Communication from the Commission - Unbundled access to the local loop: Enabling the competitive provision of a full range of electronic communication services including broadband multimedia and high-speed internet
Date: 2000-04-26
Institutions: European Commission
Subjects: competition law, new technology, single market, telecommunications, transmission network

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 26.4.2000
COM(2000) 237 final

COMMUNICATION FROM THE COMMISSION

Unbundled Access to the Local loop: Enabling the competitive provision of a full range
of electronic communication services including broadband multimedia and high-speed
internet

CONTENTS

1. Introduction

1.1.

1.2.

Objectives

Background

2. Means of access to the local loop

3. The competitive situation of markets

4. Application of competition rules

5. Application of Sector Specific Rules (ONP)

6. Duties of National Regulatory and competition Authorities

7. Conclusion

Annex – Technical aspects of unbundled access to the local loop

2

1.

INTRODUCTION

1.1.

Objectives

The main policy objectives that underpin the existing regulatory framework, as set out in the
Commission’s Communication on the 1999 Review,1 are:

– To promote an open and competitive European market for communications services;

– To benefit the European citizen in particular through creating new job opportunities;

– To consolidate the internal market in a converging environment.

The Commission Recommendation on unbundled access to the local loop2 fits into this
framework and with the conclusions of the Lisbon Summit, of accelerating Europe’s
transition to the new information society, in particular through the deployment of cheap
internet services. It identifies actions that Member States are invited to take to address limited
competition in the local access network where the incumbent continues to dominate both the
provision of voice telephony and the development of higher bandwidth services.

Providing access to the local loop to all new entrants will increase the level of competition
and technological innovation in the local access network, which will in turn stimulate the
competitive provision of a full range of telecommunication services from simple voice
telephony to broadband services to the customer. The types of broadband technologies now
available (see annex I) are well suited to providing cost-efficient leased circuits and high
speed internet access to small and medium enterprises, and to the top end of the consumer
market. As the market grows and economies of scale are realised, lower prices will make
these broadband services accessible to a large part of the population. Experience shows how
quickly demand can grow once the price is right.

Several Member States have already mandated or have formally fixed dates for unbundling
(Austria, Denmark, Finland, Germany, Italy, Netherlands, UK, see Fifth implementation
Report 3).

1.2.

Background

The local loop refers to the physical circuit between the customer’s premises and the
telecommunications operator’s local switch or equivalent facility. Traditionally it takes the
form of pairs of copper wires (one pair per normal telephone line), but increasingly fibre optic
cables are being deployed to connect large customers, and other technologies are also being
rolled out in the local access network.4 Local loop unbundling has been mandated in certain
Member States and is used mainly for the connection of those customers for which the
deployment of optical fibre is not an economically viable alternative, such as small and
medium enterprises (SMEs) and residential customers.

In its Communication on the 1999 Review, the Commission noted that the availability of
unbundled access to the local loop increases competition and that it could in addition speed up

1

2

3

4

COM(1999) 539. See http://www.ispo.cec.be/infosoc/telecompolicy/review99/review99en.pdf.
OJ …. (to be published).
COM (1999)537, 11 November 1999, Fifth Report on the Implementation of the Telecommunications
Regulatory Package, see http://www.ispo.cec.be/infosoc/telecompolicy/5threport.html.
Wireless local loops, power line networks etc, in addition to cable TV networks.

3

the introduction of high speed Internet access services. During the public consultation on the
Review a broad consensus has emerged on the necessity of unbundled access to local loops
for the emergence of advanced services in a competitive environment.5

In addition,

the ubiquity of

This results from the fact that operators rolled out their local access networks over significant
periods of time protected by exclusive rights and were able to fund its investment costs
through monopoly rents.
loop access
infrastructure controlled by the incumbent operator is not in all circumstances economically
feasible to duplicate, and alternative local access infrastructures (cable-TV, wireless local
loops, satellite, etc) cannot usually be constructed with the same ubiquity and competitive
conditions within a reasonable time. In the absence of technical and commercial viable
alternatives refusal to supply access by a dominant company holding such an infrastructure
may in the circumstances of the specific case and in the light of the case-law of the
Community courts, constitute an infringement of Article 82 of the Treaty.

the copper

local

2.

MEANS OFACCESS TO THE LOCAL LOOP

To overcome the limited current competition in the local access network referred to above,
three means of access to the local loop are considered:

(1)

Full unbundling of the local loop (unbundled access to the copper pair for the
competitive provision of advanced services by third parties)

In the case of full unbundling of the local loop, the copper pair is rented to a third
party for its exclusive use. The lessee has full control of the relationship with its
customer for the provision of a full range telecommunication services over the local
loop, including deployment of digital subscriber line systems (DSL) for high speed
data applications.

(2)

Shared use of the copper line (unbundled access to the high frequency spectrum of
the local loop for the competitive provision of DSL systems and services by third
parties)

In this form of access,
the incumbent operator continues to provide telephone
service, while the new entrant delivers high speed data services over the same local
loop using its own high- speed ADSL modems. Telephone traffic and the data traffic
are separated by means of a splitter before the incumbent’s switch. The local loop
remains connected to, and part of, the public switched telephone network.

