Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
STANDARD FORM RELATING TO NOTIFICATIONS OF DRAFT
MEASURES PURSUANT TO ARTICLE 7 OF DIRECTIVE 2002/21/EC1
_____________________
1 OVERVIEW OF NOTIFICATION
1.1
This is a notifiable measure within the meaning of Article 7 of Directive
2002/21/EC of the European Parliament and the Council of 7 March 2002 on a
common regulatory framework for electronic communications networks and
services (―Directive 2002/21/EC‖). The notified measures herein are notified by
the national regulatory authority in Ireland, the Commission for
Communications Regulation (―ComReg‖).
1.2
The notified measures herein relate, in particular, to proposed further
specifications of existing price controls relating to the following markets:
Market 1: Access to the public telephone network at a fixed location
for residential and non-residential customers; and
Market 4: Wholesale (physical) network infrastructure access
(including shared or fully unbundled access) at a fixed location
(―WPNIA‖).
1.3
It is intended that measures be imposed on the incumbent operator, Eircom
Limited (―Eircom‖) having Significant Market Power (―SMP‖) in the Markets
described above which were previously notified under the case numbers and
subsequently adopted by ComReg in the decisions outlined below:
Market 1: ComReg Decision No D07/612 in Case IE/2007/0632.
Market 4: ComReg Decision No D05/103 in Case IE/2009/085.
Each of these is discussed in turn below.
1.4
It should be noted that this notification does not relate to a proposed market
definition, or a proposed designation of an operator with SMP on the relevant
market concerned, but relates to the further specification of existing remedies
imposed on the basis of existing SMP obligations. The full details of the draft
measures notified herein are set out in Section 2 below and in the annex to this
notification.
Market 1: ComReg Decision No D07/61 (Case IE/2007/0632)
1.5
In ComReg Decision D07/61, ComReg designated Eircom with SMP on the
markets for higher and lower level retail narrowband access from a fixed
location and, inter alia, specified the regulatory controls to govern how Eircom
sells bundles of services. In particular, ComReg Decision D07/61 imposed an
obligation on Eircom not to unreasonably bundle services. The controls in
ComReg Decision D07/61 are intended to ensure that Eircom bundles which
1
Directive 2002/21/EC of the European Parliament and the Council of 7 March 2002 on a common regulatory
framework for electronic communications networks and services.
2
Market Review: Retail Fixed Narrowband Access dated 24 August 2007.
3
Market Review: Wholesale Physical Network Infrastructure Access (Market 4) dated 20 May 2010.
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
include retail line rental (i.e. retail fixed narrowband access (―RFNA‖)) are not
priced in such a way as to force Other Authorised Operators (―OAOs‖) which
use Eircom‘s network to sell their retail bundles at a loss. This could happen
because Eircom is dominant in the provision of line rental and is, in ComReg‘s
view, able to leverage this position into related markets such as those for calls
and broadband. In addition, Eircom has also been designated with SMP in
various upstream wholesale markets. This means that OAOs must source
important components for their services from Eircom itself. If the gap between
what Eircom sells wholesale services for and its own retail bundle prices is too
narrow, and in particular does not at least cover Eircom‘s retail and other
unavoidable costs, then these OAOs will be unable to compete at the retail level.
The test that ComReg currently applies to assess whether or not Eircom is
covering its costs and thereby complying with the obligation not to
unreasonably bundle services under ComReg Decision D07/61 is called a ―net
revenue test‖.
1.6
An updated market analysis for Market 1 has been commenced and a
Consultation and Draft Decision in relation to that market analysis has been
published: ―Retail Access to the Public Telephone Network at a Fixed Location
for Residential and Non-Residential Customers‖ ComReg Document No:
12/117 (the ―Retail Access Consultation‖), 26 October 2012. ComReg‘s
preliminary view in that consultation is that regulation remains appropriate in
the market, and that Eircom has SMP in the following markets: (i) the market
for access to the public telephone network at a fixed location for residential and
non-residential customers provided via PSTN, ISDN BRA and managed VOIP
(―Lower Level Voice Access‖ or ―LLVA‖ market); and (ii) the market for
access to the public telephone network at a fixed location for residential and
non-residential customers provided via ISDN FRA and PRA (―Higher Level
Voice Access‖ or ―HLVA‖ market). The proposed LLVA market is broader
than the lower level market defined in ComReg D07/61, given that ComReg
now proposes in the consultation to include managed VOIP in the relevant
market. The HLVA market is essentially the same as the higher level market
defined in ComReg Decision D07/61. As set out in Chapter 6 of that paper,
ComReg considers that competition concerns relating to leveraging still exist
and as such ComReg is of the view that a general obligation not to unreasonably
bundle services falling within the scope of the LLVA with other services at the
retail level is appropriate. Any designation of SMP and remedies proposed on
foot of the current Market 1 consultation process will be notified in accordance
with Article 7 of Directive 2002/21/EC in due course. In the meantime,
ComReg considers that the regulatory controls imposed on Eircom by ComReg
Decision D07/61 remain appropriate. The proposed measure in this notification
in relation to the RFNA market is based on the market analysis and designation
in ComReg Decision D07/61.
1.7
On 6 January 2010, ComReg published a Consultation and Draft Decision,
ComReg Document No 10/014 (―ComReg 10/01‖), regarding Eircom‘s
obligation not to unreasonably bundle under ComReg Decision D07/61.5
4
Consultation and Draft Decision – Further specification of the obligation not to unreasonably bundle pursuant to
D07/61; dated 6 January 2010.
5
Eircom has an obligation not to unreasonably bundle RFNA access with other retail services.
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
ComReg 10/01 assessed whether the obligation not to unreasonably bundle
should be further specified and in particular whether the current net revenue test
— as an ex-ante imputation test to assess whether a bundle that includes RFNA
is reasonable — remains appropriate, given the regulatory objectives of the
obligation not to unreasonably bundle set out in ComReg Decision D07/61.
ComReg 10/01 included a further specification to the current obligation in
relation to the pre-notification and pre-clearance of bundles that include RFNA,
pursuant to Regulation 14 of the 2003 Universal Service Regulations6 (which
implemented Article 17 of the Universal Service Directive 2002/22/EC) and
ComReg Decision D07/61. This draft measure was notified to the Commission
in February 2010 under Case IE/2010/1054. A ―No Comments‖ letter was
received by ComReg on 23 March 2010. As noted in paragraph 1.12 below, no
subsequent decision was taken with respect to ComReg 10/01, at that time; due
to certain prospective developments in the market ComReg considered that the
price control should be revisited in order to be capable of reflecting changes in
the market as they occurred.
1.8
In summary, ComReg 10/01 did not propose any material amendment to the
current ex-ante net revenue test set out in ComReg Decision D07/61. The
current ex-ante net revenue test uses Average Total Costs (―ATC‖)7 and is
conducted on a bundled product by bundled product basis (i.e. bundle by
bundle) based on all bundles sold/ offered in Ireland (i.e. the current net revenue
test is a national assessment whether an individual bundle is reasonable). The
current net revenue test is discussed in more detail in paragraphs 1.29-1.31
below.
1.9
During the consultation period of ComReg 10/01, ComReg was also in the
process of conducting a separate consultation on the market review of the
wholesale broadband access market (―WBA‖) (Market 5). The WBA market
analysis found evidence of structural change arising in certain overlapping
geographic areas.8 ComReg considered that these developments warranted
further analysis before an appropriate remedy for monitoring retail bundles
could be specified.
1.10
The Irish telecommunications sector continues to evolve and infrastructurebased competition provides an alternative competitive platform to that of
Eircom (the SMP operator), although this is relatively nascent in respect of
Local Loop Unbundling (―LLU‖). There have been a number of recent
developments in the Irish telecommunications sector, for example including:
Vodafone entering into a commercial agreement with BT, as part of an overall
commercial relationship, which involved the transfer of BT‘s retail and SME
customers to Vodafone. British Sky Broadcasting Group plc (―Sky‖) announced
its intention to enter the Irish telephony and internet market in the near future.
6
The European Communities (Electronic Communications Networks and Services) (Universal Service and Users‘
Rights) Regulations 2003. The 2003 Universal Service Regulations were replaced in 2011 by the European
Communities (Electronic Communications Networks and Services) (Universal Service and User‘s Rights)
Regulations 2011.
7
ATC includes fixed, variable and common costs.
8
A subsequent decision on the wholesale broadband access market was published on 8 July 2011, ComReg
Decision No. 06/11, ―Market Review: Wholesale Broadband Access, Response to Consultation and Decision”. (as
notified to the Commission, Case IE/2011/1207).
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
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In addition, the cable operator UPC has continued to expand its network
coverage and has had a more noticeable effect on the market in urban areas.
1.11
Sky recently announced that it is to enter the Irish market using BT‘s LLU
platform to offer telephony and internet services. Consequently, it is anticipated
that in most areas where BT uses LLU, there will be at least two service
providers (Sky and Vodafone) offering retail broadband services and bundles
using an alternative network operator rather than Eircom as their wholesale
provider. Furthermore, ComReg considers that prospectively this could result in
further infrastructural investment throughout Ireland — in particular, highdensity populated exchanges that, to date, have not yet been unbundled.
