CELEX: 62006CC0055
Language: en
Date: 2007-07-18 00:00:00
Title: Opinion of Mr Advocate General Poiares Maduro delivered on 18 July 2007. # Arcor AG & Co. KG v Bundesrepublik Deutschland. # Reference for a preliminary ruling: Verwaltungsgericht Köln - Germany. # Telecommunications - Regulation (EC) No 2887/2000 - Access to the local loop - Principle of cost-orientation - Costs - Interest on the capital invested - Depreciation of fixed assets - Valuation of local telecommunications infrastructures - Current costs and historic costs - Calculation basis- Actual costs - Costs already paid and forward-looking costs - Proof of costs - ‘Bottom-up’ and ‘top-down’ analytical models - Detailed national legislation - Margin of discretion of the national regulatory authorities - Judicial review - Procedural autonomy of the Member States - Principles of equivalence and effectiveness - Challenge by the beneficiaries before the courts of decisions authorising the rates of the notified operator - Burden of proof - Supervisory and judicial procedures. # Case C-55/06.

OPINION OF ADVOCATE GENERAL
      POIARES MADURO
      delivered on 18 July 2007 1(1)
      
      Case C-55/06
      Arcor AG & Co. KG
      v
      Federal Republic of Germany
      (Reference for a preliminary ruling from the Verwaltungsgericht Köln (Administrative Court, Cologne) (Germany))
      (Telecommunications – Local loop access)1.        The background to the case which gave rise to the present referral from the Verwaltungsgericht Köln (Administrative Court,
         Cologne) (Germany) may be summarised as follows: according to Community and national law, the former monopoly operator of
         a fixed telephone network is required to permit competing operators to use its local network. However, that operator is charging
         a price which a competing operator, as a beneficiary of access to the network, is disputing as being too high. This is the
         situation which prompted the Verwaltungsgericht Köln to submit to the Court wide-ranging and analytical set of questions which
         relate, directly or indirectly, to the interpretation of a key concept involved in the liberalisation of the provision of
         telecommunications services in Europe: namely the principle that the prices charged for unbundled access to the local loop
         (that is to say the copper wire pair circuits connecting subscribers to the nearest distributors), should be set on the basis
         of ‘cost-orientation’. These are the circumstances in which the Court has been called upon for the first time to consider
         the interpretation of Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on unbundled
         access to the local loop (2) (‘the regulation’).
      
      I –  The facts, the legal background and the questions referred to the Court for a preliminary ruling
      2.        Deutsche Telekom AG, (‘Deutsche Telekom’) is the notified operator within the meaning of Article 2(a) of the regulation. According
         to that Article, notified operator means ‘operators of fixed public telephone networks that have been designated by their
         national regulatory authority as having significant market power in the provision of fixed public telephone networks.’
      
      3.        Arcor AG & Co KG, (‘Arcor’) is a beneficiary within the meaning of Article 2(b) of the regulation. According to that provision,
         ‘beneficiary’ means ‘a third party duly authorised … or entitled to provide communications services under national legislation,
         and which is eligible for unbundled access to a local loop’. The concept of ‘local loop’ is defined by Article 2(c) of the
         regulation as ‘the physical twisted metallic pair circuit connecting the network termination point at the subscriber’s premises
         to the main distribution frame or equivalent facility in the fixed public telephone network.’
      
      4.        Arcor provides ISDN telephone connections to final customers, but these can only be used if it has access to the relevant
         local loop on the Deutsche Telekom telecommunications network. 
      
      5.        Article 1 of the regulation, entitled ‘Aim and scope’, is worded as follows:
      
      ‘1. This Regulation aims at intensifying competition and stimulating technological innovation on the local access market,
         through the setting of harmonised conditions for unbundled access to the local loop, to foster the competitive provision of
         a wide range of electronic communications services.
      
      2. This Regulation shall apply to unbundled access to the local loops and related facilities of notified operators as defined
         in Article 2(a). 
      
      3. This Regulation shall apply without prejudice to the obligations for notified operators to comply with the principle of
         non-discrimination, when using the fixed public telephone network in order to provide high speed access and transmission services
         to third parties in the same manner as they provide for their own services or to their associated companies, in accordance
         with Community provisions.
      
      4. This Regulation is without prejudice to the rights of Member States to maintain or introduce measures in conformity with
         Community law which contain more detailed provisions than those set out in this Regulation and/or are outside the scope of
         this Regulation inter alia with respect to other types of access to local infrastructures.’
      
      6.        According to Article 3 of the regulation, entitled ‘Provision of unbundled access’:
      
      ‘1. Notified operators shall publish from 31 December 2000, and keep updated, a reference offer for unbundled access to their
         local loops and related facilities, which shall include at least the items listed in the Annex. The offer shall be sufficiently
         unbundled so that the beneficiary does not have to pay for network elements or facilities which are not necessary for the
         supply of its services, and shall contain a description of the components of the offer, associated terms and conditions, including
         charges.
      
      2. Notified operators shall from 31 December 2000 meet reasonable requests from beneficiaries for unbundled access to their
         local loops and related facilities, under transparent, fair and non-discriminatory conditions. Requests shall only be refused
         on the basis of objective criteria, relating to technical feasibility or the need to maintain network integrity. Where access
         is refused, the aggrieved party may submit the case to the dispute resolution procedure referred to in Article 4(5). Notified
         operators shall provide beneficiaries with facilities equivalent to those provided for their own services or to their associated
         companies, and with the same conditions and time-scales.
      
      3. Without prejudice to Article 4(4), notified operators shall charge prices for unbundled access to the local loop and related
         facilities set on the basis of cost-orientation.’
      
      7.        According to German law and in particular Paragraph 24(1) and (2) of the Telecommunications Law (Telekommunikationsgesetz)
         of 25 July 1996, (3) rates are to be based on the costs of efficient service provision and are to accommodate the requirements under Paragraph
         24(2). According to that paragraph, rates must not: (1) contain surcharges which prevail solely as a result of the provider’s
         dominant position according to Paragraph 19 of the Law against Restraints of Competition in the relevant telecommunications
         market; (2) contain reductions which restrict the competitive potential of other undertakings on a telecommunications market
         or (3) confer advantages on certain operators compared with other operators using equivalent or similar telecommunications
         services on the telecommunications market in question, unless there is evidence of an objectively justifiable reason therefor.
      
      8.        On 30 September 1998, Arcor signed a contract with Deutsche Telekom – which was subsequently renewed with effect from 1 April
         2001 – on access to the latter’s local loops. Under that contract, the rates approved by the regulatory authority applied
         as agreed.
      
      9.        Under Article 4 of the regulation, which is concerned with ‘[s]upervision by the national regulatory authority’:
      
      ‘1. The national regulatory authority shall ensure that charging for unbundled access to the local loop fosters fair and sustainable
         competition.
      
      2. The national regulatory authority shall have the power to: 
      (a)      impose changes on the reference offer for unbundled access to the local loop and related facilities, including prices, where
         such changes are justified, and 
      
      (b)      require notified operators to supply information relevant for the implementation of this Regulation.
      3. The national regulatory authority may, where justified, intervene on its own initiative in order to ensure non-discrimination,
         fair competition, economic efficiency and maximum benefit for users.
      
      4. When the national regulatory authority determines that the local access market is sufficiently competitive, it shall relieve
         the notified operators of the obligation laid down in Article 3(3) for prices to be set on the basis of cost-orientation.
      
      … .’
      10.      With regard to German national law, according to Paragraph 27(1) of the TKG 1996, the regulatory authority is to approve rates
         either on the basis of the cost of providing an efficient service for each type of service or on the basis of the average
         price, set by that authority, for a basket of services. Paragraph 27(4) empowers the Federal Government to issue regulations
         setting out the rules applying to different types of approvals and defining the terms and conditions under which the regulatory
         authority is required to decide which of the procedures listed in paragraph 1 is to apply.
      
      11.      According to Paragraph 2(1) of the Telecommunications Rates Regulation (Telekommunikations‑Entgeltregulierungsverordnung)
         of 1 October 1996, (4) the company which filed the application referred to in Paragraph 27(1) of the TKG 1996 must produce the following documents
         relating to the service in question in each case: (1) a detailed description of the service, including information on the
         quality of the service and a copy of the terms and conditions applying to it; (2) turnover figures for the last five years
         and also forecast turnover for the year of filing and for the next four years; (3) information on market shares and, if possible,
         on price elasticity of demand for the period referred to in point (2); (4) figures for the trend in the various costs referred
         to in Paragraph 2 (cost statements) and the trend in variable cost margins for the period referred to in point (2); (5) information
         on the financial impact on customers – in particular the structure of demand from private and business customers – and on
         competitors who receive the service as a preliminary service; and (6) in the case of differential rates, information on the
         effects on the user groups affected by the differential rates, as well as objective justification for the proposed differential
         rates.
      
      12.      According to Paragraph 2(2) of the TEntgV, ‘cost statements according to the fourth point of subparagraph 1 above shall comprise
         costs that can be directly allocated to the given service (direct costs) and costs that cannot be directly allocated to the
         given service (common costs). Statements relating to common costs shall set forth how the common costs are allocated to the
         given service. In such allocation, the filing company shall take account of the criteria of the Council directives issued
         under Article 6 of Council Directive 90/387/EEC of 28 June 1990 on the establishment of the internal market for telecommunications
         services through the implementation of open network provision (OJ 1990 L 192, p. 1). Also to be included in the cost statements
         according to sentence 1 above is an account of: (1) the method used to determine the costs; (2) the level of payroll costs,
         depreciation, cost of capital, costs in relation to materials; (3) target and actual capacity utilisation in the documentation
         period; and (4) the cost, on which cost accounting is based, of the individual factors employed to provide the service, including
         the relevant prices, and in particular the elements of the public telecommunications network ... and the cost of using those
         elements.’ According to Paragraph 2(3) of the TEntgV, ‘the regulatory authority may reject an application for rates approval
         where the company fails to produce the documents referred to in Paragraphs 1 and 2 in full.’
      
      13.      Lastly, Paragraph 3(1) of the TEntgV states that the regulatory authority is to examine the documentation submitted by the
         filing company with a view to establishing whether and to what extent the rates proposed are based on the cost of efficient
         service provision. According to Paragraph 3(2), these costs are derived from the long-term additional costs of providing the
         service plus an appropriate amount for volume-neutral common costs, both inclusive of an appropriate return on capital employed,
         to the extent that these costs are required to provide the offering. According to Paragraph 3(3), when examining the documentation
         supplied, the regulatory authority should, for the purposes of comparison, refer additionally to, in particular, the prices
         and costs of companies offering corresponding services on comparable markets. In doing this, the particular features of the
         reference markets must be taken into account. Lastly, Paragraph 3(4) states that where costs stated in Paragraph 2(2) exceed
         the cost of efficient service provision, they are to be deemed expenditure surplus to efficient provision. Paragraph 2(2)
         also states that this expenditure and other neutral expenditure will only be taken into account in the rates approval procedure
         if, and for such duration as, it derives from a legal requirement or the filing company evidences other proper justification
         therefor.
      
