ART publishes its second market analysis public consultation about wholesale local loop unbundling and broadband access markets

Paris, 23 June 2004

Autorité de régulation des télécommunications (ART) published today its second public consultation for market analysis. It concerns two markets: the local loop unbundling market and the broadband access market.

This document contains ART’s analysis of competition on these markets. It clearly defines the markets it considered relevant for ex ante regulation, the operators with significant power on these markets and the obligations ART considers necessary to remediate competition problems.

The document will be open to public consultation for a period of six weeks.

After examining the comments received, ART will submit its analysis to the Conseil de la Concurrence which will rule on the definition of the markets and the designation of operators with significant market power. ART will then submit its draft decisions on the market definitions, the designation of powerful operators and the establishment of specific obligations to the European Commission and the national regulatory authorities (NRAs) of the other 24 Member States of the European Union.

The market analysis process

The so-called "Telecoms package" directives, adopted in 2002, which establish a new Community framework for the regulation of electronic communications, stipulate that the imposition of ex ante obligations players on wholesale or retail markets must be based on a market analysis.

The market analysis procedure has three major steps:

defining the relevant market (which involves defining its borders, in terms of products, primarily on the basis of "substitutability" criteria by supply and demand, in geographic terms) determining the competitive nature of the market and its degree of competition, as well as identifying players with significant influence on this market (i.e. who have a dominant position) defining "remedies" in the form of obligations which are proportionate to the competition problems identified. The directives outline the types of obligations which can be imposed on operators: publication of a reference offer, pricing controls, accounting separation, etc.

The European Commission has identified 18 relevant markets which might be subject to sector-based regulation. These markets include the wholesale market for the provision of unbundled local loop access (including shared access) for loops and sub-loops on copper pairs in order to provide broadband services and voice services (corresponding to market number 11 in the European recommendation) and the wholesale broadband services provision market (market number 12).

This consultation deals with the analysis of these two markets, and is composed of the following sections:

Retail broadband access markets

In accordance with the logic underpinning the market analysis, ART explains its view of competition on the retail broadband access markets in the first section.

The residential and professional retail broadband access markets are seeing increasing competition. Given this situation, ART considers that ex ante regulation of retail markets is not justified. On the other hand, and in accordance with the spirit of the new framework, ART defines the measures it considers best suited to the wholesale markets, which can ensure that strong competition is established and maintained on the retail markets. These wholesale markets are: unbundling of the local copper pair, the wholesale market for broadband access delivered at the regional level, and the broadband access delivered to a national point.

The unbundled local loop access market (option 1)

On this market, which a delimitation analysis restricts to the copper pair and which corresponds to market number 11 of the Commission’s recommendation, ART considers that France Telecom should be considered an operator with significant market power since it controls almost all access to the copper pair.

As a result, in accordance with the framework directive and in conformity with the European Regulation of December 2000 on unbundling, ART proposes:

. requiring that France Telecom grant all reasonable requests for access to the local loop and related resources
. requiring France Telecom respect obligations of non-discrimination, transparency, and the publication of a reference offer
. imposing cost-oriented pricing for access and related unbundling resources
. imposing accounting separation on France Telecom

The wholesale broadband access market with delivery at the regional level ("bitstream", i.e. option 3 and regional option 5)

This market includes offers for both residential and professional customers, regardless of the transport protocol used, primarily IP and ATM. Based on its analysis, ART considers that France Telecom occupies a dominant position on this market, which does not seem likely to be challenged during the analysis period. Therefore, it plans to designate France Telecom as operator with significant market power.

ART wishes to permit the exercise of a regulatory framework common to all current access offers delivered at the regional level, without prejudice to those which might be added in the future. Therefore, it proposes:

. requiring that France Telecom grant all reasonable requests for access to the local loop and related resources
. requiring France Telecom respect obligations of non-discrimination, transparency, and the publication of a reference offer
. imposing cost-oriented pricing for access and related resources
. imposing accounting separation on France Telecom

The broadband access wholesale market delivered at the national level (national option 5)

This market is not included per se among the markets defined by the Commission in its recommendation. Still, ART considered it necessary to conduct an in-depth competition analysis of this wholesale market, which is downstream of the two wholesale markets mentioned above. This is because this kind of national wholesale offer is at the source of approximately 80% of sales for Internet Service Provides (ISP) on the DSL retail market. The vast majority of ISP offers are based on the incumbent operator’s IP/ADSL offer.

This analysis has led ART to consider that the so-called national option 5 (i.e. offers for broadband access delivered to a single point at the national level) is a new relevant market on which France Telecom appears to hold a dominant position.

ART considers it necessary to maintain ex ante regulation on this market, although significantly lighter than the current framework. Regulation will be maintained during a transitional period, the time required to develop upstream wholesale unbundling markets and high-speed access offers at the regional level, and to allow the growth of competition on the downstream wholesale market for national option 5.

Therefore, ART proposes maintaining a number of obligations for France Telecom, operator with significant power on this market. These obligations aim in particular at avoiding discouraging investments in alternative infrastructures to France Telecom’s network. A new analysis will be hold in one year regarding these obligations :

. obligation of non-discrimination and information of third-party players on price changes
. obligation of accounting separation
. obligation to not practice predatory pricing against competitors

NB: Replies to the call for comments should be sent to mhd(@)art-telecom.fr.