1.12
As already stated, no subsequent decision on ComReg 10/01 was taken. Instead,
ComReg published a further consultation paper,9 which sought the views of
interested parties on whether the existing price controls should be further
specified in light of the potential structural changes arising in certain
overlapping geographic areas.
1.13
This further consultation paper, ComReg 11/72, took account of the passage of
time and developments which had occurred in the market since ComReg 10/01
was published. In particular, it took account of the fact that Eircom together
with other fixed operators utilising wholesale inputs (namely Wholesale Line
Rental (―WLR‖) and bitstream) from Eircom have faced a growing presence of
alternative infrastructure operators such as the cable operator UPC and line
share co-located operators. ComReg considered that this may prospectively
differ by geographic area — subject to the underlying structural characteristics
and investment incentives / viability of those areas. See paragraphs 3.11 – 3.19
of ComReg 11/72 for further detail. However, ComReg is still of the view, for
the reasons set out in the Retail Access Consultation, that the relevant
geographic market continues to be national in scope and that it is not
appropriate to define sub-national markets (notwithstanding the emergence of
some localised competitive pressures, particularly insofar as retail fixed access
to the public telephone network is sold as part of a bundle with other services).
1.14
In summary, ComReg 11/72 proposed to further specify the existing obligation
under ComReg Decision D07/61 not to unreasonably bundle services by
amending the current net revenue test, such that the test is sufficiently flexible
to meet the prospective changes in competitive conditions. ComReg proposed to
define a Larger Exchange Area (―LEA‖), where a revised more flexible net
revenue test would be applied for bundles sold / offered within certain
exchanges. The new proposal has the capability to adapt over time such that
more flexibility is allowed as competition emerges. The proposed revision to the
current net revenue test is discussed in paragraphs 1.33-1.48 below.
1.15
Following the publication of ComReg 11/72, ComReg gathered more data to
help assess whether different structural conditions of competition are in fact
evolving in different locations across Ireland. ComReg examined fresh
information in respect of transfers between OAOs, new subscriptions and
cessations profiles in specific geographic locations, and the progress of the
9
Consultation and Draft Directions 11/72: “Review of the appropriate price controls in the markets of Retail Fixed
Narrowband Access, Wholesale Physical Network Infrastructure Access and Wholesale Broadband Access”, 10
October 2011 (hereinafter referred to as ―ComReg 11/72‖).
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
various players including the cable operator UPC in the broadband and voice
markets. ComReg considers that this additional analysis supports the proposed
revision to the current net revenue test (as set out in ComReg 11/72 Chapters 4
and 5 and discussed further below). ComReg published a Supplementary
Consultation Paper10 which set out ComReg‘s interpretation of the additional
analysis (see ComReg 12/63, Chapter 2 for further information).
1.16
As set out in ComReg 12/63, based on the new data, ComReg considers that
Eircom and OAOs utilising its wholesale inputs are facing increased localised
competition from alternative infrastructure-based operators (mainly UPC). It
also appears that the presence of UPC is affecting all operators using Eircom‘s
network to some extent.11 Additionally, the fixed broadband market share of
OAOs using Eircom‘s network relative to Eircom‘s market share has increased
from ca.45% in September 2009 to ca. 57% in September 2012. However, this
relative growth is not to the extent that renders this control (i.e., the obligation
not to unreasonably bundle) unnecessary.
1.17
In overall terms ComReg‘s response to these developments is to: a) encourage
Eircom to lower wholesale prices; b) encourage investment in Next Generation
Access (―NGA‖) in order to improve the competitiveness of the Eircom
network; and c) encourage Eircom to develop its wholesale business such that,
as competition based on usage of its network (in particular LLU and Virtual
unbundling) increases that Eircom is provided with increased regulatory
flexibility. The proposed measures are intended to provide certainty as to how
this flexibility would develop as competition emerges.
1.18
Accordingly, ComReg considers that the net revenue test continues to be
required in order to protect competition which is based on using Eircom‘s
network but considers that there must also be appropriate flexibility so that
Eircom Retail is not unduly hindered by regulation.
1.19
In summary, ComReg 12/63 set out what ComReg considers to be an
appropriate LEA as proposed in ComReg 11/72.
1.20
The purpose of the notified measure herein, with respect to the further
specification of the obligation not to unreasonably bundle by means of a revised
net revenue test, is as follows:
Ensure Eircom Retail can compete fairly with any emergent
infrastructure-based competition to the benefit of end-users;
Ensure efficient OAOs using Eircom‘s key regulated inputs can compete;
Ensure appropriate incentives remain for both Eircom and OAOs to invest
efficiently in broadband infrastructure;
Ensure efficient OAOs are not squeezed to the point where they are forced
to exit to the ultimate detriment of end-users; and
Ensure that retail end-users can benefit from competitive bundle options
across platforms.
10
ComReg 12/63, ―Supplementary Consultation to ComReg 11/72, Price regulation of bundles‖, 15 June 2012
(―ComReg 12/63‖).
11
For further information see Chapter 2 of ComReg 12/63.
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
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1.21
It is important to note that the proposed revisions to the current net revenue test
(discussed in Chapter 3 of ComReg 12/63 and in Chapters 4 and 5 of ComReg
11/72) and in particular the weighted average wholesale input12 are specified in
such a way that when Full LLU and / or potentially Next Generation broadband
services13 based competition actually increases, that the greater flexibility of
these revisions for bundles sold in the LEA will flow through into the revised
net revenue test. This is highlighted in an illustrative example in paragraphs 7778 of ComReg 12/63. Therefore, for the avoidance of doubt, there is an explicit
link between increasing competition and increased regulatory flexibility.14
1.22
With respect to NGA broadband services, ComReg has published a Draft
Decision15 which considers inter alia the appropriate price control and cost
standard for standalone NGA broadband services. ComReg intends to notify this
draft measure in accordance with Article 7 of Directive 2002/21/EC in due
course. For clarity, under these proposals where NGA broadband services are
included in a bundle that includes RFNA, the obligation not to unreasonably
bundle as provided for by ComReg Decision No D07/61 (Case IE/2007/0632)
applies.
Market 4: ComReg Decision No D05/10 (Case IE/2009/085)
1.23
Eircom currently has an obligation not to cause a margin/price squeeze in the
WPNIA market.16 ComReg proposes to further specify the obligation under
ComReg Decision D05/10 not to cause a margin/price squeeze, whereby the
appropriate cost base would be determined by reference to an entrant operator
which is reasonably efficient (―REO‖).
1.24
The purpose of this notified measure, with respect to further specifying the
obligation under ComReg Decision D05/10 not to cause a margin/price squeeze,
is to minimise the risk of Eircom squeezing those operators who have invested
in order to avail of Unbundled Local Metallic Path (―ULMP‖),17 by setting its
relative prices of other wholesale products at a level which is too low, in
particular:
Setting the price of its Single Billing Wholesale Line Rental (―SB-WLR‖)
product too low relative to the price of its ULMP product;
Setting the price of its Naked WBA (Bitstream) DSL18 product too low
relative to the price of its ULMP product; and
12
See paragraphs 69-88 of ComReg 12/63.
13
See paragraph 1.22 below.
14
In other words, as the actual use of LLU or virtually unbundling in NGA by OAOs increases, the weighted
average wholesale input cost could decrease for Eircom Retail — which should act as an incentive for Eircom
Wholesale to encourage OAOs to use LLU or VUA.
15
ComReg ―Response to Consultation, Further Consultation and draft decision on NGA‖, ComReg Document No.
12/27, 4 April 2012.
16
Pursuant to s.12.4 of ComReg Decision No D05/10.
17
ULMP is the implementation of Full Unbundled Access to the Local Loop.
18
In the near future, Eircom will offer Naked WBA DSL, as the wholesale equivalent of retail SAB/Naked DSL.
Naked WBA DSL is a WBA product sold standalone without SB-WLR.
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
Setting the LLU cost stack (see paragraph 1.51 below) too low in the net
revenue test where use of this input is appropriate in the LEA.
DETAILS OF THE FURTHER SPECIFICATION OF EXISTING PRICE
CONTROLS
Background:
19
1.25
The key regulated services in many Eircom bundles include retail fixed and
wholesale narrowband access, wholesale voice (i.e. fixed origination and
termination and mobile termination), WPNIA and WBA services. The delivery
of retail bundled services to end-users relies heavily on these key regulated
inputs. ComReg 11/72 addressed the inter-relationship between those regulated
inputs and set out a proposed framework to ensure that potential anticompetitive behaviour by the SMP operator in one or more of these markets is
mitigated through appropriate ex-ante controls.
1.26
In the RFNA market, Eircom has an obligation not to unreasonably bundle
RFNA with other retail services.19 Currently, the obligation not to unreasonably
bundle services means that Eircom ―must ensure that any bundle avoids a
margin squeeze and passes a net revenue test‖.20 ComReg proposes to revise the
current net revenue test so that the test remains appropriate and can be
sufficiently responsive to the underlying competitive conditions Eircom and
OAOs may face over the forthcoming period.
1.27
In the WPNIA market, Eircom is currently subject to a regulatory obligation not
to cause a margin/price squeeze.21 ComReg proposes to further specify the
obligation under ComReg Decision D05/10 not to cause a margin/price squeeze,
whereby the cost base should be a REO. This proposed amendment is intended
to minimise the risk of Eircom squeezing those operators who have invested in
order to avail of ULMP by setting its relative prices of other wholesale products
too low. Please refer to Chapter 8 of ComReg 11/72 for further details.