      14.      By a decision dated 30 March 2001, and subsequently amended on 17 April 2001, the German regulatory authority partially approved
         Deutsche Telekom’s rates for access to the local loop (monthly licence fee for use of the line and a one-off provision and
         cancellation fee) from 1 April 2001 for numerous types of access charged at varying amounts. According to the referring court,
         the approval for the monthly licence fee expired on 31 March 2003, and, as for the rest, the approval expired on 31 March
         2002 at the latest.
      
      15.      On 30 April 2001, Arcor brought an action seeking, inter alia, judicial annulment of the approval decision referred to above.
         Its argument in substance is that the approved rates are too high because, according to Arcor, the investment value of the
         local loop – on which they were based – was incorrectly determined. The capital costs and the depreciation life were calculated
         exclusively on the basis of the current cost entailed in setting up a modern efficient local network, with the result that,
         in its view, the rates exceed Deutsche Telekom’s true capital costs. Basically, the rates are in breach of the principle of
         cost-orientation contained in Article 3(3) of the regulation. 
      
      16.      In those circumstances, the Verwaltungsgericht Köln decided to stay proceedings and refer to the Court for a preliminary ruling
         a lengthy series of questions which could usefully be reformulated to enable the Court to reply to them in a straightforward
         manner. Within the specific context of the present case, these questions take an extremely exhaustive and wide-ranging approach
         to a whole range of problems relating to and surrounding the concept of charges set on the basis of cost-orientation.
      
      17.      The questions are essentially seven in number. The first basically asks to what extent Article 1(4) of the regulation permits
         Member States, when adopting national legislation defining the concept of cost-orientation, to deviate from the concept of
         cost-orientation as laid down in Article 3(3) of the regulation, to the detriment of beneficiaries.
      
      18.      The second question concerns whether, under Article 3(3) of the regulation, the requirement that the rates charged for local
         loop access should be set on the basis of cost-orientation also includes imputed interest and cost-accounting depreciation.
         The referring court is asking about the basis used to calculate this depreciation and interest. Should it be exclusively the
         current replacement value, expressed in terms of current daily prices at the date of valuation, or should depreciation made
         prior to the date of valuation be deducted from the replacement value of the assets? 
      
      19.      The fourth question is in substance asking whether the basis for assessment should always be complete cost statements supplied
         by the notified operator or whether it is permissible to use analytical cost models and, if so, what requirements need to
         be met.
      
      20.      The fifth question concerns the boundaries of the scope for evaluation allowed to the national regulatory authority when assessing
         whether rates have been set on the basis of cost-orientation and the boundaries of the judicial review to which such decisions
         must be subjected. 
      
      21.      By its sixth question, the referring court is basically asking whether, even though a rates approval decision adopted by a
         national regulatory authority is not addressed to them, competitors as beneficiaries of access to the notified operator’s
         local loop must have the right to bring an action against such a decision, where they consider that the rates have not been
         set on the basis of cost-orientation. 
      
      22.      The last question is, basically, asking where the burden of proof that rates have been set on the basis of cost-orientation
         should lie, both during the administrative procedure preceding the rates approval decision and during an action brought against
         the national regulatory authority’s decision by a competitor who has been affected by that decision. 
      
      II –  Analysis
      23.      Let me begin with some preliminary comments on the regulation. These concern the adoption of the regulation within the context
         of the former Community regulatory framework for telecommunications, the essential features and aims of the regulation and
         the context within which it introduces the concept of cost-orientation. I shall then go on to analyse the referring court’s
         questions. 
      
      A –    Preliminary comments on the regulation.
      24.      According to recital (15) of the preamble, the regulation was adopted to complement the former regulatory framework for telecommunications,
         in particular Directives 97/33/EC (5) and 98/10/EC. (6) Article 4(5) of the regulation even refers expressly to the first of these directives. (7) Although forming part of the former Community regulatory framework for telecommunications, the regulation remained in force
         after 25 July 2003. (8)
      
      25.      The rates approval decision at issue in the main proceedings is dated 30 March 2001. That decision approved Deutsche Telekom’s
         rates for access to its local loop for the period between 1 April 2001 and 31 March 2003 in the case of the monthly licence
         fee, and 31 March 2002 at the latest for the rest. However, according to Article 28(1) of the framework directive, the provisions
         of the new regulatory framework did not become applicable until 25 July 2003. (9) The provisions of the regulation must be interpreted within the context of and in conjunction with the legal instruments
         constituting the former regulatory framework for telecommunications. (10)
      
      26.      It is easy to comprehend how the regulation came into being in the context of the former regulatory framework. The conclusions
         of the Lisbon European Council of March 2000 established, as an objective, the development of a digital knowledge-based economy,
         by fostering access to an inexpensive high-quality communications infrastructure within Europe, and in particular the Internet. (11) The Community legislature was well aware that, at that time, the local loop was one of the least competitive segments of
         the liberalised telecommunications market, (12) and this was holding back the rapid development of the digital economy in Europe. As a result, when the European Council
         met in Santa Maria da Feira in June 2000, unbundling of the local loop was considered to be an immediate priority. The regulation
         thus became the legal instrument designed to implement uniform unbundling of the local loop in all the Member States. This
         unbundling of access was intended to enhance competition, ensure economic efficiency and bring maximum benefit to users. (13) It was introduced at a speed which it would have been difficult to achieve by adopting a directive. The regulation is dated
         18 December 2000 and requires notified operators to provide competing operators with access to their local networks as of
         2 January 2001. 
      
      27.      Opening up the local loops of the former monopoly operators to competing operators was all the more necessary since, as recital
         (6) of the preamble to the regulation states, (14) it would not be economically viable in 2001 for new entrants to duplicate the incumbent’s metallic local access infrastructure,
         and the alternative infrastructures – such as cable television, satellite and wireless local loops – do not offer the same
         functionality or ubiquity. Moreover, it is also important to point out that the local loop infrastructures in Europe were
         largely built from earnings received from the monopolistic charges which customers have had to pay over the years during which
         the monopoly national operators were able to benefit from the exclusive rights granted them by the Member States. (15)
      
      28.      It was against this background that the regulation was intended to achieve its main aim: that is, to require notified operators
         to provide unbundled access to their local loop for new operators entering the market in order rapidly to introduce competition
         at local loop level where it was non-existent or very limited at the time. However, the Community legislature rightly wished
         to avoid the risk that such an obligation might give rise to a form of expropriation of the notified operators without compensation.
         According to Article 3(3) of the regulation, a notified operator will have the right to charge prices enabling it to cover
         the costs connected with the provision of access to its local loop, whilst at the same time obtaining a reasonable return
         from the operation. (16) That is precisely the concept of cost-orientation of rates which lies at the heart of the present case. 
      
      B –    The first question
      29.      This question is basically asking to what extent Article 1(4) of the regulation permits Member States, when adopting national
         legislation defining the concept of cost-orientation – for example, by means of a more specific definition of the cost of
         providing an efficient service – to deviate from the concept of cost‑orientation as laid down in Article 3(3) of the regulation,
         to the detriment of beneficiaries.
      
      30.      Certain legal concepts promise much and appear to be very useful, but may, none the less, simply become words largely devoid
         of meaning and effect. There is a risk that the concept of cost-orientation, as provided for in Article 3(3) of the regulation,
         may be one of those concepts. 
      
      31.      The concept of cost-orientation contains no reference to the law of the Member States for the purposes of determining its
         meaning and scope. (17) It follows from the requirements both of the uniform application of Community law and of the principle of equality, that
         it is, therefore, an autonomous concept of Community law which must be interpreted in a uniform fashion. (18) An autonomous and uniform interpretation of that kind must be sought taking account not only of the terms constituting the
         concept in question, but also of the context of the provision of which it forms a part and the aim of the regulations in question. (19)
      
      32.      The fact that the concept of cost-orientation is a Community concept with its own meaning and scope is confirmed, first of
         all, by two judgments in which the Court was called upon to consider the interpretation of that concept, again in the telecommunications
         sector. (20) The first is the judgment of 25 November 2004 in KPN Telecom. (21) In that judgment, the Court held that costs connected with gathering or supplying basic subscriber data should, in any event,
         be borne by the provider of a voice telephony service and that they are already included in the costs of and earnings from
         such a service. Under these circumstances, transferring the cost of gathering and supplying these data to persons requesting
         access to them, would result in unjustifiable overcharging for the costs in question and, therefore, would be incompatible
         with cost-orientation. According to the judgment in KPN Telecom, it is inherent in the concept of cost-orientation of charges that it prohibits a party whose charges are required to be
         set on the basis of cost-orientation to receive remuneration several times for providing the same service. 
      
      33.      The other case in which the Court was required to give an interpretation of the concept of charges set on the basis of cost-orientation
         was the Mobistar case of 13 July 2006. (22) In its judgment, the Court confirmed in relation to prices charged for ensuring telephone number portability, that ‘Directive
         [2002/22/EC] does not preclude the adoption of a national measure such as that at issue in the main proceedings, which fixes
         in advance and on the basis of an abstract model of the costs, maximum prices which may be charged by the donor operator to
         the recipient operator as set-up costs, provided that the prices are fixed on the basis of the costs in such a way that consumers
         are not dissuaded from making use of the facility of portability’. (23) However, the Court pointed out that, in any event, it is important that ‘it is genuinely possible for new operators to contest
         the application of maximum prices by operators already present in the market by showing that those prices are too high in
         relation to their cost structure’. (24)
      
      34.      When it comes to determining the precise meaning and scope of the concept of cost-orientation, as provided for in Article
         3(3) of the regulation, this is not immediately obvious, as the present case clearly shows. The regulation refers to the concept
         of costs, without going any further as regards its definition, and the concept of costs is not unambiguous: there are various
         possible costs, methods and models for cost calculation. 
      
      35.      Where the Community legislature has not given any precise guidance regarding cost elements or the cost calculation methods
         or models to be used, I consider, as, basically, do the interveners in the present case, that the regulation leaves the Member
         States an inevitable margin of discretion in implementing this concept. That degree of latitude will, primarily, allow the
         national legislatures to determine which elements of the local loop provider’s particular costs are to be taken into account
         and, in particular, to define the relevant costs of the notified operator as being limited to the costs of providing an efficient
         service, as well as to define the methods and models to be used to calculate the costs connected with providing the local
         loop. Moreover, Article 1(4) of the regulation expressly states that Member States shall have the right ‘to maintain or introduce
         ... measures which contain more detailed provisions than those set out in this Regulation.’
      
