EU Calls on Slovenian Regulator to Review Fibre-Optic LLU Pricing Model

The EC has sent Slovenia's telecoms regulator APEK a letter in which it calls on the authority to review its broadband market analysis. Namely, the EC says that it disagrees with the APEK's proposal to impose different pricing regulations on the unbundling of fibre-optic local loops in the residential and business market segments, stressing that the regulator's earlier market definition did not differentiate between the two. Also, the EC advices the APEK to calculate the tariffs for fibre-optic local-loop unbundling (LLU) based on a cost model which draws on the watchdog's own experience in regulating markets and on outcomes of independent studies, rather than on data submitted by the local incumbent, Telekom Slovenije.

Outlook and Implications

• Distinction Between Residential and Business Loops: The letter relates to the APEK's initial market analysis, which it submitted to the EC's approval in August and which was commented by the latter in September (see Slovenia – Europe: 17 September 2009: European Commission Endorses Slovenia's FTTx Wholesale Regulation While Work on EU-Wide Approach Continues). Endorsed by the EC, the document in question proposed that Telekom Slovenije, as a significant market power (SMP), would be obliged to provide the alternative operators with wholesale access—in the form of LLU, as well as bitstream access (BSA)—to both its copper and fibre-optic networks. The reason for the EC's current concern is that, following its endorsement, APEK proceeded with a complementary proposal, which effectively allows different LLU pricing regulations upon the incumbent's fibre-optic accesses in the residential and business-client segments. As such, the problem does not seem to be the distinction itself, rather than the fact that the previously submitted market analysis did not support the taken approach. This basically means that the APEK must now submit further analysis to convince the EC that the competitive environment in the two sectors differs, or alternatively to apply a uniform LLU regulation; otherwise Slovenia will risk an infringement procedure by the EC.
• Setting a Basis for EU-Wide FTTx Wholesale Pricing Model: The theme is particularly interesting in the sense that, with fibre-to-the-home (FTTH) accesses accounting for over 10% of the market's total (see Slovenia: 25 May 2009: FTTH Accesses Account for 10.4% of Slovenian Broadband Market During 2008—Regulator), the Slovenian version of fibre-optic wholesale regulation will make a useful example for national regulators in other EU member states facing the same matter. This concerns especially the establishment of a functioning pricing model, since the EC wants to prevent a situation where regulators distort the EU-wide competition by applying incoherent models. In the case of the APEK, IHS Global Insight's understanding is that the calculation method relies somewhat strongly on the incumbent's own figures. The LLU access would be charged based on the costs occurred to the wholesale provider, with a risk premium for fibre-optic loops, whereas BSA would be priced according to a "retail-minus" mechanism, which would correspond to the incumbent's retail price minus a certain percentage to cover the retail costs. The EC's stance is that when occurred costs are priced in, the regulator should namely use independent data and avoid relying on those provided by the incumbent.