1.28
ComReg 11/72 also considered the WBA market, in respect of which Eircom is
currently subject to a regulatory obligation not to cause a margin/price squeeze.
ComReg 11/72 sought views as to whether it is appropriate, as regard retail
bundles that include WBA inputs, to further specify the WBA obligation not to
margin/price squeeze to provide for a margin/price squeeze test. However,
ComReg has determined that WBA will not form part of any Decision as a
result of this notified draft measure. Instead, this may form part of a separate
decision at a later stage. Consequently, the present notification does not
include any further details in this regard. Should ComReg subsequently
decide to further specify the margin/price squeeze test for the WBA market in
the context of retail bundles, ComReg will notify this proposal in accordance
with Article 7 of Directive 2002/21/EC as appropriate. ComReg intends to
Case IE/2007/0632.
20
D07/61. As set out in the Retail Access Consultation, ComReg is of the preliminary view that a general
obligation not to unreasonably bundle services falling within the scope of the LLVA market with other services at
the retail level is appropriate.
21
Case IE/2009/085.
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
consult on maximum price ceilings for WBA, with a view to moving towards a
cost-oriented tariff approach.
Summary of the notified measures:
1. Market 1: To further specify the obligation not to unreasonably
bundle by amending the current net revenue test; and
2. Market 4: To further specify the obligation not to margin/price
squeeze.
Each of these is considered in turn below.
Market 1: To further specify the obligation not to unreasonably bundle by
amending the current net revenue test
The current net revenue test
1.29
The current net revenue test is an ex-ante imputation test to assess whether a
bundle which RFNA (retail line rental) offered by Eircom is above an
appropriate level of cost (on an Average Total Cost (―ATC‖) cost recovery
basis). This test assesses whether a bundle is reasonable.
1.30
Currently, the net revenue test is based on a product-by-product assessment of
each bundle, where each bundle must cover its own ATC.22
1.31
In addition, the current net revenue test is based on ‗resale‘ wholesale inputs
(i.e. WBA (Bitstream) and SB-WLR). In other words, the current net revenue
test utilises the equivalent wholesale inputs required by an OAO to replicate the
Eircom RFNA bundle. Therefore, in order for a bundle to be considered
reasonable it must cover the costs faced by an OAO seeking to replicate the
RFNA bundle using the wholesale service from Eircom. This has been
reasonable to date as ULMP full LLU has had insignificant take-up. However,
this might change in the near future
1.32
The test is applied in the same way nationally.
The proposed revised net revenue test
1.33
ComReg proposes to define an LEA (see paragraph 1.81) to recognise that as
different structural conditions are considered present, the possibilities for
competitive and behavioural change may also differ prospectively. In particular,
ComReg proposes that the LEA reflect those areas where uptake of unbundled
services, whether LLU and/or virtual unbundling in NGA, is likely to be viable,
those areas which prospectively are more likely to permit a greater degree of
competition including from other platforms such as cable, and where regulation
should be responsive to any prospective changes.
22
The current test is described in Figure 6 of ComReg 11/72 (page 25), as extracted from Information Notice
09/08.
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October, 2012
1.34
ComReg is proposing to further specify the obligation not to unreasonably
bundle under ComReg Decision D07/61 so that there is a two part net revenue
test for bundles sold / offered within the LEA (the ―LEA Portfolio‖).
1.35
It is proposed that for bundles sold / offered outside the LEA the current net
revenue test will continue to apply.
1.36
For bundles23 sold / offered in the LEA a two part test will be undertaken as
follows:
Part 1: The bundles in the LEA Portfolio are assessed on an individual
bundle basis. Each bundle must pass its own ATC, with a Long Run
Incremental Cost (‗LRIC‘) cost standard for retail calls.24
If the LEA Portfolio passes Part 1 of the test, Part 2 of the net revenue test is
then applied. If the LEA Portfolio fails Part 1 of the test, the assessment of each
of those individual bundles will be subject to an overriding competitive impact
assessment, see also paragraph 1.38.
Part 2: The bundles in the LEA Portfolio are aggregated together and
together must pass the portfolio‘s ATC. A revision of the wholesale
inputs is proposed for this portfolio, as discussed in paragraph 1.40
below.
1.37
For bundles sold / offered outside the LEA the test will be undertaken as
follows:
The bundles are assessed on an individual bundle basis. Each bundle must
pass its own ATC. For the avoidance of doubt, the LRIC cost standard for
retail calls is not applied to these bundles.
1.38
The assessment of individual bundles (sold / offered both within and outside the
LEA) will, however, be subject to an overriding competitive impact assessment.
For example, where a bundle which does not pass the relevant test is likely to be
immaterial in subscriber terms ComReg might not intervene as to do so may be
disproportionate.
1.39
ComReg considers that ATC is the most appropriate ex-ante cost basis to adopt
as it enables a potential entrant to recover all its efficiently incurred costs. ATC
requires an operator with SMP to price at levels that include appropriate
amounts of variable, fixed and common costs, which is the calculus faced by
any operator when deciding to enter or expand. For example, an operator will
consider the current and future potential competitive environment (including
price) when formulating its business plan in the context of deciding to enter or
expand in the market. ComReg considers that this is the most appropriate way
to promote competition under regulation.
1.40
ComReg considers that this measure of ATC could reflect known future
changes in wholesale costs and retail costs, e.g. Mobile Termination Rate
(―MTR‖) reductions, international out-payments etc. ComReg believes that this
is an equitable approach and ensures that end-users immediately benefit from
23
―Bundle‖ means a package of services, consisting of RFNA and one or more other services, which is on offer or
on sale by Eircom to end users.
24
The LRIC is estimated by ComReg in this instance from Eircom‘s accounts as ATC less common costs and
fixed indirect costs.
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Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
known future reductions to input costs. This would require monitoring to ensure
that the cost reductions did, in fact, occur.
1.41
As noted in paragraph 1.31 above, currently, the net revenue test is based on
‗resale‘ wholesale inputs (i.e. WBA (Bitstream) and SB-WLR). In other words,
it is assumed that in order for a bundle to be replicable by an OAO that all
OAOs use WLR and WBA exclusively. In order to reflect emergent use of
LLU, ComReg proposes that this approach would remain only for bundles sold
outside the LEA. For bundles sold within the LEA, to recognise the increased
investment of OAOs in LLU and NGA, it is proposed that the net revenue test
would be set with reference to the prices of network input cost weighted for the
relevant usage of each input by OAOs in the area (referred to hereafter as the
―wholesale network input‖).25 Please refer to Chapter 5 paragraphs 5.15-5.26 of
ComReg 11/72 and Chapter 3 paragraphs 69-94 of ComReg 12/63 for a more
detailed discussion on this point.
1.42
For the avoidance of doubt, the wholesale network input for bundles sold /
offered within the LEA is an input to the net revenue test for the LEA only, it is
not a change to any published price.
1.43
For unregulated services in a bundle (irrespective of whether it is sold / offered
within or outside the LEA), ComReg proposes that they must cover their own
LRIC. Please refer to Section 4 paragraphs 4.70 to 4.79 of ComReg 11/72 for a
more detailed discussion on this point.
1.44
Additionally, in the case of mobile services (an unregulated service at the retail
level), ComReg has revised its preliminary view. Instead of requiring these
services to cover their own LRAIC+ (as proposed in ComReg 11/72). ComReg
now proposes to require that they cover their own LRIC. As noted in ComReg
11/72a26: “a LRIC standard appears appropriate, since it is the lowest price
level above which competition would be sustainable‖. ComReg considers that
the LRIC cost standard is appropriate given that Eircom‘s position may not be
strong with respect to new services such as mobile voice, where Eircom‘s
market share of the mobile subscribers is less than 20%. As stated in ComReg
11/72a, “LRIC is the change in total costs resulting from the production of an
increment in the quantity of output, which can be the whole output of the
product in question or just the incremental output associated with the conduct
under investigation. LRIC includes all product-specific fixed costs, even if those
costs were sunk before the period of exclusionary conduct. Although pricing
below LRIC might be due to exclusionary conduct, it might also be
economically rational. This is because the firm could still be covering variable
costs and sunk fixed costs with a positive cash flow. LRIC serves in most cases
as a price floor, above which concerns about exclusionary below-cost pricing
are unlikely to materialise”. Where the only mobile service offered in a bundle
is voice, the LRIC cost standard is based on the assumption that the increment
25
For example,. WLR, WBA and LLU. ComReg also proposes that the network input cost weighting would take
into account NGA network inputs where appropriate. It is anticipated that current generation bitstream, Line Share
and LLU may migrate to VUA and Bitstream + in the short to medium term.
26
Oxera Report: Conceptual framework for the assessment of Eircom‘s bundles dated 30 September 2011
(ComReg Document No. 11/72a, 10 October 2011).
Page 10 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
in the mobile service is voice only, assuming the network was built for voice,
i.e. that the mobile ―bundle‖ includes voice only and no data access.27
1.45
On a case-by-case basis, ComReg could consider the use of Average Avoidable
Costs (―AAC‖) for unregulated products and services where it is clear that
competition in the market generally would not be harmed and that this measure
would not create material distortions to competition through anti-competitive
practices stemming from SMP products and services. ComReg proposes that
this would only occur in exceptional circumstances.
