text: C 71/4 EN Official Journal of the European Communities 7. 3. 98 Commission communication concerning the review under competition rules of the joint provision of telecommunications and cable TV networks by a single operator and the abolition of restrictions on the provision of cable TV capacity over telecommunications networks (98/C 71/04) (Text with EEA relevance) SUMMARY distinctions between previously different markets are disappearing(cid:216)(ˇ). 1. (cid:217)The establishment of a framework of liberalisation of telecommunications and cable networks in the European Union is scheduled to take place on 1 January 1998 in most EU Member States(cid:216)(˛). Key principles underpinning liberalisation process have been the introduction of competition into tele(cid:220) communications markets, which increase the choice available telecommunications services. This will result in lower costs of telecom(cid:220) munications services and a wider variety of services on offer. consumers of this for 2. (cid:217)This period of liberalisation has also been marked by an enormous leap forward in terms of technology in telecommunications and the associated digital tech(cid:220) nologies services, including the Internet, and new data communi(cid:220) cations such as electronic mail. These technologies that increasingly and merge, broadcasting, interactive overlap so of (˛)(cid:217)The requirement to progressively open the telecommuni(cid:220) cations markets in the European Union until 1 January 1998 is set out in Commission Directive 90/388/EEC of 28 June 1990 on competition in the markets for telecommunications services (OJ L 192, 24. 7. 1990, p. 10, as amended by Commission Directive 94/46/EC of 13 October 1994, satellite communications, OJ L 268, 19. 10. 1994, p. 15, Commission Directive 95/51/EC of 18 October 1995, abolition of restrictions on the use of cable television networks for the provision of already liberalised telecom(cid:220) munications services, OJ L 256, 26. 10. 1995, p. 49, Corri(cid:220) gendum OJ L 308, 29. 11. 1996, p. 59, Commission Directive 96/2/EC of 16 January 1996, mobile and personal communications, OJ L 20, 26. 1. 1996, p. 59 and Commission Directive 96/19/EC of 13 March 1996, full competition in telecommunications markets, OJ L 74, 22. 3. 1996, p. 13. The Commission granted additional transition periods to five Member States (Ireland: 1 January 2000, Commission Decision 97/114/EC of 27 November 1996, OJ L 41, 12. 2. 1997, p. 8; Portugal: 1 January 2000, Commission Decision 97/310/EC of 12 February 1997, OJ L 133, 24. 5. 1997, p. 19; Luxembourg: 1 July 1998, Commission Decision 97/568/EC of 14 May 1997; OJ L 234, 26. 8. 1997, p. 7; Spain: 1 December 1998, Commission Decision 97/603/EC of 10 June 1997, OJ L 243, 5. 9. 1997, p. 48; Greece: 2000, Commission Decision 97/607/EC of 18 June 1997, OJ L 245, 9. 9. 1997, p. 6). 31 December 3. (cid:217)As well as the other benefits of lower costs and greater choice outlined above, the liberalisation will bring new and innovative telecommunications and multimedia companies into the market. They will come with many new ideas for services and will stimulate the existing operators to respond with their own ideas. This innovation will benefit consumers in Europe, by providing new interactive services, and it telecommunications and will help multimedia industry to compete more effectively on world markets, so creating more employment oppor(cid:220) tunities and inno(cid:220) vatory development, however, will not come about unless the appropriate conditions of competition exist with respect to telecommunications and cable networks in the EU, particularly in the transition period to full competition in the years following 1 January 1998. increasing social welfare. This the European the transition 4. (cid:217)As part of the process which is intended to ensure towards effective provision for competitive market structures, the Commission was required by Directive 90/388/EEC as amended by Directive 95/51/EC (the Cable Directive) and also by Directive 96/19/EC (the Full Competition Directive) to review two particular aspects before the full liberalisation of the market in 1998. These were: -(cid:217)the effects on competition of joint provision of telecommunications and cable TV networks by a single operator, and -(cid:217)the restrictions on the provision of cable TV capacity over telecommunications networks. (ˇ)(cid:217)These issues are considered the and the convergence of information technology sectors, and the implications for regulation, COM(97) 623 final, published on 3 December 1997 ("the Convergence Green Paper’). telecommunications, media in: Green Paper on 7. 3. 98 EN Official Journal of the European Communities C 71/5 5. (cid:217)This communication fulfils the Commission’s obli(cid:220) gations under that review. The communication is based on two reports established for the Commission which have involved substantial research and wide(cid:220) ranging consultations with sector participants. regulatory environment which again constrains market development over time. However, given that technology allowing such provision is just emerging, the constraints are still not felt heavily in most Member States in practice, 6. (cid:217)This communication addresses these competition and innovation issues only. In particular, it should be noted that with regard to broadcasting services, this communication only considers the transmission of signals, principally over cable and telecommuni(cid:220) cations networks, and does not address issues of the content which is transmitted over those networks. The Commission recently published the Green Paper on telecommunications, media and information technology sectors, and the implications for regulation(cid:216)(—) which covers this and other issues. the convergence of the 7. (cid:217)The conclusions of the review can be summarised as follows: infrastructure -(cid:217)developments of telecommunications and multi(cid:220) media markets depend on four factors: service competition, and infrastructure upgrade as well as other types of innovation. The joint provision of telecommuni(cid:220) cations and cable TV networks by former monopolies can stifle development of telecoms and multi(cid:220)media applications, competition -(cid:217)in the EU, the joint provision, inherited from monopoly provision in the past, of telecommuni(cid:220) cations and cable TV networks by a single operator could in certain Member States allow the former monopolies to delay emergence of effective competition. This could lead to an asymmetric starting position for dominant tele(cid:220) communications operators compared with new entrants, -(cid:217)the restrictions on the provision of cable TV capacity over telecommunications networks are also significant as they can create an asymmetric (—)(cid:217)See Footnote 2 ("Convergence Green Paper’). the See also the communication from the European Commission to the Council, the European Parliament, the Economic and Social Committee, and the Committee of the Regions on "Europe at the forefront of the global information society: final, 28. 11. 1996, rolling action plan’, COM(96) 607 paragraph 114. Media and content issues are also addressed in information services: cultural matters’ and in other Commission initiatives such as the Green Paper on the protection of minors and of human dignity in audio(cid:220)visual and information services, COM(96) 483 final, 16. 10. 1996, and the MEDIA II Programme, which aims at encouraging, among other things, the competitiveness of the European audio(cid:220)visual industry. "Green Paper on audio(cid:220)visual and -(cid:217)the accounting separation in the case of the joint provision of competing networks by dominant established by telecommunications operators Commission Directive 95/51/EC ("the Cable Directive’) has been shown to be insufficient to in facilitate pro(cid:220)competitive development the multi(cid:220)media should steps sector. Minimum include the effective separation of these operators from their cable TV network companies, i. e. the operation of these activities in clearly separated legal entities. Further action by the Commission will be justified with regard to specific cases to reduce the anti(cid:220)competitive effect of highly dominant positions through the joint provision protected previous inherited monopoly positions. legally from 8. (cid:217)Finally, the principle underlying this review is the importance of competition for innovation. Telecom(cid:220) munications and multi(cid:220)media can become vital in the EU’s drivers of growth and employment economies. The European Union must ensure that the starting positions into these new markets are right and pro(cid:220)competitive to draw maximum benefit for growth and creation of new jobs from the new developments. in order 1. (cid:217)HISTORY AND REASONS FOR CABLE REVIEW in Europe services and equipment 9. (cid:217)The programme to complete the internal market in telecoms is designed to increase innovation and the range of services available to consumers in particular through the promotion of competition. The experience in countries where liberalisation had been carried out indicated that both new and existing operators developed more innovative services as a result of the liberalisation, to the benefit of consumers. telecommunications 10. (cid:217)On 18 October 1995, the Commission adopted the Cable Directive which required Member States to C 71/6 EN Official Journal of the European Communities 7. 