(3)

High speed bit stream access (Provision of DSL services by incumbent)

‘High-speed bit stream access’ refers to the situation where the incumbent installs a
high speed access link to the customers premises (e.g., by installing its preferred
ADSL equipment and configuration in its local access network) and then makes this
access link available to third parties, to enable them to provide high speed services to
customers. The incumbent may also provide transmission services to its competitors,
to carry traffic to a ‘higher’ level in the network hierarchy where new entrants may
already have a point of presence (e.g. a transit switch location).

5

Communication from the Commission on the results of the public consultation on the 1999
Communications Review (COM(2000)xxx).

4

This type of access does not actually entail any unbundling of the copper pair in the
local loop (but it may use only the higher frequencies of the copper local loop as in
(2) above).

Further technical details can be found in the attached Annex.

The Commission considers that these three means of access to the local loop should be seen
as complementary. The availability of only some of these means of access is not enough.
Together they serve to reinforce competition and improve choice for all users, by allowing the
market to decide which offering best meets users needs, taking into account the evolving
demands of users and the technical and investment requirements for market players.

3.

THE COMPETITIVE SITUATION OF MARKETS

This section examines the present competitive situation in local loop related markets and the
economic rationale for unbundling the local loop. In spite of the liberalisation of voice
telephony on 1.1.1998 in most Member States, the incumbent’s market power remains
unchallenged on a significant part of telecommunications markets. One of the main reasons
for this is the bottleneck situation on the local loop related markets, because the incumbent’s
local loop is the key infrastructure providing incumbents with a privileged access to end-users
for the delivery of retail telecom services.

3.1.

Incentive effects of
economic efficiency

local

loop unbundling on increased competition and

While commercial negotiation is the preferred method for reaching agreement on the price of
local loop access, experience shows that in most cases regulatory intervention is necessary.
The lack of competition in this area means that it is appropriate for the national regulatory
authority (NRA) to impose obligations for pricing to be cost-oriented, based on specific
principles and methods in order to achieve long-term sustainable and efficient competition
and provide predictability to market players.

In order to achieve the aim of increased consumer choice the economic incentives created by
the policy framework, in particular the pricing methodology, must encourage all operators to
make appropriate investments. Thus when priced at a level that does not distort the ‘make or
buy’ decision of an entrant, local loop unbundling can encourage long term infrastructure
competition by allowing entrants to test out
the market before building their own
infrastructure, and can encourage a more competitive and innovative market for simple voice
telephony and the roll-out of local broadband (high speed) services. While it is possible that
the incumbent will introduce these technologies in its own time, the speed of take-up is likely
to be increased if entrants are also allowed to upgrade the incumbent’s local loops and offer
broadband service directly to users. This freedom for new entrants to rollout services
independently of the decisions of a dominant operators is a strong argument for local loop
unbundling rather than resale because, with resale, entrants are constrained to offering similar
services to those provided by the dominant provider.

is important

to establish the framework for any mandated access to local

It
loops of
incumbents, and accompanying pricing controls, against a standard of promoting economic
efficiency, enabling wider competition and maximising consumer and user welfare.

5

3.2.

Market analysis – Market power of incumbents - The local loop’s key rôle.

In the Full Competition Directive6, the Commission distinguished various fixed telephony
retail services: the initial connection, the monthly rental, local calls, regional calls and long
distance calls. While categories of services have to be monitored closely, particularly given
the speed of technological change, and regularly reassessed on a case-by-case basis, these
services are presently normally not substitutable for one another, and would therefore be
considered as forming different relevant markets.

local

The
telecommunications services. Two main categories of retail services markets are involved :

is primarily an

infrastructure

delivery of

allowing

loop

the

retail

•

•

the first is the traditional fixed telephony retail services offered to residential users, to
professionals and small firms and to large businesses. This market is already very well
developed and mature;

the second is a new emerging market and consists in high-speed telecommunication
services which can be delivered on the local loop in the form of DSL services.

Additionally, the local loop is a commodity which can be priced and rented to competitors:
this means that as soon as access is given to this part of the incumbents’ network a new access
market develops which is also a relevant market to take into consideration.

As a result of the liberalisation of voice telephony services as of 1.1.1998 in most Member
States, the service offerings of new entrants have developed quickly particularly in the
international calls market and, to a lesser extent, the regional calls market. At the same time,
given the cost of investment in local access network infrastructure and/or dependence of the
service offerings of the incumbent, competition in provision of full voice telephony services
(including the connection, monthly rental and local calls markets) is concentrated on business
customers in urban areas. As a result each of these markets has a very different competitive
situation and, whilst the market share of the incumbents has decreased in international and
regional call markets, they still deliver the bulk of access services to end-users – the
connection and the line rental - and hold a share of the local calls market which, except in the
UK, is well above 90% and in most cases close to 100%.

