EUROPEAN COMMISSION
Brussels, 18.12.2015
C(2015) 9721 final
Ryšių reguliavimo tarnyba (RRT)
Algirdo g. 27
LT03219 Vilnius
Lithuania
For the attention of:
Mr Feliksas Dobrovolskis
Director
Fax: +370 5 216 156 4
Dear Mr Dobrovolskis,
Subject:
Commission Decision concerning Case LT/2015/1821: Wholesale
local access provided at a fixed location in Lithuania
Comments pursuant to Article 7(3) of Directive 2002/21/EC
1.
PROCEDURE
On 19 November 2015, the Commission registered a notification from the Lithuanian
national regulatory authority, Ryšių reguliavimo tarnyba (RRT)1, concerning wholesale
local access provided at a fixed location2 in Lithuania.
The national consultation3 ran from 29 September 2015 to 9 November 2015.
On 1 December 2015, a request for information4 was sent to RRT and a response was
received on 4 December 2015.
1
2
3
4
Under Article 7 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March
2002 on a common regulatory framework for electronic communications networks and services
(Framework Directive), OJ L 108, 24.4.2002, p. 33, as amended by Directive 2009/140/EC, OJ L 337,
18.12.2009, p. 37, and Regulation (EC) No 544/2009, OJ L 167, 29.6.2009, p. 12.
Corresponding to market 3a in Commission Recommendation 2014/710/EU of 9 October 2014 on
relevant product and service markets within the electronic communications sector susceptible to ex
ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the
Council on a common regulatory framework for electronic communications networks and services
(Recommendation on Relevant Markets), OJ L 295, 11.10.2014, p. 79.
In accordance with Article 6 of the Framework Directive.
In accordance with Article 5(2) of the Framework Directive.
Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111
Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities
(NRAs), the Body of European Regulators for Electronic Communications (BEREC) and
the Commission may make comments on notified draft measures to the NRA concerned.
2.
DESCRIPTION OF THE DRAFT MEASURE
2.1.
Background
The market for wholesale local access provided at a fixed location in Lithuania was
previously notified to and assessed by the Commission as the market for wholesale
(physical) network infrastructure access (including shared or fully unbundled
access) at a fixed location under case LT/2011/11975.
RRT defined the market to include access to the local loop or the local sub-loop,
including twisted metallic pair local loops, fibre-optic local loops in FTTH
networks, and local shielded twisted pair (STP) loops and unshielded twisted pair
(UTP) loops in FTTB and in LAN networks. RRT excluded from the relevant
market local coaxial cable loops (CaTV networks) and local wireless
communication lines. The geographic scope was defined as the territory of
Lithuania.
RRT found the relevant market not to be effectively competitive, designated TEO
LT, AB (TEO) as having significant power (SMP) and imposed on it the
obligations of access, non-discrimination, transparency, price control/cost
accounting6 and accounting separation regarding TEO's metallic loops and subloops, fibre local loops, UTP and STP loops, and access to other passive
infrastructure. RRT proposed to grant unbundled access to optical fibre lines only
when access to the civil engineering infrastructure is not possible due to objective
justifications.
The Commission provided comments on the need to impose on the SMP operator an
obligation to provide fully unbundled access to its fibre loops in addition to access
to civil engineering infrastructures and not make fibre access conditional on the
availability of the latter, and inviting RRT to clearly specify in its final adopted
measure the migration rules related to migration from copper to fibre loops.
2.2.
Market definition
Retail market analysis
RRT's analysis has found that retail internet access services in Lithuania7 are
provided using Fibre to the Building (FttB) lines where the in house wiring is
provided through UTP and STP lines (35.6% of internet access subscribers), Fibre
5
6
7
C(2011)3251.
Costs are calculated according to a Fully Distributed Cost (FDC) accounting method.
RRT indicated in the response to the RFI that in the second quarter of 2015 broadband (fixed and
mobile) penetration as a percentage of Lithuanian households reached 87.5%, whereas fixed
broadband penetration reached 63.3% of households. RRT also found that the number of internet
access subscribers has increased by 29.1% over the review period (1 January 2010 to 31 December
2014).
2
to the Home (FttH) lines (24% of subscribers), copper-based xDSL lines (21.1% of
subscribers), local wireless communications such as Wi-Fi (13.1% of subscribers),
coaxial cable (CaTV) lines (4.6% of subscribers), as well as small numbers of Local
Area Networks (LAN) with UTP and STP in house wiring, and dedicated lines8.
The 2010-2014 period of review has seen an increase in subscribers using FttB and
FttH lines, to the detriment of xDSL and CaTV lines, which RRT explains with
operators' investment into NGA networks. Wireless access has also increased and
according to RRT this may be particularly used to reach customers in remote areas.
