II-2.19: The Italian Telecommunications Regulator set access to fixed next generation networks.

a. Context: Regulatory path intended to promote investments

The Autorità per le garanzie nelle comunicazioni (or “AgCom” – the Italian Regulatory Authority for electronic communications) issued a decision on January 11, 2012, setting regulatory remedies for the access to fixed next generation networks (or “NGN”)[#_ftnref1" title="">[1]. Those remedies are imposed upon Telecom Italia – the Italian incumbent – being it the only operator with significant market power in the relevant markets[#_ftnref2">[2].

AgCom Decision No. 1/12/CONS is the final step of a regulatory process started by AgCom in 2007 to promote investments and competition in new technologies.

More precisely, AgCom has set up the digitalization of Italy as its “policy objective” since 2006[3], noting that Italy was traditionally lagging behind other EU Member States with respect to broadband services’ coverage. AgCom Chairman publicly and repeatedly remarked the negative impact of Italian wide-spread digital analphabetism on overall economic development[4]. The diffusion of next generation networks has been identified as a pre-condition for an increase of advanced services’ demand. With this aim in mind, the mentioned AgCom Decision No. 208/07/CONS started a public consultation on the future regulation applicable to next generation networks.

Pending that consultation and to stop more pervasive regulation, Telecom Italia offered some voluntary commitments leading to the so-called functional separation of its copper access network in order to comply with the principle of equality of access. As a condition of their approval, AgCom asked Telecom Italia to integrate its proposal with some commitments related to access to next generation networks. 

Telecom Italia agreed:

• to publish a reference offer subject to AgCom’s approval with regard to the so-called passive infrastructures (i.e., civil engineering infrastructures like ducts, trenches, etc.);
• whether access to passive infrastructures is not feasible, to provide access to its dark fiber (i.e., fiber not used by its customers);
• to publish a plan for co-investments with alternative operators aimed at rolling-on next generation networks;
• to join a committee chaired by AgCom devoted to the analysis of technical issues for the development of next generation networks, and to agree with alternative operators a migration plan from traditional copper networks to next generation networks[5].

In addition, Telecom Italia undertook to extend the application of the other commitments to next generation networks once it has been identified as having significant market power by AgCom with regard to wholesale access services rendered on next generation networks.

On the basis of National Law[6], AgCom approved these commitments[7] without formally consulting the EU Commission, as prescribed by Article 7, Framework Directive, in case of remedies’ imposition.

This initial step has been fiercely criticized by the EU Commission that – at the time – was drafting a Recommendation on access to next generation networks to promote regulatory consistency across Europe[8]. The EU Commission remarked that Telecom Italia’s undertakings – insofar as they are aimed at the enforcement of regulatory obligations, modify or replace existing regulatory obligations – must be considered as directly related and/or ancillary to regulatory remedies and, as such, be subject to a consultation both at national and Community level prior to adoption[9]. 

To address this criticism, albeit these undertakings were already entered into force, AgCom put them in a formal remedies’ decision[10] and notify them to the EU Commission.

The EU Commission criticized the scope of Telecom Italia’s undertakings (now proposed remedies…) noting that AgCom were proposing not:

• to impose any cost oriented methodology to regulate access to Telecom Italia’s passive infrastructure (ducts, trenches, etc.);
• to mandate unbundled access to the fibre loop. The Commission was not convinced that access to passive infrastructure and not physical access over optical fibres would be sufficient to safeguard effective competition;
• to define clear rules on migration process which were demanded to operators’ negotiations.

Consequently, the EU Commission invited[11] AgCom to impose: (i) duly justified cost-orientated access price to passive infrastructure and dark fibre; (ii) unbundled access to the fibre loop irrespective of the network architecture and technology implemented by Telecom Italia;[12] (iii) and to supervise the work undertaken in the ad hoc Committee and to specify in detail the migration process in the decision. Overall, the EU Commission recommended consistency with the NGN Recommendation, once approved[13].

AgCom replied to these comments by noting that the diffusion of next generation networks was at the time still embryonic and that, consequently, it was difficult to regulate an infrastructure not yet rolled-out. Thus, it did not modify its decision in order to comply with the EU Commission’s comments, but provided to reconsider the situation after the adoption of the NGN Recommendation. Actually, two days after the approval of this Recommendation, AgCom started a consultation on next generation networks’ regulation, noting the occurrence of some material changes in the situation considered in 2009.

b. Summary of the Decision

At the end of this proceedings (and after duly consultation of the EU Commission), AgCom approved the Decision No. 1/12/CONS at stake (or the “Decision”). The Decision consolidates all remedies applicable to Telecom Italia’s next generation networks since it is identified as dominant in the wholesale access markets.

