crucial
development, please contact Alexa Veller or Yves Blondeel.