27
Where additional mobile services are offered within the bundle that includes mobile voice, ComReg will
consider the relevant increment of the additional service when applying the LRIC cost standard.
Page 11 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
Illustrative overview of Current and Proposed Net Revenue Test
(“NRT”)28
Current NRT
Proposed NRT
OAO modelled
(EEO/REO/SEO)
EEO for calls and PSTN,
SEO for BB
EEO for calls and PSTN,
SEO for BB (ComReg
D01/06)
Portfolio versus productby-product
Product-by-product
Cost Standard
(ATC,LRIC…)
ATC
Portfolio and then
product–by-product
• ATC for portfolio;
• ATC for productby-product with
LRIC for retail
calls
For Larger Exchange
Area: Weighted average
wholesale price
Relevant wholesale
input
(WLR/WBA/LS+/LLU+)
WLR + WBA
Costs: Retrospective /
forward-looking
Retrospective
Forward-looking for
known changes with
retrospective monitoring
Unregulated products
Case-by-case assessment
LRIC (see also paragraph
1.45)
Outside Larger Exchange
Area: WLR + WBA prices
1.46
As noted in ComReg 10/01,29 Eircom would not be permitted to launch bundles
which include RFNA without ComReg‘s prior approval, which ComReg would
not unreasonably withhold or delay.
1.47
With respect to the pre-notification and pre-approval of bundles that include
RFNA, ComReg remains of the view that the proposals in ComReg 10/01
remain largely appropriate. However, having considered the views of
respondents to ComReg 10/01 and ComReg 11/72, ComReg proposes to:
(i) Review Eircom‘s pre-notification submission within five working days
instead of ten working days (if appropriate). ComReg considers that it is not
in the interests of Eircom or ComReg or, most importantly, consumers to
allow a bundle into the market which subsequently has to be modified /
withdrawn as ComReg‘s review pre-launch was not given enough time.
However, ComReg assumes that Eircom would have undertaken a rigorous
internal review to ensure compliance before any such notifications to
ComReg.
28
See Annex 1 for details of the Proposed Net Revenue Test.
29
See paragraph 2.10.
Page 12 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
(ii) Upon ComReg informing Eircom of its view that a bundle is unreasonable,
Eircom would be obliged to immediately stop offering or selling that
bundle to additional customers. This ensures that the adverse affect on the
market is ceased immediately once a bundle is found to be unreasonable.
(iii) ComReg proposes to increase by four weeks, to fourteen weeks, the
required time for Eircom to modify / withdraw any unreasonable bundle as
this should allow Eircom sufficient time to deal with existing customers on
the unreasonable bundle and, in particular, recognises the notification
timelines associated with any changes to retail and wholesale products (any
change to SB-WLR requires a two month notification to ComReg).
1.48
Please refer to Chapter 7 of ComReg 11/72 for further details. Please also refer
to Annex 1 for a description of the proposed revised net revenue test.
Market 4: To further specify the obligation not to margin/price squeeze
1.49
Currently, in addition to its obligation of cost orientation, Eircom has a
regulatory obligation not to cause a margin/price squeeze in connection with the
WPNIA market. As noted in the WPNIA market review, Eircom must ensure
that ―the relationship between its wholesale and retail pricing, and between the
pricing of its wholesale products, does not constitute a margin squeeze‖
(emphasis added). ComReg is proposing to further specify the obligation under
Decision D05/10 not to cause a margin/price squeeze for the WPNIA product,
ULMP, based on a REO, to ensure that there is an appropriate relative margin
between Eircom‘s ULMP product and a) its SB-WLR product and b) its Naked
WBA product.
1.50
ComReg considers that preserving a sufficient economic space between
different wholesale inputs offered by Eircom is necessary so as to promote and
foster sustainable and effective competition in the provision of retail services to
end users. ComReg considers that from a regulatory perspective it is important
that the economic space between these different wholesale products or ―rungs‖
on the ladder of investment is sufficient to promote the development of effective
retail competition capable of constraining the integrated incumbent on an
ongoing and sustainable basis. ComReg believes that in the absence of an
appropriate price control maintaining such an economic space, Eircom, by
virtue of its control of the underlying access infrastructure and its presence at
both wholesale and retail levels, would have the ability and incentives to price
its wholesale access inputs in such a way as to dampen the competitive
constraints it faces at the retail level and to ultimately extract supra-normal
profits through higher retail prices for consumers.
1.51
Consequently, ComReg is proposing to further specify the obligation under
Decision D05/10 not to cause a margin/price squeeze for the WPNIA product,
ULMP, based on a REO. This is consistent with the approach of ComReg in
relation to WBA (Decision D06/12 as notified to the Commission Case
IE/2012/1295). ComReg proposes that LLU cost stack for an OAO will be used
to calculate the appropriate minimum price floor for the ULMP component in a
SB-WLR product or a Naked WBA (Bitstream) DSL product, and will be set by
reference to a REO by including the following:
Page 13 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
The price of LLU (currently €12.41). In ComReg Decision D01/10, a
maximum price of €12.41 per month per line was established.
The cost of fault clearance per month.
The cost of ULMP connection fee and ULMP disconnection fees over
an average customer lifetime.
The appropriate cost of a line card (if any).
Where appropriate a margin for the provision of VOIP (where line card
irrelevant).
Contribution towards co-location charges.
The minimum price floor model for WBA as provided by ComReg
D06/12 (Case IE/2012/1295).
A rate of return on the capital equipment of 10.21%, the Weighted
Average Cost of Capital (‗WACC‘) currently applied to Eircom.
Summary of Consultation Responses:
1.52
There were six respondents to ComReg 11/72 and 12/6330. The key issues raised
in submissions are summarised under the following headings:
1.
Market Analysis
1.53
ALTO, BT, Vodafone and UPC noted in their respective submissions that in
their view ComReg should undertake a full market analysis and that ComReg
was creating sub-national markets through implementing a net revenue test
based on whether a bundle is sold / offered in, or outside of, the LEA.
1.54
Two respondents (BT and Vodafone) noted that ComReg 12/63 does not take
into account whether the new market data (i.e. the transfers between OAOs, new
subscriptions and cessations profiles for quarters one to three in 2011 in specific
geographic locations) is price related or product related.
30
Eircom, BT Ireland, Magnet Networks, Vodafone, UPC and the industry body representing entrant fixed line
operators (ALTO) replied to both ComReg 11/72 and ComReg 12/63. No other submissions were received. The
non-confidential responses to ComReg 11/72 were published by ComReg in ComReg Document No. 12/63a. The
non-confidential responses to ComReg 12/63 were published by ComReg in ComReg Document No. 12/113.
Page 14 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
2.
Larger Exchange Areas (“LEA”)
1.55
As noted above, the majority of respondents consider that in their view a full
market analysis should be undertaken by ComReg. However, the majority of
respondents engaged in their responses on the development of appropriate
criteria for the LEA.
1.56
A number of respondents (namely: ALTO, BT, Magnet and UPC) noted
without prejudice to the above that market share should be considered to
determine whether an individual exchange should be included, or not, in the
LEA.
1.57
The incumbent, Eircom, proposed a number of alternative criteria to determine
if an exchange should be included in the LEA.
3.
Cost standard
1.58
ALTO, BT, Vodafone and Magnet all agreed with the continued use of ATC.
1.59
Eircom stated that the cost standard for all individual products in a bundle
should be Average Avoidable Cost (―AAC‖) with the portfolio of bundles being
Long Run Average Incremental Cost (―LRAIC‖) and not LRAIC plus common
costs. Furthermore, Eircom proposes that LRAIC should be calculated by using
a forward looking Modern Equivalent Asset model and not based on past sunk
costs.
1.60
UPC‘s submission to ComReg 11/72 did not consider this issue specifically.
However, UPC did note that in its view the suggestion that ATC should be or
could be disaggregated between LEA and outside the LEA is premature in the
absence of ComReg defining what it means by the LEA (ComReg 11/72 did not
define the LEA).
4.
Wholesale inputs for bundles
1.61
Both ALTO and Magnet were in favour of the weighted average approach for
use in the net revenue test. Vodafone noted that to the extent that an appropriate
portfolio of bundles is defined it agreed with the approach.
1.62
BT noted that it was not in favour of the approach, as in its view this would
allow Eircom Retail to reduce its price floors which could squeeze out any
margin others gain by investing in infrastructure.
1.63
Eircom‘s submission proposed an interim calculation of the weighted average
wholesale input and thereafter moving to a glide-path of a ―target‖ weighted
average wholesale input.
1.64
UPC‘s submission did not consider this issue specifically.
5.
1.65
Further specification of the obligation not to margin/price squeeze
in the WPNIA Market
ALTO, BT, Vodafone and Magnet were in favour of using a cost stack approach
to evaluate the wholesale network input for the proposed WPNIA margin/price
Page 15 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
squeeze to minimise the risk of a squeeze on the services used by the LLU
access seekers.
1.66
Eircom considered that the cost stack should be calculated on an EEO cost
standard and not a REO.
