Last week, the German regulatory authority (the Bundesnetzagentur or BNetzA) issued a consultation document with regard to a new analysis of Market 11, as well as a short document setting out future scenarios.

In the subsequently published BNetzA Amtsblatt (an official paper-only publication, to which T-REGS subscribes), and now also the BNetzA website, a formal consultation on proposed remedies has also been published.

This T-REGS news item provides a step-by-step overview of the actual content of BNetzA's 52-page main draft market analysis and SMP assessment document (available in German only and accessible by clicking here), BNetzA's 26-page draft decision on regulatory obligations ('remedies') as newly published by BNetzA for consultation (available in German only and accessible by clicking here) and BNetzA's separate (published earlier last week) 3-page document setting out a few questions on potential future scenarios (available in German only and accessible by clicking here). 

Market Definition

BnetzA proposes to define a nation-wide market for:

1. Unbundled/bundled access to local loops in the form of copper pairs at the Main Distribution Frame (MDF), or another point, which is located closer to the user (T-REGS Note: this could be a street cabinet or local building). Bundled access is only considered by BNetzA in those cases where unbundled access (i.e. naked copper) solutions "are not justified (technically or economically)";
2. Line sharing;
3. Unbundled/bundled access to the local loop on the basis of OPAL/ISIS (hybrid fibre/copper loops deployed to some extent, mainly in Eastern Germany) at the MDF, or another point which is located closer to the user. 

Three Criteria Test

BNetzA, in conducting its second analysis of Market 11, has (again) found high and non-transitory barriers to market entry, and BNetzA, in its current draft analysis, does not detect a tendency towards effective competition in the long term (T-REGS Note: the actual market share figures are blacked out in the public document). BNetzA also considers that the application of competition law alone would be insufficient to address issues that occur on the defined market. The regulatory authority foresees that "positive regulations" will have to be issued and that constant monitoring and frequent regulatory intervention will be required. It adds that "reactive measures are insufficient in this market", especially because their activation and effect is deemed to be too slow.

Market 11 is therefore proposed to be subject to further ex-ante regulatory intervention measures. 

Significant Market Power

The consultation document does not disclose specific market shares, but it can be clearly ascertained that Deutsche Telekom AG (DTAG) has a double digit market share, whereas the other operators jointly have a single digit market share in the markets for copper loops and hybrid (OPAL/ISIS) access networks. 

BNetzA considers that several players have sufficient access to capital markets or financial means to compete, but discards this criterion on account of DTAG's elevated market share. BNetzA also establishes that DTAG controls infrastructure which is difficult to duplicate, hereby underscoring that hurdles to market entry exist. DTAG's high degree of vertical integration also adds to the conclusion that the company has significant market power. The regulatory authority also states that it has barely detected competition on price and deems that there is a low degree of effective and potential competition, as well as a lack of countervailing buyer power. 

DTAG is therefore proposed to be declared as having significant market power on Market 11, as defined.  

Proposed 'traditional' remedies (confirming, but slightly amending, the 1st round Market 11 Analysis)

BNetzA indicates, in its new consultation document, that DTAG, as the operator that is proposed to be designated as having SMP, would be required to provide:

1. Fully unbundled access to the local loop, in the form of copper loops "at the MDF or a point closer to the network termination point " (e.g. street cabinet, end distributor - APL) as well as to shared access to the network termination point by means of the division of the usable frequency spectrum;

2. To the required extent, bundled access to the network termination point in the form of copper loops, including the variants OPAL/ISIS at the MDF;

3. For the purpose of 1 and 2 above, to grant collocation as well as, in the context of a request from either the requesting party or their mandated representative, access to these installations at any time;

4. In the context of the execution of the obligation as stipulated in 3 above, to allow possibilities for co-operation between the undertakings that have a right to access in such a way that such undertakings can connect with each other the collocation spaces they rent from the SMP undertaking and which are at the same MDF location, if an undertaking can guarantee one or several other undertakings the access to its self-provided or leased transmission pathways;