The incumbents’ local access network (ie the copper pairs connecting end-users to the closest
distribution frames) is not the only technical infrastructure allowing for the provision of retail
services to end-users. Other alternatives exist such as fibre optic networks, wireless loops or
upgraded cable TV networks. However, none of these alternatives can be considered as an
equivalent. Fibre optic networks are presently only competitive on upstream transmission
links and, as concerns the retail distribution network,
in special niches like networks
connecting office buildings or a narrowly defined geographical area. Wireless loops appear in
the near and medium term future most suitable to address the specific needs of professional
clients and small firms, or individual end-users with particular needs, but would remain
uneconomic for serving the large majority of the residential clientele. Cable networks which
were designed for one-way TV need costly upgrades for the provision of two-way telecom
services, and the provision of high speed services on cable involves customers sharing the
capacity of a cable channel, which means that high speed data via cable modems does not
offer the same capacity as the copper pair upgraded with DSL technologies, which is

6

Directive 96/19/EC, recital 20. OJ L 74, 22.03.1996, p.13.

6

dedicated to every single end-user. Additionally cable networks do not normally, except
maybe in a few countries where the situation would have to be assessed on its own merits,
have a nation-wide coverage which would allow entrants to serve the same geographic
markets as incumbents, whether for traditional voice telephony retail services or new DSL
services. Other innovative technologies such as the use of electricity networks do not appear
to be a technically or economically viable alternative solution at present. While this may over
time change, at present none of these alternative networks, nor even their combined use, can
for the purposes of delivering retail narrow and large bandwidth telecommunications services
be considered as a nation-wide alternative to the incumbents’ copper pair.

The incumbents’ local loop networks have been developed nation-wide in each of the
Member States. New entrants have licences delivered by the national authorities and are also
expected to compete on the national markets. Therefore the geographic market where
competition would in the absence of a bottleneck situation normally develop is the national
territory of each Member State: this is what already happens for international and long
distance calls for which, owing to access via interconnection, no bottleneck situation impedes
the deployment of nation-wide offers by new entrants. The bottleneck situation experienced
so far for the provision of access and local calls services and now for the provision of high
speed services does not prevent new entrants from developing local networks, at a more
limited level, such as in densely populated urban areas, but with these networks they are
normally unable to compete nation-wide on an equal footing with incumbents, providing the
same whole range of services (see below). The Member States’ territory is, according to the
existing case law, a substantial part of the common market.

Thus, without unbundled access to the incumbents’ local loop, and despite recent major steps
like the introduction of carrier preselection for telephone calls, new entrants are unable to
compete on several markets including the provision of high speed services to most end-users.
This situation may change over the long run. New developments shall have to be monitored
closely.

Incumbent operators enjoy a position of dominance on the traditional – narrowband – market
for telephony services. This is clear from an examination of the market shares of incumbents -
the most
traditional way to assess dominance. The incumbent’s market share is in all
circumstances well above 50%, even on the most competitive relevant market –international
calls- in the most open geographical market, the United Kingdom, where liberalisation started
already in the 1980s. As noted above in other markets, such as local calls the market shares of
the incumbents is in the majority of cases well above 90%, and often close to 100%.

While interconnection and carrier selection allow for an opening to competition of the long
distance and international calls markets, the local loop is the key infrastructure for providing
access services to end-users (i.e. the connection and line rental) and remains within the
incumbents’ control. Although in some countries carrier preselection also allows the delivery
of local call services (call origination) by alternative operators, where this is not yet the case
the local loop is also a key infrastructure for providing local calls services. Therefore the local
loop is a bottleneck infrastructure for the nation-wide distribution of retail access and also, in
most cases, local call services, which form two relevant markets of non substitutable services.

The situation in the new markets for high speed services is less obvious. Where new high
speed services are offered the presence of incumbents is nevertheless already strong and they
would under the present conditions be able to consolidate their dominant position on this new
market as well, owing to their privileged access to end-users through the nation-wide existing
copper pair networks.

7

Thus it appears that the control of the incumbent’s nation-wide local loop gives them a
considerable leverage for maintaining their dominant positions on existing voice telephony
retail markets, in spite of their liberalisation, or for establishing similar positions on new
emerging markets for high bandwidth services. The incumbent’s copper pair is the key
infrastructure for providing: i) access voice telephony retail services, which includes call
termination; ii) local call (origination) services7; and iii) high bandwidth services to end-users.
These services form three separate relevant markets.

Given the size of investments required, the absolute cost of nation-wide duplication of the
incumbents’ network with a similar population coverage is likely to be a barrier to entry for
any competitor. This infrastructure appears to be with present technologies economically
unfeasible8, or unreasonably difficult to duplicate at a nation-wide level9 in a reasonable time
in particular
period, even for the most
incumbent operators from other Member States which develop their activities in neighbouring
European countries, alone or in cooperation with others.

important competitors of existing incumbents,

A refusal from an incumbent to give access to competitors on its local loop is thus likely to
eliminate the possibility for new entrants to compete at all on the nation-wide market10 for the
three identified services, and they would be limited to regional and local markets where they
succeed in building alternative networks. It is highly improbable that all those alternative
networks put together will in a reasonable time period be able to match the incumbents’
nation-wide network of copper pairs and address the same entire customer population. It is
therefore considered that the local loop is presently essential and thus access is necessary for
competitors in order for them to be able to compete nation-wide on a level playing field with
incumbents on the three identified retail services markets and to address the same customer
population.

