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.

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
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

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

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

Proposed 'additional'

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
This amounts to a specific duct access obligation, restricted to the
specific context of access to street cabinet level, insofar this is technically

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
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

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

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
    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
  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

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 Alexa Veller or Yves Blondeel.