1.67
UPC‘s submission did not consider this issue specifically.
Preliminary view after consideration of responses:
1.68
ComReg‘s views on the main points raised, following consideration of all
responses to consultation, are summarised below.
1.
Market Analysis
1.69
The market review for Market 1 has commenced and a consultation setting out
ComReg‘s preliminary views has been published. ComReg Document No:
12/117, published 26 October 2012.
1.70
As part of that market analysis, ComReg is considering the appropriate market
definition including different geographic dimensions (if any) and has set out its
preliminary views in that regard in ComReg Document No: 12/117. Without
prejudice to the outcome of that review, ComReg notes that, consistent with the
European Commission‘s position, a finding through a market review process
that the scope of a relevant market is national does not necessarily preclude
ComReg from imposing differentiated geographic remedies. Consequently,
ComReg does not agree with the view expressed by certain respondents to
ComReg 11/72 and 12/63 that ComReg is creating sub-national markets through
the proposed net revenue test.
1.71
As noted in paragraphs 1.13-1.18 above, ComReg considers that Eircom and
OAOs utilising its wholesale inputs are facing increased localised competition,
centred around demand for broadband from the cable operator UPC and that this
prospective competitive pressure appears to differ by geographic area — subject
to the underlying structural characteristics and investment incentives / viability
of those areas. It should be noted that the analysis undertaken by ComReg as
part of the current market review of Market 1 confirms ComReg‘s view that
differences in competitive conditions are not such as to justify the definition of
sub-national markets. In ComReg Document No: 12/117, ComReg sets out its
preliminary view that the relevant geographic market for both the LLVA and
HLVA markets is national in scope (notwithstanding the emergence of some
localised competitive pressures, particularly insofar as retail fixed access to the
public telephone network is sold as part of a bundle with other services). In the
absence of a clearly identifiable break in conditions of competition across
geographical areas to justify separate relevant markets for the purposes of the
present Market 1 review, ComReg nonetheless proposes to take such emergent
competitive pressures into account when designing relevant and proportionate
regulatory remedies. ComReg also proposes to keep any emergent competitive
pressures under review and to revisit its analysis if more stable and discrete
geographic boundaries can be identified on a forward-looking basis.
Page 16 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
1.72
It should be noted that since the publication of ComReg 12/63, ComReg and its
advisors have undertaken an assessment of retail pricing constraints on Eircom.
This assessment found that while the numbers are still somewhat modest in
relative terms, and do not reflect competition in the national market, it is
apparent that consumers are responding to UPC‘s product offering, notably the
superior broadband speeds available on cable at this time, putting pressure on
both Eircom and Eircom‘s wholesale customers to provide competitive
offerings to those who have the ability to access the UPC cable network.
1.73
Nationally, DSL is the dominant form of broadband access, with ca. 85% of
fixed broadband subscriptions in Q1 2009. However, it is losing market share to
other platforms, most notably cable (Eircom had ca. 72% of the fixed broadband
subscriptions in Q1 2012).31 Year-on-year growth rates for cable are greater
than 25% and highest of all competing fixed line broadband platforms.32 Figure
2.1 illustrates the trend in market shares of the two main platforms on a national
basis.
Figure 2.1
Fixed broadband shares by platform in Ireland (xDSL, cable, %)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Q109
Q209
Q309
Q409
Q110
Q210
DSL
Q310
Q410
Q111
Q211
Q311
Q411
Cable
Source: ComReg (2012), „Quarterly Key Data Report – Data as of Q1 2012‟, market report, June 14th.
1.74
31
At the retail level, Eircom‘s fixed line broadband market share has decreased
from above 47% to below 44% throughout 2011.33 UPC has increased its share
ComReg (2012), ‗Quarterly Key Data Report – Data as of Q1 2012‘, market report, June 14th.
32
See ComReg (2012), ‗Quarterly Key Data Report – Data as of Q1 2012‘, market report, June 14th; and ComReg
(2012), ‗Quarterly Key Data Report – Data as of Q4 2011‘, market report, March 13th.
33
See ComReg (2012), ‗Quarterly Key Data Report - Data as of Q1 2012 ‘, market report, June 14th; and ComReg
(2011), ‗Quarterly Key Data Report - Data as of Q1 2011 ‘, market report, June 21th.
Page 17 of 36
Q112
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
from just under 21% in 2011 Q1 to over 25% in 2012 Q1, a greater increase
than all other retail providers combined, including LLU unbundlers.34
1.75
As these figures are national, they mask the extent of the shifts in market shares
occurring within the footprint of UPC‘s cable network. However, in assessing
UPC‘s footprint and the additional analysis referred to in paragraph 1.15 it is
evident that this is more apparent in urban areas than the national figures
suggest. In conclusion, the additional analysis suggests that UPC is able to
attract churning subscribers from Eircom retail (and wholesale) products, as
well as new broadband subscribers, while Eircom is losing subscribers in a
growing market.
1.76
ComReg considers that the proposed revised net revenue test is appropriate in
order to balance the need to protect OAOs on Eircom‘s network, while ensuring
that there is appropriate flexibility so that Eircom is not unduly hindered by
regulation. Furthermore, as noted in paragraph 1.21 above, the flexibility of the
proposed net revenue test only comes into effect and differentiates from the
current net revenue test as structural competition increases on Eircom‘s
network.
2. LEAs
1.77
As noted in paragraph 1.33 above, ComReg considers that the LEA should
reflect those areas where uptake of unbundled services, whether LLU and/or
virtual unbundling in NGA, is likely to be viable, which prospectively are more
likely to permit a greater degree of competition and where regulation should be
responsive to any prospective changes. Consequently, ComReg considers that
the LEA should be comprised of exchanges where:
1.77.1
34
UPC is providing telecommunications services at the retail level in that
exchange area and at least one other operator is providing
telecommunications services from that exchange at the retail level using
LLU/VUA (either directly or through the provision of a wholesale service
from an LLU/VUA operator).35
1.78
ComReg also proposes several additional criteria, which are described below.
However, the impact of these is not very material as approximately 780k (90%)
premises fall within the criterion outlined in paragraph 1.77.1 out of a total
number of 870k premises in the LEA as proposed.36
1.79
ComReg is cognisant that the LEA may create ―islands‖ or ―pockets‖ of
exchanges that do not meet any of the criteria but are surrounded by exchanges
and neighbouring communities that do. ComReg considers that this would be
inconsistent with commercial dynamic outcomes of competitive markets where
the same bundle / offering would not be available on equal terms in
neighbouring exchanges. As such, ComReg considers that it may be appropriate
to include such exchanges into the LEA.
ibid.
35
Subject to UPC and the other operator using LLU/VUA having a reasonable coverage and market share in that
exchange (area).
36
ComReg will continue to review the appropriateness of the inclusion of each exchange in the LEA using the
criteria outlined in paragraph 1.81.
Page 18 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
1.80
ComReg assessed in detail the status of competition across all of Eircom‘s
exchanges, against published in ComReg 12/63 on an exchange-by-exchange
basis. ComReg assessed each exchange for the presence of alternative
infrastructure and taking into account respondents‘ views, ComReg has made
certain refinements to the criteria proposed in ComReg 12/63. The revised
wording of the criteria is provided in paragraph 1.81.
1.81
ComReg now proposes that the LEA should be comprised of Qualifying
Exchanges, which are defined/categorised as:
1. where UPC is providing telecommunications services at the retail level in
that exchange area and at least one other operator is providing
telecommunications services from that exchange at the retail level using
LLU/VUA (either directly or through the provision of a wholesale service
from an LLU/VUA operator)1; or
2. where at least two operators are providing telecommunications services
from that exchange at the retail level using LLU/VUA (either directly or
through the provision of a wholesale service from an LLU/VUA operator)2;
or
3. where UPC is providing telecommunications services at the retail level in
that exchange area3 and where Eircom Wholesale supports broadband to
fewer than 20% of the premises served in that exchange area; or
4. where six months (as proposed by ComReg 12/2737 or as amended) prior
notification has been provided to access seekers regarding the launch of
NGA services in that exchange; or
5. additionally and exceptionally, on a case-by-case basis, where:
a. the exchange is surrounded by Qualifying Exchange(s); or
b. the exchange has fewer than 500 hundred residential homes and is
located either adjacent to, or, in reasonable proximity to, Qualifying
Exchange(s); or
c. the exchange is determined, to the satisfaction of ComReg, to have
an economic affinity with adjacent Qualifying Exchange(s), subject
to the percentage of total homes of Qualifying Exchange(s) under
criterion 5(c) not exceeding 5% of the total homes in all the
Qualifying Exchanges (excluding the total number of homes under
criterion 5 (b)).
1
2
Subject to UPC and the other operator using LLU/VUA having a
reasonable coverage and market share in that exchange (area).
Subject to the operators using LLU/VUA having a reasonable
coverage and market share in that exchange (area).
37
ComReg ―Response to Consultation, Further Consultation and draft decision on NGA‖, ComReg Document No.
12/27, 4 April 2012.
Page 19 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
3
38
Subject to UPC having a reasonable coverage and market share.
1.82
ComReg considers that criterion 1; criterion 2 and criterion 3 above take into
account the different prospective structural conditions of certain exchanges. In
addition, each of these criteria recognises the addressable market of specific
exchanges and thus the competitive structural conditions of a specific exchange
(which also addresses the issues raised by a number of interested parties, see
paragraph 1.56, to the original criteria).