Given the speed of technological change and market developments which influence the
technical and economic assessment of alternatives to the copper pair, the present analysis may
need to be reviewed and is without prejudice to individual case-related decisions.

4.

4.1.

APPLICATION OF COMPETITION RULES

The duty of the dominant operator under competition rules to grant access to
the local loop

Refusing to grant access to the local loop to competitors requesting access is likely to imply
various forms of abuses of dominant position under article 82 of the Treaty.

• Refusal to deal: on the three relevant markets identified, where the incumbent is the only
provider of services over the local loop, a refusal to let competitors have access to the
incumbent’s local loop may under certain circumstances be contrary to Article 82, if it
would
is
indispensable for the provision of nation-wide services to end-users as appears to be the

prevent any competition on the relevant nation-wide markets and if it

7

8

9

10

Where carrier selection and preselection is not yet available for local call (origination) services.
See Judgment of the E.C.J. of 26 November 1998. Oscar Bronner GmbH & Co. KG v Mediaprint
Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH &
Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG. Case C-7/97., paragraph 44.
Except maybe in the smallest of EU countries, Luxembourg.
See Oscar Bronner Judgment, paragraph 38.

8

case at present. The dominant operator would have to provide local loop access to all
its own downstream
competitors on no less favourable conditions than those for
operations. Under a certain set of conditions access to the local loop may be requested:

- sufficient capacity must be available in the incumbent’s network to provide access;
- a refusal of access would limit the emergence of new services or prevent any competition
on the relevant markets as defined above;
- the requesting party is ready to pay a non discriminatory price for the access;
- and there is no objective justification for refusing access.

• Discrimination: on the three relevant markets identified, where the incumbent is already
providing local loop access to at least one operator, be it one of its own subsidiaries, a
refusal of access may under certain circumstances amount to discrimination and constitute
an abuse of dominant position.

• Limitation of production, markets, or technical development

to the prejudice of
consumers. Refusal of access in the form of shared access or full unbundling may in
certain circumstances limit the development of emerging markets like high speed telecom
and internet services, or impede the development of competition on existing markets such
as traditional voice telephony services.

An incumbent, by making the shared access on high speed services (see section 2)
conditional upon the continued provision of its own narrow bandwidth telecom services
to the same end-users, and thereby refusing full local loop unbundling, may in certain
circumstances behave in an abusive way. Such restriction would lead to a distortion of
competition, by limiting the possibility of competitors to enter the markets or to develop
their activities, and, given the fact that full unbundling has successfully been introduced
in a number of countries, would need to be objectively justified.

4.2.

Dominant operators’ duties regarding the conditions of access and pricing

Where dominant operators do not formally refuse upon request partial or full unbundling of
the local loop, but define a set of conditions of access which restrict competition, other forms
of abuse may occur which would as well constitute infringements of Article 82 of the treaty.

• Delays. Access should normally be granted promptly. If granting access is delayed, the
incumbents would in practice be able to reserve for themselves the emerging market for
high speed services based on DSL technologies,
thereby extending their dominant
positions for the network into this new area of activity, or deferring the possibility for new
entrants to compete on a level playing field on several voice telephony relevant markets.
The effects of such delays without objective reasons could therefore be the same, at least
in the short term, as an outright refusal to give access and be attacked under Article 82 on
the same basis as a refusal.

• Discrimination. Abusive discrimination can take many different

such as
discriminatory pricing, delays in granting access or delays in remedying technical
problems related to the access, the technical configuration of the access and in the specific
case of local loop access (e.g. if access does not include operating system and support
services or other functions used by the incumbent to offer services via the local loop),
discrimination in the terms on which collocation is (or is not) offered. Such practices
could constitute discriminatory behaviour as caught by Article 82(c).

forms,

9

• Price abuses. Prices may be another way for incumbents, while formally granting access
to the local loop, to restrict competition. Three main categories of price abuses can
potentially occur. Excessive access prices to the loop, predatory prices on services offered
to end-users or margin squeezes between the two latter prices could all constitute
infringements of article 82 of the Treaty. The scope for margin squeezes is likely to be
higher where the incumbents’ tariffs have not been fully rebalanced on a cost recovery
basis.

5.

APPLICATION OF SECTOR SPECIFIC RULES (ONP)

5.1.

General

The Open Network Provision (ONP) framework concerns the harmonisation of conditions for
open and efficient access to, and use of, public telecommunications networks and, where
applicable, public telecommunications services. The ONP Directives set out conditions for
access to, and use of, specific types of networks and/or services; thus the Leased Lines
Directive11 deals with access to and use of leased line transmission capacity, the Voice
Telephony Directive12 deals with access to and use of public telephone networks and services,
innovative access, and the Interconnection Directive13 deals with
including special
interconnection of and access to public telecommunications networks and services in general.

