A M T FÜ R K O M M U N IK A TIO N FÜ R STEN TU M LIEC H TEN STEIN Analysis of the market for physical access (M4) Wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location (Final version) Vaduz, June 2009 Kirchstrasse 10 | Postfach 684 | 9494 Vaduz | Liechtenstein | T +423 236 64 88 | F +423 236 64 89 | [email protected] | www.ak.llv.li 2/90 Table of contents 1 Introduction _________________________________________________________ 5 1.1 Legislative basis __________________________________________________ 5 1.2 Market analysis process____________________________________________ 6 1.3 National consultation______________________________________________ 6 1.4 EEA-wide consultation _____________________________________________ 7 1.5 Fundamental considerations regarding market analysis___________________ 8 1.6 Composition of the market analysis __________________________________ 9 1.7 Time frame ______________________________________________________ 9 1.8 Sources of data___________________________________________________ 9 1.9 Competition authority ____________________________________________ 10 1.10 Designations used _______________________________________________ 10 2 The Liechtenstein market for physical access ______________________________ 12 2.1 On the notions of unbundling and physical access ______________________ 12 2.2 Developments regarding the infrastructure holder for electronic communication in Liechtenstein _________________________________________________ 13 2.3 Suppliers and demanders of physical access services ____________________ 15 2.4 Market development _____________________________________________ 16 2.5 Overview of the local access network ________________________________ 18 3 The market under investigation ________________________________________ 19 3.1 Preliminary remarks concerning market definition______________________ 19 3.2 Definition of the relevant product market_____________________________ 19 3.2.1 Recommendation on relevant markets as starting point _______________ 19 3.2.2 Fibre optic access networks (FTTH) ________________________________ 20 3.2.3 Cable television distribution networks (CATV) _______________________ 22 3.2.4 The relevant product market for the analysis at hand _________________ 25 3.3 Services and products ____________________________________________ 26 3/90 3.4 Definition of the geographically relevant market _______________________ 27 3.5 On the notion of self-supply________________________________________ 28 3.6 Relationship with other markets ____________________________________ 30 3.7 Description of the current regulatory situation_________________________ 33 4 Market power_______________________________________________________ 35 4.1 Undertakings with significant market power___________________________ 35 4.1.1 Single dominance ______________________________________________ 35 4.1.2 Collective market power (joint dominance) _________________________ 37 4.2 Market players and market shares __________________________________ 38 4.3 Maturity of the market ___________________________________________ 41 4.4 Vertical integration ______________________________________________ 42 4.5 Countervailing buying power _______________________________________ 43 4.6 Barriers to market entry and potential competition _____________________ 44 4.6.1 High sunk costs________________________________________________ 46 4.6.2 The natural monopoly in the access network ________________________ 47 4.6.3 Control over infrastructure not easily duplicated _____________________ 50 4.7 Incentives to behaviour that tends to restrict competition _______________ 50 4.8 Further indicators________________________________________________ 54 5 Overall evaluation ___________________________________________________ 56 5.1 Absence of effective competition ___________________________________ 56 5.2 Existing or potential problems of competition _________________________ 58 6 Regulatory instruments _______________________________________________ 61 6.1 Regulatory instruments under the KOMG _____________________________ 61 6.2 Principles for the application of regulatory instruments__________________ 61 6.2.1 Principle 1____________________________________________________ 63 6.2.2 Principle 2____________________________________________________ 63 6.2.3 Principle 3____________________________________________________ 64 6.2.4 Principle 4____________________________________________________ 65 4/90 7 Choice and assessment of regulatory options for the physical access market ____ 66 7.1 General remarks on the selection of regulatory options__________________ 66 7.2 Access_________________________________________________________ 67 7.3 Price __________________________________________________________ 68 7.3.1 Controls on charges and cost accounting for access ___________________ 68 7.3.2 Cost-oriented prices____________________________________________ 69 7.3.3 ECPR prices___________________________________________________ 70 7.3.4 Benchmarking_________________________________________________ 71 7.3.5 The obligation of non-discrimination_______________________________ 72 7.3.5.1 Price discrimination _______________________________________ 72 7.3.5.2 Discrimination in relation to quality ___________________________ 74 7.3.6 Accounting separation and the obligation of non-discrimination_________ 75 7.4 Proportionality of the measures ____________________________________ 77 7.5 Conclusion _____________________________________________________ 77 8 Operationalization of regulatory instruments for the market for physical access _ 79 8.1 Unbundled and shared access to the subscriber loop____________________ 79 8.2 Price controls ___________________________________________________ 81 8.2.1 Cost-oriented prices____________________________________________ 81 8.2.2 Monthly rental charges for copper loops by international comparison ____ 82 8.2.3 Provisional determination of access charges to copper local loops _______ 86 8.2.4 The access charges for CATV and fibre-optic access networks ___________ 88 8.3 Obligation of non-discrimination and the standard reference offer_________ 88 8.4 The obligation of transparency _____________________________________ 89 8.5 Accounting separation ____________________________________________ 90 5/90 1 Introduction 1.1 Legislative basis By virtue of Art. 20 of the Law concerning Electronic Communication (KomG)1 the Office for Communication is required to examine whether effective competition obtains upon the electronic communication markets in Liechtenstein. If effective competition does not exist, that is, one or more providers possesses significant market power, the Office will apply such “special regulatory measures” (under Art. 23 et seq. KomG) as are needed in order to remove the problems for competition that have been determined to exist. This procedure is termed market analysis. The Office for Communication has defined, and the Government has published in the Official Gazette,2 the scope of the service and/or product markets that are to be investigated in accordance with Art. 21(1) KomG. This was done taking into consideration the relevant markets recommended by the EFTA Surveillance Authority. The existence of significant market power – corresponding to a position of dominance in a market under general EEA competition law – has to be determined by taking into account in particular the criteria laid down in Art. 31 VKND.3 If the Office for Communication determines that one or more providers have significant market power in a defined market, the Office has the power to impose such measures of special regulation under Arts. 34 to 43 VKND as are necessary and proportionate and suited to remedy the problems for competition obtaining on the market in question. The following market analysis investigates in first place the question of whether self- sustaining competition exists in an economic sense in the market for “Wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location” (the physical access market) or, as the case may be, whether self-sustaining competition would prevail in an economic sense without regulation. Such factors and problems as may stand in the way of such self-sustaining competition will be identified. The presence of economic market power will be investigated in this connection; in particular the criteria of Art. 31 (1) to (3) VKND will be considered according to their relevance for the market in question. Proceeding from a determination of providers having significant market power and the identification of relevant problems for competition on the market for physical access, the necessary measures of special regulation will be imposed that are suited to remedying the problems for competition that have been determined. 1 Law of 17 March 2006 concerning electronic communication (Kommunikationsgesetz; KomG), LGBl. 2006 No. 91. 2 Announcement of 3 February 2009 on the determination of relevant material and geographical electronic communications markets (market definition), LGBl. 2009 No. 69. 3 Ordinance of 3 April 2007 on electronic communication networks and services (VKND), LGBl. 2007 No. 67. 6/90 1.2 Market analysis process The procedure for the market analysis and the imposition of measures of special regulation is made up of the following steps: 1 Collection and analysis of the necessary data on the market and from undertakings. 2 Definition of the relevant markets