1. IIC Conference on Electronic Communications Market New Regulation Rome Tuesday, 27 May 2008 Peter Alexiadis Brussels Office Gibson, Dunn & Crutcher LLP

2. 2 Table of Contents A. General Framework for Proposed Amendments B. Harmonisation Goals C. Institutional Issues D. Specific Policies

3. 3 A. General Framework for Proposed Amendments New Institutional Structures More Streamlined Article 7 Process Availability of a Functional Separation Remedy Strengthening Existing Remedies Encouragement of VoIP Services Spectrum Liberalisation Policy Reinforcement of Consumer Rights Harmonisation Policies New Approaches Timing

4. 4 B. Harmonisation Goals I. Costs and Benefits of Harmonisation Welfare Loss Implications 1. Transaction costs 2. Costs of uncertainty 3. Costs of inappropriate or ineffective regulation 4. Costs associated with the failure of pan-European or trans-national markets

5. 5 B. Harmonisation Goals II. Prioritising Relevant Markets for Harmonisation Key Characteristics Mature markets Markets of key strategic importance Markets that are key inputs into trans-national services

6. 6 B. Harmonisation Goals III. Case Studies for Remedies (1) Mature Markets Prevalence of asymmetry for many years after liberalisation Different cost structures of ANOs Growth of FMC services Impact of IP technology Industry structure differs from fixed environment Reliance on late market entry, licence costs, frequency assignments, market shares Absence of any systematic weighing of factors to justify duration of asymmetry Divergence with level of fixed termination rates in light of FMC service growth and IP technology deployment Mobile Termination Fixed Termination

7. 7 B. Harmonisation Goals III. Case Studies for Remedies (2) Key Inputs for trans-national services Relationship with LLU : investment decisions and the “ladder of investment” Access at different levels of network hierarchy Different cost models Price squeeze issues Mobile Access & Call Origination (MACO) Wholesale Broadband Access (WBA) Wholesale Line Rental (WLR) Availability of “naked DSL” Impact of NGA Mixed record of effectiveness Availability with/without CS and CPS remedies Whether obsolete in a non-voice environment Patchwork of conditions Removal from list of recommended markets Growing demand for FMC products for multinational clients Whether “trans-national market” mechanism in Art. 15(4) FD can apply

8. 8 B. Harmonisation Goals III. Case Studies for Remedies (3) Strategically Important Markets Current regulatory lacunae Current ambivalence in treatment of VoIP in market definitions Numbering resources and USO issues being addressed Relevance of “naked DSL” to portability Next Generation Access (Wholesale) VoIP (Retail) Change in definition of LLU Integrated nature of analysis with LLU Impact of industry structure Impact of functional separation Unknown nature of remedies Relevance of access to ducts

9. 9 C. Institutional Issues The role of the European Commission in decision-making Centralisation vs. decentralisation goals Pan-European markets Injunctive powers Appeals “on the merits”

10. 10 C. Institutional Issues Possible Institutional Models  Modified Status Quo?  European Advisory Body?  The Commission as Decision-maker?  A Euro-regulator?  Options Regarding Resource-management Institutions? EECMA vs. BERT  Trautmann Report  Del Castillo Vera Report

11. 11 D. Specific Policies 1. Mobile Termination Rates  The problem with termination policy in general  Current problems with asymmetry and absolute tariffs arising through the Article 7 process  Common principles for regulating termination markets (costs and asymmetry)  Commission’s approach designed to enforce LRIC model

12. 12  The application of cost-based remedies Choice of technology Definition of the increment Efficient scale of operators Choice of technology Externalities Implications of recommended approach for MTRs  Forward-looking considerations RPP Bill & Keep Reciprocity Migration to IP Interconnection  Likely ERG Response General observations Specific issues

13. 13 2. Sub-national geographic markets  Proposed Recommendation has been replaced by Article 7(3) comments letter on Ofcom’s notification of WBA measures in the UK (14/02/2008: UK/2007/0733)  Criteria for assessing sub-national markets Market definition –3 identified patterns of competition –relevance of number of operators present in a local exchange –structural criteria such as population density and actual planned entry –introduction of de-averaged wholesale prices and product functionality –historical patterns of wholesale market share evolution per BT local exchange –Stability of market boundaries

14. 14 SMP assessment –effective constraint on behaviour of fixed incumbent from alternative providers, taking into account structural and behavioural factors –determining whether market conditions rather than regulation is driving differentiated commercial behaviour –due regard to impediments in entry/expansion within the identified geographic areas likely to adversely affect competitive constraint being exercised –risk factors for alternative operators to be taken into account, including investment effects on unbundlers from NGN roll-out Commission guidance through its comments: –strength of indirect constraint from vertically integrated operators –geographic market definition and Ofcom’s definition of sub-national markets –monitoring of trend towards effective competition –sustainability of competition from alternative providers

15. 15 3. Next Generation Access (NGA)  Proposed Commission Recommendation (timing)  A central dilemma: incentivising investment in the context of periodic SMP reviews  Continued importance of infrastructure competition evidenced through remedy selection: inside wiring duct sharing access to street cabinets ** Ambiguous nature of the obligations under Article 12

16. 16  Importance of technology issues Fibre to Node Fibre to the Home The role of bitstream access  Pricing signals Built vs. future network considerations The role of bitstream access  Pricing signals Built vs. future network considerations The role of bitstream in each Member State  Transitional arrangements Notice Planning permission More ‘communal’ approach to remedy selection More symmetric regulation?

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