This is a short presentation of the above BEREC report. Roberto Balmer has co-chaired the BEREC drafting team to develop this report

1. Bundesamt für Kommunikation
Competitive effects of NGA co-
investments
Roberto Balmer
BAKOM
Disclaimer: The views presented here are those of the author and do not necessarily reflect those of ComCom /
BAKOM, BEREC, IRG.
IRG CB Workshop on NGA
Frauenfeld, 16 April 2014

2. 2
Agenda
BEREC report (12) 41
1. Project overview
2. Who can roll-out?
3. Main forms of NGA co-investments
4. Effects on infrastructure competition / coverage
5. Effects on M4 competition
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

3. 3
Project overview
NGA co-investments (2008):
- Today copper LLU is price regulated in all of Europe.
- Opportunity to avoid the recreation of a monopolistic bottleneck in the access network.
- But: competitive effect depends on many factors and may be insufficient.
Step 1 NRA questionnaire: 5/30 countries with NGA co-investment activities.
Step 2 Definition of different co-investment schemes and determination of elements
to be examined for possible national guidelines on SMP in market analyses of markets
4/5.
Step 3 Examination of specific sets of conditions and criteria which NRAs might
consider as suitable indicators of effective competition.
Focus: SMP Analysis, FTTH/B, agreements including the incumbent, market 4
According to the NGA recommendation it is now the task of the NRAs to
- provide regulatory certainty and predictability to their national markets,
consistently to the general objective of encouraging efficient investment.
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

4. 4
On your marks… Who can roll-out
FTTH infrastructure?
- Ducts in the access network required
Incumbent
- Excellent network; but opportunity cost of losing copper revenues
Utilities
- Economies of scope from operating electricity & telecoms! Deployment can be made during
maintenance of other network!
- Space? Depends on utility.
Alternative operators?
- Ducts in the access network of the incumbent often regulated (CH about 0.17€/meter)
- But price structure may make it difficult (in CH price is independent of number of cables, making
deployment close to the house more costly).
- Willingness of incumbent to extend ducts where necessary?
Note: Some Swiss cablecos have also rolled out FTTH (exception)
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

5. 5
Main forms of NGA co-investments 1/3
Joint venture (JV)
• Common,legally independent firm formed to manage & finance joint NGA roll-out
• Partner companies (e.g. Reggefiber/KPN) take JV equity stakes and bring in
assets (e.g. ducts, cash), carrying jointly the financial risk of the investment.
• Access products (e.g. fibre LLU) are then sold to shareholders and third
parties (at non-discriminatory prices?).
Long-term cooperation agreements (IRUs)
• No common company is founded
• With the roll-out of multifibre more than 1 access fibre (e.g. 4) per household are
available. Single fibres can be “sold” to other operators.
• Indefeasible rights of use (IRUs) come close to property rights on a (dark)
fibre applying to the potential lifetime of the asset (in France 3x30=90 years) and
including access to all strategic inputs such as manholes and cabinets,
collocation, splice nodes in and outside of the building.
• The grantor of an IRU continues to hold the property and maintain it (SLA). It
undertakes the investment in the dark fiber segment in question alone (rights of
way, ducts, poles, installation of cables, testing, etc.).
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

6. 6
Main forms of NGA co-investments 2/3
Long-term cooperation agreements (IRUs) scenarios
 Financial contribution
Only one operator constructs and the other contributes to financing to obtain
the IRU.
 Construction contribution
Both operators construct. Possibilities to divide the work?
1) Hierarchical split: E.g. utility builds the terminating FTTH segment to the
house/ apartment and the incumbent the feeder from the concentration point
to the ODF/local exchange.
2) Regional split: E.g. utility builds the access network in the more rural areas
and the incumbent in the inner city.
3) Both
Operators have to agree on the segments (may be based on a cost criterion,
i.e. always the more efficient operator rolls out).
The final “price” for the IRUs (e.g. 40/60 capex shares) may reflect also other
factors such as expected future market shares.
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