3. 98 allow the use of cable TV networks for the provision of all liberalised telecommunications services(cid:216)((cid:209)). 11. (cid:217)Specifically, in relation to the cable review, the Cable Directive stated: services(cid:216). (cid:216). (cid:216). "Where a single operator provides both networks or telecommunications (i. e. public both networks the networks)(cid:216). (cid:216). (cid:216). , cable TV Commission shall, before 1 January 1998, carry out an overall assessment of the impact of such joint provision in relation to the aims of the Directive. ’ and 12. (cid:217)On 13 March 1996, the Commission adopted the full Competition Directive which noted that: some Member States "While Directive 95/51/EC of 18 October 1995 lifted all restrictions with regard to the provision of liberalised telecommunications services over cable television networks, still maintain restrictions on the use of public telecom(cid:220) munications networks for the provision of cable television capacity. The Commission should assess the situation with regard to such restrictions in the light of the objectives of this directive once the tele(cid:220) communications markets approach full liberalisation. ’ The Directive also stated that: "By 1 January 1998, the Commission will carry out an overall assessment of the situation with regard to remaining restrictions on the use of public telecom(cid:220) munications networks for the provision of cable television capacity. ’ 13. (cid:217)The review before 1 January 1998 was necessary because this is the date set for the introduction of full competition on the provision of telecommuni(cid:220) cations infrastructures and services. Effective liberali(cid:220) sation of telecommunications infrastructure is indis(cid:220) pensable this context as acknowledged by Directive 96/19/EC, to avoid new entrants being limited in their freedom to provide services and being reliant on their main competitor for the provision of transmission capacity. in 14. (cid:217)Given the capital intensive nature of investment in new networks, existing cable TV networks are a ((cid:209))(cid:217)See footnote 1. local infrastructure, provision crucial element in the effective provision of alter(cid:220) loop, and also in the native service telecommunications for new operators in the newly liberalised markets in the Member States. This review is therefore important before the implementation of full competition to assess the effect of joint ownership of such networks and telecoms networks. This is because local loop competition is an essential ingredient for the creation of competitive markets and the reduction of market power of the dominant carrier. 15. (cid:217)In order to carry out the review the Commission commissioned two reports, one focusing on market and technological developments, the other providing an analysis of the legal context(cid:216)((cid:210)). The market report had the following overall objective: "To examine options for developing competition in local telephone markets, for example, via cable networks competing with existing local loop infra(cid:220) structure. To understand the barriers and drivers to the devel(cid:220) opment of broadband networks in the European thus encouraging devel(cid:220) Union Member States, opment of multimedia services over advanced networks. ’ 16. (cid:217)The reports focused on: "The joint ownership of telecommunications and cable TV networks by dominant telecommunications operators (referred to as joint ownership) addressed in the cable TV Directive, and existing restrictions on the provision of cable TV capacity on public telecommunications networks, addressed in the full Competition Directive. ’ ((cid:210))(cid:217)"Cable Review - Study on the competition implications in telecommunications and multimedia markets of (a) joint provision of cable and telecoms networks by a single dominant operator and (b) restrictions on the use of tele(cid:220) communications networks the provision of cable for television services,’ Arthur D. Little International, 1997, and "Study on the Scope of the Legal Instruments under EC Competition Law available to the European Commission to implement the Results of the ongoing review of certain in the telecommunications and cable television situations sectors,’ Coudert, 1997. The views presented in the reports are those of the contractors and do not represent or commit the Commission in any way. 7. 3. 98 EN Official Journal of the European Communities C 71/7 2. (cid:217)SUMMARY OF THE REPORTS’ FINDINGS ON THE CURRENT SITUATION 17. (cid:217)According to for the reports undertaken the Commission, Member States’ telecommunications and multimedia markets are not developing in an optimal manner at present. This from evidence gathered on the four drivers of optimal in the market report. On development each of these drivers (cid:134) innovation, service provision, network competition and service competition (cid:134) according to the reports it is clear that nearly all of the markets for telecommunications and multimedia are developing in a suboptimal manner. identified is clear 2. 1. (cid:217)Market and technology overview 18. (cid:217)According to the reports, the telecommunications and multimedia service offerings in most Member States are still limited compared with the optimal development path. Most fundamentally, telephone density in Europe is generally still low compared with that in the US. Only Sweden has a greater telephone density than the US, the other Member States are below with the EU average being 49 lines per 100 inhabitants, compared with 62 for the US. This lower penetration in telecommunications lines is also reflected in other areas, such as the number of Internet hosts per inhabitant, where only Finland exceeds the US figure. ISDN(cid:216)((cid:211)) penetration remains also limited. Fewer than half (43(cid:216)%) of European homes are connected to either cable or satellite television (for the European cable TV networks in particular see overview in Annex 1). cable companies 19. (cid:217)Cable competition is developing in the USA, Canada and Australia. in Incumbent America have been forced to respond to competition by cutting prices by 50(cid:216)% and in one case over 90(cid:216)%, offer free pay per view events and upgrading their systems. Other companies have added more programmes In Australia, new competing cable operators are planning to widen the services they will offer in comparison with to generate additional revenue. their basic cable package. incumbent operators the to 20. (cid:217)In the European Union, by contrast, the reports suggest that as many as 59(cid:216)% of cable customers loop local are served by a cable operator which is wholly or partly owned by telecommunications the main provider. Far from there being competition in the local in these circumstances, therefore, one company controls two points of entry into these homes. Effective loop competition currently only takes place in three Member States: the UK, Finland and Sweden. In the UK, BT’s market position has been retained at a high level partly because of its continuing strength in the local loop. In Finland by contrast, a large market share was obtained by the new entrants in a very short space of time because many of the companies already had a presence in local telephone markets. increased the development of 21. (cid:217)Exploitation of technological advances is essential for telecommuni(cid:220) cations and multimedia services. Currently such technological advances terrestrial television, digital satellite DTH(cid:216)((cid:212)) television, cable telephony services and multichannel television over broadband cable television networks, and, in the future, broadband Internet provision over fixed, wireless and satellite networks. include: digital 2. 2. (cid:217)Key issues 22. (cid:217)The four key issues identified in the reports for the optimal development of the new telecommunications and multi(cid:220)media technologies are: -(cid:217)the range of services: upgraded cable TV and PSTN(cid:216)((cid:213)) access technologies have the potential to offer the widest range of telecommunications and multi(cid:220)media services, including multichannel TV, voice telephony, and high(cid:220)speed Internet access. While telephony services will be available from a range of alternative wireline and wireless networks, such as power lines and WLL(cid:216)((cid:214)), these technologies are unlikely in the short to medium term to have the capacity to deliver the full range of audio(cid:220)visual services. The lack of an inherent return path will prevent other technologies that are well suited to the delivery of broadcasting multichannel TV and multimedia services from providing a full range of interactive and two(cid:220)way services, ((cid:211))(cid:217)Integrated Services Digital Network. ((cid:212))(cid:217)Direct(cid:220)to(cid:220)Home. ((cid:213))(cid:217)Public Switched Telephone Network. ((cid:214))(cid:217)Wireless local loop. C 71/8 EN Official Journal of the European Communities 7. 