Access to and use of specific resources networks 105

6.2.2.1. Consequences arising as a result of any removal of the obligation

From the assessment of SMP in the retail broadband access market it is evident that one of the factors which, recently, has led to the reduction of the market share and power of Grupo PT is the provision of local loop unbundling, with all the associated obligations and interventions by ICP-ANACOM. As shown in the assessment of SMP in the retail broadband access market in "areas C", in the absence of the obligation of local loop unbundling (and in the absence of supply of wholesale broadband access), the market share PT Group would be 50%. Accordingly, it is essential to maintain the obligation of local loop unbundling, which is one of the means of access that contributes most to the promotion of innovation and efficient investment in infrastructure and also contributes to the long-term commitment of the beneficiary operators.

This form of access could, in certain situations, to be called into question, particularly due to investments by the dominant operator in NGN and also to the roll out of attendance points and the relocation of the main attendance point accesses points to secondary accesses points. In this context, the need for detailed and timely information on developments in the access network is essential so that the OSPs can assess their impact and evaluate different investment options. These aspects will receive the best attention of this Authority in respect of the above analysis of NGN.

ICP-ANACOM considers that the removal of the obligation of granting access to and use of specific network resources is not appropriate and may have adverse implications for the market. ICP-ANACOM further considers that, in the event the obligation concerned was removed

Grupo PT would have an incentive not to guarantee such access or, at least, not grant access according to appropriate conditions.

It is noted that a company with SMP in a given market, especially in the particular case of wholesale provision of unbundled access, in order to leverage its market power, has significant incentive to deny access to its network and to refuse to negotiate, according to reasonable conditions, with companies which operate (or are planning to offer services) in adjacent retail markets and which compete with it in those markets. This problem covers both situations of outright refusal to negotiate and the provision of goods or services according to conditions which are unreasonable.

Faced with a possible situation of lack of access to and use of specific network resources used in the unbundling of the local loop, there would also be significant changes in competitive terms in all the associated wholesale markets. These changes would have a real impact on all current unbundled accesses and would also have significant future repercussions. That is, the markets would be impacted not only according to the number of accesses which are already unbundled but also by accesses which, as a consequence would not be unbundled. It is noted that the number of accesses which are unbundled each quarter remains high. Given the available information and considering the analysis of market conditions, large fluctuations are not expected to occur in the number of loops unbundled in the future.

Among the wholesale markets situated at a lower level in the value chain which would be most affected, would be the wholesale market for the provision of broadband access and the voice markets related to the market of access to the public telephone network at a fixed location. With respect to the wholesale market for the provision of broadband access, it must be considered that, taking the concept of internal supply and the existence of indirect price constraints into account, calculated market shares include Internet broadband access provided by the co-installed operators in the context of the OLL. It is noted that, if the calculation of market shares (simulating a hypothetical unavailability of the supply of unbundled access) failed to take account of these accesses, around 27% of the accesses in "areas C" or 5% of the accesses in "areas NC", would be in question, corresponding to a clear deterioration of actual and prospective competitive conditions.

Besides the obvious deterioration of competitive conditions, consideration must be made of the fact that all the investment made by alternative operators based on the continued expansion of the OLL cannot be put at risk. In particular, consideration is given to the trend in the number of local exchanges where there are co-installed operators as set out in

As far as the geographical coverage of the OLL is concerned, it can be seen that at the end of 2004 there were operators co-installed in 101 PTC exchanges. This number has gradually increased to reach a total of 221 exchanges as at the end of 2007.

Graph 1. Furthermore, in this respect there is potentially a real impact on the investment that has been made, as well as negative consequences for the future investment of alternative operators. This contradicts the principles of promoting investment and innovation, given the existence of an "investment ladder" with the OLL constituting a key "rung" of this ladder.

