Issues of special network access between the Austrian incumbent operator Telekom Austria and its competitors have occupied the Austrian regulatory authority Telekom-Control Kommission ever since the implementation of full liberalization on 1 January 1998.1 While 1998 was marked by a set of regulatory decisions in the area of interconnection, in July 1999, the regulatory authority decided on another special network access problem, i.e., unbundled access to the local loop.
In the wake of unsuccessful negotiations between Telekom Austria and some of its competitors, it was interestingly enough Telekom Austria itself which approached the regulatory authority on 11 March 1999, triggering a regulatory proceeding against the Austrian alternative network operators UTA, Connect Austria and Telekabel. Telekom Austria requested the authority to determine the main principles and rules to be applied to the requests of Telekom Austria´s competitors for an exclusive right to use the individual subscriber line (copper wire pair) owned by it. The main issues under dispute concerned the level of unbundling (whether unbundled access only to the entire individual subscriber line or also to parts thereof), restrictions of use of the individual subscriber line (e.g., for xDSL-applications), the scope of the alternative operators´ right of collocation and the amount of the consideration payable for unbundled access.
The competitive advantages of unbundled access to the local loop are obvious: the individual subscriber becomes a customer of the alternative instead of the incumbent operator. As a result, the link between customer and alternative network operator becomes stronger than in case of mere carrier (pre-)selection. For the same reason, any monthly flat fee will only be charged by the alternative operator and no longer by the incumbent operator (as in the case of carrier selection); a splitting of invoices (flat fee charged by the incumbent operator, telephone charges billed by the alternative operator) can therefore be avoided. Probably the greatest advantage is the fact that unbundled access offers alternative operators the opportunity to market innovative services (such as multimedia services) more easily and thus to obtain a competitive advantage vis-à-vis the incumbent operator. Not surprisingly, the types of service that may be offered on the basis of unbundled access to the local loop (in particular, high bit rate applications) were among the main issues of dispute between Telekom Austria and its competitors.
The decision rendered by the regulatory authority in early July 19992 constitutes a "framework decision" which determines the general conditions of unbundled access (the authority thus did not decide on any party´s right to obtain access to any specific subscriber line)3. While the Decision has legally binding effect only inter partes, the principle of non-discrimination (sec 34 TKG) requires that Telekom Austria will apply its contents also to other operators seeking access. Thus, the Decision can be regarded as the basis for all upcoming negotiations and disputes concerning unbundled access to the local loop and for this reason of (among others) may be considered as a landmark decision.
2. The Legal Background
Unbundled access to the local loop is a concept whose implementation is not required by the European Directives in the area of telecommunications law; nevertheless, several European countries including Germany, the Netherlands, Finland, Denmark and Italy, have already enacted respective provisions.4 The obligation to offer unbundled access to the local loop is also embodied in the Austrian telecommunications law, i.e., under the Austrian Telecommunications Act5 and the Interconnection Ordinance6.
Pursuant to TKG, 37, para 1, a dominant operator is obligated to grant other users7 access to its telecom network or unbundled parts thereof. The principle of unbundled network access is specified in further detail in secs 2 and 3 of the Interconnection Ordinance. In these provisions, access to unbundled network elements is described as a form of special network access (sec 40 TKG) which has to be granted by the dominant operator provided that the operator seeking access has a demand for such services as a provider of telecommunication services or as an operator of a telecommunications network (sec 2 para 2 Interconnection Ordinance).
The law distinguishes between "general network access" and "special network access" (sec 37 para 2 TKG). General network access is granted via connections that are generally available on the market (sec 37 para 2 TKG). According to sec 40 para 1 TKG, special network access must be provided if a "user" so requires and if it is technically feasible and the user bears the costs. The question arises why unbundled access to the local loop cannot be regarded as a form of general network access since arguably, connections for unbundled access may be generally available on the market for unbundled access to the local loop. The distinction is of interest because contrary to general network access, the costs of special network access have to be borne by the party seeking such special access.8 The approach of the regulatory authority to this question was to define "general network access" as connection of the end-customer by referring to Annex II part 1 of Directive 98/10: Since access to network parts (as in the case of unbundled access to the local loop) is usually not demanded by end-customers, unbundled access to the local loop must be a form of special network access.9
While this line of argument is debatable, particularly because it implies a very narrow definition of general network access limited to end-customers, apparently excluding operators and service providers from such type of access - from a practical point of view, it leads to the right result at least in the context of unbundled access to the local loop.