3. 98 -(cid:217)the level of service innovation: both cable TV and the telecommunications networks have technical capabilities to foster the conception, development, and realisation of the widest range of innovative telecommunications and multimedia services: for example, switched video services, broadcast services, pointcast services, and high speed data services. In contrast the development innovative services over alternative access of technologies will be for example, lack of upstream capacity or bandwidth per user, limited, owing to, -(cid:217)infrastructure technological limitations: every infrastructure has telecommuni(cid:220) cations limi(cid:220) tations on the range of services that can be offered. Both cable TV and PSTN access tech(cid:220) nologies can be upgraded to overcome most of these limitations and provide a suitable platform for the development of the telecommunications and multi(cid:220)media sector. The bandwidth can be upgraded by replacing with broadband fibre optics. Bi(cid:220)directional amplifiers and switching fabrics can be installed to provide switching capabilities. Digitalisation will greatly enhance the quality and variety of services of both wireline and wireless technologies. By contrast, the upgrading of many wireless technologies, such as wireless local loop and DTH satellite, limited by technical or environmental will be restraints, -(cid:217)infrastructure competition: cable TV and PSTN systems can be equal competitors in the local loop for the provision of all telecommunications and multi(cid:220)media services. In the medium term, there will be competition from digital satellite and wireless the provision of television and telephony services respectively. However, cable TV and PSTN systems are in place today and will accelerate competition in the local loop substantially. loop operators local for communications operators own or control cable TV networks. 2. 3. (cid:217)Options assessed 24. (cid:217)Given this situation, the reports assessed a broad range of actions. As regards joint ownership of cable TV and telecommunications network, the market report examined the following main options: -(cid:217)maintain joint ownership without other changes, -(cid:217)legal separation (creation of 100(cid:216)% cable subsidiary), -(cid:217)no joint ownership. 25. (cid:217)As regards the restrictions on the provision by tele(cid:220) communications operators of cable TV capacity over telecommunications networks the following options were examined: -(cid:217)maintain status quo, -(cid:217)lift restrictions on specific PTOs and/or give dominant PTOs rights to provide cable TV capacity via telecommunications infrastructure, -(cid:217)lift restrictions on licences for cable TV infra(cid:220) structure. 26. (cid:217)In a graduated approach, the report also assessed a number of intermediate and transitional options(cid:216)(˛˝). The details are set out in Annex 2. The reports are available on request. 23. (cid:217)In summary, the two wireline technologies - tele(cid:220) communications and cable TV networks - are at this stage the only ones which can promote optimal development according to all four criteria: choice of services, service innovation, removal of infrastructure limitations and the encouragement of infrastructure competition. The technologies currently available still have limitations of one or more of the criteria which makes them less suitable for the optimal development of multimedia services. Nevertheless, in most Member States, dominant tele(cid:220) other wireless (˛˝)(cid:217)The Report also assessed the following options: -(cid:217)maintain joint ownership/accelerate DTH development towards digital multichannel services, -(cid:217)maintain joint ownership but establish ONP on joint owner’s cable network, -(cid:217)maintain joint ownership but open up spectrum for wireless local loop (narrowband), -(cid:217)legal separation and management separation, -(cid:217)partial joint ownership, -(cid:217)independent trustee, -(cid:217)separation of network and services. See Annex 2. 7. 3. 98 EN Official Journal of the European Communities C 71/9 27. (cid:217)The reports found that an optimal result would be achieved only by a full(cid:220)scale divestiture, in cases where the dominant telecommunications operator also has a determining ownership interest in the cable TV infrastructure, as joint ownership acts as a severe deterrent to the emergence of new and inno(cid:220) vative services and to potential new entrants into the market, effective implementation of full liberalisation by 1 January 1998. The reports concluded that a divestiture could be required under competition rules in certain circumstances. undermine could and the opment of the telecommunications and multimedia markets in the Member States in four main ways. These are: -(cid:217)delaying the upgrading of cable networks to have bi(cid:220)directional capability, -(cid:217)blocking the development of competing infra(cid:220) structures, As regards the restrictions on telecommunications operators to provide cable TV capacity over tele(cid:220) communications networks the reports conclude that such restrictions should be lifted, depending on the overall impact of such a measure as regards the competitive situation in the local loop. -(cid:217)limiting service competition, and -(cid:217)constraining innovation. 3. (cid:217)MORE DETAILED ANALYSIS OF JOINT PROVISION AND OF RESTRICTIONS FOR THE PROVISION OF CABLE TV CAPACITY 28. (cid:217)In this section, more details are given, drawing on parts of the reports, on the focus of the review: the impact of joint provision and the restrictions on providing cable TV capacity. 3. 1. (cid:217)Impact of allowing continued joint provision of cable TV capacity by telecommunications organisations, when abolishing their exclusive rights 29. (cid:217)It seems clear from the analysis that the current position with regard the to European Union is not optimal in the telecommuni(cid:220) cations and multi(cid:220)media sectors(cid:216)(˛˛). innovation the in 30. (cid:217)Joint ownership telecommunications networks and cable TV networks limits the devel(cid:220) both of (˛˛)(cid:217)It should be noted that problems related to audio(cid:220)visual and content provision and the position of public service broad(cid:220) casters are not dealt with in this communication. More general regulatory and audio(cid:220)visual matters are addressed by the Commission in the Convergence Green Paper (see footnote 2). This communication addresses structure issues relating to infrastructure provision. innovation and market 31. (cid:217)Joint operators have no incentive to upgrade their cable TV networks to full bi(cid:220)directional capacity. This is because there is no intrinsic financial benefit in upgrading a cable TV network which will then compete for customers with the core telecommuni(cid:220) cations business of the telecommunications network operator. This competition will take place not only for telephony services, but also for more advanced multimedia services such as Internet access and in the future services such as video on demand. The investment in the cable television network is seen as unlikely to generate a net additional revenue for the joint owner. 32. (cid:217)In addition, in many circumstances, the joint owner is unlikely to focus on the development of the cable television business as it represents a small proportion of the total revenue of the telecommunications and cable businesses combined. On average across the EU, less than 10(cid:216)% of revenue comes from cable. Therefore a jointly owned cable television company may not receive the management attention necessary to invest in the development of the system. 33. (cid:217)Independent cable network operators, by contrast, do not face the investment disadvantage which the joint owner has. Upgrading an existing cable network to provide bi(cid:220)directional capacity costs less than building a new telecommunications network from scratch. However, the revenue benefits for the television provider are pure independent cable benefits and do not from other activities as is the case with the joint owner. Indeed, the development of telecommunications services is likely to attract entirely new customers to the inde(cid:220) pendent cable television provider, and not customers transferring from another business. take revenue C 71/10 EN Official Journal of the European Communities 7. 