      36.      It is, however, true, as the provision itself states, that this legislative discretion must be exercised ‘in conformity with Community law’. (25) The margin of discretion which the Member States have to introduce more detailed provisions in order to specify the cost
         elements, the methods and the models to be used will, of necessity, be defined by the limits arising from the interpretation
         of the Community concept of cost-orientation. 
      
      37.      Apart from the general limits inherent in the general concept of cost-orientation revealed inter alia by the abovementioned
         judgments in KPN Telecom and Mobistar, and the obvious limit whereby that concept prohibits charges based on elements not forming part of costs, (26) there are other limits arising from the interpretation of this concept within the specific context of the regulation. The
         general structure and purpose of the regulation, which I have already mentioned, indicate what these limits are, thus revealing
         the importance of the principle of cost-orientation in achieving the Community legislature’s central aim, namely to ensure
         effective and immediate unbundling of local loop access and, as a result, the introduction and development of competition
         on the local access market. (27) The purpose of the principle of cost-orientation is precisely to prevent excessively high prices which, did that limiting
         factor not exist, the notified operators would naturally tend to charge in order to maintain their privileged position. (28) Consequently, this concept prevents the central aim of the regulation of fostering competition at local loop level from being
         jeopardised by the charging of excessively high prices. (29)
      
      38.      The interpretation of the Community concept thus shows that it lays down a substantial requirement which is designed to limit
         the prices charged by the notified operator, and a Member State may not depart from that requirement to the detriment of competing
         beneficiaries of loop access. 
      
      39.      I therefore propose that the Court reply to the first question that Articles 1(4) and 3(3) of the regulation are to be understood
         as meaning that the concept of prices based on cost-orientation constitutes a requirement imposing a limit on the prices charged
         by the notified operator for access to its local loop which, notwithstanding the margin for discretion which it offers in
         terms of actual implementation at national level, may not be departed from to the detriment of beneficiaries of access to
         the local loop.
      
      C –    The second question 
      40.      The second question asks whether, under Article 3(3) of the regulation, the requirement that the prices charged for local
         loop access must be set on the basis of cost-orientation also includes imputed interest and cost-accounting depreciation.
         The interveners in the case agree that the application of the principle of cost-orientation also includes depreciation and
         interest on invested capital, and that these, consequently, form part of the notified operator’s costs. 
      
      41.      At issue here are capital costs, which play a central role in relation to telephone networks, which are, obviously, highly
         capital intensive installations. Apparently, depreciation of the assets deployed and interest on the capital invested actually
         account for the major part of the costs inherent in the provision of telecommunications services. 
      
      42.      As regards depreciation, this consists of spreading the capital cost of fixed assets subject to wear and tear over time (costs
         which are generally committed in the form of an initial lump sum) over the economic lifetime of those assets. This cost spreading,
         expressed in annual amounts known as ‘depreciation charges’, is set against the income earned, obviously not in the form of
         an initial lump sum, but throughout the lifetime of the fixed assets used to provide the service in question. As regards interest,
         if a notified operator’s liabilities include finance in the form of loans used, for example, to invest in the local loop,
         the interest payable to the lenders will naturally form part of the notified operator’s costs.
      
      43.      There can be no doubt that depreciation and interest on capital invested are costs forming part of an undertaking’s normal
         business and, therefore, constitute elements of that undertaking’s costs. (30) It follows that they can be passed on and recovered by the notified operator by means of the prices charged to competing
         operators for access to its local loop. 
      
      44.      I therefore propose that the Court reply to the second question submitted by the referring court, to the effect that where
         Article 3(3) of the regulation lays down a requirement that prices charged for local loop access must be set on the basis
         of cost-orientation, this also includes imputed interest and cost-accounting depreciation.
      
      D –    The third question
      45.      This question brings us to the central issue in this case. What basis should be used for calculating interest and depreciation?
         The current replacement value of the assets, expressed in terms of current daily prices at the time of valuation exclusively?
         Or should depreciation already made prior to the time of valuation be deducted from the replacement value?
      
      46.      The regulation is silent as to the method to be used for calculating costs in order to ensure that prices are cost-orientated.
         It is therefore no real surprise that the interveners in the case have widely differing views as to how this question should
         be answered. 
      
      47.      Despite the absence of express guidance in the regulation concerning the method to be used to calculate costs, Annex V (concerning
         the cost-accounting system for interconnection) of Directive 97/33, which forms an integral part of the regulatory framework
         which the regulation is intended to complement, seems to allow, for the purpose of assessing prices, either the current replacement
         cost (that is to say ‘based on estimated replacement costs of equipment or systems’), or costs ‘based on actual expenditure
         incurred for equipment and systems’.
      
      48.      In addition, recital (13) of the regulation expressly refers to the Commission Recommendation 2000/417 and the Commission’s
         Communication of 26 April 2000, (31) stating that they give detailed guidance to assist national regulatory authorities in the regulation of local loop access.
         This reference may, properly, be considered as an indication that, when interpreting a central concept such as cost-orientation
         of prices, the Community legislature was recommending that reference should be had to the Commission’s position on these matters
         as set out in those two documents. For example, we find that paragraph 6 of Recommendation 2000/417 concerned with pricing,
         specifically with regard to capital costs, states that ‘[i]n principle, a forward-looking approach based on current costs
         ... will foster fair and sustainable competition and provide alternative investment incentives. However, if this could result
         in distortions of competition in the short term, for example where the notified operator’s tariffs remain unbalanced on the
         basis of current costs, it is recommended that the national regulatory authority ... specify the reasonable time period necessary
         for the gradual adjustment to current costs of the price of local loops.’ The recommendation also describes current costs
         as those which ‘are the costs of building an efficient modern equivalent infrastructure and providing such a service today.’ (32)
      
      49.      For its part, paragraph 6 of the Commission’s Communication of 26 April 2000 states that, with regard to prices and costs,
         the national regulatory authorities are required to abide by a series of rules. Firstly, the rules on costing and pricing
         should be transparent and objectively based. Secondly, pricing rules should ensure that the incumbent operator is able to
         cover its relevant costs plus a reasonable return. They should also be compatible with the aim of fostering fair and sustainable
         competition and providing efficient incentives for investment in infrastructure. On this point, in the same Communication,
         the Commission also states that, in principle, this aim can be achieved by adopting a pricing system based on current costs.
         This Communication uses the same concept of current costs, which was also used in Recommendation 2000/417. Lastly, the pricing
         rules must ensure that there is no market distortion, in particular margin squeezes between the prices of wholesale and retail
         services offered by the incumbent. Next, the Commission points out that, in some cases, these principles may conflict with
         each other. In those circumstances, national regulatory authorities may have to consider transitional measures that avoid
         distorting competition in the short term. 
      
      50.      The evidential background which I have just presented shows that the national regulatory authorities have considerable discretion
         in selecting and applying the method for calculating the relevant costs of the notified operation which they consider to be
         most appropriate, depending on the specific circumstances of each Member State at the time when prices are being assessed.
         However, this same evidence and, first and foremost, the regulation considered in the light of the reasons for its introduction
         and its aims, also show that there are limits inherent in the concept of cost-orientation and those limits must, in any event,
         be respected. 
      
      51.      Fundamentally, it is important to bear in mind that a decision such as that at issue here, which set rates for access to the
         notified operator’s local loop, must be reached by striking a balance between two conflicting principles. On the one hand,
         the essential purpose of the regulation is to ensure effective and immediate unbundling of local loop access and the consequent
         fostering of competition on the local access market. But, on the other, the approved rates must not be set at such a level
         that they might deter investment in infrastructure. When properly interpreted, the concept of cost-orientation laid down in
         the regulation thus sets as a limit the requirement that a decision approving rates for access based on cost-orientation must
         be reached as a result of the balanced and proportionate consideration of these two principles. (33)
      
      52.      By adopting a method of calculating the costs represented by depreciation and interest, which is based exclusively on the
         cost in terms of current prices of replacing the local network with an equivalent efficient modern network – that is to say
         based on the gross replacement cost of the assets – it is possible to achieve the necessary balance between these two principles.
         A situation could, for example, arise in which the existing network, although fully depreciated, was, at the time the obligation
         requiring unbundling of local loop access was imposed, very close to the end of its useful life and, therefore, of very low
         intrinsic value. In those circumstances, the fact that a national regulatory authority opts for a model based on gross replacement
         cost may be fully justified and proportionate, provided that creating incentives for investment in the building of new infrastructure
         is genuinely one of its prime objectives.
      
      53.      However, where, as seems to be the case here, we are dealing with a local network which is usable and is used in practice,
         and which still has significant intrinsic value and is already depreciated (at least partially), use of the calculation method
         based on gross replacement cost on the face of it attaches disproportionate importance to investment incentives. The Community
         concept of cost-orientation in fact requires equivalent consideration to be given to both of the principles described above. 
      
      54.      The adoption of such a method is likely to reduce the margin for new competing entrants to the market to offer consumers a
         significant price reduction which would persuade them to change their telecommunications services provider. In this connection,
         it is worth pointing out that, in Decision 2003/707/EC, the Commission took the view that the rates being contested in the
         present case, which were set by the decision of the German regulatory authority of 30 March 2001, had resulted in a margin
         squeeze contrary to Article 82 EC, committed by Deutsche Telekom over the period up to May 2003. (34) This Commission decision is currently the subject of an action before the Court of First Instance. (35) Without prejudging the merits of the decision, it may legitimately raise doubts concerning the extent to which the rates
         approval decision at issue secures investment in infrastructure in a balanced and proportionate manner in relation to the
         regulation’s primary objective of fostering competition on the market for access to the local metallic wire loop.
      
      55.      Where, with regard to access to an existing and usable local network such as the Deutsche Telekom network, a national regulatory
         authority uses gross replacement cost in order to determine the interest and depreciation which the rates must cover, the
         rates approval decision in question cannot leave any room for doubts as to whether a balance has been struck between creating
         investment incentives (which the adoption of such a method is clearly intended to achieve) and the fostering of competition
         on the market for local loop access. The lack of competition at local loop level in Europe, as at 1 January 2001, was precisely
         the reason why the regulation was adopted, and everything indicates that, at the time of the rates approval decision in question,
         30 March 2001, competition on the local network market in Germany was very limited.
      