1.83
In particular, criterion 3 seeks to provide Eircom with appropriate flexibility in
those exchanges where it is likely that UPC has a significant presence.
Assuming a reasonable average broadband penetration of 60% in exchanges,
this criterion provides that for an Eircom exchange to be included in the LEA its
DSL market share is 33% or less (i.e. Eircom wholesale supports broadband to
fewer than 20% of the premises served in that exchange).
1.84
Criterion 2 recognises that where at least two operators are present in an
exchange with reasonable coverage and market presence that the prospective
competitive conditions in that exchange would not be dissimilar to that evident
in Qualifying Exchanges under criterion 1.
1.85
With respect to criterion 4, ComReg considers that the relative competitive
dynamics of these exchanges would prospectively not be dissimilar to those
evident in Qualifying Exchanges under criterion 1, 2 or 3. Namely, that they
generally have high population densities, that typically UPC (as Eircom‘s NGA
proposed footprint overlaps a number of UPC exchange areas) provides
telecommunications services at the retail level in those exchange areas and
represent exchanges which have already been unbundled. In addition, NGA
products and processes will be in place at least six months38 in advance to
ensure OAOs are in a position to replicate the services of Eircom. As such,
ComReg considers that it is appropriate to include such exchanges in the LEA
to reflect those areas which prospectively are more likely to permit a greater
degree of competition.
1.86
ComReg considers that it would be appropriate to consider on a case-by-case
basis the inclusion of a limited number of additional exchanges which would
not meet any of the criteria above. ComReg is cognisant that ―islands‖ or
―pockets‖ of exchanges could be created where exchanges are completely
surrounded by Qualifying Exchanges. Consequently, ComReg considers it
appropriate that ―island‖ or ―pocket‖ exchanges (per criterion 5 (a)) be included
in the LEA on a case-by-case basis. Island or pocket exchanges can occur
particularly in inner-city or suburban areas due to the network architecture.
ComReg considers that it would be inconsistent to have a ―pocket‖ of customers
where a bundle offering / price may not be available but is available in
neighbouring housing estates or streets. In addition, ComReg considers that
from a practical commercial perspective (to avoid marketing black-spots), and
to avoid the social exclusion of consumers (in particular as the infrastructure is
already in place to provide these bundles to these ―pocket‖ exchanges), it would
be appropriate to include those exchanges that are completely surrounded by
Qualifying Exchanges in the LEA. In addition, ComReg considers that due to
the benefits of a contiguous network, the fact that these ―pocket‖ exchanges are
See ComReg 12/27.
Page 20 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
surrounded by Qualifying Exchanges may increase the future roll-out of
infrastructure-based investment in those exchanges.
1.87
Similarly, ComReg considers that criterion 5 (b) above (which is in addition to
the original criteria proposed in ComReg 12/63) would prevent inappropriate
regulatory outcomes, i.e. where a bundle offering / price may not be available in
neighbouring estates. ComReg considers that the inclusion of such exchanges in
the LEA is consumer welfare enhancing and that the competitive dynamics of
these exchanges would not be unduly impacted. The relative addressable
market of these exchanges may be too small to justify commercial investments
by OAOs, although the barriers to unbundling such exchanges are likely to be
low. Approximately 8k premises fall within criterion 5 (b) out of a total number
of 870k premises in the LEA as proposed.
1.88
Furthermore, ComReg considers that it would be appropriate to consider on a
case-by-case basis the inclusion of a limited number of additional exchanges
which would not meet any of the criterion above but for economic affinity
reasons should be included in the LEA (i.e. criterion 5 (c)). Eircom will be
required to demonstrate to the satisfaction of ComReg that the inclusion of such
an exchange will not impact the competitive dynamics of that exchange and
through cogent reasoning demonstrate that it is appropriate that the additional
exchange should be included in the LEA.
1.89
ComReg considers that it is appropriate to cap the number of Qualifying
Exchanges under criterion 5 (c) so that appropriate incentives are maintained on
Eircom Wholesale to encourage infrastructure-based competition in non-LEA
exchanges or incentivise NGA roll-out. ComReg‘s current analysis indicates
that fewer than 5% of exchanges and ca. 4% of homes in the LEA currently
qualify under this criterion.
3.
Cost standard
1.90
ComReg maintains the view that ATC is the most appropriate cost standard for
the assessment of Eircom‘s bundles at the portfolio level to ensure they are and
remain profitable.
1.91
ATC is appropriate ex-ante cost basis to adopt as it should enable a potential
entrant to recover all its efficiently incurred costs. ComReg believes that the use
of a cost basis other than ATC could significantly constrain the potential for
entry by efficient entrants. This is because telecom networks not only require
significant upfront investment, but they also enable a wide range of services to
be provided. Therefore, ComReg maintains that ATC is the appropriate cost
measure to ensure that an OAO as efficient as Eircom and utilising Eircom‘s
wholesale inputs can replicate Eircom‘s retail bundles that include retail line
rental and cover their costs. See paragraphs 4.40 – 4.62 of ComReg 11/72 for
more information.
1.92
With respect to the appropriate cost standard to be applied for retail calls in
individual bundles within a portfolio, this will be LRIC which is estimated from
Eircom‘s regulatory accounting information (extracted from Eircom‘s audited
separated accounts) as ATC less common costs less fixed indirect costs subject
to the overall proviso that the aggregate of bundles in the relevant portfolio
Page 21 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
covers its ATC. See paragraphs 4.64 – 4.69 of ComReg 11/72 for more
information.
4.
Wholesale inputs for bundles
1.93
ComReg maintains the view that it is appropriate to allow Eircom to use a
wholesale input cost in LEA which reflects OAO usage since this is the cost
structure that a typical efficient OAO would face. The proposal is that a ―typical
efficient‖ OAO would be represented by market usage as a whole within the
LEA. It should be noted that the weighting determined by the use of the
different wholesale inputs by OAOs in the LEA will lower the wholesale input
cost available to Eircom Retail as more OAOs migrate to full unbundling (i.e.
Full LLU or ―GLUMP‖ (see paragraph 78 of ComReg 12/63)). The wholesale
input for WBA in LEA exchanges will be based on the WBA prices on offer or
where sufficient take-up of LLU services are evident will be based on the
underlying financial floors model for WBA (ComReg D06/12): see paragraphs
75-76 of ComReg 12/63.
1.94
The weighting would be determined by the use of the different wholesale inputs
by OAOs in the LEA. As noted in paragraph 1.21 above, ComReg considers
that the proposed revisions to the current net revenue test are not significantly
different to the current net revenue test and the flexibility of the proposed
revision only comes into effect and differentiates from the current net revenue
test as structural competition increases.
1.95
ComReg will continue to monitor the implementation and effects of the
proposed approach to ensure it remains appropriate. As such, Eircom‘s retail
market share will be monitored by ComReg and should that indicate that OAOs
are being squeezed (for example if their retail market share on Eircom‘s
platform is declining or has reached an excessively low level) then ComReg
will review the appropriateness of the further specification of the pricing
control.
1.96
ComReg maintains the view that for areas outside the LEA the use of the SBWLR and WBA (Bitstream) as the applicable wholesale inputs in the net
revenue test should continue where no alternative infrastructure exists.
1.97
ComReg considers that this approach will not lead to a margin squeeze as
suggested by BT. BT‘s concern appears to be on the basis that: “for no
investment by Eircom in new technologies or even a simple reduction of its
Wholesale prices, the [wholesale network input] allows Eircom Retail to reduce
its price floors which could squeeze out any margin others gain by investing”.
While the weighted average wholesale input could allow Eircom Retail to lower
its prices it is important to note that the relative cost stacks on which the
weighting is based would include, as appropriate, a margin for Voice over
Internet Protocol, such that ―any margins others gain by investing‖ is protected.
Consequently, BT‘s concern does not arise. As such, a margin for IP voice will
be included, as appropriate, in the cost stack.
1.98
With respect to Eircom‘s proposal regarding a glide path towards a ―target‖
average wholesale input, ComReg considers that such an approach would not be
appropriate at this time. In particular, given the imminent arrival of NGA
ComReg considers that it would be too early to determine what an appropriate
Page 22 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
future ―target‖ mix would be. Consequently, in order to provide regulatory
certainty ComReg considers it appropriate to determine the average wholesale
input with reference to the prices of network input cost weighted for the relevant
usage of each input by OAOs in the area.
5.
Further specification of the obligation not to margin/price squeeze in the
WPNIA Market
1.99
The majority of respondents agreed with ComReg proposed approach, see
paragraph 1.65. ComReg considers that preserving a sufficient economic space
between different wholesale inputs offered by Eircom is necessary so as to
promote and foster sustainable and effective competition in the provision of
retail services to end users. ComReg considers that from a regulatory
perspective it is important that the economic space between these different
wholesale products or ―rungs‖ on the ladder of investment is sufficient to
promote the development of effective retail competition capable of constraining
the integrated incumbent on an ongoing and sustainable basis.