‘Network access’ as used in ONP Directives means making accessible some part or parts of
an existing network for use by another party, but does not involve an interference with
ownership of the network element(s). Obligations in sector specific Directives to deal with or
meet requests for network access (which apply to operators notified as having significant
market power) do not oblige incumbents to provide full unbundled access to local loops,
although this is without prejudice to obligations to provide ‘access’ that may be imposed on
dominant operators under competition rules. Only the leased line Directive mandates notified
operators to lease transmission capacity under harmonised conditions to third parties for their
exclusive use.

5.2.

Special network access

Shared access to the high frequency spectrum of the local loop is covered by Article 16 of the
Voice telephony Directive and Article 4 of the Interconnection Directive. High speed bit
stream access services are covered by Article 16 of the Voice telephony Directive and the
provision of associated transmission capacity (back-haul) by Article 10 of the Leased lines
Directive. Full unbundled access to the local loop is not covered by the ONP Directives.

11

12

13

Council Directive 92/44/EEC of 5th June 1992 on the Application of Open Network Provision to
Leased Lines (OJ L 165, 19.6.1992, p.27 ), as amended by Directive 97/51/EC of the European
Parliament and of the Council of the 6 October 1997 (OJ L 295, 29/10/1997 p 23), and Commission
Decision 98/80/EC of 7 January 1998 (92/44/EEC OJ L 014 , 20/01/1998 p. 27).
European Parliament and Council Directive 98/10/EC of 10 February 1998 on the application of open
network provision to voice telephony (OJ L 101 , 01/04/1998 p. 24).
Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on interconnection
in Telecommunications with regard to ensuring universal service and interoperability through
application of the principles of Open Network Provision (ONP), (OJ L 199/32 26.7.97, p.32) , as
amended by Directive 98/61/EC of the European Parliament and of the Council of 24 September 1998
with regard to operator number portability and carrier pre-selection (OJ L 268 , 03/10/1998 p. 37).

10

Where an operator notified as having significant market power under the Voice Telephony
Directive provides shared access to the local loop for its own services, it is granting itself
special network access, in that it is making use of the fixed public telephone network for
providing publicly available telecommunications services. In these circumstances, the notified
operator must apply similar conditions to other organisations providing similar services, and
must provide special network access facilities and information to others under the same
conditions and of the same quality as they provide for their own services or those of their
subsidiaries or partners ( Directive 98/10/EC, Article 16(7)).

Where a notified operator is not already providing itself with such access, it must at least
deal14 with reasonable requests for special network access. Given that the majority of EU
operators grant themselves shared access to the local loop for their own services, a request for
such access from a new entrant cannot be considered to be an unreasonable request. Then, the
obligation to deal with requests for access can only be refused if the two following conditions
are both met (article 16(1)):

– there are technically and commercially viable alternatives to the special access requested,

and

– the requested access is inappropriate in relation to the resources available to meet the

request.

Since shared access applies to existing local loops, it will only rarely be the case that
resources are not available to meet the request, and so in most cases both conditions for
refusal to provide access will not be met. Any such refusal would need to be justified on a
line-by line basis.

5.3.

High speed bit stream services

The provision of high speed bit stream services is not mandated under Community law, but
where an incumbent operator provides bit-stream DSL services to its own services, subsidiary
or third party, then, in accordance with Community law, it must also provide such forms of
access under transparent and non-discriminatory terms or conditions to others (Directive
98/10/EC Article 16 (7).

High speed bit stream access cannot be considered to be economically or technically
equivalent to providing access to the copper pair in the local loop, since a high-speed bit
stream service requires the new entrant to use the high-speed modems and other equipment
provided by the incumbent, and that in turn affects the economics of the service and places
restrictions on the type of modems that the customer of the new entrant can buy or rent.15

5.4.

Leased line transmission capacity

Those operators notified as having significant market power for the fixed public telephone
network have also been notified as having significant market power under the Leased lines
Directive16 92/44/EC. As such they have obligations to provide leased transmission capacity

14

15

16

Directive 98/10/EC imposes an obligation to ‘deal’ requests. Directive 97/33/EC imposes the stronger
obligation to ‘meet’ requests.
International standardisation has not yet reached a stage where inter-operability between DSL systems
from different manufacturers can be guaranteed without involving significant loss of performance.
See ISPO http://www.ispo.cec.be/infosoc/telecompolicy/en/comm-en.htm#misc
1 January 2000 - INFORMATION received from Member States concerning Organisations with
Significant Market Power.

11

to others under the same conditions and of the same quality as they provide for their own
services, or those of their subsidiaries or partners (Leased lines Directive Article 8(2)
92/44/EC).

When a notified operator provides a high speed bit stream service, it typically conveys
customer traffic to one or more points where service providers can interconnect, so that the
service providers do not have to build out their network to all local exchanges equivalent
facilities. Where leased transmission capacity is provided internally for this,
the non-
discrimination provision of Article 8(2) of Directive 92/44/EC applies.

5.5.