      56.      It must be acknowledged that the adoption of a calculation method based exclusively on current replacement costs means that,
         in order to gain access to the existing network, competing operators have to pay the same amount that they would have to pay
         in order to build a new equivalent network. 
      
      57.      If a competing operator decides to invest in new infrastructure, it will have, initially, to bear the costs inherent in such
         a construction programme, before the infrastructure becomes operational. In the meantime, in order to benefit from the local
         loop unbundling provided for in the regulation, it will have to pay a sum broadly equivalent to the cost of investing in new
         infrastructure. The competing operator will, therefore, have to bear the cost of building its own network and, at the same
         time, pay the notified operator so that it can invest in its own new infrastructure. 
      
      58.      To avoid such ‘duplicate’ costs, two options will be open to a competing operator. Firstly, it can start building its own
         network and decide not to request access to the notified operator’s local loop. This option is likely to help the notified
         operator to maintain its dominant position on the local access network, which is precisely the opposite of what the regulation
         is intended to achieve. Alternatively, the competing operator will have the option of deciding not to build its own network
         and to request access. In this case, it will be required to pay the notified operator a charge which, as it is based on gross
         replacement cost, is designed to enable the notified operator to build a new network. However, it is clear that the notified
         operator is obviously not obliged to do this, and is thus free to use the proceeds from the charges received for any other
         purpose. 
      
      59.      The above considerations show that, unless the rates approval decision clearly demonstrates that the two principles referred
         to have been properly taken into account in a balanced manner, then, in circumstances in which the notified operator’s network
         is still operational and usable, the adoption of a method based on gross replacement cost is incompatible with the principle
         of cost-orientation and the aims of the regulation.
      
      60.      However, the argument put forward by Deutsche Telekom and by the Federal Republic of Germany disputes that conclusion: they
         maintain that approving rates based on a value below the current replacement cost, for example by deducting depreciation already
         made, would mean disregarding the regulation’s aim of providing incentives to invest in infrastructure. 
      
      61.      In order to analyse this argument, it must be assumed that there is a distinction between incentives to invest in the construction
         of new local metallic wire networks parallel to the Deutsche Telekom network, and incentives to invest in alternative infrastructure,
         such as cable TV or other systems.
      
      62.      Regarding the first type of investment, the adoption of a method of calculating capital costs based on the gross cost of replacing
         the notified operator’s local network would, of course, be likely to create such an incentive. However, it would seem to be
         neither cost-effective nor efficient, not to say an aberration in terms of saving resources and the aim of ensuring lower
         prices for customers, to duplicate an existing local loop where that loop is still usable. (36) If this was the case at the time that the rates approval was granted in Germany, which it is for the national court to ascertain,
         the argument that it is justifiable to adopt a method based on gross replacement cost in order to create incentives to invest
         in new copper wire infrastructure parallel to the Deutsche Telekom network is completely undermined.
      
      63.      Regarding incentives to invest in alternative infrastructure, I should point out that setting charges for access to the existing
         local loop on the basis of the current cost of replacement with a new and equivalent local network does not necessarily reflect
         the costs inherent in the construction of this alternative infrastructure. Indeed, in addition to the fact that the technology
         in question has actually to be available, a decision to build a cable TV network, a local ‘wireless radio’ loop or any other
         type of system, would necessarily involve taking account, first, of an investment cost different from that which would be
         required to build a new local copper wire network and, secondly, of the fact that the functionality and economic potential
         inherent in the alternative infrastructure are different from the functionality offered by the local copper wire network (37). Setting the charges below those that would result from using a method based exclusively on the current cost of replacing
         the local loop might not, therefore, act as a complete deterrent to investment in alternative infrastructure. 
      
      64.      It will therefore be for the national court to ascertain whether the rates approval decision at issue in the present case
         contains elements justifying the adoption of the calculation method based on gross replacement costs and, thus, whether the
         decision in question shows that the two principles already discussed have both been taken into account in a balanced and proportionate
         fashion. In the absence of such justification, calculating the depreciation and interest which the charges have to cover using
         a gross replacement cost method is incompatible with the regulation.
      
      65.      To sum up, there are two possible justifications which could be put forward Firstly, as I mentioned above, (38) it is possible that the advanced age of the network could justify using a method based on gross replacement costs. Secondly,
         as I emphasised in point (63) above, it is possible that in the specific circumstances of Germany at the time of the rates
         approval decision, investment in alternative technologies available at the time, with functionality equivalent to Deutsche
         Telekom’s local copper wire network, would have been significantly discouraged if the charges had been set below the figure
         obtained using a calculation method based on the gross cost of replacing the network.
      
      66.      In neither of these two justifications applies, the conclusion must be that it would be contrary to the concept of cost-orientation
         to use as the exclusive basis for calculating costs the current replacement value of the assets, expressed in terms of current
         daily prices at the time of valuation.
      
      67.      Should the referring court conclude, in the light of the considerations set out above, that the adoption by the regulatory
         authority of a calculation method based on gross replacement costs is incompatible with cost-orientation, the question then
         arises whether this concept of cost-orientation requires depreciation already made to be deducted.
      
      68.      If the referring court concludes that this is the case, this means that the approved rates should have been set at a figure
         below that obtained by applying the calculation method based on the gross replacement cost of the assets. However, the way
         in which the concept of cost-orientation has been interpreted does not provide any indication of the specific cost elements
         which should be deducted in order to determine how precisely to change from a calculation method based on the gross cost of
         replacing the assets to a method based on the net replacement cost. Deducting the depreciation already made would undoubtedly
         provide a legitimate calculation method based on the net replacement. However, I would not rule out the possibility that other
         definitions of net replacement cost could also be acceptable. I am thinking, for example, of the concept of net replacement
         cost which is defined as the sum which has to be paid in order to replace the asset with another asset of similar age and characteristics. The value of the notified operator’s asset in terms of current costs, which would be used as a basis
         for calculating the interest and depreciation, could then be established on the basis of such net replacement costs or on
         the current intrinsic value of the network, depending on which of these is the lower figure. (39)
      
      69.      To sum up, it is my view that where rates calculated on the basis of the current replacement cost prove not to be balanced
         in the circumstances prevailing at the time of the approval decision, the rates should be set at a lower figure, either by
         deducting the depreciation already made or by another means which it is possible to define at national level, and which enables
         the rates for access to the local loop to be set at a figure below the figure that results exclusively from the use of the
         current replacement cost method.
      
      70.      Deutsche Telekom is opposed to the rates being set at a lower figure. On this point, it maintains that, because the existing
         network is already largely depreciated, deducting the previous depreciation would involve a risk that competing operators
         would be given free or virtually free access to its local loop, which would unlawfully prevent it from deriving full advantage
         from its ownership of that network. I do not share this view.
      
      71.      There is no doubt that the regulation accords the notified operator the right to a reasonable return for making the local
         loop available to competing operators. (40) Even if Deutsche Telekom’s local network were, possibly, to be fully depreciated, the regulation would preclude the rates
         being set at zero or at a level very close to free access. 
      
      72.      However, contrary to what Deutsche Telekom is in substance arguing, the regulation does not imply that only approved rates obtained by applying a calculation method based on the current gross cost of replacing the network are capable
         of providing a reasonable return for the notified operator. There are several lower rates which, in the specific circumstances
         of the Federal Republic of Germany at the time of the rates approval decision, could have been capable of fostering competition
         at local loop level without decisively deterring investment in alternative infrastructure and would, at the same time, be
         likely to provide a reasonable return for the notified operator, in accordance with the regulation. Deutsche Telekom’s right
         to receive a reasonable return is simply a lower limit which the regulatory authority is required to respect when adopting
         an approval decision. It does not allow rates set on the basis of the gross replacement cost of the assets to be regarded
         as the only rates likely to ensure a reasonable return for the notified operator. In other words, the rate that provides the
         greatest incentive to invest in infrastructure is not the only rate which will give the notified operator a reasonable return.
         There are other rates, set at a lower level, which are also capable of ensuring such a return. 
      
      73.      In the light of the considerations set out above, I propose that the Court reply to the third question as follows: the concept
         of cost-orientation provided for in Article 3(3) of the regulation should be understood as meaning that it requires a rates
         approval decision, such as the decision at issue in the present case, to be based on a balanced and proportionate compromise
         – depending on the circumstances prevailing at the time the decision is adopted – between the regulation’s central aim of
         fostering competition on the local loop access market and the need to ensure the necessary level of investment in infrastructure.
         In the light of those considerations, it will be for the national court to ascertain whether the rates approval decision at
         issue contains adequate justification for adopting the method of calculating the depreciation and the interest which the rates
         have to cover based exclusively on the current prices at the time of valuation. In the absence of such justification, the
         Community concept of cost-orientation of charges requires that charges for access should be set at a figure below that obtained
         by applying such a method of calculating capital costs, in particular by deducting depreciation already made before the valuation
         date.
      
      E –    The fourth question
      74.      The Verwaltungsgericht Köln is, basically, seeking to ascertain whether Community law requires the national regulatory authorities
         to work on the basis of complete cost statements produced by the notified operator or whether it is permissible to use analytical
         cost models and, if so, what requirements they have to satisfy.
      
      75.      As the referring court pointed out, the German regulatory authority considered that the cost statements submitted by Deutsche
         Telekom were incomplete and did not provide sufficient evidence. In the absence of adequate statements, the regulatory authority
         therefore used a ‘bottom-up’ analytical model to calculate the notified operator’s relevant costs and, in particular, the
         imputed interest and cost-accounting depreciation. In substance, this is a theoretical economic model which can be used to
         determine the level of investment currently required to build a modern, efficient local copper-wire network equivalent to
         the existing network. This model is, therefore, based on the costs which an efficient operator would have incurred in order
         to acquire the network and put it into operation. (41) A model of this kind differs from a ‘top down’ model, which is based on the notified operator’s actual costs. Although these
         costs can be verified from the point of view of efficiency using inter alia a forward-looking approach, such as long run incremental
         costs, it is, in any event, the notified operator’s costs which basically remain the decisive factor. 
      
      76.      It is my view that neither the text of the regulation, nor the reasons for its introduction, nor the Court’s case-law concerning
         the concept of cost-orientation preclude the regulatory authorities from using theoretical cost models – bottom-up models,
         for example. 
      