The retail market has also seen a 2.4 fold increase in take up of IPTV services9 and a
29.8% decrease in the use of fixed telephony services using PSTN and ISDN.10
At the retail level, SMP operator TEO remained the largest operator in terms of
market share, which RRT reports has decreased from 47.7% to 46% over the review
period. Teo's network is primarily an xDSL and FTTH network, although it also
owns some FttB and dedicated lines. All other competitors are fragmented and only
two control more than a 5% retail market share11, although RRT found increasing
levels of concentration among alternative operators, demonstrated by the finding
that the seven largest competitors' overall share increased by 10 percentage points
over the review period.
Competitors to TEO rely on the deployment of their own infrastructure: in 2014
only 213 end users were served by alternative operators on the basis of the LLU
remedy, 35 on the basis of SLU12 and 1,538 were served on the basis of the
wholesale remedies imposed by RRT in the related wholesale central access
market13.
RRT concludes that the competitive situation in Lithuania is improving, mostly
thanks to investment into alternative infrastructures by alternative operators. RRT
indicates that investment plans communicated to it for the 2015-2017 period show
plans to deploy about 261,800 new FttH and FttB lines14, and that […] of such lines
8
9
10
11
12
13
14
2014 figures.
In the response to the RFI, RRT indicates that in the second quarter of 2015, 19.6% of internet access
subscribers also took IPTV.
RRT has conducted an analysis of substitutability of mobile and fixed internet access services
including considerations such as functionality and price, and concluded that these are complements
rather than substitutes in the Lithuanian retail market. In the reply to the RFI, RRT also clarified that
Lithuanian mobile operators estimate LTE coverage to be between 70% and 80% of the population.
AB Lietuvos radijo ir televizijos centras (10%) and UAB Cgates (8.8%).
Only the SMP operator provides LLU and SLU access to two alternative operators which provide it to
business entities.
In the reply to the RFI, RRT clarified that between 2013 and 2014 the demand for regulated xDSL
access has significantly decreased while the demand for regulated FttX access slightly increased,
remaining, however, very low. None of the operators provides unregulated commercial (wholesale
local or central) access or resale products.
RRT indicates that 491,800 FttH and FttB active lines were already deployed by the second quarter of
2015. However, the total number of active and inactive lines is likely to be considerably higher, but
RRT only has information in relation to inactive lines owned by TEO.
3
are planned by alternative operators. However, RRT considers that it is doubtful that
the competitive situation can be maintained absent wholesale regulation.
Wholesale market definition
RRT proposes to define the market as including access to the local unbundled
copper loop (LLU) and sub-loop (SLU)15, as well as local access to an optical fibre
line16, or to a local UTP and STP line17. The market includes civil engineering
networks18 and dark fibre, but excludes CaTV networks and wireless networks
because RRT finds that they cannot be unbundled at the present time.
RRT finds the relevant geographic market to be national and to cover the territory of
the Republic of Lithuania. Its considerations include that TEO's xDSL network
covers the entire territory, and that TEO and alternative operators apply national
pricing strategies. RRT recognises that FttH and FttB lines are mostly developed in
Lithuanian urban centres, but estimates that future deployments will take these
networks outside of cities19.
2.3.
Finding of significant market power
RRT proposes to designate TEO as the only undertakings holding SMP in the
relevant wholesale local access market. It makes this finding on the basis of a series
of criteria: market structure20, barriers to entry21, vertical integration22, absence of
countervailing buying power, and absence of potential competition23.
15
16
17
18
19
20
21
22
In the reply to the RFI, RRT clarified that it did not include VULA in the market definition, inter alia,
because, the quality of copper lines in Lithuania is very low and is economically not viable to upgrade
them. In fact, there are no FttC lines in Lithuania. Moreover, as of 2008 TEO invests exclusively in
FttB/H infrastructure.
In the case of FttH.
In the case of FttB or LAN.
In the response to the RFI, RRT clarifies that civil engineering assets include ducts, pipes, wells and
other facilities (manholes, lids, locks, communications cable supports, brackets, adjustment rings etc.)
intended to thread and/or unthread, merge, repair communication cables and install other electronic
communications equipment and protect it.
In the response to the RFI, RRT indicates that it does not have information about the coverage of
individual networks and about overlaps between networks, which would allow it to assess the
availability of competing infrastructures in different parts of the territory. It assumes, however, that in
urban areas customers have a choice between at least two service providers.
TEO controls 67.9% of active lines in the relevant market (96.4% of copper lines, 96.7% of FttH lines
and 4.9% of UTP/STP lines, mostly FttB). This market share decreased by 7.8% compared to the
previous market analysis. The second largest supplier in the market (Cgates) controls 6.7%. No
operator in Lithuania, including TEO, provides wholesale access in the relevant market on a nonregulated commercial basis.
