What would be the best way to ensure equal treatment between OAOs and eircom?

damien

Continuing on from the other post on the ComReg Forward-looking Strategic Review of the Irish Telecoms Sector Consultation

(this is where they mention splitting eircom)


Q.4 Do you agree with ComReg analysis that further improvement is necessary at the wholesale level to facilitate the development of a fully competitive market place here in the interests of Irish consumers? If so, what would be the best way to ensure equal treatment between OAOs and eircom’s own downstream retail arm?

4.3 Wholesale regulation

Where infrastructure-based competition has not developed to the point where no single operator is dominant on any telecommunications market, the need for wholesale regulation arises. This form of regulation is aimed at curbing the exercise of market power in an anti-competitive way (as opposed to retail regulation, which is generally aimed at preventing exploitative abuses of dominance, such as excessive pricing.) Where an operator has control of bottleneck facilities, wholesale regulation is generally aimed at allowing other operators to have access to those facilities. However, an access obligation (as laid out in the Access Regulations40) must generally be supported by other obligations, such as transparency, non-discrimination, accounting separation, price control and cost accounting.

The European Commission’s list of eighteen markets susceptible to ex-ante regulation includes three wholesale mobile markets and one wholesale broadcasting market. Since the issues they raise are different to those in fixed markets, they are dealt with separately at the end of this section. Wholesale regulation is a difficult task. Not only must regulators try to set the appropriate price for each form of access, they must ensure that the relativities between prices for different forms of access are set appropriately. Otherwise, they run the risk that access seekers will migrate from more infrastructure-based to more service-based forms of competition. An example is the regulation of the wholesale inputs required to provide retail leased lines. Under the 1994 Leased Line Directive, several years before the full liberalisation of the sector, Telecom Éireann were required to make available a wholesale leased line product, to facilitate the provision of value added services by other operators. Historically, wholesale leased lines have been priced at a discount to the retail price, rather than at a cost-oriented price. Moreover, wholesale leased lines are a pure resale product: they are provided by the incumbent on an end-to-end basis, and are either re-sold by the OAO, or used to construct other services. In order to reward operators who built out their networks, and thus provide the stimulus for more infrastructure investment by alternative operators, in 2003 ComReg introduced Partial Private Circuits (PPCs). These allowed an operator to construct end-toend circuits partly from their own infrastructure and partly from eircom inputs offered at a cost-oriented price. The fact that PPCs give operators a better price than leased lines provides the appropriate signals in terms of rewarding infrastructure build-out.

Where entrants are reliant on wholesale inputs from the incumbent, the principle of non-discrimination is paramount. According to Recital 17 of the Access Directive41, “The principle of non-discrimination ensures that undertakings with market power do not distort competition, in particular where they are vertically integrated undertakings that supply services to undertakings with whom they compete on downstream markets”.
If put into practice, this principle would mean that the wholesale department of eircom should treat Other Authorised Operators (OAOs) equally with their own downstream retail arm. Other operators would have equal terms and conditions, would have faults rectified just as quickly, would have the same access to the wholesale arm in terms of requesting new product development, etc. ComReg has now carried out market reviews of four wholesale fixed markets (unbundled local loops, wholesale broadband access, and trunk and terminating segments of leased lines), with another three pending. To date the overwhelming feedback from OAOs is that they do not receive equivalent treatment. Given the complex nature of most wholesale products, it is impossible for the regulator to anticipate all the ways in which access seekers can be discriminated against; they can only be dealt with on an ex-post basis. This entails delays in the introduction of innovative services, and deprives consumers of the benefits of competition in terms of price, choice and quality.

Given the issues identified above and if the market here is to develop into a fully competitive one then further change will be necessary. In this context a number of different options exist. These could range from behavioural change supported by appropriately transparent organisational structures to structural change – the vertical separation of eircom.

While ComReg does not itself have the power to require the structural separation of eircom into separate wholesale and retail companies, it is worth noting that the Courts possess such a power under Section 14 (7) of the Competition Act, 2002. While, theoretically, the separation of eircom into wholesale and retail companies (as opposed to the current notional separation into different business units within the same company) would remove any incentive for it to discriminate in favour of its own downstream arm, it must be recognized that it would not provide either a quick or easy solution. The following table sets out what the separation of eircom could potentially achieve:

• increase equality of access (removing any means and incentive for discrimination)
• prevent any leverage of market power from one area to another
• potentially allow deregulation in certain areas
• encourage competition in more advanced broadband access

However, implementing measures of this magnitude would be difficult from a regulatory perspective. It would be difficult to determine exactly where to make this separation of eircom, particularly during a period of NGN migration. Furthermore, a complex and extensive investigation would be required, where other potential solutions would also have to be investigated and considered equally. Such an action could inadvertently have some negative impacts on the market:

• Could prevent investment in the short-term (particularly from eircom)
• Cause disruption to the industry which is currently in a state of growth
• Result in reduced investment from alternative access providers (embedding market power in eircom’s access network)