ComReg believes that in the absence of an appropriate price control
maintaining such an economic space, Eircom, by virtue of its control of the
underlying access infrastructure and its presence at both wholesale and retail
levels, would have the ability and incentives to price its wholesale access inputs
in such a way as to dampen the competitive constraints it faces at the retail level
and to ultimately extract super-normal profits through higher retail prices for
consumers.
1.100
ComReg‘s aim, in setting this Margin/Price Squeeze Test, is to promote
competition by ensuring that operators have appropriate incentives to invest
efficiently in infrastructure so that they become less reliant on the incumbent‘s
network. Without an appropriate price floor to minimise the risk of squeezing
WPNIA, operators may not invest / increase their investment in WPNIA and
may stay on resale wholesale products from Eircom. This would benefit Eircom
as operators that remain on resale wholesale products have less potential to offer
differentiated retail products, possibly at lower prices, and must continue to pay
higher wholesale charges to Eircom. In this case, the key concerns are that
Eircom could cause a margin squeeze at the wholesale level and charge
excessive wholesale prices. The proposed Margin/Price Squeeze Test in the
WPNIA market will be used to calculate the appropriate minimum price floor
for the ULMP component in a SB-WLR product or a Naked WBA (Bitstream)
DSL product. See ComReg 11/72 Chapter 8 for further information.
1.101
As such, ComReg considers it appropriate to further specify the obligation
under Decision D05/10 not to cause a margin/price squeeze for the WPNIA
product, ULMP, based on a REO. ComReg considers that as the WPNIA market
is at the early stages of development, the use of EEO would not be appropriate
at this time as no operator has achieved the same economy of scale and scope as
Eircom. The use of the REO cost standard is consistent with the approach of
ComReg D06/12 as notified to the Commission Case IE/2012/1295.
1.102
As noted in Case IE/2012/1295, both the REO and SEO standard reflect the
fact that OAOs in the WBA market have not achieved the same economies of
scope and scale as the SMP operator and this difference in scale and scope
needs to be reflected in the Margin Squeeze test. In principle, ComReg believes
1.103
Page 23 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
that OAOs‘ costs should be used in the test. In practice, accurate verifiable
OAO data is difficult to obtain. Consequently, ComReg has estimated the
appropriate costs by taking Eircom‘s costs as the starting point and has adjusted
these to reflect what costs an OAO would incur. ComReg believes that there is
no material difference between the value of cost inputs based on REO and SEO
(i.e. the REO and SEO are both variants of the same test). ComReg uses the
term SEO and REO to simply signal the exact source of the costs used in the
Margin Squeeze model — before these costs are adjusted appropriately for scale
and scope for the Margin Squeeze test. The use of the REO signals that the
OAO costs are mainly taken — usually from Eircom‘s wholesale price list
charged to other operators. The use of the term SEO simply means that
Eircom‘s audited costs are used as a starting point for OAO cost estimation in
the absence of any robust (and audited) cost data from other operators.
Page 24 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
2 NOTIFICATION FORM
In using the ―standard‖ notification, ComReg has had regard to Recital 14 of
the Article 7 Recommendation. Recital 14 provides inter alia that:
1.104
―Only material changes to the nature or scope of the
remedies that have an appreciable impact on the market
(such as price levels, amendments to the methodologies
used to calculate costs or prices, determination of glide
paths) should be notified by the standard notification
procedure.‖ (Emphasis added).
Having regard to the above, ComReg believes that the notified measure herein
is a ―material change‖ for the purposes of Recital 14 and ComReg has therefore
assumed that it requires a notification in the standard form, as set out in Annex I
of the Article 7 Recommendation. The details are contained in the Annex to this
notification.
1.105
The Annex attached to this letter sets out ComReg‘s response to the standardform notification regarding the draft measures set out herein. The Annex also
includes related case references to previously notified draft measures. In
addition, ComReg has also attached a PDF version of the relevant documents
associated with the draft measures notified herein.
1.106
Page 25 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
APPENDIX:
Standard form notification of draft measures pursuant to Article 7 of Directive
2002/21/EC
SECTION 1: MARKET DEFINITION
1.1
The relevant product/service market. Is this market mentioned in the
Recommendation on relevant markets?
ComReg Response:
The notified measures relate to Market 1, which is the market for Retail Fixed
Narrowband Access (RFNA) and Market 4, which is the market for wholesale
physical network infrastructure access (WPNIA). These markets and SMP
designations therein were notified by ComReg to the European Commission
under Case IE/2007/0632 and Case IE/2009/085 respectively.
Both of these markets were listed in the European Commission
Recommendation of 17 December 2007 on Relevant Product and Service
Markets within the electronic communications sector susceptible to ex ante
regulation in accordance with Directive 2002/21/EC (as amended) of the
European Parliament and the Council of 7 March 2002 on a common
regulatory framework for electronic communications networks and services
(the ―Recommendation‖).
As noted in paragraph 1.6 of the overview, an updated market analysis for
Market 1 has been commenced and a consultation and draft decision published
for consultation. Proposed measures following that process will be notified
separately in due course.
1.2
The relevant geographic market.
ComReg Response:
Both Market 1 and Market 4, as defined by ComReg and notified under Case
IE/2007/0632 and Case IE/2009/085 respectively, are national markets, i.e.
Ireland.
1.3
A brief summary of the opinion of the national competition authority,
where provided.
Page 26 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
ComReg Response:
This notification does not relate to the definition of a market or designation of
an undertaking with SMP. ComReg previously notified its decision on the
market definition and designation of SMP for Market 1 under Case
IE/2007/0632 and for Market 4 under Case IE/2009/085.
The draft measure notified in this document relates to the amendment and
further specification of obligations previously imposed in Market 1 and in
Market 4. Therefore, an opinion from the national competition authority is not
deemed necessary.
1.4
A brief overview of the results of the public consultation to date on the
proposed market definition (e.g. how many comments were received,
which respondents agreed with the proposed market definition, which
respondents disagreed with it).
ComReg Response:
This notification does not relate to the definition of a market or designation of
an undertaking with SMP. ComReg previously notified its decision on the
market definition and designation of SMP for Market 1 under Case
IE/2007/0632 and for Market 4 under Case IE/2009/085.
The draft measure notified in this document relates to the amendment and
further specification of obligations previously imposed in Market 1 and in
Market 4.
1.5
Where the relevant market is different from those listed in the
Recommendation on relevant markets, a summary of the main reasons
justifying the proposed market definition by reference to Section 2 of the
Commission guidelines on market analysis and the assessment of
significant market power under the Community regulatory framework
for electronic communications and services, and the three main criteria
mentioned in recitals 5 to 13 of the Recommendation on relevant markets
and Section 2.2 of the accompanying Explanatory Note.
ComReg Response:
Not applicable.
Page 27 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
SECTION 2: DESIGNATION OF UNDERTAKINGS WITH SIGNIFICANT
MARKET POWER
2.1
The name of the undertakings designated as having, individually or
jointly, significant market power.
ComReg Response:
Eircom Limited was designated with SMP in the market for RFNA and in the
WPNIA market. ComReg previously notified its decision on the market
definition and designation of SMP for Market 1 under Case IE/2007/0632 and
for Market 4 under Case IE/2009/085.
2.2
The criteria used to designate an undertaking as having significant
market power, individually or jointly, or not.
ComReg Response:
ComReg previously notified its decision on the market definition and
designation of SMP for Market 1 under Case IE/2007/0632 and for Market 4
under Case IE/2009/085.
2.3
The name of the main undertakings (competitors) active in the relevant
market.
ComReg Response:
A list of the main undertakings (competitors) active in the relevant market was
provided in ComReg‘s previously notified decision on the market definition
and designation of SMP for Market 1 under Case IE/2007/0632 and for
Market 4 under Case IE/2009/085.
Page 28 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
2.4
The market shares of the undertakings mentioned above and the basis for
calculation of market share (e.g. turnover, number of subscribers).
ComReg Response:
ComReg previously notified its decision on the market definition and
designation of SMP for Market 1 under Case IE/2007/0632 and for Market 4
under Case IE/2009/085.
The draft measures notified in this document relates to the amendment and
further specification of obligations previously imposed in Market 1 and in
Market 4.
2.5
The opinion of the national competition authority where provided.
ComReg Response:
ComReg previously notified its decision on the market definition and
designation of SMP for Market 1 under Case IE/2007/0632 and for Market 4
under Case IE/2009/085.
The draft measures notified in this document relate to the amendment and
further specification of obligations previously imposed in Market 1 and in
Market 4. Therefore, an opinion from the national competition authority is not
deemed necessary.
2.6
The results of the public consultation to date on the proposed
designation(s) as undertakings having significant market power (e.g. total
number of comments received, numbers agreeing/disagreeing).
ComReg Response:
Not relevant in the context of the current draft notification. Please refer to the
previously notified measures under Case IE/2007/0632 and Case
IE/2009/085.
Page 29 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
SECTION 3: REGULATORY OBLIGATIONS
3.1
The legal basis for the obligations to be imposed, maintained, amended or
withdrawn (Articles 9 to 13 of Directive 2002/19/EC).
ComReg Response:
Eircom Limited was designated with SMP in the market for RFNA (Market 1)
in 2007. This was notified under Case IE/2007/0632.
Eircom Limited was designated with SMP in the WPNIA Market (Market 4)
in 2010. This was notified under Case IE/2009/085.