Collocation

To be effective, providing rights for unbundled access to the local loop must be accompanied
by provision of rights for collocation. National regulatory authorities need to take steps to
ensure that third parties that are granted unbundled access to local loops are also able to
collocate equipment on the premises of
the
Interconnection Directive 97/33/EC acknowledges the right of Member States to impose
collocation arrangements. Where physical collocation is not possible due to space limitations,
national
‘in-span’
interconnection (sometimes called virtual collocation), whereby third parties are able to
interconnect equipment that has been installed in a nearby location. A study carried out for the
Commission has provided a set of recommendations and practical guidelines for NRAs and
operators on implementation of collocation.17

regulatory authorities may require

loop operator. Article 11 of

that provision is made

the local

for

Regulators will need to address both one-off provisioning costs and costs for collocation,
since these are part of the total package for the new entrant seeking to benefit from the
availability of unbundled local loops. The most appropriate way to recover such once-off
costs is on the basis of up-front fixed charges. Alternatively if costs borne by the incumbent
are recovered over a period, it would be normal to build a risk factor into the calculated
charges.

6.

DUTIES OF NATIONAL REGULATORY AND COMPETITION AUTHORITIES

National regulatory authorities (NRAs), set up in all EU Member States by national
legislation adopted in transposition of EC Directives, are entrusted with the application of
sector-specific telecommunications regulation.
is Community policy to encourage
competition in infrastructure and competition in services, and NRAs must take this into
account when acting. National regulatory authorities may also consider introducing a ‘fast-
track’ dispute resolution procedure that will allow disputes about unbundled access to be
settled promptly.

It

The NRAs have a particular role to play when defining the set of conditions and requirements
applying to the incumbents’ offers of unbundled access to the local loop. As regards prices
and costs, while implementing the principle of transparency and cost-orientation regarding
access to the local loops of incumbent operators, they should respect the following principles:

-

17

costing and pricing rules should be transparent and objectively based;

See http://www.ispo.cec.be/infosoc/telecompolicy/en/Study-en.htm . January 1999 "Recommended
Practices for Collocation and other Facilities Sharing for Telecommunications Infrastructure" - a study
by Eutelis Consult/Horrocks Technology/Tera Consultants.

12

-

-

-

pricing rules should ensure that the incumbent operator is able to cover its relevant
costs plus a reasonable return;

pricing of local loops should be compatible with the aim of fostering fair and
sustainable competition, and providing efficient investment incentives in alternative
local access network infrastructure18;

pricing rules should ensure that there is no market distortion, in particular margin
squeezes between the prices of wholesale and retail services offered by the incumbent.

In some cases, these principles may conflict with each other, in particular in situations where
incumbent’s retail tariffs remain distorted as a result of inherited tariff imbalances and
continuing constraints on tariff re-balancing. In these circumstances, NRAs may have to
consider transitional measures that avoid distorting competition in the short term while
safeguarding competition in the long term.

EU competition rules continue to apply beside the sector-specific regulation and the NRAs,
like any other public authority, are bound to respect the provisions of the EC Treaty19. In the
Access Notice20, the Commission has therefore stated that NRAs, when taking decisions on
individual access agreements, have to respect both the sector-specific ONP-rules and the
general competition rules. Decisions taken by NRAs in application of sector specific
legislation can be subject to examination in the light of the EU competition rules. The same
principles also apply as regards national competition authorities. As concerns public
undertakings or undertakings to which the Member States grant special or exclusive rights,
Article 86 of the Treaty specifically requires Member States neither to enact, nor to maintain
in force any measure contrary to the rules of the Treaty, in particular competition rules. More
broadly, as concerns all undertakings, Article 10 of the Treaty requires Member States to
ensure the fulfilment of the obligations arising out of the Treaty and to abstain from any
measure which could jeopardise the attainment of its objectives.

The Court has in particular ruled21 that that Article 10 (previously Article 5) and Article 86
(previously Article 90) of the EEC Treaty must be interpreted as :

(i)

(ii)

prohibiting the national authorities from encouraging the conclusion of agreements
on tariffs contrary to Article 81(1) or Article 82 of the Treaty, as the case may be;

precluding the approval by those authorities of
agreements.

tariffs resulting from such

This would also apply to any practice infringing article 82. The Commission will examine
whether Member States, in particular NRAs or competition authorities, maintain or enact
measures contrary to Community competition rules and thereby either infringe Article 86 of
the Treaty, read in conjunction with Article 82, or article 10 of the Treaty, also read in
conjunction with Article 82. In such an event, it shall take appropriate action.

18

19

20

21

This in principle may be provided by a pricing system based on current costs. Current costs are the costs
of building an efficient modern equivalent infrastructure and providing such a service at today’s prices.
See Case 66/86 (Ahmed Saeed).
See Access Notice, paragraph 19.
See above mentioned Case 66/86 (Ahmed Saeed), paragraph 58.

13

7.

CONCLUSION

Providing access to the local loop to all new entrants will increase the level of competition
and technological innovation in the local access network, which will in turn stimulate the
competitive provision of a full range of telecommunication services from simple voice
telephony to broadband multimedia and high speed internet services to the customer.

These three means of access to the local loop identified in section 2 complement each other
and should all be available as market offerings. Together they serve to reinforce competition
and improve choice for all users, by allowing the market to decide which offering best meets
users needs,
the evolving demands of users and the technical and
investment requirements for market players. This will stimulate the roll out of high speed
internet access services to small business users and consumers, facilitating the growth of e-
commerce and e-business.

taking into account

In all cases, competition rules apply, and refusals by dominant operators to open the local
loop to competitors requesting access may imply various forms of abuses of dominant
position under article 82 of the Treaty, such as refusals to deal and limitation of production,
markets, or technical development to the prejudice of consumers. Where access is granted,
fair and non discriminatory conditions of access are crucial for successfully opening the local
loop on the development of a competitive market telecommunications services, in particular
high speed services. This requires close monitoring of delays, prices and contractual
arrangements between incumbents and new entrants.

The Commission is confident that the recommended unbundling of the local loop will be a
major new step towards more competitive and efficient telecommunications markets, and will
facilitate the accelerated development of internet services.

14

Annex – Technical analysis on Access to the Local Loop

1 - MODALITIES FOR UNBUNDLED ACCESS TO THE LOCAL LOOP

(1)

Full Unbundling to the local loop

In the case of full unbundling of the local loop, a copper pair is rented to a third party for its
exclusive use. The lessor will lose control of the relationship with its customer for the
provision of communications services, and any universal service obligations of the lessor will
no longer apply with respect to that specific customer.

Examples of use:

Example i)

The customer wishes to change telephone and/or leased line service supplier,
and the new entrant uses an unbundled local loop to take over the subscriber
from the incumbent and to provide competitive services. (As noted above, few
new entrants now restrict themselves to a simple telephone service offering of
this type; they prefer to provide broadband data services or a multi-service
voice and data offering.)

(cid:1)

Local loop

Former link re-configured

M
D
F

Incumbent's
local switch

Phone
network

To New
entrant's
switch

Phone
network

Example ii) The new entrant uses an unbundled local loop to provide high speed data service
to a customer over a second line, using any type of DSL modems. The
customer retains the incumbent as provider of telephone services on the first
line.

(cid:1)

XDSL
modem

PC

Local loop

Incumbent's
local switch

Phone
Network

New entrant

M

D

F

New entrant's
DSL access
multiplexer

(DSLAM)

15

Full unbundled access to the local loop will allow competitors to provide their customers with
a variety of versatile and cost-efficient broadband services, based on innovative DSL
technologies (e.g. HDSL for 2 Mbit/s leased lines, VDSL for high capacity circuits up to 50
Mbit/s, see Table 1). This will certainly contribute to improve the competitive situation of
leased lines and broadband services in the European Union.

Table 1 – Technologies available for the provision of broadband services (1 copper pair)

DSL, or Digital Subscriber Line, is the umbrella term for a family of technologies that
transform the copper local loop into a broadband line capable of delivering multiple video
channels into the home.

There are a variety of DSL technologies and these are generically known as xDSL. Each type
of DSL technology has a unique set of characteristics in terms of performance (maximum
broadband capacity), distance over which maximum performance is maintained (as measured
from the switch), frequency of transmission, and cost.

The main Digital Subscriber Loop (xDSL) technologies over one pair of copper wire and
some of their technical characteristics and applications are:

Asymmetric DSL (ADSL) – used for fast internet access

Symmetric DSL, (SDSL) and High speed symmetric DSL (HDSL) – used for
2Mbit’s leased lines

Very high-speed DSL (VDSL) – used for high capacity leased line and broad-band
services

Further information on DSL technologies can be found at
< http://www.adsl.com/adsl_forum.html >

(2)

Shared Access to the Local loop

In this form of access, the notified operator continues to provide telephone service, while the
new entrant deliver high speed data services over the same local loop using its own high-
speed ADSL modems. Telephone traffic and the data traffic are separated by means of a
splitter before the incumbent’s switch. The local loop remains connected to, and part of, the
notified switched network.

Standardisation of ADSL systems have reached a level of maturity whereby international
agreement exists on its secure deployment in the local loops of incumbents22. In addition, the

22

The International Telecommunication Union (ITU) has worked out technical specifications for ADSL
full rate - with speeds up to 8 Mbit/s downstream and 1 Mbit/s upstream - in its Recommendation
G.992.1 This includes a number of country-specific variants in order to accommodate regional local
loop infrastructure differences. ADSL can achieve its highest speeds at a distance of 4km or less. The
connection also allows the provision of voice phone service on the basic frequency band of the same
line.

In addition ITU has worked out a variant ADSL solution in its Recommendation G.992.2, also known
as G.Lite, that is very easy to deploy in the customer premises because is ‘splitter-less’ (it needs a very
simple serial filter that separates voice and data and does not call for any rewiring at the customer
premises). Speeds are up to 1.5 Mbit/s downstream to the user and 385 kbit/s upstream. Some PC

16

industry has also worked out commercial solutions for the interoperability of ADSL systems
in a multi-vendor environment.23

Example

The new entrant supplies the customer with an ADSL modem for connection at his/her
premises, and a installs a DSL access multiplexer or DSLAM (which combines ADSL
modems and a network interface module) on the incumbent’s premises, under a collocation
agreement.