      77.      Such models can be used inter alia to apply an efficiency criterion to limit charges which, on the basis of the actual costs
         cited by the notified operator, would actually be higher. Recommendation 98/322 (42) shows precisely how using a bottom-up economic model can provide information on the inefficiencies which would result from
         the use of a model which includes assets in excess of requirements. This use of a bottom-up theoretical cost model accurately
         reflects the coordinated or hybrid use of a bottom-up analytical model together with a top-down model based on figures for
         the notified operator’s costs. (43)
      
      78.      The abovementioned judgment in Mobistar also tends towards the similar use of an analytical model. In that judgment, in relation to prices charged for ensuring the
         portability of telephone numbers, the Court accepted the advance setting of maximum prices which could be charged by the operator,
         using a theoretical cost model, provided that the charges were cost-orientated in such a way that consumers were not dissuaded
         from making use of the portability facility. The Court also emphasised that it was entirely possible that these maximum prices
         could prove to be ‘too high’ in relation to the operators’ cost structure. (44) In such cases, the charges would obviously have to be set, on the basis of the operator’s actual costs, below the figure
         obtained by applying the theoretical bottom-up cost model.
      
      79.      However, the question posed in the present case is not whether Community law permits the regulatory authorities to use such
         models. At issue is whether, where the regulatory authority finds that the statements submitted by the operator concerning
         the costs allegedly used as a basis for calculating interest imputed and depreciation, are incomplete and do not provide sufficient
         evidence, it may approve charges based on the alternative of ‘efficient’ costs obtained by applying a bottom-up theoretical
         model based on the cost of investment in building a new local network. It is, therefore, necessary to determine whether Community
         law imposes limits on replacing the notified operator’s statements of actual costs by a theoretical model of the costs incurred
         by an efficient operator and, if so, what those limits are.
      
      80.      There is a broad consensus amongst the interveners in this case to the effect that it would not be acceptable for any request
         for rates approval to be rejected where it is not 100 percent supported by cost statements from the notified operator. However,
         a minimum of evidence for the notified operator’s actual costs will, obviously, be essential to enable the national regulatory
         authority to ascertain whether the rates satisfy the cost-orientation requirement. The national regulatory authorities therefore
         have a margin of discretion in determining which statements of the operator’s actual costs are not essential and may be replaced
         by the use of a bottom-up analytical model. However, this margin of discretion is subject to limits under the regulation.
         Apart from the requirements of transparency, non-discrimination and objectivity, in exercising this margin of discretion,
         national regulatory authorities must also respect the limits arising from the interpretation of the concept of cost-orientated
         charges, with the autonomous significance and objectives already identified.
      
      81.      According to Article 4(2)(b) of the regulation, a national regulatory authority shall have the power to ‘require notified
         operators to supply information relevant for the implementation of this regulation.’ This information obviously includes the
         information needed, within a procedure for the approval of charges for local loop access, to provide evidence that these charges
         have been set on the basis of cost-orientation, as provided for in Article 3(3) of the regulation. The regulation does not
         contain any more precise provisions concerning the cost statements necessary to determine the costs relating to the provision
         of local loop access in line with which the charges must be orientated. 
      
      82.      However, Article 7(2) of Directive 97/33 expressly states that ‘the burden of proof that charges are derived from actual costs,
         including a reasonable rate of return on investment’ lies with the notified operator. According to Article 7(5), second sentence
         of that directive, Member States are also required to ensure the adoption of cost accounting systems which are suitable for
         the implementation inter alia of the cost-orientation requirements and that they are documented to a sufficient level of detail,
         as indicated in Annex V. Annex V specifies inter alia the elements which must be included in the published information in
         order to ensure that the calculation of interconnection charges is transparent. 
      
      83.      Operators’ cost accounting therefore plays a central role within the regulatory framework for telecommunications, (45) including, naturally, the legal requirements governing the unbundling of local loop access established by the regulation.
         The notified operator’s costs for making the local loop available, that is to say those costs which can be identified from
         its accounting documents, assume a central role when it comes to assessing whether charges for local loop access are cost-orientated. (46) On this point, I share Arcor’s view that the Community legislature’s concern to ensure the adoption of cost accounting systems
         supported by sufficiently detailed documentation would become meaningless if, where the notified operator only provides incomplete
         statements concerning its cost structure and, in particular, concerning depreciation and interest relating to its local network,
         the national regulatory authority simply used a theoretical model representing the costs of an efficient virtual operator
         in order to calculate this depreciation and interest. 
      
      84.      The principle of cost-orientation refers first and foremost to the notified operator’s costs, that is to say its actual costs ‘connected with’ the provision of access to the existing local loop owned by that
         operator. (47) In order to assess whether the charges are consistent with the notified operator’s costs, the notified operator’s accounts
         provide the only possible starting-point for establishing those costs. It would be methodologically incorrect to take as the
         central basis for establishing the notified operator’s costs connected with the provision of access to its network, not its cost statements, but a bottom-up analytical model, which provides figures for costs connected with the provision
         of a modern, efficient local loop to be built from scratch by a virtual efficient operator. In fact, the actual costs connected
         with an existing local loop may be much lower than those calculated using a bottom-up theoretical model of that nature. 
      
      85.      Where the existing local loop is already largely depreciated, even though it still retains a high intrinsic value, to take
         as the principal basis for calculating imputed interest and depreciation a bottom-up theoretical model and not the statements
         of actual costs, would produce an outcome incompatible with the objectives the principle of cost-orientation pursues. The
         charges approved on the basis of such a model would be higher than those resulting from taking account of the notified operator’s
         actual cost structure. 
      
      86.      Consequently, using a bottom-up analytical model under those circumstances would not be likely to allow corrections to be
         made on the basis of efficiency criteria when calculating depreciation and interest based on taking into account the notified
         operator’s actual cost structure. Nor would using such a model serve to establish the value of the depreciation and interest
         currently borne by the notified operator in relation to its existing network, which has already been depreciated (or at least
         partially) and which is still usable. 
      
      87.      I would also like to emphasise that, where a regulatory authority uses a bottom-up theoretical model in place of the statements
         of depreciation and interest which the notified operator has to bear in relation to its – largely depreciated and still usable
         – local network, this will encourage that operator to make a strategic selection of the cost statements to be submitted to
         the regulatory authority, with the result that, the charges will, in the final analysis, be approved either on the basis of
         actual costs or on the basis of efficient costs, depending on which figure is higher. The notified operator may decide on its own initiative not to provide certain statements concerning its cost structure,
         where the application of a ‘bottom up’ analytical cost model is likely to show higher capital costs and, consequently, produce
         higher access charges. 
      
      88.      Admittedly, as I have already mentioned, the national regulatory authority has a margin of discretion with regard to documentation
         which it does not consider essential. However, the exercise of this discretion must not encourage notified operators to take
         a strategic approach when calculating the capital costs representing depreciation and interest relating to the specific local
         loop of the notified operator in question.
      
      89.      Lastly, I consider that the reply to this question is necessarily dependent upon the analyses which the referring court must
         make in connection with the previous question. If, in fact, in the light of the considerations which I have set out above
         in reply to the previous question, the rates approval decision provides adequate justification for adopting a method for calculating
         depreciation and interest based on the gross replacement cost of assets, I would, in principle, also consider the regulatory
         authority’s the use by of a bottom-up analytical cost model to be justified. (48)
      
      90.      However, where the adoption of a method of calculating depreciation and interest based on the gross replacement cost of assets
         proves not to be justified, the national regulatory authority’s use of a bottom-up theoretical cost model in place of the
         incomplete cost statements supplied by the notified operator in order to calculate that operator’s depreciation and interest,
         must be regarded as incompatible with the principle of basing charges for local loop access on the notified operator’s costs,
         where its local network is still operational and is already largely depreciated. This, basically, is the reply which I propose
         that the Court give to the fourth question.
      
      F –    The fifth question
      91.      This question concerns the boundaries of the margin of discretion which the regulatory authorities are allowed when assessing
         the cost-orientation of charges and the parameters of the judicial review to which such decisions must be subjected. 
      
      92.      Article 4(1) of the regulation states that the national regulatory authorities are to ensure that charging for unbundled access
         to the local loop fosters fair and sustainable competition. Consequently, Article 4(2) provides that they are to have the
         power to impose changes, inter alia in the prices charged by notified operators for unbundled access to the local loop. (49) Such changes in the prices for access charged by the notified operator will, naturally, be justified where the national regulatory
         authority finds that the prices are incompatible with the principle of cost-orientation laid down by Article 3(3) of the regulation.
      
      93.      The reply to this question is closely linked to the analysis of the previous questions. That analysis showed that the national
         regulatory authorities have an indisputable margin of discretion when implementing the principle of cost‑orientation, both
         when deciding which of the cost elements supplied by the local loop provider to take into account and when deciding on the
         method to be used to calculate the costs connected with provision of access to the local loop. In the light of the considerations
         set out in the analysis of the previous questions, I see no reason why this discretion should not also extend to determining
         imputed interest and the setting of reasonable periods for depreciation. As Arcor states in its observations with regard to
         the latter, the fact that a depreciation period is based on an estimate of the future useful life of the asset inevitably
         involves an element of prediction and, consequently, the exercise of discretion. 
      
      94.      In any event, such powers of discretion on the part of the regulatory authorities must comply with the requirements I have
         already mentioned concerning transparency, non-discrimination and equal treatment, and must respect the limits arising from
         the interpretation of the Community concept of cost-orientation, with the particular significance and scope it enjoys within
         the context of the regulation. In particular, the rates approval decision must strike a balanced compromise between the essential
         aim of fostering competition on the local loop access market and that of ensuring the necessary level of investment in infrastructure.
      
      95.      We come now to the question of the powers of judicial review the national courts should exercise over decisions adopted by
         the national regulatory authorities where they have exercised this power of discretion. 
      
      96.      Neither the regulation nor the relevant directives constituting the former regulatory framework provide for any harmonisation
         of the national systems relating to judicial procedures and, more specifically, the determination of the scope and extent
         of judicial review of decisions by the national regulatory authorities, particularly those in which they have exercised a
         margin of discretion. The reply to this question is primarily a matter for the national procedural law.
      