5. Contracts with regard to access according to 1-4 above must be objective, must grant equivalent access and must fulfill the imperatives of equal opportunity and fairness;

6. The fees for access according to 1-4 above are subject to approval of the regulatory authority BNetzA.

Proposed 'additional' remedies

BNetzA indicates, in its new consultation document, that DTAG, as the designated SMP operator, would, in addition, be required to provide: 

1. For the purpose of access to the network termination point, grant access to the cable conduits between the cable distributor (street cabinet or other local building) and the MDF, insofar the required empty space is available (T-REGS Note: This amounts to a specific duct access obligation, restricted to the specific context of access to street cabinet level, insofar this is technically possible);

2. In case that, for technical or capacity reasons it is not possible to grant access to the cable conduits, to allow access to unlit fibre strands (dark fibre) (T-REGS Note: This clearly indicates that dark fibre access is proposed to be a secondary obligation, in case duct access would be confirmed to be impossible);

3. Contracts with regard to access according to 1-2 above must be objective, and must grant equivalent access and must "fulfill the imperatives of equal opportunity and fairness";

4. The fees for access according to 1-2 above would be subject to approval of the regulatory authority BNetzA.

DTAG would also be required to publish a reference offer covering the points listed above.  

The Document Associated with the Market Analysis

The substantive documents are accompanied by a separate 3-page document (available in German only and accessible by clicking here). This document contains a set of questions pertaining to possible future scenarios. 

In this document, BNetzA is essentially addressing a few questions to market participants, with regard to their views and plans in a scenario in which copper loops would become shorter due to new investments by the incumbent operator DTAG in its network. In this scenario DSLAM or MSAN equipment is no longer (or would no longer be) installed in the Main Distribution Frame (MDF) locations, but closer to the network termination points, for example in street cabinets or local buildings, thereby shortening the local loop considerably. 

For those operators that would not wish or not be able to undertake the (considerable) investment to build/equip street cabinets with DSLAMs/MSANs, and that have, for example, already made considerable investments in installing DSLAMs in the DTAG MDFs and arranging backhaul, it could be/become necessary or useful to have access to not only the copper local loop (which would run from the network termination point up to the street cabinet and no longer to the MDF), but also to the infrastructure between the street cabinet and the (former) MDF. 

BNetzA indicates three possible options for DTAG competitors to gain access to the (shortened) local loop (essentially at street cabinet level): 

1. Competitors could invest in their own fibre backhaul (including the civil works and supporting infrastructure, such as ducts) up to street cabinet level;
2. Competitors could rent empty (DTAG) ducts leading to street cabinet level in order to reach these locations, and equip these with their own fibre and transmission equipment (T-REGS Note: the BNetzA press release contains a citation of Chairman Matthias Kurth indicating that use of ducts of third parties (i.e. others than DTAG) is a "theoretical possibility which is impracticable");
3. Competitors could lease dark fibre (in particular from DTAG) to street cabinet level. 

T-REGS Notes: No mention is made, either in the substantive 26-page draft decision on regulatory obligations ('remedies'), or in the 3-page consultation paper, of access to street cabinets, sharing of street cabinets, or sharing of active equipment inside street cabinets as such. 

The German regulatory authority suggests in its 3-page separate document that, in the absence of additional investments in network build-out by alternative operators, bitstream access (Market 12 of the EC Recommendation on Relevant Markets) may offer a solution in order to ensure competitor local loop access in the future. BNetzA openly raises the question as to whether it would be possible to enable (or mandate) bitstream access at MDF level (which would presumably encompass access to a network node aggregating the traffic from multiple DSLAMs/MSANs located in street cabinets, since DSLAM/MSAN card sharing is not mentioned). Such bitstream access would consist of two parts: 

1. the network segment between the network termination point and the street cabinet (single end-user traffic); and
2. the network segment between the street cabinet and the MDF (consolidated end-user traffic). 

BNetzA confirms in this context that current German bitstream regulations do not comprise access at the street cabinet level. 

Interested parties are invited, until 5 May 2007, to respond to the consultation documents and to address the accompanying questions. 

For a discussion of this crucial development, please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .