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Summary

On February 25, 2016 the Spanish telecoms regulator, the National Commission for Markets and Competition (CNMC), approved final measures for the regulation of wholesale broadband markets 3a, 3b, and 4 of the EC’s recommendation. This follows a year-long review that has led to differentiated obligations for copper and fiber networks based on the differing competitive pressures in various geographical areas. The Polish regulator, the Office of Electronic Communications (UKE), has also taken this approach in its draft proposal for market 3a, which it published on March 7, 2016.

Lowering prices, improving quality, and encouraging investment

Following its review of market 3a, the CNMC has introduced a controversial new obligation that will require the incumbent, Telefonica, to provide its competitors with access to its fiber-to-the-home (FTTH) network across only certain parts of Spain. Some 66 locations already see 20% coverage by three fiber networks and so will escape this regulation. As outlined in Ovum’s Spain (Country Regulation Overview) report, the draft proposal issued in November 2015 originally excluded only 34 regions based on data from 2014. However, using 2015 data the final measure excludes 66 locations (35% of the total). In the remaining 65% of the country, Telefonica must offer other operators a virtual unbundled local access (VULA) product within 18 months.

For market 3b, theCNMChas increased the number of municipalities it considers to be competitive to 758 (58% of the total). Here, the regulator will remove all indirect access obligations within six months. In locations lacking competition, Telefonica is obligated to provide indirect wholesale access for both copper and fiber networks at speeds of up to 30Mbps.

The obligations should encourage the development of next-generation access. However, Telefonica has voiced concerns that maintaining obligations in only some locations will discourage the other operators from investing. It has also previously alluded to the possibility that it may respond by slowing its own FTTH plans in these areas by 20% and instead concentrating on the areas of the country that are free from regulation. The CNMC is expected to conduct the next market review in three years’ time.

The CNMC is not the only regulator looking at differentiating obligations in wholesale markets. The Polish regulator, the UKE, has issued draft measures for market 3a that propose varying regulation depending on geographical location. Its review highlights the sufficient competition in 26 municipalities where no operator holds significant market power (SMP) and where regulation is not required. The remaining municipal areas are not effectively competitive and so Orange Poland has been designated the operator with SMP and is obliged to provide access to competitors for both copper and fiber networks. In the areas where regulation has been removed, the UKE will protect current subscribers of alternative operators by allowing those operators to continue to provide services based on local loop unbundling (LLU) for the remainder of their contracts (no longer than 24 months). A final decision is expected in June 2016.

The UKE has had success with a differentiated approach in the past. In 2014 it partially deregulated the wholesale broadband access market, leading to increased investment in FTTH by the incumbent, Orange Poland. However, broadband penetration in the country remains the lowest in Europe at 18.8%. The new proposal should tackle this byincentivizing further development of next-generation networks in nonregulated areas and improving prices and quality to tempt more customers in regulated areas.

Appendix

Further reading

Spain (Country Regulation Overview), TE0007-000962 (January 2016)

Poland (Country Regulation Overview), TE0007-000911 (June 2015)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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