Opinion of the Economic and Social Committee on the "Proposal for a Regulation of the European Parliament and of the Council on unbundled access to the local loop"
Date: 2000-10-19
Institutions: European Economic and Social Committee
Subjects: approximation of laws, competition law, telecommunications, transmission network

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Official Journal of the European Communities

C 14/99

4.3.3.
Clear rules should be drawn up at European level
on access to essential resources, i.e. infrastructure constructed
in the past by monopolies using public resources which
ought to be made accessible to all. This issue has been well
regulated in relation to transport by Directive 91/440/EEC
on the exploitation of railway infrastructure, but not
in
other areas. For example, firms entering into competition

with the old monopolies should be allowed to benefit from
past public investment in Hertzian radio.

The Commission must propose a clear legislative
4.3.4.
text, to be adopted at European level as soon as possible,
establishing a basis for partnership between the public and
private sectors in order to develop the infrastructures and
services which Europe needs.

Brussels, 19 October 2000.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on the ‘Proposal for a Regulation of the European
Parliament and of the Council on unbundled access to the local loop’

(2001/C 14/20)

On 20 September 2000 the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

On 11 July 2000, the Bureau of the Economic and Social Committee instructed the Section for Transport,
Energy, Infrastructure and the Information Society to prepare the Committee’s work on the subject.

At its 376th plenary session of 19 October 2000, the Economic and Social Committee, in view of the
urgency of the matter, appointed Mr Cambus rapporteur-general and adopted the following opinion by
77 votes to one.

1.

Introduction

the end of 2000. To this end, Member States are required
under the Lisbon and Feira Council conclusions to open up
local loops to competition by 1 January 2001 at the latest.

1.1.
Telecommunications technology is evolving all the
time — and at an ever increasing pace since the most modern
computer technologies are used in the main to run the physical
and virtual networks and the services which make up this
sector. This sector makes a key contribution to the spread of
new information technologies and thus to meeting the Union’s
objectives for a society based on knowledge and innovation.

This is why telecommunications operators have been
1.2.
explicitly asked to offer quick, easy and cheap Internet access
both to the corporate sector and to private individuals before

1.3.
In legal terms the telecommunications sector has been
open to full competition since the enactment of the 1996
directive, which had to be implemented by 1 January 1998.
Hence, any new operator can now enter this sector and
compete with incumbent operators. Moreover, the new tech-
nologies have been both a reason and a vehicle for broadening
competition; the GSM system, for example, has enabled new
operators to build up a customer base at a reasonable level of
investment. On the other hand, the objective of opening up

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all telephone subscriber services to competition cannot be
achieved in the short run as long as incumbent operators are
not obliged to grant their rivals access to the ‘last mile’ in the
telephone network: the local loop.

2.

Summary of the Commission proposal

1.4.
The ‘local loop’ is the physical circuit connecting the
customer’s premises to the local distribution frame or to any
other equivalent facility of the telecommunications operator.
It consists of a pair of copper wires through which it was
impossible until now to transmit voice telephony and digital
data at the same time. An additional dedicated ISDN-type pair
of wires (ISDN = integrated services data network) was needed
to provide customers with digital data transmission services.
Technological advances have, over the past year or so, made it
possible to use the same pair of copper wires for the
simultaneous transmission of both voice telephony and high-
speed digital data. This is known as xDSL and is 50 to
100 times faster than existing services.

1.5. When local loops were built as networks developed and
increasing numbers of people subscribed to voice telephone
services, they were regulated on the basis of exclusive rights.
This was necessitated by the scale of investment and long
payback period involved and by the political will to secure a
universal service. Local loops have become a live issue between
incumbent operators and new entrants seeking access to the
‘last mile’ in the network in order to be able offer their new
services to customers.

1.6.
In theory, new entrants can do this already, provided
they build competing physical or virtual equipment (e.g. local
radio loops). Since it is not feasible to await the inevitably
drawn-out process of developing competing networks and/or
different technologies (unless the EU is to fall further behind
on the IT front), the only option is to liberalise access to the
local loop; this was decided at the Lisbon and Feira Councils.

2.1.
The proposal is part of a new regulatory framework
for all transmission networks and services, designed to secure
the competitiveness of the electronic communications mar-
ket (1). The proposed directive is designed both:

— to provide a legal base for the regulatory authorities in
the Member States, which could have difficulty mandating
unbundled access to local loops, and thus might not be
in a position to reach the target set by the Lisbon and
Feira European Councils; and

— to secure European-level harmonisation in the implemen-
tation of unbundled access to the local loop in order to
avoid distortions of competition.

The rationale behind the regulation is set out in the

2.2.
recitals:

2.2.1.
The local access network remains one of the least
competitive segments of the liberalised telecommunications
market, since new entrants do not have widespread alternative
network infrastructures and are unable, with traditional tech-
nologies, to match the economies of scale and scope of fixed
network operators deemed to have significant market power.

2.2.2.
The unbundling of the local loop is currently mainly
relevant to the copper infrastructure of a dominant entity,
and investment in alternative infrastructures must have the
possibility of ensuring a reasonable rate of return, since that
might facilitate the expansion of these infrastructures in areas
where their penetration is still low.

2.2.3.
It is better to mandate unbundled access to local
loops only where these are the loops of network operators
deemed by the national regulatory authorities to have signifi-
cant market power under the relevant Community provisions.

2.2.4.
To ensure fairness, costing and pricing rules for
access to local loops and associated facilities (such as collo-
cation and leased transmission capacity) should be transparent,
non-discriminatory and objective. At the same time, they
should ensure that the local loop provider is able to cover its
appropriate costs in this regard plus a reasonable return.

1.7.
From a technical standpoint, the regulation contains
three concepts: (i) full unbundled access, (ii) shared access, and,
to put these two concepts into effect, (iii) the collocation of a
new entrant’s equipment. The two technical options — full
unbundled access and shared access — are not economically
neutral.

(1) See in particular the Proposal for a Directive on a common
regulatory framework for electronic communications networks
and services — COM(2000) 393 final; TEN/057.

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2.2.5.
The publication by the notified operator of a refer-
ence offer for unbundled access to the local loop, within a
short timeframe and ideally on the Internet, and under the
supervisory control of the national regulatory authority, would
contribute to creating transparent and non-discriminatory
market conditions.

Under current national or Community law,

2.2.6.
the
objective of achieving a harmonised framework for unbundled
access to the local loop cannot be achieved by all the Member
States in a secure, harmonised and timely manner, and will
thus stand a better chance of being achieved by the Com-
munity. This regulation confines itself
to the minimum
required for that purpose.

2.3. The draft has only five articles

2.3.1.
Under Article 1 (Scope), it is the remit of national
regulatory authorities to identify — and give notification of —
operators which have significant market power.

2.3.2.

Under Article 2 (Definitions):

— ‘unbundled access’ means offering new entrants full or

shared access;

— ‘shared access’ means the option of giving new entrants
the use of the non-voice frequency spectrum, while
retaining the voice frequency spectrum for incumbent
operators;

— ‘collocation’ means the provision of the physical space
needed to accommodate the new entrant’s technical
equipment within the incumbent operator’s existing
installation.

Article 3 (Provision of unbundled access) requires
2.3.3.
notified operators to provide unbundled access to the local
loop under transparent and non-discriminatory conditions by
31 December 2000 at the latest. New entrants must be given
access to any point of the copper local loop or sub-loop. By
the same date, notified operators must publish an offer (setting
out terms, conditions and prices) for the unbundled access to
the local loops and associated facilities, including collocation.

2.3.5.
force three days after its publication in the Official Journal.

Article 5 states that the regulation is to enter into

3. General comments

3.1. Appropriateness of the draft regulation

3.1.1.
A regulation has never before been adopted in the
telecommunications sector. This proposal is thus a first. It will
mean that the issue of unbundled access to the local loop will
be considered separately from the other documents which
are reappraising the regulatory framework for electronic
communications networks and services. Above all, however, a
regulation is the best way to secure speedier application of the
provisions it contains since it does not require Member State
transposition.

3.1.2.
The Committee agrees on the urgency of ensuring
the broadest possible dissemination of information society
technologies and services both in the corporate sector and
among private individuals. The legislation launching the
liberalisation of the telecommunications sector was adopted in
1996. The first areas of activity to be liberalised were
those which offered the most promise such as long-distance
telephony, where competitors took a year to establish their
position. The delay in opening up the local loop to competition
is explained not only by the lack of regulatory tools but
probably more so by the novelty of the technological processes
involved (xDSL) and the fact that alternative operators’ interest
was initially focused on the more profitable areas.

3.1.3.
Hence, the Committee feels it is essential to set in
place the tools needed to speed up the introduction to the
wider public of the new access options for the Internet and
data transmission services made possible by xDSL applications.
The aim is to put the Union at the forefront of global
competition in the innovation and knowledge-based society
applications highlighted by the Lisbon and Feira Councils.
This requires the broadest possible dissemination of these
applications across society and the capacity to respond
immediately to the demands of current Internet users who
want high-speed access to be made available at
to
individual subscribers via their existing telephone line.

last

3.2. Content of the draft

2.3.4.
Article 4 (Supervisory regulation) stipulates that
national regulatory authorities are competent — where justi-
fied — to take action with regard to the terms of these offers
for as long as there is insufficient competition, and in order to
resolve disputes between operators in the application of the
regulation.

3.2.1.
From an economic standpoint, the draft contains the
concept that, in making the local loop available, conditions
must be put in place (i) to cover costs and (ii) to secure a
reasonable return for the providing operator. The Committee
feels that this is legitimate since all operators have a right to
expect a return on investments in facilities they develop.

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the Committee also notes that

3.2.1.1. Moreover,
the
pricing arrangements for making the local loop available must
have a neutral impact on technological choices. Too high a
price would encourage new entrants to invest in competing
equipment which is not necessarily justified. If the price were
pitched too low, new entrants would make unbundled cooper
pairs their first choice, without conducting serious research
into more cost-effective technologies. Prices must therefore
correspond as closely as possible to economic reality.

3.2.2.
From a technical standpoint, the regulation contains
three concepts: (i) full unbundled access, (ii) shared access, and,
to put these two concepts into effect, (iii) the collocation of a
new entrant’s equipment. Reference is also made to the
possibility of unbundling only one part of the local loop,
known as the local sub-loop.

3.2.3.
This Commission proposal builds on the technologi-
cal and technical possibilities available for distinguishing
between traditional voice telephony and new xDSL services. In
this connection, the Committee would stress the need, at NRA
level, to ensure that the purpose of shared access is not
gradually undermined commercially by new entrants providing
voice telephony via xDSL.

4.

Specific comments

4.1. Scope

4.1.1.
The Committee endorses the Commission’s approach
in relation to notified operators of fixed public telephone
networks. It feels, however, that it would be wise to add at this
point that NRAs have full scope to deal in the same way with
localised incidences of abuse of a dominant position which
may arise in fields other than fixed public telephony (e.g. more
recent audiovisual cable networks).

4.2. Unbundled access: practical arrangements

The Committee fully endorses the obligation placed
4.2.1.
on notified operators to meet requests for ‘full unbundled
access’; this means leasing the entire local
loop to a new
operator entering this sector, but does not involve a change of
ownership. This solution has the merit of simplicity, and
presupposes that the new entrant may provide both voice
telephony and new high-speed digital data transmission ser-

vices. However, it also enables new entrants to sub-contract
voice telephony services to any operator of their choice, or
even to the incumbent notified operator if, for reasons of
brand loyalty, customers so desire.

4.2.2.
The Committee also endorses the use of a regulation
to impose the obligation of partial unbundling. This is termed
‘shared access to the local loop’ and means that the incumbent
operator retains use of the voice telephony frequency spec-
trum, while making only non-voice frequencies available to
new entrants.

4.2.3.
However, the Committee feels that this technical
arrangement must be backed up in practice by a commercial
escape clause of the kind already adopted by some Member
full unbundled access
States, under which the option of
automatically becomes operative for new entrants when
customers terminate their voice telephony subscription with
the incumbent operator.

4.3. Commercial arrangements

The Committee agrees that notified operators should
4.3.1.
be obliged to publish a reference offer for access to the local
loop. It feels that this broad requirement for price specifications
to be accessible via mass media such as the Internet can only
reasonably relate to a service that itself is also general enough
that its costs can be set on a flat-rate basis irrespective of local
circumstances. The Committee feels that this should apply to
full unbundled access to the local loop. For other services
(particularly collocation), the reference offer must detail techni-
cal arrangements and leave pricing matters to be dealt with
when individual requests are assessed in line with local
circumstances and in accordance with the principle that any
offer must be cost-based, or refer to the market price.

Article 4 of the draft regulation stipulates that prices
4.3.2.
for local
follow the principle of cost
loop access must
orientation. It should be spelt out at this point that the costs
involved are the average long run incremental costs (LRIC).
These are the only way to guarantee fair and sustainable
competition which is consonant both with the draft regulation
and with technological neutrality.

4.3.2.1.
In the same way, the Committee feels that the
shared access price should be assessed on at least the same
basis as the price for full unbundled access, minus the fixed
subscription payable for the voice telephony service.

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4.4.
It is necessary to incorporate into the regulation the
principle that ex ante rules of any kind cease to apply once
competitiveness is secured in the high-speed access market. To
this end, the Commission should report
to the Council,
Parliament and Committee every two years on the situation
regarding competition on this high-speed access market and,
in due course, propose that the regulation be withdrawn.

5. Conclusions

unbundled access to local telecommunications loops by not
later than 31 December 2000 under conditions harmonised at
EU level.

5.2.
In setting prices on the basis of cost orientation, it
must be made clear that the costs involved are the average
long-run incremental costs. This prevents the emergence of
economic distortions which might encourage poor choices or
slow the development of more cost-effective processes.

5.1.
The Committee fully endorses the draft European
Parliament and Council regulation which is designed to give
Member States and NRAs a clear legal reference for securing

5.3.
The Committee feels that the regulation must set out
clear arrangements for its revision, as part of the common
regulatory framework, once competition levels are deemed
sufficient in the services concerned.

Brussels, 19 October 2000.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on ‘New knowledge, new jobs’

(2001/C 14/21)

At its plenary session on 27 April 2000 the Economic and Social Committee, acting under the third
paragraph of Rule 23 of its Rules of Procedure, decided to draw up an opinion on ‘New knowledge, new
jobs’.

In accordance with Rules 11(4) and 19(1) of its Rules of Procedure the Committee set up a sub-committee
to prepare its work on this subject.

The sub-committee adopted its draft opinion on 2 October 2000. The rapporteur was Mrs Engelen-Kefer,
the co-rapporteur was Mr Morgan.

At its 376th plenary session (meeting of 19 October 2000) the Economic and Social Committee adopted
the following opinion by 83 votes to 23 with 6 abstentions.

1.

Introduction

1.1.
At the Lisbon Summit on 23 and 24 March 2000
the EU set itself a new strategic objective for the next decade:
‘to become the most competitive and dynamic knowledge-
based economy in the world, capable of sustainable economic

growth with more and better
cohesion’ (1).

jobs and greater

social

1.2.
Implementation of the decisions taken in Lisbon will be
a key component of the French Presidency’s work programme.
The French Presidency is focusing on the following topics:

(1) Conclusions of the European Council Presidency (Lisbon) of 23

and 24 March 2000, point 5.