RRT points in particular to TEO's control of the most extensive network, of civil engineering assets
and dark fibre, and to its access to finance thanks to the TeliaSonera group, which owns 88.15% of
TEO shares.
RRT in particular highlights TEO's strength in the provision of IPTV and fixed telephony at the retail
4
2.4.
Regulatory remedies
RRT proposes to impose the following obligations on TEO:
•
Access to TEO's copper local loops and sub-loops, to its local fibre loops24,
as to its local UTP and STP lines, as well as to its civil engineering and dark
fibre;
•
Non-discrimination, requiring TEO to offer the same conditions for the same
services to access seekers as to itself25;
•
Transparency;
•
Accounting separation; and
•
Price control and cost accounting.
The price control obligation consists of a price cap calculated by means of a
Fully Distributed Costs (FDC) cost model applying Historical Cost Accounting
(HCA). RRT considers that it would be disproportionate at this stage to adopt a
BU LRIC cost model using Current Cost Accounting (CCA), when (i) the
transition from copper to NGA has already largely taken place in Lithuania; (ii)
civil engineering assets, which are crucial for the deployment of alternative
infrastructure, will not be replicated and should therefore not be valued at
current costs; (iii) RRT considers that copper prices will remain stable over the
next period of review26.
level, as well as its ownership of the largest civil engineering network, estimated to represent 96.2% of
the length of all civil engineering in Lithuania.
23
24
25
26
RRT notes that none of the Lithuanian alternative operators has the financial resources to develop its
own access network comparable to TEO, in particular in the event that TEO would not provide access
to its civil engineering.
RRT clarified in the RFI that this obligation is imposed irrespective of the FttH topology adopted by
TEO. According to data available to RRT, point-to-point type local optical fibre communication lines
are most widespread in Lithuania. However, RRT does not have estimates of the percentage of PON
FTTH lines deployed by TEO or by alternative operators.
In the response to the RFI, RRT explains that it considered the proportionality of imposing nondiscrimination obligations on the basis of Equivalence of Inputs (EoI), but it concluded that it would
not be proportionate in the case of the Lithuanian market, and that the obligation in place already
requires the publication of Key Performance Indicators (KPIs), Service Level Agreements (SLAs) and
Service Level Guarantees (SLGs).
Monthly rental fees for copper lines have remained stable at €4.92 in the 2011 to 2014 period, while
SLU rental has remained stable at €3.48. The price for access to civil engineering has also remained
stable at €27.8 per km, which RRT considers to be among the lowest in the EU. Prices for fibre
unbundling vary from €8.4 to €46.05 per month, depending on the number fibre lines in the cable, the
number of unbundled lines and the end customer segment (private individual or legal entity). In the
reply to the RFI, RRT states that the fibre based retail products are cheaper than copper-based ones,
and clarified that the demand for fibre-based retail products have been constantly increasing while the
demand for copper-based retail products were constantly decreasing, and believes that it reflects TEO's
willingness to migrate its subscribers to NGN products and more advance services.
5
3.
COMMENTS
The Commission has examined the notification and the additional information provided
by the RRT and has the following comments:27
Need of a more detailed geographic analysis of competitive conditions on local
and central access markets
The Commission notes the growth of fibre-based infrastructure in Lithuania,
through investments both by the SMP operator and by a number of alternative
infrastructure owners. The Commission also notes that so far alternative operators
have expanded their presence in the market by rolling out their own fibre lines,
rather than relying on access products imposed on the SMP operator, with the
important exception of access to the SMP operator's civil engineering.
However, the Commission also notes that RRT in the notified market analysis has
not conducted a detailed assessment of the geographic scope of the fibre rollout by
the SMP operator and by alternative operators, and it is therefore not possible to
assess on the basis of the data collected by RRT, to what extent the improved
conditions of competition benefit all Lithuanian end users, or whether the growth of
fibre-based infrastructures and the re-use of existing civil engineering to deploy next
generation networks in limited to certain more densely populated areas. Indeed,
RRT states that it assumes that in urban areas customers would have a choice
between at least two service providers.
The Commission further notes that RRT proposes to impose access remedies on the
SMP operator's copper and fibre networks in this relevant market, and considers that
in principle such remedies could be used by alternative operators to reach customers
where they are still not ready to roll out their own infrastructure, or where they are
unable to do so. However, so far the take up of the imposed wholesale remedies has
been very limited, not just on the lower quality xDSL network of the SMP operator,
but also on its FttH network. Careful monitoring will therefore be required by RRT
during the next period of review of whether the imposed access remedies fulfil their
intended role. If access seekers will continue to disregard access products, including
in areas where they are unlikely to roll out their own networks, then it will become
necessary for RRT to further investigate whether any aspect of the design of the
remedies is not fit for purpose and should be improved.