The interface between the incumbent’s system and the new entrant is at point C in the
diagram (ie with in this case the splitter being installed by the incumbent).

.(cid:1)

ADSL
modem

PC

Local loop

splitter

tel

data

M

D

F

C

DSL access
multiplexer
(DSLAM)

Incumbent's
local switch

Phone
Network

New
entrant

This type of access may provide the most cost effective solution for a user wishing to retain
the telephone service being provided by the incumbent, but seeking a fast internet service
from an Internet Service Providers (ISP) of his or her choice. The ISP has full control of the
commercial and technical conditions of the ADSL service that it makes available to its users.

(3)

High speed bit stream access

‘High-speed bit stream access’ refers to the situation where the incumbent installs a high
speed access link to the customers premises (e.g., by installing its preferred ADSL equipment
and configuration in its local access network) and then makes this access link available to
third parties, to enable them to provide high speed services to customers. The incumbent may
also provide transmission services to its competitors, using its ATM or IP network, to carry
competitors traffic from the DSLAM to a ‘higher’ level in the network hierarchy where new
entrants may already have a point of presence (e.g. a transit switch location).

This type of access does not actually entail any third party access to the copper pair in the
local loop (but the incumbent may use only the higher frequencies of the copper local loop in
the same way as explained above).

suppliers are already marketing PC equipment with integrated G.Lite-ADSL modems so that standard
universal solutions can be rolled-out in a large scale in the residential market .
See the works of the Universal ADSL Working Group (http://www.uawg.com).

23

17

For a new entrant, the problem in exploiting access to unbundled copper pairs is that it entails
building out its core network to the incumbent’s local exchanges where the copper pairs are
terminated; in a typical European country this could number several thousand sites. High
speed access services, when combined with a transmission service that delivers traffic to the
new entrant’s point of presence, can be attractive, in particular in the early stage of the new
entrant’s network deployment, in that it allows the new entrant to deliver broadband service to
customers in advance of its own network build-out. For the incumbent, provision of a high
speed bit stream service is attractive in that it does not involve physical access to copper pairs,
and so does not hinder the progressive modernisation of the local access network (ie replacing
copper by fibre). Many incumbent operators are already providing such services24.

However, on its own, a service of this type allows the incumbent to retain control of the rate
of deployment of high speed access services, and the geographical regions in which these
service are rolled out. The incumbent’s priorities may not match those of the new entrants.
Such services should therefore be seen as complementing the other forms of unbundled access
described above, but not substituting them.

2 – OTHER TECHNICAL ISSUES ON ACCESS TO THE LOCAL LOOP

2.1.

Transparency

All the ONP directives contain generic obligations for notified operators to publish prices,
terms and conditions for their network offerings in order to ensure market transparency and
non-discrimination.

The Recommendation proposes publication of a reference offer for unbundled access to the
local loop, covering network elements to which access is offered, collocation services,
operational support systems, supply conditions and prices. Reference access offerings need to
be drawn up and published in a timely and detailed manner, under the supervision of the
national regulatory authority.

The Commission intends to publish, on a regular basis, prices in Member States for
unbundled access to local loops, in the same way as it currently publishes interconnection
prices.25

2.2.

Industry co-operation and co-ordination

Local loop unbundling raises a number of technical and operational issues that are best agreed
between the parties involved, but under supervision of the national regulatory authority to
ensure fair treatment. The Recommendation proposes that national regulatory authorities
encourage the setting up of co-operation mechanisms at national level involving all interested
parties, under the general supervision of the national regulatory authority, to address issues
such as :

– spectrum limitations and electromagnetic compatibility (EMC),

to avoid
interference between the various systems being used on local loops, and interference
between local loop systems and radio systems;

in order

24

25

indicative

See
operator
offers
’http://www.ispo.cec.be/infosoc/telecompolicy/en/comm-en.htm#misc’.
See http://www.ispo.cec.be/infosoc/telecompolicy/en/comm-en.htm#misc.

from notified

ADSL

in Member

States

at

18

– operational aspects linked to provision of unbundled local loops (ordering and provisioning
procedures and time-scales, technical qualification of loops, service level agreements,
maintenance procedures, problem escalation procedures, etc);

– access to operational support systems of the local loop provider;

– codes of practice for collocation;

– the content of access offerings (ie, technical product descriptions, line coding certification,
prices of loops, list of MDF sites, collocation prices, one-stop shopping ordering and
maintenance – as indicated in Annex I of the Recommendation).

2.3

International co-ordination

Many of the problems faced in individual Member States are similar across the Community,
and there is scope of interchange of information to ensure that experience and good practice is
passed on. The European Telecommunications Platform is addressing these issues (see
http://www.etp-online.org/).

The Recommendation encourages such interaction e.g. by recommending that national
regulatory authorities publicise national activities in this area, and encourage co-ordination
and information inter-change with interested parties in other Member States.

19