3. 98 the (primarily 34. (cid:217)Joint ownership also has a profound effect on both infrastructure and service competition. This effect takes place in several ways. First, the joint ownership does not give competitors to the dominant operator an alternative access to the local loop. This has proved vital in the development of competition in telecommunications in the UK, where the arrival of the cable companies led to the reduction in the dominant operator’s market share far quicker than the previous service competitor Mercury) challenger to BT had done. To maintain joint ownership will deny consumers in other markets the access to alternative service providers for broadband multimedia services. Second, the absence of local loop competition means that long distance competition curtailed. Long distance operators can operate by taking traffic from the incumbent directly through the local loop. However, long distance competition has been far stronger when customers can be found from other challengers to the dominant operator at a local level. Again, experience in the UK demonstrates that this is the case. Thirdly, joint owenrship can prevent or delay the introduction of broadband interactive services. According to the analysis undertaken, joint owners appear to be reluctant to link the broadband cable network with the PSTN network in order to interactivity for the development of provide true interactive services, such as high speed Internet access. Finally, service providers face problems if there is not a choice of infrastructure providers over which to offer their services because of the reliance on a single provider. incumbent’s also is pro(cid:220)competitive effects of liberalisation, as Europe moves into the multi(cid:220)media age(cid:216)(˛ˇ). 3. 2. (cid:217)Impact of restrictions to provide cable TV trans(cid:220) mission capacity to that ensure is no 37. (cid:217)Restrictions on telecoms companies to provide cable TV the transmission capacity may discourage building of broadband networks in other ways. The Cable Directive ensures that all cable TV networks are free to provide all liberalised telecommunications corresponding there services. However, provision telecommunications operators are allowed to offer cable TV capacity over their public telecommunications networks. The ability of telecommunications operators to develop further their public telecommunications networks in this respect may depend on national regulations. Even in cases of joint ownership where telecom(cid:220) munications companies do make available cable TV capacity, this can lead to restrictions on technical progress, given that new technologies for upgrading telecommunications networks exist and also given the far higher penetration of telecommunications networks compared with cable TV networks in most Member States. 35. (cid:217)Service operator innovation telecommunications joint is also hindered by from ownership. Experience of cable operators several Member States indicates that when those operators wish to develop innovative services the often dominant restricts the development of the innovative services. This restriction arises because of the cable operators’ dependence for many elements on the dominant tele(cid:220) communications operator. Even if they are willing to develop the services, the costs which it wishes to impose on the other cable operators will often make the venture non(cid:220)viable for those companies. Where the dominant telecommunications operator is a joint owner of the cable operator, its role in the devel(cid:220) opment of new services is even more important for the success of the venture. Without the involvement of the joint owner, the critical mass is not available to kick start the new services. 38. (cid:217)The technology underpinning the different types of telecommunications networks is steadily converging. For telecommunications networks, technologies such as ADSL(cid:216)(˛—) are providing an opportunity for tele(cid:220) communications networks to carry broadcast signals. Combined with compression techniques, telecom(cid:220) munications operators will be able to transmit high bandwidth signals down the existing copper pair telephone line. This could amount to between one and six television channels. This will enable telecom(cid:220) munications companies to contemplate competing with cable companies, for the provision of television channels and, more likely by offering video on demand services which would compete with cable television companies pay per view services, as well as high(cid:220)speed Internet access. 36. (cid:217)The result is that joint ownership of telecommuni(cid:220) cations and cable networks situation of dominance is likely to be the single most important factor holding back market development and the in a (˛ˇ)(cid:217)Currently the public Telecommunications Organisations have a strong cable presence in ten Member States: they plan such presence in two Member States: they are not present at this stage in three Member States. (˛—)(cid:217)Asymmetrical Digital Subscriber Line. For details see Arthur D. Little study (footnote 5). 7. 3. 98 EN Official Journal of the European Communities C 71/11 39. (cid:217)The removal of such restrictions in the context of telecommuni(cid:220) the for by the European therefore called the liberalisation of cations sector was European Parliament(cid:216)(˛(cid:209)). 4. (cid:217)MEMBER STATE REGULATION 40. (cid:217)Member States are now in the process of completing the implementation of the Directive 96/19/EC with a view to introducing full competition by 1 January 1998(cid:216)(˛(cid:210)). Except in one member state, national legis(cid:220) lation aiming at the abolition of special and exclusive framework contains no this rights adopted measures to address the issue of joint ownership. in 41. (cid:217)Different levels of regulation continue to be applied to cable network operators. Most Member States give licences to cable TV operators at a local level, often under exclusive or special rights. The possi(cid:220) bility for owning infrastructure also varies from country to country as do the restrictions on the ability for the dominant operators to provide cable TV services over telecommunications networks. 42. (cid:217)Although one member state imposes limitations which affect the size of the shareholding which the telecommunications operator can hold in cable TV company authorised as a telecoms network operator, the joint provision of telecommunications and cable TV networks by a single operator remains permitted in all Member States(cid:216)(˛(cid:211)). A number of Member States rely on general competition law to regulate the actions of the joint provider. (˛(cid:209))(cid:217)EP Resolution of 15 JUne 1995 (OJ C 166, 3. 7. 1995, p. 109) and EP Resolution of 19 May 1995 (OJ C 151, 19. 6. 1995, p. 479). (˛(cid:210))(cid:217)Communication to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on the implementation of the telecommuni(cid:220) cations regulatory package: first update (COM(97) 504). (˛(cid:211))(cid:217)In Spain the dominant operator Telef(cid:246)nica is required to wait before beginning as a cable TV network provider in a new franchise area. This restriction lasts between 16 months and two years. IN the UK, BT, the dominant operator. Mercury and Kingston Communications can operate cable TV networks if they obtain a franchise. However, they have to be run separately from the main telecommunications business. In a number of other Member States no explicit restrictions are foreseen but the situation is undefined. It can be expected that problems will arise as the new technologies are applied. According to the reports, the Commission considers that the situation in ten Member States falls into this category. 43. (cid:217)As regards the provision of cable TV capacity over telecommunications networks, two Member States have imposed explicit restrictions on their telecom(cid:220) munications organisations. Other Member States have no national restrictions, but the telecommuni(cid:220) cations operator still does not carry cable TV capacity for a variety of reasons connected with the local regulatory environment. In the longer term, the restrictions, mentioned in the first sentence, prevent telecommunications companies from offering cable TV capacity, which is likely to restrict infrastructure competition and multimedia and therefore means that the development of telecommunications and multimedia markets in the EU will proceed in a sub(cid:220)optimal manner(cid:216)(˛(cid:212)). These restrictions therefore should not be regarded as a permanent fixture and should be lifted according to a given and transparent timescale across the EU as effective competition develops in the local loop. That timescale should be capable of some flexibility, to take account of national circumstances. in its 44. (cid:217)The finding therefore is that, as market development infancy as regards the carriage of telecommunications largely is is still television capacity via public networks, undefined. regulatory situation the 45. (cid:217)The restraints on further development of cable TV capacity through the development of new techno(cid:220) logies, either by further development of the public telecommunications networks (e. g. via ADSL) or the allocation of new for new broadband licences wireless technologies could become a major brake on market development towards multi(cid:220)media in the near future. 