Update 16 Jan 2009: The deadline for responding to the OPTA consultation on wholesale FttH-unbundling fees is now 13 February 2009. The letter specifing this, and the link to the consultation document (in Dutch language only) are accessible by clicking here.
Update 24 Dec 2008: On 19 Dec 2008, the Dutch competition authority NMa approved the KPN-Reggefiber joint-venture (named Reggefiber Group B.V.), on condition that it practices maximum wholesale fees for FttH unbundling in the bracket of €14,5-€17,5/month (depending on geography) with an annual uplift to reflect inflation. T-REGS note: This wholesale rental fee is for two dark fibres to each customer.
Also on 19 Dec 2008, OPTA issued its market analysis decision for Market 4 (among a set of market analysis decisions it issued), issued final Policy Rules on FttH unbundling (the main difference compared to the draft is a clarification that these rules are explicitly only for Fibre to the Home, not for Fibre to the Office), and OPTA issued a further consultation document containing a draft decision on wholesale FttH-unbundling fees for the period 2009-2011. The deadline for responding to this consultation is 13 January 2009.
Today, the Dutch regulatory authority OPTA issued a consultation document entitled “Tariff Regulation for Unbundled Fibre Access – Policy Rules”.
OPTA puts forward regulatory principles, as well as tangible one-off and monthly maximum fees (e.g. monthly rental €14.5-€17.5 per FttH fibre pair), for the Optical Distribution Frame access (ODF-access) offer and related facilities (co-location, backhaul) of the envisaged Reggefiber-KPN joint-venture (JV).
This JV, in which KPN aims to have a 41% stake, is subject to clearance by the competition authority NMa, and OPTA has formally proposed that the JV would be included in the KPN designation as the operator with Significant Market Power (SMP) on Market 4 (wholesale (physical) network access at a fixed location), dated 5 Nov 2008. KPN and Reggefiber have opposed OPTA’s proposed SMP finding, although they publicly committed to providing voluntary fibre access.
Today’s OPTA consultation document makes numerous references to the European Commission's draft Recommendation on regulated access to Next Generation Access networks
(and to the ERG response to it), and is presented as the first practical implementation of the principles put forward in these documents.
OPTA positions its proposed regulatory intervention in the context of a ‘trade-off’ between short-term promotion of competition (through access obligations on dominant operators) and the encouragement of (efficient) investment. Regulatory certainty is identified as an important contributor to a favourable environment for investment and innovation, for the benefit of market participants and consumers.
Key principles (this T-REGS news item is merely a selection/summary) put forward by OPTA are as follows:
- 5 rules to prevent discrimination between the network owner and its affiliates on the one hand, and third parties on the other hand, notably to prevent risks of margin-squeeze. Volume discounts, however, are proposed to be permitted. OPTA proposes to validate (page 41) a discount up to 20% on the monthly rental fee for fibre pairs, where 26.000+ fibre pairs per FttH (P2P) city concentration point (the hierarchical level above the actual ODF-access locations) are taken up (the discount table shows discounts ranging from taking-up 2000 fibre pairs upwards at city concentration point level). Updates 26 and 27 Nov 2008: Following two questions put by T-REGS to it, OPTA has confirmed that: (i) the volume discounts in the table are to be awarded to all unbundled fibre takers per city concentration point (hierarchical level above the actual ODF-access locations), and (ii) based on the common volume achieved i.e. not on a taker-by-taker basis.
- Geographic differentiation, in particular to reflect demonstrable underlying construction costs, would be permissible.
- A ‘wholesale tariff ceiling’, T0, would be defined, on the basis of a cost model, for each element of unbundled fibre access. This ceiling would be indexed every year based on the consumer price index (CPI), within ‘regulation periods’ of 3 years (T-REGS Note: max. 3 years for market reviews as required by the Dutch transposition of the EC framework for electronic communications).
- T0 is proposed to be defined on the basis of the business model of the investor (not an OPTA cost model) and the investors’ internal rate of return (IRR) - in this case the Reggefiber-KPN JV which is proposed to be found as having SMP and is therefore proposed to be regulated -, not taking into account the risk of future regulation.
- OPTA introduces a notion of ‘all-risk WACC’ (weighted average cost of capital) for the 3-yearly review. The ‘all-risk WACC’ would include uplifts on the WACC that is applicable to the legacy copper network to reflect: (i) an uplift to cover fibre investment risk (risk on demand/take-up of fibre access), and (ii) an uplift to cover asymmetric risk (risk of future regulation for the fibre investor), to promote investment.
- The ‘all-risk WACC’ would be re-assessed at the start of every 3-year regulation period, and compared with the actual IRR achieved by the investor (based on the original business model, values of which can be amended based on achievements and expectations going forward).
- If the IRR (at the start of a 3-year regulation period) approaches the ‘all-risk WACC’, the investor would be allowed to choose to be price-regulated (capped) on wholesale fibre unbundling going forward, to offer greater volume discounts for wholesale fibre unbundling, or to extend the network to areas that are less profitable to avoid being regulated (goal: stimulate deployment). In case the further deployment option is not chosen, the cap would be reduced for the next 3-year period, but again allowing annual CPI-related increases.
- One-off connection fees should not dissuade take-up. OPTA proposes to validate (page 39), a one-off connection fee per customer of maximum €100.
As is indicated above, OPTA proposes to rely, to define T0, on the business model provided to it by the proposed Reggefiber-KPN JV – which was given insight in a draft of OPTA’s proposed policy rules. The JV has formulated a proposal, key elements of which are as follows:
- One-off FttH customer connection fee: €100; one-off telco-telco migration fee: €125.
- One-off Area-PoP connection fee (concentration point aggregating tens of thousands of lines): €3000.
- Monthly rental backhaul Area PoP to City PoP (2x28 fibres redundant): €600.
- Monthly co-location fee (6 footprints) in Area PoP: €500.
- Monthly fibre pair rental fee: €12 to €15 depending on capex profile. Other (lower and higher) capex profiles can be defined in the future. OPTA proposes to cap the fees at €14.5 (for the €12 offer) to €17.5 (for the €15 offer).
Interested parties are invited to comment on OPTA’s proposed policy rules until 8 December 2008, followed by further consultation on the draft Market 4 analysis, incorporating the policy rules on tariff regulation for unbundled fibre access, for a period of 6 weeks running from 19 Dec 2008.
The full text of the OPTA consultation document (in Dutch language) can be accessed by clicking here. On 1 Dec 2008, OPTA made available an English translation, which can be accessed by clicking here.
For a discussion of this important development, please contact Yves Blondeel.
Update 25 Nov 2008: KPN has made a press statement indicating that it has received what it terms 'sufficient clarity' (from OPTA and NMa) to continue rolling-out FttH as per its existing plans (its own selective FttH roll-out and its commercial agreement to take unbundled FttH from Reggefiber), with an evaluation following mid-2009, i.e. contrary to press and blog reports, no decision has been made on massive roll-out and the JV is still pending approval by the NMa.