Pursuant to the designations of SMP, the obligation of price control and the
obligation of transparency were imposed on Eircom, in both Markets. The
legal basis for these obligations is Article 13 and Article 9 (respectively) of
Directive 2009/19/EC, imposed in accordance with Article 8 of that Directive.
In the RFNA market, Eircom has an obligation not to unreasonably bundle
RFNA with other retail services. This obligation was imposed in accordance
with Article 17 of Directive 2002/22/EC. This notified draft measure proposes
to revise this obligation so that it remains appropriate and can be sufficiently
responsive to the underlying competitive conditions. In addition, this notified
draft measure proposes to amend the transparency obligation with regard to
pre-notification obligations.
The proposed draft measure in relation to RFNA, i.e. the revised net revenue
test, is set out at Annex 1.
In the WPNIA market, Eircom has an obligation not to cause a margin/price
squeeze. This obligation was imposed in accordance with Article 13 of
Directive 2009/19/EC as mentioned above. This notified draft measure further
specifies the margin/price squeeze test in the context of WPNIA.
The proposed draft measure is set out at Annex B of ComReg 11/72.
3.2
The reasons for which the imposition, maintenance or amendment of
obligations on undertakings is considered proportional and justified in the
light of the objectives laid down in Article 8 of Directive 2002/21/EC.
Alternatively, indicate the paragraphs, sections or pages of the draft
measure where such information is to be found.
ComReg Response:
Page 30 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
Please refer to Annex C of Consultation Document No 11/72 for discussion on
proportionality and justification of the draft measures contained in this
notification.
3.3
Where the remedies proposed are other than those set out in Articles 9 to
13 of Directive 2002/19/EC, please indicate what "exceptional
circumstances" within the meaning of Article 8 (3) of that directive justify
the imposition of such remedies. Alternatively, indicate the paragraphs,
sections or pages of the draft measure where such information is to be
found.
ComReg Response:
Not applicable.
SECTION 4: COMPLIANCE WITH INTERNATIONAL OBLIGATIONS
4.1
Whether the proposed draft measure intends to impose, amend or
withdraw obligations on market players as provided for in Article 8(5) of
Directive 2002/19/EC.
ComReg Response:
Not applicable.
4.2
The name of the undertakings concerned.
ComReg Response:
Not applicable.
4.3
What international commitments entered into by the Community and the
Member States are to be met.
ComReg Response:
Not applicable.
Page 31 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
Dated this the 26, October 2012.
_____________________
Page 32 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
Annex: 1 Revised net revenue
under Decision D07/61
REF
R1
R2
R3
R4
R5
C1
ITEM
(all ex VAT)
Revenue:
Monthly Bundle
Price
Monthly Out of
Bundle
Calls
Revenue
Monthly Out of
Bundle Other
Revenue
Total Monthly
Bundle
Revenue
Total Monthly
Portfolio
Revenue
Costs:
Total Wholesale
Access
Input
Cost
test
Description
This is the headline monthly price of a bundle.
This is a weighted average of the total calls revenue earned
on average outside the bundle per month based on actual
revenues and volumes (post-launch assessment) or forecast
revenues and volumes (pre- launch assessment).
This is calculated for each component call that is charged
separately outside the bundle by: (i) taking the total number
of calls for that component that are outside by bundle
allowance and multiplying that by the call set up fee; and (ii)
taking the total minutes for that component that are outside
bundle allowance and multiplying that by the retail price per
minute. This total revenue for the component outside bundle
allowance is then divided by the total number of customers to
get an average revenue per customer for that component used
outside of bundle allowance.
This is the average of any other monthly out of bundle
revenue.
This is the sum of the Monthly Bundle Price plus Monthly
Out of Bundle Calls Revenue plus Monthly Out of Bundle
Other Revenue.
This is a weighted average of Total Monthly Bundle
Revenue based on the actual volumes of each Bundle in
the Portfolio (in the case of post-launch assessment) or the
forecast volumes for each Bundle in the Portfolio (in the
case of pre-launch assessment).
In the case of Bundles
sold/offered inside the
Larger Exchange Area
Page 33 of 36
This is the applicable monthly
prices plus all relevant
wholesale costs of ULMP,
WLR/LS, WLR/BMB, POTS
based VUA, NGA Bitstream+,
Standalone
VUA
and
Standalone VUA+ Voice
network input cost in effect in
the Larger Exchange Area
weighted by the use of those
wholesale inputs by OAOs in
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
C2
Retail
Costs
Associated with
Retail
Line
Rental
Mailbox cost
C3
C4
Total Cost of
Calls
C5
Total LRIC of
Calls - In the
case of Bundles
sold/offered
inside the
Larger
the Larger Exchange Area. In
this context ―all relevant
wholesale costs‖ means a)
ancillary charges levied by
Eircom in respect of a
particular service amortised,
where appropriate, over the
relevant assumed customer
life39
plus
b)
other
unavoidable non-retail costs
which are necessary to provide
a retail service40. All costs are
converted to a monthly
average.
In the case of Bundles This is the sum of the monthly
sold/offered outside the prices of SB-WLR and WBA
Larger Exchange Area
plus the monthly average of
all relevant wholesale costs
levied by Eircom.
These are the monthly operating costs as derived from the
SB-WLR regulated retail minus price control.
Where the bundle packages include free mailbox, the
wholesale monthly price of the mailbox as per the regulated
retail minus price control as published in Eircom‘s Reference
Interconnect Offer Price List must be taken to ensure an
operator can replicate the offer. However, consideration will
be taken of the applicable average take up of the mailbox and
the wholesale price will be adjusted to reflect this. The retail
costs as derived from the retail minus price control will also
be considered here.
These are the monthly weighted average of the wholesale and
retail costs as calculated for each retail call including all
common cost.
Costs are based on wholesale prices and Eircom‘s retail costs
according to its latest regulatory accounts to derive an
average total cost and will reflect known future changes in
those costs where these can be adequately verified.
This is estimated from Eircom‘s accounts as Total Cost of
Calls less common costs less fixed indirect costs (LRIC of
retail calls only)
39
For example, connection fees or co-location charges
40
For example, the cost of a line card, amortised over the relevant customer life
Page 34 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
Exchange Area
C6
C7
Retail
Costs
Associated with
Retail
Broadband
Total Bundle
Cost
C8
Total Monthly
Adjusted
Bundle Cost
C9
Total Monthly
Portfolio Cost
These are the monthly operating costs as derived from the
WBA regulated retail minus price control.
This is the Total Wholesale Access Input Cost plus Retail
Costs Associated with Retail Line Rental plus Retail Costs
Associated with Retail Broadband plus Total Cost of Calls
plus the LRIC of unregulated retail services plus Mailbox
Cost where applicable
This is the Total Wholesale Access Input Cost plus Retail
Costs Associated with Retail Line Rental plus Retail Costs
Associated with Retail Broadband plus Total LRIC of
Calls plus the LRIC of unregulated retail services plus
Mailbox Cost where applicable
This is the weighted average by volume of Total Bundle
Cost based on actual monthly volume for each Bundle in
the Portfolio (in the case of post-launch assessment) or the
forecast monthly volume for each Bundle in the Portfolio
(in the case of pre- launch assessment).
Unregulated Retail Services Assessment
This applies to those retail services that are unregulated and do not rely on retail fixed
narrowband access.
The incremental revenues over the average customer lifetime (which can be different for
different unregulated products) of any unregulated product in a Bundle must cover its
own long-run incremental costs (―LRIC‖) including applicable retail costs.
There must be no cross-subsidisation between regulated services and unregulated
services.
On a case-by-case basis where the bundling of the unregulated service will not have a
significant impact on competition, ComReg will consider allowing that unregulated
service only cover its own avoidable costs (―AAC‖) instead of its LRIC.
Assessment of Bundles:
In order to pass the Net Revenue Test:
(i)
as regards every Portfolio, the Total Monthly Portfolio Revenue shall be equal to or
exceed the Total Monthly Portfolio Cost;
(ii)
as regards each individual Bundle, the Total Monthly Bundle Revenue shall be
equal to or exceed the Total Monthly Adjusted Bundle Cost;
(iii) when a given Bundle includes unregulated retail services, compliance with the Net
Revenue Test (as regards such unregulated services) shall be evaluated in
accordance with the Unregulated Retail Services Assessment.
Page 35 of 36
Notification by ComReg to European Commission under Article 7 of Directive 2002/21/EC, dated 26
October, 2012
Unreasonable Bundle Assessment/Complementary Competitive Assessment
If a Bundle does not pass the Net Revenue Test, as outlined in Section 4.3 of the Direction,
ComReg will carry out a general assessment of the reasonableness of the Bundle and may
conclude that, notwithstanding the fact that the Bundle fails the Net Revenue Test, the offer
for sale by Eircom of that Bundle does not constitute a breach of the obligation under
ComReg Decision D07/61 not to unreasonably bundle services.
For the purposes of such assessment, ComReg may, in particular, have regard to any robust
evidence of retail efficiencies or increased customer lifetimes resulting from the relevant
Bundle. ComReg will also consider the impact of the Bundle on competition, including by
reference to the promotion of sustainable competition in the medium to long term and the
likelihood of any potential foreclosure and associated consumer harm.
Page 36 of 36