5. (cid:217)ASSESSMENT AND ACTION UNDER COMPETITION RULES comply with 46. (cid:217)The Treaty, and in particular its Article 90, entrusts the Commission with the task of ensuring that Member States, in the case of public undertakings special or exclusive and undertakings enjoying under rights, Community the law. Under Article Commission can, on the one hand, specify and clarify the obligations arising from this Article, and, on the other hand, set out obligations for the Member States which are necessary to allow the Commission the duty of to perform effectively surveillance imposed upon it by that paragraph. their obligations 90(3) (˛(cid:212))(cid:217)This is reflected in the UK, where the restrictions on BT and the other PTO’s are time limited. C 71/12 EN Official Journal of the European Communities 7. 3. 98 47. (cid:217)The Commission must in particular ensure that, even while abolishing these rights, Member States shall not enforce measures which would not allow the dominant position of telecommunications organi(cid:220) sations being challenged by competition once the liberalisation of voice telephony takes place, making it thus possible for these telecommunications organi(cid:220) sations to maintain their dominant position in voice telephony and public telecommunications network markets and thereby strengthening the dominant position of the incumbent operator. 5. 1. (cid:217)Horizontal action 5. 1. 1. (cid:217)Joint Ownership 48. (cid:217)As regards joint ownership, Directive 95/51/EC ("the Cable Directive’) has established the principle of accounting separation and has indicated a pref(cid:220) erence for structural separation, i. e. operation of telecommunications and cable TV networks by those operators in clearly distinct legal entities(cid:216)(˛(cid:213)). 49. (cid:217)Article 2 of the Directive requires that Member States: -(cid:217)ensure accounting transparency and prevent discriminatory behaviour, where a telecommuni(cid:220) to cations operator with an exclusive right provide network infrastructure also provides cable TV network infrastructure, telecommunications public -(cid:217)ensure that an operator with an exclusive right to provide cable TV network infrastructure in a given area in a Member State keeps separate financial accounts regarding its activity as a tele(cid:220) communications network capacity provider when its turnover exceeds a certain level. 50. (cid:217)While the Cable Directive impact of such left the decision on accounting separation versus a full(cid:220)scale structural separation to the Member States, it also stated that joint the current review of the provision in relation to the aims of the Directive would be made. The Directive stated the Commission would reconsider "whether the sepa(cid:220) ration of accounts is sufficient to avoid improper practices’ and would joint provision does not result limitation of the potential supply of transmission capacity at the expense of the services providers in the relevant area, or whether further measures are warranted’ (recital 20), where in the meantime no competing home delivery systems were authorised by the relevant Member States. "assess whether such in a that 51. (cid:217)Even the though under Directive 96/19/EC, majority of the Member States have the legal obli(cid:220) gation to abolish exclusive or special rights by 1 January 1998 on telecomunications networks, in none of them will effective competition in the local loop be established at a national level before a substantial transition period. As regards the joint ownership cable networks, only a few Member States have estab(cid:220) lished structural separation(cid:216)(˛(cid:214)). telecommunications and of -(cid:217)ensure the separation of financial accounts as concerns the provision of each network and the as activity telecommunications provider of telecommunications services, and operator’s 52. (cid:217)While accounting separation and implementation of can help cost allocation methods appropriate (˛(cid:213))(cid:217)The Cable Directive stipulates in its recital 18 in particular: "Where Member States grant to the same undertaking the right to establish both cable TV and telecommunications networks, they put the undertaking in a situation whereby it has no incentive to attract users to the network best suited to the provision of the relevant service, as long as it has spare capacity on the other network. In that case, the undertaking has, on the contrary, an interest for over(cid:220) charging for use of the the Cable provision of non(cid:220)reserved services, in order to increase the traffic on their telecommunications networks. (cid:216). (cid:216). To allow the monitoring of any improper behaviour, Member States should therefore at impose a clear separation of financial records between the two activities, though full structural separation is preferable. ’ infrastructure for least (˛(cid:214))(cid:217)E. g. the Netherlands have taken a number of steps to ensure a limitation of cross(cid:220)ownership by the incumbent telecommunications organisation over both telecommuni(cid:220) cations and cable TV infrastructure as well as to introduce a form of structural separation between those two activities: inter alia, specific obligations were developed to ensure that there would be no influence by the incumbent telecom(cid:220) munications organisation on the commercial behaviour of the cable TV operator and specific Chinese Walls needed to be put in place in order to ensure that there would be no direct or sensitive information between telecommunications organisation and the cable TV operator. In Germany, Deutsche Telekom have recently announced that their cable TV networks will be put into a separate company from the core telecommunications business. indirect exchange of commercially incumbent the 7. 3. 98 EN Official Journal of the European Communities C 71/13 in verifying and avoiding a number of possibly abusive practices by the dominant undertaking, the beneficial effects of such rules remain largely limited to princing practices. However, as was anticipated in the Cable Directive the position of the dominant undertaking may also give rise to more fundamental concerns which go back to the essential "conflict of interest’ which is inherent in that position due to the control over both the telecommunications and cable TV infrastructure. 53. (cid:217)The mere separation of accounts will only render financial flows more transparent, whereas legal sepa(cid:220) ration will lead to more transparency of assets and costs and will facilitate monitoring of the profit(cid:220) ability and the management of the cable network operations. The provision of telecommunications networks and cable TV networks are related activities. Therefore the position of an operator on one of these markets has an impact on its position on the other, and the supervision of its activities on these markets is more difficult. 54. (cid:217)Also, the future financial prospects of a cable TV network which has not yet been built are uncertain for a company that is not yet already established on the telecommunications or pay TV services markets. Therefore, it is essential that a dominant telecom(cid:220) munications organisation organises its own cable TV network activities in a way that can be monitored in order to exclude that it uses its resources to abuse its position, for example so that it does not discriminate against new entrant cable TV networks for intercon(cid:220) nection rates for telephony as opposed to the rates for its own cable TV network. large potential for abusive conduct and foreclosure effects exists. Accounting separation is an insufficient measure in this context. technological progress 56. (cid:217)The review of the Commission therefore considers it necessary, as a minimum measure, that legal sepa(cid:220) ration is implemented. In order to be able to ensure to monitor rapid effectively behaviour which could be abusive, it therefore will submit an amendment to Directive 90/388/EC which will establish this requirement to enable fully competitive structures in the telecom(cid:220) munications and cable TV network markets. and 57. (cid:217)In addition, Member States might have to take specific action to avoid that in the local telephony markets the operator of both networks is the only infrastructure provider for its competitors(cid:216)(ˇ˝) taking into account the relevant local telephony markets where duplication of infrastructure is slow and expensive. specific circumstances of the 5. 