      97.      Generally speaking, the national procedural rules defining the extent and scope of the judicial review of decisions by regulatory
         authorities are required to comply with the principles of equivalence and effectiveness. Where they protect rights derived
         from Community law, these rules may not be less favourable than those applying to similar remedies within domestic law. Nor
         may they make it virtually impossible or excessively difficult to exercise rights conferred by Community law. (50)
      
      98.      More specifically, Community law explicitly provides that Member States are required to provide remedies against decisions
         by regulatory authorities in the telecommunications sector. An obligation of this kind was already imposed under the former
         regulatory framework. In fact, Article 5a(3) of Directive 90/387 as amended by Directive 97/51/EC of the European Parliament
         and of the Council of 6 October 1997, (51) provided that ‘Member States shall ensure that suitable mechanisms exist at national level under which a party affected by
         a decision of the national regulatory authority has a right of appeal to a body independent of the bodies involved.’ (52) This is an example of the general principle of Community law whereby Member States have the responsibility of ensuring effective
         legal protection for the rights derived from Community law. (53)
      
      99.      But the judicial review which Community law requires the national courts to exercise in order to provide effective legal protection
         for the rights derived from Community law is not required to be more extensive than the forms of judicial review which the
         Community courts carry out in similar cases. On this point, the Court has indicated that where judicial review of decisions
         by Community authorities which have made complex assessments is at issue, those authorities enjoy a wide measure of discretion,
         the exercise of which is normally subject to a limited judicial review. (54) This limited judicial review is justified by practical reasons connected with the economic or technical complexity of assessments
         made in certain fields which, moreover, may frequently be capable of rapid evolution. (55) In any event, the fact that the applicable national procedural law applicable restricts the extent of the judicial review
         cannot have the effect of decisions by the regulatory authorities not being subject to effective judicial review. On this
         point, the Court has emphasised that any national procedure for judicial review of a decision by a regulatory authority must,
         in any event, enable the court or tribunal seised of an application ‘effectively to apply the relevant principles and rules
         of Community law when reviewing its legality.’ (56)
      
      100. When considering an appeal against a rates approval decision, as in the present case, the competent national judicial bodies
         must, therefore, have the opportunity to assess whether, when exercising the margin of discretion which it enjoys, the national
         regulatory authority has respected the limits arising from the interpretation of the Community concept of cost-orientation
         and whether the rates approval decision has satisfied the criteria and objectives laid down in the regulation. In this connection,
         it is important to distinguish between exercising a margin of discretion and interpreting the relevant legal criteria determining
         the precise limits of that margin of discretion. It follows that the competent national judicial bodies must conduct a judicial
         review enabling them to assess whether, depending on the specific national circumstances prevailing at the time the decision
         was adopted, a rates approval decision issued by a national regulatory authority has struck an appropriate balance between
         the essential aim of fostering competition within the local network and the aim of ensuring the necessary level of investment
         in infrastructure.
      
      101. I therefore propose that the Court reply to the referring court to the effect that, when assessing whether charges have been
         set on the basis of cost-orientation, the national regulatory authority has a margin of discretion with regard, in particular,
         to the method used to calculate the costs and also to issues relating to the determination of imputed interest and reasonable
         depreciation periods. Effective judicial review of a rates approval decision must make it possible to ascertain whether or
         not the rates approval decision in question is in breach of the aims of the regulation and the criteria of non-discrimination
         and equal treatment. It must also make it possible to ascertain whether the limits arising from the interpretation of the
         Community concept of cost-orientation have been respected and, in particular, whether the decision shows that an appropriate
         balance has been struck between the essential aim of fostering competition within the local network and the aim of ensuring
         the necessary level of investment in infrastructure.
      
      G –    The sixth question
      102. By this question, the referring court is, basically, asking whether, although a rates approval decision adopted by a national
         regulatory authority is not addressed to them, competitors as beneficiaries of access to the notified operator’s local network,
         must have a right of appeal against such a decision where they consider that the rates approved have not been set on the basis
         of cost-orientation. 
      
      103. In my Opinion of 15 February 2007 in the Tele2 UTA Telecommunication case, (57) I had occasion to consider an issue in connection with the procedure for market analysis within the new regulatory framework,
         which is broadly equivalent to the problem forming the subject-matter of this question. For further discussion of this, I
         would, therefore, refer to my Opinion in the Tele2 UTA Telecommunication case, cited above. (58)
      
      104. I already pointed out in that Opinion that, according to Article 5a of Directive 90/387, which constituted part of the former
         regulatory framework for telecommunications which the regulation is intended to complement, Member States must ensure ‘that
         suitable mechanisms exist at national level under which a party affected by a decision of the national regulatory authority
         has a right of appeal to a body independent of the parties involved.’ (59) In its judgment in Connect Austria, cited above, when reviewing the latter provision, the Court pointed out that Member States bear the responsibility of ensuring
         that, in every case ‘individual rights derived from Community law’ (60) are effectively protected and that Article 5a(3) of Directive 90/387 requires that ‘Member States shall ensure that suitable
         mechanisms exist at national level under which a party affected by a decision of the national regulatory authority has a right
         of appeal to a body independent of the parties involved.’ The Court then concluded that ‘in order to ensure that national
         law is interpreted in compliance with Directive 90/387 and that the rights of individuals are effectively protected, national
         courts must determine whether the relevant provisions of their national law provide individuals with a right of appeal against
         decisions of the national regulatory authority which satisfies the criteria laid down in Article 5a(3) of Directive 90/387.’ (61)
      
      105. Article 5a, like Article 4(1) of the framework directive, is an expression of the general principle of Community law whereby
         Member States have the responsibility of ensuring effective legal protection of the rights which individuals are accorded
         under Community law. (62) A decision by a national regulatory authority, such as the decision at issue in the main proceedings, setting the rates which
         the notified operator is entitled to charge competing operators as beneficiaries, is a decision against which, according to
         Community law, there must be a right of appeal before an independent judicial body. The question which has been posed in this
         case is, however, more specific and asks whether, although the rates approval decision is not addressed to them, competitors
         as beneficiaries of access, such as Arcor, must have the right to bring an action to contest the rates for access on the grounds
         that they have not been set on the basis of cost-orientation, in breach of Article 3(3) of the regulation.
      
      106. It is, first of all, important to recall that, at the time of the rates approval decision of 30 March 2001, Deutsche Telekom
         and Arcor were parties to a contract. According to the referring court, the rates approved by the national regulatory authority
         in the present case were set by agreement between Deutsche Telekom and Arcor in their contract. Consequently, where the national
         regulatory authority sets the rates in accordance with the regulation, it in effect establishes the price which Arcor is required
         to pay for access to Deutsche Telekom’s local loop. Whatever price Arcor has to pay to Deutsche Telekom is the result, not
         of negotiations between Deutsche Telekom and Arcor, but of the decision by the national regulatory authority, which is deemed
         to have complied with the cost-orientation requirement laid down by Article 3(3) of the regulation. 
      
      107. Contrary to what Deutsche Telekom, the German Government and the Federal Republic of Germany, as a party to the dispute before
         the referring court, maintain, it is my view that Community law confers upon competitors as beneficiaries of access to the
         local loop, such as Arcor in this case, the right to bring proceedings to contest rates which have not been set on the basis
         of cost-orientation. 
      
      108. Where it requires that charges for access must be set on the basis of cost-orientation, Article 3(3) of the regulation protects
         not only the interests of the notified operator, by ensuring that it is able to cover its costs, but also the interests of
         competitors as beneficiaries of access to the notified operator’s local loop. (63)
      
      109. Both Deutsche Telekom and Arcor are contracting parties whose contractual relationship is affected by the decision by the
         regulatory authority setting the rates. (64) They must both have the right to bring proceedings to contest that decision on the ground that it approved rates incompatible
         with the cost-orientation requirement laid down in Article 3(3) of the regulation. 
      
      110. The aim of the regulation is to foster competition on the local access market. The requirement that charges must be set on
         the basis of cost-orientation is instrumental in achieving that aim and, as Article 4(1) of the regulation expressly recalls,
         the national regulatory authorities are required to ensure that charging for unbundled access to the local loop fosters fair
         and sustainable competition. In the light of those aims, it would not be tenable for the notified operator to be granted the
         right to bring proceedings to contest rates on the ground that they are incompatible with the cost-orientation requirement,
         whereas competing operators, as new entrants to that market who are required to pay the charges set by the regulatory authority,
         do not have that same right. (65) It therefore follows that, where a competing operator has a contractual relationship with a notified operator for access
         to the latter’s local loop, with rates set by an approval decision of the national regulatory authority, the operator benefiting
         from that access must have the right of appeal against such a decision in order to contest the rates set, on the ground that
         they fail to satisfy the cost-orientation requirement laid down by the regulation. 
      
      111. I further consider that, in view of the aims of fostering competition set by the regulation and of the instrumental role which
         the requirement that charges for access must be set on the basis of cost-orientation plays in connection with this, even operators
         which are competitors of the notified operator but do not have a contractual relationship with the latter must also effectively
         have a real possibility of bringing an action to contest access charges which have not been set on the basis of cost-orientation.
         Such competing operators, who do not yet have a contractual relationship with the notified operator, are also the direct beneficiaries
         of the provisions of the regulation, which are designed to foster competition in the segment of the telecommunications market
         comprising the local access network. (66) In other words, it is not necessary to have any kind of contractual relationship with the notified operator in order to be
         classed as a ‘beneficiary’ of the unbundled local loop access introduced by the regulation. (67)
      
      112. Where a rates approval decision imposes rates which have not been set on the basis of cost-orientation, that decision will
         also have a negative impact on those competing operators who might wish to obtain access to the notified operator’s local
         loop. In fact, where a competitor is faced with a rates approval decision which makes it more difficult for it to establish
         a proposed contractual relationship with the notified operator, it must also have the possibility of bringing proceedings
         to contest the fact that those rates have not been set on the basis of cost-orientation, where appropriate. Consequently,
         those competing operators must also have the right of appeal, in the same way as operators which already have a contractual
         relationship with the notified operator.
      
      113. I therefore propose that the Court reply to the referring court to the effect that Community law requires that competitors
         as beneficiaries of the right of access to the notified operator’s local loop have the right to bring proceedings to contest
         rates for access approved by a national regulatory authority, on the ground that they were not set on the basis of cost-orientation.
         
      
      H –    The seventh question
      114. The referring court is, basically, seeking to ascertain where the burden of proof that rates have been set on the basis of
         cost-orientation lies, both during the course of the administrative procedure preceding the rates approval decision and during
         an appeal lodged against the regulatory authority’s decision by a competitor affected by it. 
      
      115. The regulation contains no provision stipulating where the burden of providing proof of the costs on which the charges must
         be based lies. It is Article 7(2) of Directive 97/33, which forms part of the regulatory framework for telecommunications
         that the regulation is designed to complement, which expressly states that ‘[t]he burden of proof that charges are derived
         from actual costs including a reasonable rate of return on investment shall lie with the organisation providing interconnection
         to its facilities.’ (68)
      
      116. In view of the fact that the concept of cost-orientation relates to the notified operator’s costs, that is to say the costs
         ‘connected with’ the provision of access to an existing local loop owned by that operator, it is obviously the notified operator
         that is best placed to provide information concerning its costs. In the context of the supervision of charge-setting, which,
         in accordance with Article 4 of the regulation, is to be carried out by the national regulatory authority, it is, therefore,
         for the notified operator to provide evidence of the costs connected with the provision of access to its local loop on the
         basis of which the prices which it charges competitors must be orientated. 
      