The Decision has not imposed on Telecom Italia the adoption of a particular network typology[14]. Albeit suggested by the NGN Recommendation, AgCom did not require the roll-out of a multifiber fiber-to-the-home and point-to-point network[15]. AgCom stated that, under current applicable law, it could not impose such a remedy because too invasive. Accordingly, the Decision regulates the fiber-to-the-node network as being rolled-out by Telecom Italia in Gpon technology[16].

More precisely, AgCom has imposed the following remedies:

• all access services are subject to cost orientation under a Bottom Up-Long Run Incremental Cost methodology or “BU-LRIC”[17] (Article 9)[18];
• as soon as technically feasible, Telecom Italia should provide the unbundled access to the fibre loop (Article 4);
• in case of a combined copper-fiber network (like the fiber-to-the cabinet typology), Telecom Italia should provide unbundling to the copper local loop in addition to access to the cabinet (Article 3);
• during the transitional period (where unbundling is not feasible in Gpon networks), Telecom Italia should provide an end-to-end service (or “E2E”), and the virtual unbundling (or “VULA”). The E2E service includes joint provision of co-location at Telecom Italia’s switches, and access to passive infrastructure and to dark fiber (Articles 4-5);
• in line with the ladder of investment principle, Telecom Italia should provide the so-called “Building Blocks” in order to facilitate alternative operators’ progressive infrastructural investments:

• access to ducts along the access network, and along upper network layers;
• access to dark fiber at several network’s layers;
• access to the terminating segment;
• co-location and other ancillary services (Article 3.6).

• Telecom Italia should provide, in any case and any under network typology, bitstream services[19]. Supply conditions for this service could depend on the competitive situation of geographical areas (Article 5);
• Migration process would be subject to some deadlines (Article 13).

In addition, Telecom Italia is subject also to transparency (with the obligation to publish a reference offer for the above-mentioned services); non-discrimination; and accounting separation in order to implement the cost-orientation[20].

The Decision took into account and complied with comments received from the EU Commission[21] which, in particular, invited AgCom to impose fibre unbundling since other remedies (like access to passive infrastructure and VULA) are “not sufficient to safeguard effective competition”. The EU Commission invited AgCom to be “forward-looking” and to impose “an obligation to mandate physical unbundling of existing fibre lines where technically feasible”.

It is noteworthy to mention that the EU Commission questioned the proportionality of the E2E service. In particular, it noted that this service implies a build-out obligation for Telecom Italia which could be “burdensome”, especially if the access seeker demands this service outside Telecom Italia’s “planning mechanism”.

Brief commentary

AgCom’s attempts to regulate next generation networks in order to promote the digitalization of Italy predate the EU initiatives, and are inspired by its industrial policy views.

AgCom “forced” Telecom Italia to offer commitments in order to facilitate the diffusion of next generation networks, when it was not clear that the latter could be regulated under EU sectoral regulation (mainly because it was uncertain whether access services rendered via next generation networks belonged to the same markets of access services rendered via traditional copper networks)(22).

In 2006-2007 where AgCom started to “invite” Telecom Italia to do “something” to promote next generation networks, there was no next generation networks’ regulatory paradigm in Europe and no ANR had yet regulated those new infrastructures. Even undertakings assumed by British Telecom in 2005 with regard to its access network were limited to traditional copper networks.

After a tortuous path, the result of the Decision’s long gestation is positive.
AgCom has in principle imposed the obligation to supply unbundling of the fiber local loop, without imposing any particular network morphology (i.e., its regulation is technologically neutral.)

During the transitional period, AgCom has imposed a though remedy (the E2E service) aimed at facilitating the diffusion of alternative operators’ offerings and their investments (i.e., AgCom excludes even any transitional regulatory forbearance.

As mentioned, AgCom has accepted all the comments received by the EU Commission, but that related to the possible not proportionality of E2E service. In addition, AgCom mandated both E2E service and VULA, where a study for the European alternative operators’ association (ECTA) stated that only one of them could be sufficient where physical unbundling of next generation networks is not feasible (23).

Thanks to the general obligation to provide unbundling (once feasible) and the substitute services, Italy is currently one of the only four EU Member States that has mandated unbundled physical access or alternative forms of access to the network local exchange level (24).

The Decision shows AgCom’s willingness to maintain Italy as a leader in the diffusion of wholesale access services, and its efforts to promote the very poor next generation networks penetration in Italy (25).

(22). Undertakings given to Ofcom by BT pursuant to the Enterprise Act 2002, available at http://stakeholders.ofcom.org.uk/telecoms/policy/bt-undertakings/

(23). See WIK-Consult, NGA Progress Report. Study for ECTA, March 1, 2012, para. 14.

(24). The other three are: the UK; Netherlands and Sweden (See mentioned WIK-Consult Study for ECTA, p. 15.)

(25). Italy has one of the lowest penetration of fiber-to-the-home and to-the-cabinet next generation networks in Europe (See mentioned WIK-Consult Study for ECTA, para. 3.2.6.)