1. 2. (cid:217)Restriction on the provision of cable TV capacity the public telecommunications 58. (cid:217)The restriction on telecommunications operators to provide cable TV capacity over their public telecom(cid:220) munications networks can lead to a situation where providers of cable TV services are prevented from using network capacity of the telecommunications organisation for cable TV services. The exclusion of the use of the public the scarcity of cable TV transmission available capacity. The restrictions on the available capacity have particularly severe effects on providers of cable TV from other Member States as the allocation of capacity available on cable networks is based on the media laws of the Member States which usually give or have given preference to national providers. telecommunications network increases implies that changes 55. (cid:217)In applying the competition rules to specific facts it is essential to take due account of the legal and economic context. This in market circumstances, such as technological or other developments have a direct impact on the analysis under competition law. At the eve of convergence and the emergence of new multi(cid:220)media markets, cross(cid:220)ownership between telecommunications and cable networks has a much higher potential impact as regards market power and potential of abuse. The commercial conduct of the enterprises concerned will therefore require an increased scrutiny since a (ˇ˝)(cid:217)The measure to be taken in respect of specific cases could include the splitting(cid:220)up of the entity operating cable TV networks into several regional entities, the opening of the cable operator to a participation of third parties, or the requirement to fully sell(cid:220)off this entity. For example, a requirement to sell(cid:220)off wholly or partly its ownership in the entity or entities operating cable TV networks could be implemented through the appointment of a trustee with an irrevocable mandate to sell the entity and to set up a management structure for the time period required to implement a divestiture. C 71/14 EN Official Journal of the European Communities 7. 3. 98 59. (cid:217)The measures restricting the use of telecommuni(cid:220) cations networks for the provision of cable television capacity could therefore be in breach of Article 90, in conjunction with Article 59 of the Treaty. Even in cases where restrictions apply without distinction to all companies other than the relevant cable TV network operators, Article 59 might be applicable. It is not necessary for all the companies of a Member in relation to the foreign State to be favoured the preferential companies. It treatment national benefit operators(cid:216)(ˇ˛) if these measures prevent telecommuni(cid:220) cations organisations from upgrading their telecom(cid:220) munications networks to full multimedia capabilities they could also be in conjunction with Article 86(b) of the Treaty. in breach of Article 90, is sufficient certain should that technologies, cable TV capacity, in particular for new market developments and the commercial provision of new broadband transmission capacity is future, wireless of utmost importance. technically broadband applications will become feasible and commercially viable. the In 63. (cid:217)According to to grant the Full Competition Directive (96/19/EC) Member States have an obligation not such wireless to refuse broadband necessary frequencies are available. Given the importance of this issue, the Commission will monitor closely the granting of radio frequency licences by Member States and will take action if necessary. applications where licences the for 60. (cid:217)Even though these measures services, limited the techno(cid:220) logical development of the networks and impede cross(cid:220)frontier provision of temporary restrictions in this area may be justifiable by the requirement to ensure effective competition between operators competing in the relevant markets, as long as there is no effective competition in the local loop. This could be particularly important in geographic areas where cable networks have not yet been fully rolled out. 61. (cid:217)In conclusion, as only two Member States currently maintain explicit restrictions, the adoption of a hori(cid:220) zontal measure at this stage may not be justified. However, the situation in at least ten Member States seems undefined and barriers to the future devel(cid:220) opment of the convergent multi(cid:220)media markets may emerge very rapidly. For example, in Belgium, the telecommunications operator is planning to invest heavily in ADSL technology to offer high speed Internet connections to customers in response to the introduction of cable modems by the cable TV networks. Accordingly, the Commission will keep the situation under review, in particular in respect of possible impediments of the development of the EU multi(cid:220)media markets introduction of broadband Internet services). (such as 5. 1. 3. (cid:217)Allocation of local loop frequencies for broadband wireless It Member States were to delay the grant of licences for such applications for reasons other than the non(cid:220)availability of radio frequencies these delays could therefore be incompatible with the Treaty. 64. (cid:217)The current restrictions on the allocation of radio frequencies can act as a measure equivalent to the restriction of the provision of cable TV capacity particularly for new innovative services. Therefore, it importance that Member States is of paramount fulfil their obligations with regard to the allocation of new licences, particularly where new techno(cid:220) logical opportunities allow this. In the near future, wireless broadband cable TV network could become such an alternative. 5. 1. 4. (cid:217)Summary 65. (cid:217)The Commission will bring forward a measure to structurally separate jointly owned dominant tele(cid:220) communications operators and cable TV companies. In addition, it will keep under review the restrictions on the provision of cable TV capacity over telecom(cid:220) munications networks and the allocation of licences of radio frequencies for the broadband local loop with a view to taking action should it be justified. 62. (cid:217)In the light of the effect of the restrictions in the allocation of radio frequencies on the overall of 5. 2. (cid:217)Case specific actions (ˇ˛)(cid:217)ECJ judgment Mediawet I, 25. 7. 1991, ECR Vol I(cid:220)4069, paragraph 14 onwards, especially paragraph 25. 66. (cid:217)The horizontal approach outlined above will only suffice as a minimum application of the competition 7. 3. 98 EN Official Journal of the European Communities C 71/15 of telecommunications Individual action, addressed rules of the EU to the issues raised by the joint cable ownership television. the Member States(cid:216)(ˇˇ) or to undertakings concerned(cid:216)(ˇ—) the optimum to ensure will be necessary conditions for the development of telecommuni(cid:220) cations and multimedia take place. that and to The Commission will need to examine individual cases on their own merits as they arise. 67. (cid:217)Article 86 applies to individual undertakings which hold a dominant position. In this sector it should be applied a fortiori to an undertaking which is the owner of both a telecommunications and a cable network, in particular when it is dominant on both markets. Where companies enjoy a dominant position on two markets, they must take particular care not to allow their conduct to impair genuine undistorted that dominance cannot be leveraged into neighbouring markets, impede the emergence of new services or strengthen their dominance through acquisitions or co(cid:220)operative or vertically. competition. horizontally particular, ventures either In unlawful extension of a dominant position by taking into account existing case law and the evolution of market circumstances and regulatory frameworks. 70. (cid:217)The Commission’s options for action under Article 86 include the opening of own initiative cases or action upon the receipt of a complaint. In addition, under Article 85, and more specifically Regulation 17/62, and the Merger Regulation, there is the possibility of the Commission receiving a notification of an operation. The Commission will assess such a notification in the light of the facts underlying the case. It can be expected that an extension of an operator dominant in both telecommunications and cable television networks into related fields could raise serious competition concerns. 71. (cid:217)In summary, as regards case(cid:220)specific action: The Commission will have to examine, either at its own initiative or in the light of a notification or complaint, the in Member States and take action under the relevant instruments of competition law. individual situations pertaining Within the framework set out in this communication, certain common approaches can be identified, within the context of the existing case law under Articles 86 and 90. 