Unbundling tariffs

Today Arcep is launching a public consultation on its draft proposal on full LLU price caps for the period running from 2021 to 2023.

At a time of technological transition to superfast broadband access, and the resulting need for massive investments, Arcep has been setting a multi-annual price cap for copper local loop access since 2016, to give the sector’s players greater clarity on this tariff which constitutes the baseline metric for the local access market. As stipulated in its draft analysis of the market for wholesale access provided at fixed location[1], for the period running from 2021 to 2023, Arcep wants to maintain this price cap principle and continue to support the technological transition from the legacy copper network to optical fibre systems.

Arcep employed modelling of a shared optical local loop network to establish these price caps

From 2006 to 2017, unbundling tariffs were regulated based on Orange’s regulatory accounting, using the current cost accounting method. For the previous price cap, for 2008 to 2010, in addition to this regulatory accounting, Arcep introduced a new cost assessment method based on modelling of a shared optical local loop, to take the technological transition to ultrafast access into account. This model developed by Arcep stimulates the path, architecture and costs of a nationwide fibre access network deployed by an efficient operator. It thus provides a cost estimate for the future infrastructure of reference.

Because the transition away from the copper network is occurring at an increasingly accelerated pace, the method based on regulatory cost accounting no longer makes it possible to deliver a stable and predictable price signal. For this next round of price caps, Arcep therefore made the choice of relying on the model it developed, which creates the ability to introduce a long-term signal into the tariffs.

For the sake of transparency, this model was subjected to two public consultations, in 2017 and in April of this year, for which a functional and technical description of the model was published, along with the entirety of the source code developed by Arcep’s teams.

The document being published today for consultation contains the responses to these previous consultations, and presents the costs – or, more precisely, the cost range – estimated by the model. Arcep is also publishing the updated model and a description of the changes that have been made to it since the previous consultation.

When setting this price cap, Arcep also factored in the updated regulated rate of return, applicable as of 2021.

In June 2020 [2], Arcep published a draft decision for consultation, taking into account the methodology set by the European Commission in its communication of 6 November 2019. Following the responses received from stakeholders, and BEREC’s publication on the parameters that apply to this methodology, Arcep plans on setting the regulated rate of return applicable to regulated fixed and mobile operations at 4.8%, starting in 2021.

Based on the method and hypotheses it has adopted, Arcep is proposing a recurring monthly price cap for full LLU access of €9.65 a month, from 2021 to 2023

In light of the transition to superfast access, Arcep also considers that it is no longer relevant that set-up costs be partially covered by the recurring fee. The Authority is therefore proposing to increase the price cap applicable to service access fees from €50 to €70.

The draft document also provides a framework for certain ancillary tariffs – cancellation fees, VAS+ – as well as shared access prices and bitstream prices.

Lastly, the draft decision includes a stipulation that the price cap can be increased, including during the period running from 2021 to 2023, should Orange present a concrete and ambitious switch-off plan for its legacy copper network, and provide sufficient guarantees.

While optical fibre network development has made tremendous progress, the coexistence and simultaneous operation of two local loops – one copper, one fibre – across a substantial portion of the country, is a source of fixed cost inefficiencies for the sector, whose duration must be short lived, but customers’ migration under good conditions must also be guaranteed

On 4 December 2019, as part of its strategic plan up to 2025, Orange announced that it would be switching off its copper network over the course of 2023 – 2030. It also informed Arcep of its plans to use the option stipulated in the Draft analysis decision on market 3a, regarding the network’s commercial shut-down, starting in 2021. Under Arcep’s aegis, it will very shortly begin to consult with the market’s other operators on the procedure for this shutdown. The plan for the network’s technical switch-off has not yet been defined.

Arcep therefore considers it appropriate to encourage the copper network switch-off, by introducing the possibility of an increased price cap, including during the period running from 2021 to 2023, if Orange presents a concrete switch-off plan for its legacy copper network, depending on the guarantees it offers on the speed of the transition from copper to et fibre.

This consultation will run until 12 October 2020.

[1] Public consultation on the draft analysis of the market for wholesale access provided at a fixed location

[2] Public consultation on setting the regulated rate of return for regulated fixed and mobile operations, starting in 2021