Moreover, in this analysis it has been identified that the provision of OLL-based retail offers has given rise to significant competition in the retail market, and the alternative operators who

use these offers have succeeded in achieving significant increases in their share of the retail market, presenting a range of very competitive offers. The removal of the obligation to provide access to and use of specific network resources would allow the operator with SMP to deny (or to provide but with unreasonable terms) access to basic resources for the provision of said retailers offers, leading to a significant reduction of competition in the market retailing, thereby allowing significant gains to be made through such a denial.

It should be noted that the unavailability of OLL-based retail offers would also imply significant disadvantage for end users who would no longer have the same range of options, in terms of price, quality and included bundled services, with respect to subscription to offers. In this respect it should be mentioned that the unavailability of OLL-based offers would not only affect the retail broadband Internet access market but also offers of other markets whose bundled offers are based on the OLL, ultimately impacting the subscription television market and the markets for access to the public telephone network at a fixed location.

6.2.2.2. Other arguments for maintaining the obligation

In considering the possibility of whether or not to impose an obligation of access and the proportionality of that decision, ICP-ANACOM must take into account article 72, paragraph 4 of Law no 5/2004, according to which the assessment of the proportionality of this obligation involves in particular, the analysis of the "the technical and economic viability of using or installing competing facilities, in the light of the rate of market development, taking into account the nature and type of interconnection and access involved; the feasibility of providing the access proposed, in relation to the capacity available; initial investment by the facility owner, bearing in mind the risks involved in making the investment; the need to safeguard competition in the long term”.

In this respect, considering that the obligation of access has already been imposed and implemented in the past, account should be taken of the fact that the technical and economic feasibility of imposing this requirement has already been demonstrated by the developments in this market and associated markets. Similarly there are no longer any questions regarding any risks to the investment made in order to provide the offers of access concerned. On the contrary, as already indicated, all investments made by the operator with SMP and the operators who have invested in this offer must be taken into consideration, safeguarding the maintenance of such investment and the protection of competition over the long term.

It has also been shown that it is expected that a vertically integrated company with SMP in the wholesale market might try to restrict access to their wholesale products and services whereby new entries in the retail market lose market power at the retail level. By denying access, the dominant firm could conceivably increase its market power (and may charge excessive prices in the retail market). Accordingly, this company can leverage its market power in the wholesale market into the (potentially competitive) retail market. The effects on social well-being arising from this type of behaviour are clearly negative.

In the decision of 30 March 2005, ICP-ANACOM considered the possibility of the development of competition at the level of the wholesale market, given that the realisation of that development could solve the identified problems. At that time it was concluded that, "even

knowing that it is possible for competing companies to invest in their own networks, the replication of the local access network supported by metallic pairs may not be desirable and is not practicable". In this regard it is noted that Regulation (EC) no 2887/2000 states that "it would not be economically viable for new entrants to duplicate the incumbent's metallic local access infrastructure in its entirety within a reasonable time”142. Available information and

analysis performed by ICP-ANACOM suggests that this economic rationale remains sound. This is without prejudice to the announcement of investments in "own" infrastructure143, particularly in NGN, by one of the main beneficiaries of the OLL - Sonaecom. These investment plans are, however, limited to certain geographical areas and do not cover the entire national territory (it covers 25% of the Portuguese population) and span a period of three years (greater than the period that is expected to elapse until the next market analysis which could examine the impact of such investments).

6.2.2.3. Conclusions

In the absence of any obligation to grant access to the local loop, ICP-ANACOM concluded that it would not be expected that the SMP company would voluntarily maintain access to its local loops144, - the necessity of Regulation (EC) no 2887/2000 as the starting point of regulation as the issues which merit the intervention of ICP-ANACOM in this respect are evidence of this situation - while it is expected that, in the absence of any obligation of providing access to the local loop, the SMP company would refuse to negotiate according to reasonable conditions and, as a result, concede access to its local loops and sub-loops and associated resources (including co-installation in attendance points). Therefore, ICP- ANACOM considers that the maintenance of the obligation to grant access to local loops and sub-loops and associated resources (including the service of co-installation at sites housing the distributors of copper pairs or the signal delivery service) based on the nature of the identified problem, is justified and proportionate.

