Equivalence of output in Italy Brussels 29 April 2014 Davide Gallino Head of Unit, Equivalence of access Electronic communications Networks and Services Directorate - AGCOM Disclaimer: Any views or opinions presented hereby are solely those of the author and do not necessarily represent those of the institution 1

EOI and EOO In the European regulatory framework, there are two recognizable types of equivalence: Equivalence of Inputs (EoI): the downstream access product retailed by the incumbent uses exactly the same physical upstream inputs as the downstream product supplied to its competitors, e.g. same tie-cables, same electronic equipment, same exchange space, etc. The (wholesale) product development process is therefore exactly equivalent in its provision in terms of functionality and price. Equivalence of Outputs (EoO): the access products offered by the incumbent operator to alternative operators are comparable to the products it provides to its retail division in terms of functionality and price, but they may be provided by different systems and processes. (BEREC guidance on functional separation - BoR (10) 44, pg. 7-8.) 2

Recent Non discrimination milestones In 2011, EC promoted a consultation on: Non Discrimination Obligation Under Article 10 Of The Access Directive, including Functional Separation Under Article 13a); In 2013, non discrimination was encoded in a Recommendation which also cover cost accounting obligations (C(2013) 5761 final ) The two (ND and Equivalence) go together since non- discrimination can be economic, technical, or both. But it is helpful to have ND provisions and more specific rules for EOI/EOO. 3

Equivalence of access and non discrimination in Italy. The path to EOO 2000 In July 2000, 26 alternative network operators wrote a joint letter to AGCOM to protest against the discriminatory practices, which, according to them, were used by TI, the incumbent operator. TI was accused of delaying (business/technical) operations, squeezing the margins of alternative operators, discriminating these operators to the advantage of the downstream divisions of TI operating in the same markets, using technical and economical discrimination as an anti-competitive weapon. May 2002 Following a year-long investigation, including a detailed procedure and the opinion of the national Competition Authority, a landmark decision (152/02/Cons) was adopted by AGCOM in May That decision focused on ensuring equivalence of access and non-discrimination (parità di trattamento interna-esterna). The decision imposed on TI (as SMP operator) included the adoption of margin squeeze tests, accounting separation and a cost accounting methodology. Functional separation between the IT-systems of the wholesale and retail divisions of TI was also imposed, together with publishing service level agreements (SLAs) to ensure technical non-discrimination. In pursuing non-discrimination, 2008 In addition, starting from 2008, as a result of accepting TIs Undertakings (effective from 1 January 2009), monitoring and implementing Equivalence of Output (EoO) became an iterative process. Such processes imply close monitoring, facilitating technical solutions and implementation of detailed business support and operational support systems. The current model has thus a relatively long history Non discrimination rules, including margin squeeze tests, are updated periodically 4

Equivalence of outputs (EOO) Whereby wholesale products offered by TI to altnets would be comparable to those offered to its retail activities, but the underlying processes did not have to be exactly the same. Also, the business/operations support systems may differ. Mitigate bad performance Identify priorities Set deadlines Implement changes and iterate Address inefficient processes

EOO in Italy - Situation in 2011

7 Open Access: Production of SMP Access services KPI TI RETAIL KPI Altnet Ordering/TT (provisioning and assurance) The EoO model adopted by TI ensures a complete process symmetry between TI Retail and Altnets. In fact, TIs Retail and Altnets have an equivalent interface with OA All employees in charge of the provisioning and TT assurance, for both TI and Altnets, are in OA National Wholesale Services is only in charge of the commercial and administrative/contractual relationships between TI and Altnets Current Equivalence of Output model according to TIs (2014) End User TI Retail Altnet Retail End User TI Retail Altnet Retail End User Production of TIs retail access services Production of Altnets retail access services

Compliance regime design AGCOM Delibera n. 718/08/CONS dell11 dicembre 2008, accepted Undertakings. This decision called for a) Establishing a monitoring group (GMI, chaired by an AGCOM officer – Head of Unit) with regulatory/compliance/sanctions functions; b) Setting up OTA –Italy to address technical and new emerging issues in access provisions; c) Setting up an NGN Committee (Next Generation Network) Italia, to discuss technical economical and organizational issues in the transition towards NGA OdV § 7 of the Undertakings called for the establishment of a Compliance verification body (Organismo di Vigilanza or OdV), financed by Telecom Italia, with a President appointed by 8

Compliance regime 2014 AGCOM Delibera n. 718/08/CONS dell11 dicembre 2008, accepted Undertakings. This decision called for a) Establishing a monitoring group (GMI, chaired by an AGCOM officer – Head of Unit) with regulatory/compliance/sanctions functions; b) Setting up OTA –Italy to address technical and new emerging issues in access provisions; c) Setting up an NGN Committee (Next Generation Network) Italia, to discuss technical economical and organizational issues in the transition towards NGA OdV § 7 of the Undertakings called for the establishment of a Compliance verification body (Organismo di Vigilanza or OdV), financed by Telecom Italia 9

Equivalence of output according to AGCOM = high resolution regulation Crisis management and prevention Exact rules + Moral suasion supported by threat of sanctions Some (voluntary) Undertakings turned into (mandatory) Remedies (already in 2009) SLA and penalties (service level guarantees) regularly enforced (fine should not be a price) KPI less relevant until the system is really fine-tuned 10

Prevention #1 – «Line overhaul» and «Cabinet upgrade» planned/executed,

Prevention #2 «Yellow lights» In the transition from bitstream ATM to Ethernet, many central offices become saturated or nearly so. An early warning system («yellow light») was devised in order to reduce sales rejections; the system also pointed out areas for prioritization of investments , DSLAM ATM 7 mbit/s

EOO also a moving target Levels of performance need to evolve over time New wholesale products might require adjustments to established processes or outright innovation (es. «dumb» cabinet becomes smart) Delivery, provisioning time and fault management might become an important part of altnets commercial strategy: these are assets that need to be protected by NRAs, especially when the incumbents network is an essential facility 13

Current performance of EOO / 2014 Unsatisfactory performance in terms of provisioning and delivery (migration over active lines, number portability, missing or wrong entries in records that cause unjustified order rejections), and assurance (fault management, including recurring faults) Complex system generates complex interactions and new problems Some processes need to be designed from scratch (i.e. access to cabinets in co-operative Fttcab deployments); others evolve over time (transition to ethernet from ATM)