      117. As regards the problem of ascertaining where the burden of proof that charges are cost-orientated lies, in the context of
         legal proceedings consequent on an appeal against a rates approval decision, neither the regulation nor the other legal instrument
         within the former regulatory framework provide any guidance on this point. As a result, Community law does not require that
         the rule which places upon the notified operator the burden of providing evidence of the costs in line with which the prices
         it charges for access must be orientated, during the administrative stage preceding the national regulatory authority’s decision
         on those rates, must also apply during any subsequent legal proceedings. Consequently, it will be for the relevant national
         procedural law to determine the evidential rules applicable, including where the burden of proof lies as between the national
         regulatory authority which gave the rates approval decision and the party affected by that decision which has brought proceedings
         to contest whether the approved rates are orientated in line with the notified operator’s costs. 
      
      118. In deciding where the burden of proof lies, national law must, in any event, respect the Community principles of effectiveness
         and equivalence. Member States must, therefore, ensure that evidential rules – and, in particular the rules on where the burden
         of proof applicable to actions relating to a breach of Community law lies – are, firstly, not less favourable than those that
         apply to similar domestic actions and, secondly, that they do not make it impossible or excessively difficult in practice
         for individuals to exercise rights conferred by Community law. (69)
      
      119. I therefore propose that the Court reply to the seventh question to the effect that the regulation should be understood as
         meaning that, during a procedure for the supervision of charge-setting conducted by a national regulatory authority in accordance
         with Article 4 of the regulation, it is for the notified operator to provide evidence of its costs connected with the provision
         of access to its local loop, those costs having to be used in the cost-orientation of the rates which it charges its competitors.
         It will be for the national procedural law to determine, in accordance with the Community principles of the effectiveness
         and equivalence of legal protection, where the burden of proof lies in the context of legal proceedings contesting the cost-orientation
         of rates for access set by a decision of the national regulatory authority. 
      
      III –  Conclusion
      120. On the basis of the arguments set out above, I propose that the Court reply as follows to the questions referred for a preliminary
         ruling by the Verwaltungsgericht Köln:
      
      (1)      Articles 1(4) and 3(3) of Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on
         unbundled access to the local loop must be interpreted as meaning that the concept of prices based on cost-orientation constitutes
         a requirement imposing a limit on the prices charged by the notified operator for access to its local loop which, notwithstanding
         the margin for discretion which it offers in terms of actual implementation at national level, may not be departed from to
         the detriment of beneficiaries of access to the local loop.
      
      (2)      Where Article 3(3) of the regulation, in laying down a requirement that prices charged for local loop access must be set on
         the basis of cost-orientation, must be interpreted as meaning that the concept of costs also includes imputed interest and
         cost-accounting depreciation.
      
      (3)      The concept of cost-orientation provided for in Article 3(3) of the regulation must be interpreted as meaning that it requires
         a rates approval decision, such as the decision at issue in the present case, to be based on a balanced and proportionate
         compromise – depending on the circumstances prevailing at the time the decision is adopted – between the regulation’s central
         aim of fostering competition on the local loop access market and the need to ensure the necessary level of investment in infrastructure.
         In the light of this, it will be for the national court to ascertain whether the rates approval decision at issue contains
         adequate justification for adopting the method of calculating the depreciation and the interest which the rates have to cover
         based exclusively on the current replacement value of the assets, expressed in terms of current daily prices at the time of
         valuation. In the absence of such justification, the Community concept of cost-orientation of charges requires that charges
         for access should be set at a figure below that obtained by applying such a method of calculating capital costs, in particular
         by deducting depreciation already made before the valuation date.
      
      (4)      If, in the light of the reply to the previous question, the national court concludes that the adoption of a method of calculating
         depreciation and interest based on the gross replacement cost of assets proves not to be justified, the national regulatory
         authority’s use of a bottom-up theoretical cost model in place of the incomplete cost statements supplied by the notified
         operator in order to calculate that operator’s depreciation and interest, must be regarded as incompatible with the principle
         of basing charges for local loop access on the notified operator’s costs, where its local network is still operational and
         is already largely depreciated. 
      
      (5)      When assessing whether charges have been set on the basis of cost-orientation, the national regulatory authority has a margin
         of discretion with regard, in particular, to the method used to calculate the costs and also to issues relating to the determination
         of imputed interest and reasonable depreciation periods. Effective judicial review of a rates approval decision must make
         it possible to ascertain whether or not the rates approval decision in question is in breach of the aims of Regulation No
         2887/2000 and the criteria of non-discrimination and equal treatment. It must also make it possible to ascertain whether the
         limits arising from the interpretation of the Community concept of cost-orientation have been respected and, in particular,
         whether the decision shows that an appropriate balance has been struck between the essential aim of fostering competition
         within the local network and the aim of ensuring the necessary level of investment in infrastructure.
      
      (6)      Competitors as beneficiaries of the right of access to the notified operator’s local loop have the right to bring proceedings
         to contest rates for access approved by a national regulatory authority, on the ground that they were not set on the basis
         of cost-orientation.
      
      (7)      Regulation No 2887/2000 must be interpreted as meaning that, during a procedure for the supervision of charge-setting conducted
         by a national regulatory authority in accordance with Article 4 of the regulation, it is for the notified operator to provide
         evidence of its costs connected with the provision of access to its local loop, those costs having to be used in the cost-orientation
         of the rates which it charges its competitors. It will be for the national procedural law to determine, in accordance with
         the Community principles of the effectiveness and equivalence of legal protection, where the burden of proof lies in the context
         of legal proceedings contesting the cost-orientation of rates for access set by a decision of the national regulatory authority.
      
      1 –	Original language: Portuguese.
      
      2 –	OJ 2000 L 336, p. 4.
      
      3 –	 BGBl. 1996 I, p. 1120, ‘the TKG 1996’.
      
      4 –	BGBl. 1996 I, p. 1492, hereinafter ‘the TEntgV’.
      
      5 – 	Directive 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 1997 L 199, p. 32).
      
      6 –	Directive of the European Parliament and of the Council of 26 February 1998 on the application of open network provision
         (ONP) to voice telephony and on universal service for telecommunications in a competitive environment (OJ 1998 L 101, p. 24).
      
      7 –	Article 4(5) in fact states that ‘[d]isputes between undertakings concerning issues included in this Regulation shall be
         subject to the national dispute resolution procedures established in conformity with Directive 97/33/EC and shall be handled
         promptly, fairly and transparently.’
      
      8 –	According to Article 27 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common
         regulatory framework for electronic communications networks and services (the ‘Framework’ Directive) (OJ 2002 L 108, p. 33)
         (‘the framework directive’), ‘[o]perators of fixed public telephone networks that were designated by their national regulatory
         authority as having significant market power in the provision of fixed public telephone networks […] shall continue to be
         considered “notified operators” for the purposes of Regulation (EC) No 2887/2000 until such time as the market analysis procedure
         referred to in Article 16 has been completed. Thereafter they shall cease to be considered “notified operators” for the purposes
         of this Regulation.’ Recital 43 in the preamble to the framework directive also states that the Commission may, when appropriate,
         present a proposal for the repeal of the regulation. The obligations laid down in the regulation are therefore to remain in
         force for the period of time necessary to assess competition and to decide, on the basis of that assessment, whether or not
         the obligations in question need to be retained. See also recital 12 of Directive 2002/19/EC of the European Parliament and
         of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities
         (Access Directive) (OJ 2002 L 108, p. 7). 
      
      9 –	See also Cases C‑392/04 and C‑422/04 i‑21 Germany and Arcor [2006] ECR I‑8559, paragraph 24, in which the Court pointed out that the framework directive applies only to legal situations
         arising from 25 July 2003.
      
      10 –	See the similar argument put forward by the Court in Case C‑33/04, Commission v Luxembourg [2005] ECR I‑10629, paragraphs 81 and 82.
      
      11 –	See recital (1) of the regulation.
      
      12 – 	See recital (3) of the regulation and the Proposal for a Regulation of the European Parliament and the Council on unbundled
         access to the local loop (COM(2000) 394 final, OJ 2000 C 365 E, p. 212).
      
      13 –	See recital (2) of the regulation.
      
      14 – 	Almost exactly reproducing recital (8) of Commission Recommendation 2000/417/EC of 25 May 2000 on access to, and interconnection
         of, electronic communications networks and associated facilities (Access Directive) (OJ 2000 L 156, p. 44).
      
      15 – 	This situation is expressly mentioned in recital (3) of the regulation which emphasises that the marked absence of competition
         at local loop level was due to the fact that these operators rolled out their local access networks over significant periods
         of time protected by exclusive rights and were able to fund investment costs from monopoly rents.
      
      16 – 	See recital (11) of the regulation. Article 7 of Directive 97/33, which was in force at the material time, adopts a similar
         approach. It provides that charges for interconnection are to be based on actual costs, including a reasonable rate of return
         on investment.  
      
      17 –	This concept first appeared in the Community regulatory framework for telecommunications in Annex II to Directive 90/387,
         paragraph 4, first subparagraph, according to which charges must be based on objective criteria and ... in principle be set
         on the basis of cost-orientation.
      
      18  –	See, to that effect, the similar concept of ‘equitable remuneration’ in Case C‑245/00 SENA 2003 ECR I‑1251, paragraphs 23 and 24. See also, in particular, the Opinion of Advocate-General Tizzano in that case, at
         points 32 and 45 to 48.
      
      19 –	See, to that effect, also SENA, cited above, paragraph 23 and the case-law cited therein. And, more recently, Case C‑156/98 Germany v Commission [2000] ECR I‑6857, paragraph 50; Case C‑373/00 Adolf Truley [2003] ECR I‑1931, paragraph 35; Case C‑497/01 Zita Modes [2003] ECR I‑14393, paragraph 34; Case C‑53/05 Commission v Portugal [2006] ECR I‑6215, paragraph 20, and Case C‑306/05 SGAE ECR I‑11519, paragraph 34.
      
      20 –	Apart from Case C‑146/00 Commission v France [2001] ECR I‑9767, paragraph 60.
      
      21 –	Case C‑109/03 [2004] ECR I‑11273.
      
      22 –	Case C‑438/04 [2006] ECR I‑6675.
      
      23 –	Ibid, paragraph 37.
      
      24 –	Ibid., paragraph 35.
      
      25 –	Emphasis added.
      