7. 7
Main forms of NGA co-investments 3/3
Other forms of risk sharing also allow to distribute “risk”
(i.e. of low future demand) to non-investing firms.
- E.g. unconditional “upfront” ex-ante payments (in
exchange for favourable ex-post access)
- Volume commitments
Not focus of the report.
Overview of options in Inderst & Peitz (2012, 2013).
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

8. Actors Public, Private,
Incumbent
Public,
Incumbent
Public,
Incumbent (Public)
Network de-
ployment type
FTTH GPON and
FTTH P2P - multifibre
FTTH P2P - single
fibre
Mostly FTTH P2P -
multifibre
Co-investment
mechanism
Co-investments based
i.a. on symmetric
regulation - multifibre
terminating segment
IRU access
Joint-Venture
with regulated
access
Similar to France with IRU
multifibre access. But no
symmetric regulation in
terminating segment. Also
-Regional/hierarchical
Co-construction
-Purely financial Co-
Investments
* Co-investment projects have been reported also in Italy and Portugal.
8
Country cases (2012)*
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

9. 9
- Extending the potential coverage for two FTTH networks; «infrastructure
competition»
- With co-investment red coverage approaches yellow coverage
Use of Multifibre co-investments?
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

10. 10
Caveat: Two «independent» firms?
• JV=M4 Monopoly as before the incumbent
• IRU cooperation? Depends on clauses. Examples:
- Layer 1 exclusivity: One partner is not allowed to sell
layer 1 products
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

11. 11
Compensation mechanism
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition
40%
40%

12. 12
What is needed for M4 competition
and deregulation 1/2
• Report finds that the following co-investment clauses may have
a high impact on competition:
• Joint-ventures
• Number of FTTH operators in the market. At least 3
independent operators needed for competition («two is not
enough»), unless indirect effects from cable are strong
(unlikely)(see also BEREC report on self-supply).
• IRU agreements which can strongly limit competition:
- Layer 1 exclusivity
- Strong compensation mechanisms
- Short term contract instead of long term (IRU)
- Discrimination in operational access
- Monofibre (medium): switching procedure and churn create
issues and needs increased cooperation between partners
and lowers flexibility.
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

13. 13
What is needed for M4 competition
and deregulation 2/2
• Competition authorities (NCAs) responsible to sanction
horizontal agreements
• Likely that a series of such clauses are illegal (e.g. Switzerland)
• Unclear whether this is positive.
• For example compensation mechanisms can lead to a
predetermined market outcome limiting competition but they
can also limit substantially the investment risk for the partners.
• There could therefore be a trade-off investment-competition
which an NCA non necessarily takes into account.
• NRAs objective is competition and investment
• Future: NRAs need also to understand investment effects of
regulation and of such agreements to design future regulation
with NCAs
Introduction Who can roll out?
Forms of NGA co-
investment
Effect on infra-
structure competition
Effect on M4
competition

14. 14
Questions?
Roberto Balmer
Bundesamt für Kommunikation
Zukunftstr. 44
2501 Biel
Tel. +41 32 327 56 43
roberto.balmer@bakom.admin.ch
linkedin.com/in/RobertoBalmer
slideshare.net/RobertoBalmer
amazon.com/author/roberto.balmer
ssrn.com/author=572707

15. 15
References
- BEREC report on Co-investment and SMP in NGA networks (12) 41
- Inderst, R., & Peitz, M. (2012a). Network investment, access and
competition. Telecommunications Policy, 36(5)
- Inderst, R., & Peitz, M. (2012b). Market asymmetries and investments in
next generation access networks. Review of Network Economics, 11(1).
- Inderst, R., & Peitz, M.(2013). Investment Under Uncertainty and
Regulation of New Access Networks. ZEW-Centre for European Economic
Research Discussion Paper, (13-020).