6. (cid:217)CONCLUSION 68. (cid:217)In certain circumstances it might be that the only means which would allow the creation of a competitive environment consist in the divestment of the cable television network by the telecommuni(cid:220) cations operator. Other solutions may also be explored depending on the precise circumstances of the case(cid:216)(ˇ(cid:209)). 69. (cid:217)Under Article 90 in conjunction with Article 86, the Commission may, if any abuse of dominance occurs as a direct consequence of a state measure, in addition to the horizontal approach set out in 5. 1, take individual action to prevent abuses such as the reuglation’ 72. (cid:217)This Communication has not addressed media and content issues. The Commission has published on these more general issues ae "Green Paper on the convergence of the telecommunications, media and information technology sectors, and the implications ("Convergence Green Paper’(cid:216)(ˇ(cid:210)). for From view, convergence must build on the development of a broad base of pro(cid:220)competitive infrastructures of tele(cid:220) communications and cable TV networks. Therefore this review is central to the success of convergence in building pro(cid:220)competitive structures, and comple(cid:220) mentary to the "Convergence Green Paper’. competition policy point of a 73. (cid:217)The Commission recognises that there is a diversity of market structures across the EU and that tailored solutions must be produced which are appropriate to individual circumstances. (ˇˇ)(cid:217)Through further action deriving from Article 90. (ˇ—)(cid:217)Through further action under Article 86 or Article 85 or the Merger Regulation. (ˇ(cid:209))(cid:217)See in particular, section I of the Coudert study. (ˇ(cid:210))(cid:217)See point 6. C 71/16 EN Official Journal of the European Communities 7. 3. 98 74. (cid:217)One minimal general principle, however, can - and should - now be applied across the EU. This is that investments in multimedia by dominant operators have to be assessed against the background of the market structures in place. The assessment of any attempts by dominant telecommunications operators to expand into new multimedia areas will depend on the introduction of the necessary structural changes or other adequate safeguards. 75. (cid:217)The for moving starting positions the convergent markets must be in conformity with the competition rules. Convergence must not lead to the new multi(cid:220)media creation of growth(cid:220)oriented, job(cid:220)rich new economic structures. super(cid:220)monopolies, but into to the Review has shown that the current accounting separation is clearly insufficient in those cases. could for reducing positions. Action 78. (cid:217)Further, the Commission intends to act within the scope of Article 86, or of Article 85 and the Merger Regulation on a case by case basis, where appro(cid:220) priate, the anti(cid:220)competitive further inherited from previous effects of joint provision the be market Commission’s own initiative, or as the result of a complaint based on Article 86 by an affected third party. In addition, the Commission will act as a result of notifications by a dominant telecommuni(cid:220) company of an cations and expansion into new multimedia areas, by imposing effective further safeguards where necessary. This will be in the application of either Articles 85 and 86 or the Merger Regulation, as cases require. changes or other structural television cable at 76. (cid:217)The joint provision of telecommunications and cable TV networks by a single operator, which has been inherited from monopoly provisions in the past, creates an asymmetric starting position for dominant telecommunications operators as compared to new entrants as the various different multi(cid:220)media markets converge. First, it will act as a significant constraint on the optimal development of these markets. It will clearly have the effect of reducing competition in telecommunications markets as new entrants will be unable to access the local loop independently of the dominant operator. Second, it creates at least an incentive and a strong likelihood that the dual dominant operator will act in a manner which will the development of stifle multimedia markets in the European Union. innovation and delay and networks in separate 77. (cid:217)The Commission therefore will act in two ways. First, it will submit an Article 90 Directive amending Directives 90/388/EEC and 95/51/EC requiring legal separation of the cable television companies from telecommunications companies, i. e. operating telecommunications cable TV in particular networks where special or exclusive rights have been allocated for cable operations. This will increase transparency of assets and costs and create a "walling off’ effect between the two operations. Most importantly, it will allow regulators and the competition authorities to supervise the operations of cable TV networks in their own right. This separation will be the minimum step that the Commission intends to take, given that legal entities, 79. (cid:217)As regards restrictions on telecommunications operators to provide cable TV capacity over their the Com(cid:220) telecommunications networks, public mission will keep the situation under review, in particular in respect of possible impediments to the development of EU multi(cid:220)media markets. 80. (cid:217)As far as the allocation of radio frequencies is concerned, the Commission will also keep under review the obligations in Member States contained in the Full Competition Directive (96/19/EC) to grant licences for radio frequencies on a non(cid:220)discrimi(cid:220) natory basis. The Commission will monitor this process closely in the Member States and will take action if necessary. 81. (cid:217)Where the Commission intends to adopt horizontal measures based on Article 90 (Amendment to the existing Article 90 Directives), in accordance with the conclusions drawn in Chapter 5, it will follow transparent procedures of consultation. It will, in particular, submit such amendments to the European Parliament, the Council of Ministers, the Social and Economic Committee, and the Committee of Regions, as well as publish them in the Official 7. 3. 98 EN Official Journal of the European Communities C 71/17 Journal two(cid:220)month consultation period. the European Communities of for a 82. (cid:217)The approach set out in this Communication will telecommunications and in the benefit of consumers, by promote competition multimedia, for providing the opportunity for admitting new entrants and encouraging competition in the local loop, with the development of innovative new services for European consumers, and the possibility of creating a strong European multimedia industry to compete effectively on world markets. ANNEX 1 OVERVIEW OF CABLE TV NETWORKS IN THE EU Total TV households (in millions) Total cable subcribers (in millions) Cable penetration (homes connected/TV homes) EU average 145,8 40,5 28(cid:216)% Estimations for 1997 based on projections. Please note that cable penetration varies from 0 to near 100(cid:216)% across Member States. ANNEX 2 Excerpt from "Cable review - Study on the competition implications in telecommunications and multi(cid:220)media Markets’ (Executive Summary), Arthur D. Little According to the scope of the study, the following options were considered. Options for joint ownership Broadly, the options concerning joint ownership fall into four categories: -(cid:217)maintaining joint ownership, -(cid:217)partial joint ownership, -(cid:217)divestiture of the cable TV operation, -(cid:217)transition from joint ownership to divestiture. C 71/18 EN Official Journal of the European Communities 7. 3. 