      26 –	See, on this point, Commission v France, cited above, paragraph 60, on the method of calculating the net cost of a universal service under Directive 97/33. The Court
         also found that, for the purpose of calculating the net cost of a universal service, Directive 97/33 prohibited the ascribing
         of ‘flat-rate or imprecise values to the net cost of universal service provision, rather than carrying out specific calculations.’
         
      
      27 –	The link between the central aim of the regulation, which was to foster competition in the short term and the requirement
         that prices should be set on the basis of cost-orientation is shown by Article 4(4) of the regulation, which expressly provides
         that when the national regulatory authority determines that the local access market is sufficiently competitive, it is to
         relieve the notified operators of the obligation for prices to be set on the basis of cost-orientation.
      
      28 –	Recital (10) of the preamble to the Regulation in fact states that although commercial negotiation is the preferred method
         for reaching agreement on ... pricing issues for local loop access, experience shows that in most cases the imbalance in negotiating
         power between the new entrant and the notified operator means that such a market solution cannot be relied on. 
      
      29 –	See Nihoul, P., and Rodford, P., EU electronic communications law:  competition and regulation in the European telecommunications market, Oxford, 2004, p. 396 and p. 417, highlighting the strategic importance of prices. In fact, notified operators try to maintain
         their advantages by charging high prices without formally denying access to their networks.
      
      30 –	Paragraph 4 of Annex V of Directive 97/33 shows how depreciation and capital costs are to be included in the cost-accounting
         system. 
      
      31 –	Recommendation 2000/417 of 25 May 2000 on 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 (OJ 2000 C 272, p. 55).
      
      32 – 	See footnote 15 of the recommendation (emphasis added). In the annex to a previous Recommendation – Commission Recommendation
         98/322/EC of 8 April 1998 (OJ 1998 L 141, p. 6) which was adopted on the basis of Directive 97/33 – we find a different interpretation
         of current costs. The current cost is described either as the intrinsic value of the asset or the net replacement cost, depending
         which of these is lower. The current cost of the asset is limited by the net replacement cost and the latter is described
         as ‘the cost of replacing the asset with another asset of similar characteristics and age.’ Emphasis added. It is on this 1998 recommendation that Arcor has essentially based its position.
      
      33 –	See, in the same vein, the position adopted by the Court in SENA, cited above, paragraph 36 and, more recently, Case C‑192/04 Lagardère Active Broadcast [2005] ECR I‑7199, paragraph 49.
      
      34 –	Decision of 21 May 2003 relating to a proceeding under Article 82 of the EC Treaty (Cases COMP/C-1/37.578, 37.579 – Deutsche
         Telekom AG) (OJ 2003 L 263, p. 9). See, in particular, recitals (24), (199), (207) (211) and Articles 1, 2 and 3 of that decision.
         
      
      35 –	Case T-271/03 Deutsche Telekom v Commission.
      
      36 –	The regulation itself confirms this when it states in recital (6) of the preamble that ‘[i]t would not be economically
         viable for new entrants to duplicate the incumbent’s metallic local access infrastructure in its entirety within a reasonable
         time.’ In addition, Article 4(3) expressly highlights the central nature of the aim of ensuring ‘economic efficiency and maximum
         benefit for users.’
      
      37 –	Recital (6) of the Regulation in fact states that ‘[a]lternative infrastructures such as cable television, satellite, wireless
         local loops do not generally offer the same functionality or ubiquity for the time being, though situations in Member States
         may differ.’
      
      38 –	See point 52 above.
      
      39 –	See, for example, the method for calculating the value of assets in terms of current costs provided for in paragraph 1
         of the annex to Recommendation 98/322. 
      
      40 –	See, specifically, recital (11) of the regulation.
      
      41 –	See the fifth recital of Recommendation 98/322, which specifically mentions bottom-up economic/engineering models, which
         are becoming highly sophisticated, although they are as yet imperfect. Paragraph 5 of that recommendation also expressly mentions
         that these bottom-up models give an indication of efficient costs.
      
      42 –	See point 5, footnote 1.
      
      43 –	Commission Recommendation 2005/698/EC of 19 September 2005 on accounting separation and cost accounting systems under the
         regulatory framework for electronic communications (OJ 2005 L 266, p. 64) – recital (8), paragraph 3 and footnote (3) – is
         clearly in favour of such coordination. The European Regulators Group Common Position ERG (05) 29 of 2005 ‘Guidelines for
         implementing the Commission Recommendation C(2005) 3480 on Accounting Separation & Cost Accounting Systems under the regulatory
         framework for electronic communications’ also seems to favour a hybrid approach of this type.
      
      44 –	Mobistar, cited above, paragraph 35.
      
      45 –	See, for example, the Recommendation 98/322 on accounting separation and cost accounting. See also Nihoul, P., and Rodford,
         P., EU electronic communications law, cited above, pp. 240‑241. The authors point out that, before the liberalisation of the telecommunications market in Europe,
         the monopoly operators, being State-owned operators, were not required to use cost accounting systems, precisely because their
         aim was not to make a profit, but to provide a service. 
      
      46 –	Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights
         relating to electronic communications networks and services (‘Universal Service’ Directive) (OJ 2002 L 108, p. 51), clearly
         shows this link between cost-orientation and the notified operator’s cost accounting system when it states , in Annex VII,
         paragraph 2, that: ‘[n]ational regulatory authorities are ... to ensure ... that tariffs for leased lines ... follow the basic
         principles of cost-orientation. To this end, national regulatory authorities are to ensure that undertakings identified as
         having significant market power ... formulate and put in practice a suitable cost accounting system.’
      
      47 –	As explained in recital (11) of the regulation. This obviously also follows from Article 7(2) Directive 97/33 which states
         that is the undertaking subject to regulation which must bear the burden of proof that charges are derived from actual costs.
         According to paragraph 2 of Commission Recommendation 98/195/EC of 8 January 1998 on interconnection in a liberalised telecommunications
         market (Part I – Interconnection pricing) (OJ 1998 L 73, p. 42), adopted on the basis of Article 7(5) of Directive 97/33,
         ‘[t]he principle of cost-orientation, when applied to interconnection, means that interconnection charges should reflect the
         way in which costs of interconnection are actually incurred.’
      
      48 –	In such circumstances, where incentives to invest in alternative infrastructure justifiably take precedence over the aim
         of fostering short-term competition on the local loop access market, giving priority to the cost of investment in a new, modern
         and efficient network at the expense of the notified operator’s actual capital costs should be regarded as compatible with
         the principle of rates set on the basis of cost-orientation.
      
      49 –	Article 4(3) of the regulation accords the national regulatory authority a fairly general right to intervene on its own
         initiative in order to ensure non-discrimination, fair competition, economic efficiency and maximum benefit for users.
      
      50 –	See, as general references concerning these principles, Case C‑312/93 Peterbroeck [1995] ECR I‑4599, paragraph 12 and the case-law cited therein; Case C‑231/96 Edis [1998] ECR I‑4951, paragraphs 19 and 34; Case C‑326/96 Levez  [1998] ECR I‑7835, paragraph 18 and the case-law cited therein; Case C‑453/99 CourageandCrehan [2001] ECR I‑6297, paragraph 29; Case C‑255/00 Grundig Italiana [2002] ECR I‑8003, paragraph 33; Case C‑276/01 Steffensen [2003] ECR I‑3735, paragraph 60; Case C‑63/01 Evans [2003] ECR I‑14447, paragraph 45, Case C‑30/02 Recheio – Cash & Carry,  [2004] ECR I‑6051, paragraph 17. 
      
      51 –	OJ 1997 L 295, p. 23. Article 5a (3) of Directive 90/387 was repealed by Article 26 of the framework directive when that
         directive came into force and was replaced by Article 4(1) of the framework directive.
      
      52 –	 Similarly, Article 4(1) of the framework directive which replaced it states that, ‘Member States shall ensure that effective
         mechanisms exist at national level under which any user or undertaking providing electronic communications networks and/or
         services who is affected by a decision of a national regulatory authority has the right of appeal against the decision to
         an appeal body that it independent of the parties involved. This body, which may be a court, shall have the appropriate expertise
         available to it to enable it to carry out its functions. Member States shall ensure that the merits of the case are duly taken
         into account and that there is an effective appeal mechanism.’
      
      53 –	See, for example, Case C‑462/99 Connect Austria  [2003] ECR I‑5197, paragraph 35.
      
      54 –	Judgment of 21 January 1999 in Upjohn (Case C‑120/97, ECR p. I‑223, paragraph 34 and case-law cited therein and paragraph 35).
      
      55 –	See, for example, the Opinion of Advocate-General Léger in Upjohn, cited above, points 50 and 51.
      
      56 –	Upjohn, cited above, paragraph 36.
      
      57 –	Case C-426/05, currently pending before the Court.
      
      58 –	More specifically, points 14 to 40.
      
      59 –	An identical guarantee is provided by Article 4(1) of the framework directive which, within the new regulatory framework
         for telecommunications, more or less replaces Article 5a(1) of Directive 90/387. 
      
      60 –	Paragraph 35.
      
      61 –	Ibid., paragraph 42.
      
      62 –	See my Opinion in the Tele2 UTA Telecommunication case, cited above. 
      
      63 –	In fact, as we saw in point 37 above, this requirement provides a criterion to limit excessive charges.
      
      64 –	See, by analogy, Case 11/82 Piraiki-Patraiki and Others [1985] ECR 207, paragraphs 19 and 31.
      
      65 –	See, to that effect, the Opinion of Advocate General Geelhoed in the Connect Austria case (cited at point 48 above) in which he stated that ‘[i]t certainly cannot be the case that interested third parties who
         are directly affected by the decision do not have a right of appeal. Indeed, Article 5a(3) [of Directive 90/387] is, precisely,
         intended partly to protect the interests of newcomers to the market such as Connect Austria’. 
      
      66 –	See also my Opinion in Tele2 UTA Telecommunication, cited above, points 37 to 40.
      
      67 –	On this point, it is sufficient to look at the concept of ‘beneficiary’ contained in Article 2(b) of the Regulation, which
         defines it as ‘a third party duly authorised ... or entitled to provide communications services ... and which is eligible
         for unbundled access to a local loop.’ 
      
      68 –	In the new regulatory framework, Article 13(3) of Directive 2002/19 states that ‘[w]here an operator has an obligation
         regarding the cost orientation of its prices, the burden of proof that charges are derived from costs including a reasonable
         rate of return on investment shall lie with the operator concerned.’
      
      69 –	See, on this point, Case 199/82 San Giorgio [1983] ECR 3595, paragraph 14; Case C‑343/96 Dilexport  [1999] ECR I‑579, paragraphs 48 and 54, and Case C‑228/98 Dounias [2000] ECR I‑577, paragraph 69.