In this respect, the Commission takes the view that only a joint analysis of markets
3a and 3b could inform RRT on the best regulatory approach for the wholesale
broadband access markets and choice of appropriate access remedies to benefit end
users also in less densely populated areas in Lithuania. Such analysis of remedies
imposed in these two related markets, on the basis of more detailed information
about the availability of alternative infrastructures in different areas, would have to
include considerations about the efficacy of the remedies proposed, as well as to
whether they are proportionate relative to their costs and objectives and to the
situation in terms of end-to-end competition in all parts of the territory of Lithuania.
27
In accordance with Article 7(3) of the Framework Directive.
6
The Commission therefore invites RRT to carry out a more granular analysis of
network deployment by the SMP operator and alternative operators so that RRT is
capable of assessing the true level of choice that is available to end customers in
different areas of Lithuania. The Commission further invites RRT to carry out its
review of the wholesale central access market as soon as possible in 2016, which
would allow RRT to test the efficacy of the wholesale remedies imposed in both the
local and central access markets, with a view to enable the alternative operators to
make use of the regulated access in areas where the rollout of one or more
alternative infrastructures may not be taking place or may not be viable in the long
term, should there be a demand for it.
Need to reconsider the methodology to determine access prices
The Commission notes the reasoning provided by RRT to adopt an FDC costing
methodology using Historic Cost Accounting (HCA) to set wholesale access prices.
The Commission notes in particular RRT's indication that access prices have
remained stable in the previous period of review and are expected to remain stable
in the next. Further, the Commission notes that RRT's greatest concern when setting
access prices is to achieve stability in the pricing of access to civil engineering,
which enables the rollout of alternative next generation infrastructures and which
has remained stable since 2011.
The Commission shares the emphasis on stability to ensure that operators'
investment plans can be carried out and can benefit end users as soon as possible.
However, the Commission considers that the methodology chosen by RRT can
compromise this stability in the long term. Indeed, in particular the choice of HCA
for all assets in the cost model can potentially lead to very low access prices. An
FDC HCA model is unlikely to send the appropriate build or buy signals, in
particular when pricing access to legacy assets that may have been substantially
depreciated, but which could be replicated in the competitive process, such as
technical equipment or the transmission medium. The more common BU LRIC+
Current Cost Accounting (CCA) model used by other NRAs and recommended in
the Commission in its Recommendation on Costing and Non-Discrimination28 is
likely to meet that objective.
In the Costing and Non-Discrimination Recommendation the Commission indicated
that on the other hand civil engineering assets are unlikely to be replicated in the
competitive process, and for those assets it is therefore appropriate to take into
account the assets' elapsed economic lifetime and the costs already recovered by the
SMP operator. The Commission notes RRT's explanation that in its view its HCA
valuation of civil engineering reflects this reasoning, although the Commission's
recommended methodology applies the indexation method to determine the cost of
civil engineering rather than a pure HCA standard.
For the time being, despite relatively low prices, the take up of copper and fibre
wholesale access products remains low. Further, the importance of xDSL networks
in the competitive process is gradually decreasing. However, for the next period of
review, the Commission calls on RRT to analyse closely the evolution of wholesale
28
Commission Recommendation 2013/466/EU on consistent non-discrimination obligations and costing
methodologies to promote competition and enhance the broadband investment environment, OJ L 251,
21 September 2013.
7
access prices and their impact on the market, and to be prepared to review its price
control remedy, particularly for those areas where on the basis of current remedies,
infrastructure competition does not deliver an acceptable level of competition to end
users.
Pursuant to Article 7(7) of the Framework Directive, RRT shall take the utmost account
of the comments of other NRAs, BEREC and the Commission and may adopt the
resulting draft measure; where it does so, shall communicate it to the Commission.
The Commission’s position on this particular notification is without prejudice to any
position it may take vis-à-vis other notified draft measures.
Pursuant to Point 15 of Recommendation 2008/850/EC29 the Commission will publish this
document on its website. The Commission does not consider the information contained
herein to be confidential. You are invited to inform the Commission30 within three
working days following receipt whether you consider that, in accordance with EU and
national rules on business confidentiality, this document contains confidential
information which you wish to have deleted prior to such publication.31 You should give
reasons for any such request.
Yours sincerely,
For the Commission,
Roberto Viola
Director-General
29
30
31
Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and
consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the
Council on a common regulatory framework for electronic communications networks and services, OJ
L 301, 12.11.2008, p. 23.
Your request should be sent either by email: CNECT-ARTICLE7@ec.europa.eu or by fax:
+32 2 298 87 82.
The Commission may inform the public of the result of its assessment before the end of this three-day
period.
8