98 In the first category, six options were examined. They impose different degrees of restrictions on the joint owner; the impact on the development of infrastructure and services increases with transparency of and separation within the joint owner’s group of companies. The second category, partial joint ownership, covers increasing separation of the cable TV company from the joint owner, as additional shareholders take bigger shares. The higher their share, the higher the impact on accelerated development of infrastructure and services in the Member States. Divestiture of the joint owner’s cable TV network, the third category, has a high impact on infrastructure and service development, leading to greater capacity increase, greater accessibility of residential customers and availability of services, high innovation and the ability of other service providers to offer their services over different infrastructures. Implementing this option will offer a sound basis for development of tele(cid:220) communication and multimedia markets in line with the European Union’s objectives. In the fourth category, two options mentioned by many interviewees for the period between joint ownership and partial and/or full divestiture: introducing an independent trustee and structural separation were looked at. These options can be combined. In the Netherlands, for example, KPN has not only to separate its cable operations legally from the telecommunications operations but also to set up separate management and an independent trustee. The regulator enforced these steps to initiate a partial divestiture of KPN’s cable operations, moving it towards an eventual minority share of less than 25 per cent. The other options described above can also be part of an overall transition from joint ownership. The figure below summaries the results of the examination of ten main options within the four categories described. Impact on infrastructure Impact on services Options for ownership Capacity upgrade Accessibility to residential customers Cost performance improvement Availability of products and services Increasing choice of service providers Innovation rate for new services and applications Comments 1. (cid:217)Maintain joint owner(cid:220) other ship without change A A A A A A -(cid:217)No cable upgrade -(cid:217)Less innovation in service provision -(cid:217)Slow down of content service development -(cid:217)No short or medium(cid:220)term infrastructure competition -(cid:217)Strong regulator needed -(cid:217)Influence on cable upgrade to remain competitive -(cid:217)Increasing availability of pro(cid:220) ducts and services because of rising competition 2. (cid:217)Maintain joint owner(cid:220) develop(cid:220) towards digital ship/DTH ment multichannel services A A A a a A 7. 3. 98 EN Official Journal of the European Communities C 71/19 Impact on infrastructure Impact on services Options for ownership Capacity upgrade Accessibility to residential customers Cost performance improvement Availability of products and services Increasing choice of service providers Innovation rate for new services and applications Comments -(cid:217)Rising number of service providers in the market -(cid:217)No impact on upgrade to bi(cid:220)directional services -(cid:217)Extended content service com(cid:220) petition A a A a a A -(cid:217)Strong regulator required 3. (cid:217)Maintain joint owner(cid:220) ship establish but ONP on joint owner’s cable network 4. (cid:217)Maintain joint owner(cid:220) ship but open up spec(cid:220) trum for wireless local loop (narrowband) a a A A a a 5. (cid:217)Legal separation (creation of 100(cid:216)% subsidiary) A A a a a A 6. (cid:217)Legal separation and separ(cid:220) management ation A a a a a a a A -(cid:217)Cable upgrade requirements between countries vary investment strongly -(cid:217)Potentially medium(cid:220)term infra(cid:220) structure competition -(cid:217)Potential devaluation of cable -(cid:217)Joint owner forced to upgrade cable to remain competitive -(cid:217)Increase of development content(cid:220)service -(cid:217)Digital, two(cid:220)way broadband technology not yet available at competitive price, wide(cid:220) spread rollout not realistic in near future -(cid:217)Minimum condition for effec(cid:220) tive surveillance of competi(cid:220) tive behaviour -(cid:217)Transparency of assets and costs -(cid:217)Clear allocation of profit/loss -(cid:217)Allows shareholders and regu(cid:220) lators to see profitability of cable TV -(cid:217)As point 5 -(cid:217)Separate management needs to present achievements to shareholders and public -(cid:217)Motivation for management to increase number of services and network performance C 71/20 EN Official Journal of the European Communities 7. 3. 98 Impact on infrastructure Impact on services Options for ownership Capacity upgrade Accessibility to residential customers Cost performance improvement Availability of products and services Increasing choice of service providers Innovation rate for new services and applications Comments -(cid:217)Financial and management details still have to be revealed to parent company 7. (cid:217)Partial joint ownership 7. 1. (cid:217)Incumbent owns r 50(cid:216)% a a a a a a a a a a -(cid:217)All of points 5 and 6 -(cid:217)Majority of shares allows joint owner to make man(cid:220) agement decisions and there(cid:220) fore avoid competition be(cid:220) tween the two infrastructures -(cid:217)Specific contract with other shareholders may impact development of infrastructure and services 7. 2. (cid:217)Incumbent owns q 50(cid:216)% a a a a a a a a a a a a a a a 7. 3. (cid:217)Incumbent owns q 25(cid:216)% a a a a a a a a a a a a a a a a a -(cid:217)Cable upgrade according to business case achievable -(cid:217)Higher possibility for ad(cid:220) ditional service providers next to joint owner -(cid:217)Financial and management decisions have to be revealed to parent company -(cid:217)Blocking vote of joint owner competitive against major action, i. e. in POTS -(cid:217)Since joint owner does not have "blocking’ minority vote, a full service competitor can be established by management according to business case -(cid:217)Joint owner can keep link to the cable TV network provision of cable TV services for 7. 3. 98 EN Official Journal of the European Communities C 71/21 Impact on infrastructure Impact on services Options for ownership Capacity upgrade Accessibility to residential customers Cost performance improvement Availability of products and services Increasing choice of service providers Innovation rate for new services and applications Comments 8. (cid:217)No joint ownership a a a a a a a a a a a a a a a a a a -(cid:217)Service and infrastructure com(cid:220) Additional options for transitional periods 9. (cid:217)Independent trustee A a a a a a a a A 10. (cid:217)Separation of network and services (creation of subsidi(cid:220) aries for joint owner) separate a a a a a a a petition -(cid:217)Increased accessibility of resi(cid:220) dential customers -(cid:217)Full upgrade of cable TV network -(cid:217)Technology improvement usa(cid:220) ble as competitive advantage(cid:220) continuous network operator -(cid:217)Increasing choice of service providers, similar services, because of additional capacity and competing infra(cid:220) structures even of -(cid:217)Independent trustee is able to optimise cost/performance of networks -(cid:217)Independent trustee likely to receive funds for network upgrade is -(cid:217)In The Netherlands the trustee option is used during the transition to partial di(cid:220) vestiture -(cid:217)Very limited network upgrade owing to risk aversion of network owner (cannot par(cid:220) ticipate in upside) -(cid:217)Price increase since network operation has to be profitable stand alone -(cid:217)Strong regulator needed control increasing prices to -(cid:217)If service providers are al(cid:220) in network invest lowed to upgrade, "shared ownership is created’. A No impact(cid:218)(cid:218)a Low impact(cid:218)(cid:218)a a Medium impact(cid:218)(cid:218)a a a High impact C 71/22 EN Official Journal of the European Communities 7. 3. 98 Restrictions on the provision of cable TV capacity Three policy options for the provision of cable TV capacity can be considered: -(cid:217)Maintaining the status quo -(cid:217)Lifting restrictions on specific PTOs and/or giving dominant PTOs rights to provide cable TV capacity over telecommunications infrastructure -(cid:217)Lifting restrictions on licences for cable TV infrastructure. As shown in the figure, lifting restrictions that apply specifically to PTOs and giving them rights to provide cable TV capacity over their existing networks would have limited impact on the market, but lifting the general restrictions on licence availability for cable TV infrastructure would have a major impact on the long term development of broadband multi(cid:220)media markets. Impact on infrastructure Impact on services Options for lifting restrictions on the provision of cable TV capacity Capacity upgrade Accessibility to residential customers Cost performance improvement Availability of products and services Increasing choice of service providers Innovation rate for new services and applications Comments 1. (cid:217)Maintain status quo a a A a A A 2. (cid:217)Lift restrictions on specific PTOs and/or give dominant PTOs rights to provide cable TV capacity via tele(cid:220) communications infra(cid:220) structure a a a a a a a a a -(cid:217)In seven Member States restrictions on new broadband infrastructure remain -(cid:217)Reduced opportunity for com(cid:220) in innovation petition and multi(cid:220)media services -(cid:217)Potentially impact as large removes legal uncertainty and explicit restrictions on PTOs -(cid:217)Potential competitive risk through enhanced position of dominant PTOs 3. (cid:217)Lift restrictions on li(cid:220) for cable TV cences infrastructure a a a a a a a a a a a a a a a a a -(cid:217)Lifts specific restrictions on PTOs where they exist (UK and Spain) -(cid:217)Removes asymmetry between cable and telecoms regulation -(cid:217)Potentially high impact on creation of new broadband networks and multi(cid:220)media services A No impact(cid:218)(cid:218)a Low impact(cid:218)(cid:218)a a Medium impact(cid:218)(cid:218)a a a High impact