As mentioned above, ICP-ANACOM is currently examining the issues related to the evolution to NGN and will consider in this context, the possibility of imposing, in addition to the obligation of access to conduits (pursuant to Law 5/2007 and which remains fundamental for the development of competition in this market), access to dark fibre, particularly in situations where access to conduits is not possible for reasons of capacity or other reasons, and the possibility of unbundling the fibre optic loops. The specific conditions of co-installation at the level of street cabinets, as set out in the current offer, will also be examined in this respect. Analysis of these issues, while constituting a very specific analysis, should be seen as the discrimination and detailed characterisation of the obligations outlined in this document, to be developed according to the framework of a market consultation process.

142 _{See Regulation (EC) no 2887/2000, considering (6).} 143 _{Available at}

http://www.sonaecom.pt/filedownload.aspx?schema=a67f9277-d23c-4f99-8642-9acd3e463b93&channel=44E65941-12EC-

4115-9D0F-898A110E2077&content_id=93AD601F-8267-4AE1-95E8-50A41A1C0D5A&field=file_src&lang=pt&ver = 1.

144 _{Record is made, for example, of the position taken by Portugal Telecom in response to the Public Consultation on} competition in local access through OLL, which consultation was launched by ICP-ANACOM on 10.07.2000 (available at

Given the above factors as set out in article 72, paragraph 4, of Law no 5/2004, ICP-ANACOM concludes that, based on accumulated experience in monitoring the OLL and in the development of these products and also based on the analysis performed in the present document, it is fully established that it is feasible for Grupo PT to grant access to local loops and associated resources.

Concerning the need to safeguard competition over the long term, it is concluded that, in view of the fact that PTC possesses a significant part of the accesses to the final customer, access to the local loop constitutes an essential service for enabling companies to compete with PTC and includes, but is not limited to, offers of broadband services. Setting an appropriate access price allows competitors to evolve in terms of investment in their own infrastructure while allowing the supply of competitive retail services, with clear benefits for the end user. This fact has been demonstrated by developments in the wholesale market in question and also in markets situated lower down in the vertical value chain, particularly in the retail broadband Internet access market with a substantial increase in competition in areas where there are OLL-based offers, which is also the basis of the proposed geographic division of the respective wholesale market. The aforementioned article 72 of Law no 5/2004 provides for various types of obligations of access which may be imposed. Additionally, and in light of said article 72, paragraph 2 of Law no 5/2004, it is the position of ICP-ANACOM that Grupo PT shall continue to be subject to obligations to negotiate in good faith with companies requesting access and not withdraw access where already granted to determined resources.

The obligations of access to local loops and sub-loops and associated facilities are currently met by the conditions currently offered by Grupo PT through the OLL and it is the position of this Authority that these obligations should continue to be maintained, subject to conditions as may be specified and detailed in separate documents, including, in particular, in respect of NGN.

Therefore, in light of the above, it is the position of this Authority that all obligations with respect to granting of the access to and use of specific network resources, imposed by the decision of 30 March 2005 remain reasonable, appropriate, proportionate and justified. Consequently, all such obligations shall be maintained.

It is noted that the obligation of access will not be in itself sufficient. It is the position of ICP- ANACOM that it will be necessary to maintain additional obligations, pursuant to Law no 5/2004 in order to overcome the potential problems of competition, such as excessive pricing or discriminatory practices, ensuring the availability of access on reasonable terms which are appropriate to the conditions prevailing in the markets relevant to this analysis. These issues are addressed in the following sections.

However and since there are already retail offers supported in said offer and since experience has already been amassed, there exist certain aspects of the OLL which merit review or updating, with special attention to: (a) improvements in information to be made available with respect to the access network and changes in the network; (b) forecast plans; (c) entry of cable to exchanges through the conduits of PTC; (d) re-scheduling of local loop unbundling; (e) periods of access to exchanges; (f) levels of quality of service, including for Premium services;

(g) compensation for non-compliance with levels of quality of service; (h) undue closure of faults; and (i) possibility of OSPs installing higher speed xDSL technologies.