Leased lines

ARCEP notifies the European Commission of its analysis for capacity services market for business and submits its draft decision for public consultation. It proposes an easing of the regulation of the retail market, eliminating the obligation of prior price approval for France Telecom and chooses to encourage the deployment of fibre optic networks by not imposing any cost orientation obligation for wholesale terminating segment offers on optical fibres of over 10 Mbit/s.

Paris, 21 June 2006

After receiving a favourable opinion from France’s competition authority, Conseil de le Concurrence, ARCEP notified the European Commission today of its analysis of capacity services markets for business.

The draft decision is also submitted for public consultation, for a period of one month, until 22 July 2006.

  • Delimiting the markets and significant market power
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The draft decision covers markets number 7 ("provision of leased lines to end users"), 13 ("wholesale terminating segments of leased lines") and 14 ("wholesale trunk segments of leased lines") from the Commission Recommendation on relevant markets and services, which was adopted on 11 February 2003.

Concerning the retail market, ARCEP identified a single retail market which covers all products regardless of their bitrate or interface ("traditional" ETSI interfaces and "alternative" interfaces, such as Ethernet).

Concerning wholesale markets, ARCEP identified one terminating segment market and several interurban trunk markets, distinguishing between intra-territorial segments (within France) and inter-territorial segments (between Metropolitan France and Overseas départements and territories).

ARCEP concluded that France Telecom holds significant market power on all these markets. This analysis runs until 1st September 2009, with the possibility of an early review.

  • The objectives pursued
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ARCEP pursued two main objectives in this market analysis:

- To encourage the rapid development of competition by allowing alternative operators to replicate France Telecom’s retail services under reasonable conditions

- To promote long-term competition and encourage the deployment of fibre optic infrastructures, by both the incumbent and alternative operators

To meet these objectives, ARCEP focussed on the regulation of wholesale markets while taking into consideration the investments needed to deploy fibre optics, and proposes significantly easing regulation on the retail market.

  • Regulation focussing on wholesale markets…
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ARCEP suggests requiring France Telecom to propose suitable wholesale offers which will allow alternative operators to be reasonably able to replicate its retail offers.

In order to meet this objective, obligations of access, transparency, non-discrimination, price controls, and the publication of reference offers and accounting obligations will have to be imposed on the wholesale markets.

  • …which supports investment efforts…
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Within the terminating segment market, the draft decision distinguishes between terminating segment services of less than 10 Mbit/s and those of more than 10 Mbit/s. On the first, which primarily use France Telecom’s "copper" access network, ARCEP imposes the obligation of cost orientation. On the second, which use France Telecom’s "fibre optics" access network, ARCEP has not imposed any obligation of cost orientation nor the obligation to avoid practicing predatory pricing.

In order to encourage operators (both the incumbent and alternative operators) to deploy fibre optic infrastructures, wholesale services at speed greater than 10 Mbit/s (which primarily use fibre optic infrastructures) are exempt from price controls, but are forbidden from practicing predatory pricing.

  • …and eases regulation on the retail market
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ARCEP proposes raising the current obligation requiring France Telecom to obtain Ministry approval of its retail prices following a public opinion from ARCEP, and to replace it with three lighter obligations: obligation of non-discrimination, obligation to avoid practicing predatory pricing and accounting obligation for services and activities.

This retail market may be reviewed prior to the term of the analysis (1st September 2009), in order to take into account the impact of the new regulation of wholesale markets on the competitive situation of the retail market, and to remove this regulation if necessary.

However, the minimum set of leased lines remains subject to a specific legal regime by virtue of the universal service directive and articles D. 369 et seq. of the Post and Electronic Communications Code (cf. appendix).

  • Timetable
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ARCEP will be able to definitively adopt its decision once it has considered the observations of the European Commission and other regulators of the European Union, as well as the contributions received for its public consultation,


 Appendix 

  • What are capacity services?
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Capacity services (or leased lines) are electronic communications capacities between several points of an operator’s network reserved for the use of a single end customer, whether a business (to connect several of its sites) or operator (to create or complete its network). There are two types of leased lines: "traditional" leased lines standardised by ETSI (analogue and digital), and capacity services using alternative interfaces (Ethernet, ATM, etc.) which have appeared more recently.

  • Market definition
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The forward-looking analysis of retail product substitutability involves including both "traditional" leased lines and alternative interface capacity services in a single retail market, regardless of their bitrate. On the other hand, more integrated services with high added value such as virtual private IP networks, or less sophisticated services such as the leasing of physical resources (copper pair, black or inactivated fibre) are not included in the market.

There are two different services for wholesale markets: the link between a customer site and the operator’s backbone network, called the "terminating segment", and the links between network nodes, called "trunk segments". This second category includes "intra-territorial" circuits (between cities within France) and "inter-territorial" circuits (such as between Guadeloupe and Metropolitan France).

  • Favourable opinion from the Conseil de la Concurrence
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In its opinion number 06-A-10 dated 12 May 2006, the Conseil de la Concurrence approved the analysis proposed by ARCEP. It considers it justified to extend the definition of the different markets to include alternative interfaces, to designate France Telecom as an operator enjoying significant market power on all these markets and to conclude that they are relevant for ex ante regulation.

Nevertheless, it noted that dividing the wholesale terminating segment market in two submarkets along the 10 Mbit/s threshold might turn out to not be relevant in the long term and therefore invited ARCEP to combine these two submarkets.

ARCEP has taken into consideration this analysis and therefore modified the definition of the terminating segment market by merging the two previously proposed submarkets. Nevertheless, it proposes imposing different regulation on the two different segments (less than and greater than 10 Mbit/s) on this wholesale market.

  • Specific regulation for the minimum set of leased lines
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ARCEP is not responsible for setting obligations for the minimum set of leased lines (2- and 4-wire analogue leased lines, digital 64 kb/s and 2 Mb/s leased lines). This is determined directly by the European and national regulatory framework. In application of the Post and Electronic Communications Code (articles D. 369 and following), obligations of transparency, non-discrimination, cost accounting and cost-oriented pricing will be imposed on the four products identified by the code.


Linked documents

Smiley Comments on this public consultation must be sent before 21 July 2006 to this e-mail Smiley

Smiley The draft decision is available for consultation (pdf - 1,6 Mo (pdf - 1.56 Mo) Smiley ) Smiley