Unbundled network elements are described as the subscriber line ("local loop") with or without further technical facilities (sec 3 para 2 Interconnection Ordinance). Sec 3 para 1 of the Interconnection Ordinance (which also deals with other forms of network access) specifies that the operator seeking network access must not be obligated to order services for which it has not raised a respective demand. Consequently, it is possible to ask for access to the subscriber line alone, without any additional services provided by the incumbent operator.
Agreements on network access must be in writing (sec 2 para 3 Interconnection Ordinance), transparent, based on objective criteria and must provide for equal and non-discriminatory access to the operator´s network (sec 37 para 3 TKG). If no agreement can be reached on a request for network access, each party is entitled to turn to the regulatory authority10 which has to decide on the issue by analogous application of sec 41 para 3 TKG, taking into consideration the mutual interests of the parties as well as the objectives of the Act (sec 2 para 4 Interconnection Ordinance). Thus, if the parties fail to enter into an access agreement within six weeks of a respective demand was raised, the regulatory authority, if involved by either party, must render a decision on the issue within further six weeks. The regulatory decision will govern the contractual relationship between the parties in lieu of an agreement (sec 41 para 3 TKG).
b) Preconditions for and Limitations to the Right of Unbundled Network Access
Under Austrian telecommunications law, unbundled access to the local loop may be obtained subject to the following preconditions:
The concept of unbundled access to the local loop is subject to the following restrictions and limitations:
Finally, unbundled access may be refused for the following reasons:
There is as yet no clear-cut definition of "local competition": In geographic terms, at least presently, the market development is not yet advanced enough to speak of a dominant position of any alternative operator even in a local area.18 As concerns product markets, wireless local access cannot be considered as a substitute to copper wire because of technological differences. Existing "fixed" alternatives (such as "powerline" -telecommunication via electricity circuit lines) are not yet sufficiently advanced to have any competitive impact.19
At any rate, for as long as the alternative operator seeking access is not itself a dominant operator, it seems that unbundled access to the local loop may not be denied because of the existence of "local competition": When determining whether telecommunication via cable networks constitutes local competition, the regulatory authority, in the Decision, referred to the discussion of reciprocity for unbundled access to the local loop (i.e., the alternative operator´s obligation to offer to the incumbent operator undbundled access to its own telecommunication lines).20 The authority stated that the principle of reciprocity does not apply to a market operator lacking a dominant position.21 Thus the authority´s cross-reference to reciprocity would support the argument that in the absence of a dominant position of the alternative operator, there is no reason at all to examine local competition.22.
3. Main Issues of the Decision
a) Access to the Unbundled Subscriber Line
When Telekom Austria issued its standard offer for unbundled access to the local loop, it did not question the basic entitlement of alternative network operators to have access to the individual subscriber line. However, the extent to which the alternative network operators would be entitled to obtain access to the individual subscriber line turned out to be an issue of dispute.
While Telekom Austria argued that only the entire, undivided subscriber line from the main exchange to the network termination point could be the subject of unbundled access, Telekom Austria´s competitors pleaded for the admissibility of partial unbundling: Because it would be technically feasible, access should also be granted e.g., from the cable distributor to the network termination point or from the main distributing frame ("MDF") to the cable distributor.
The regulatory authority denied a right of partial unbundled access and held that - at least at present - the general unbundling obligation described in sec 3 para 2 Interconnection Ordinance (access to the subscriber line with or without technical facilities) constitutes the minimal unbundling obligation. While the regulatory authority acknowledged that partial unbundling would in theory be possible, it nevertheless concluded that access to the undivided subscriber line would - at least for the time being - be sufficient to create and enhance competition. The regulatory authority stated, however, that it would reassess this issue in the light of the development of local competition when the term of the Decision will have expired (30 September 2000).
As a result of this, upon request of an alternative operator, Telekom Austria basically has to grant access to the entire, undivided subscriber line.
Such access may, however, be denied if it is not materially justified.23 This may be the case if, for example, due to infrastructure shortage, the incumbent operator has already implemented systems of multiple use of subscriber lines (pair gain systems) for its own use, provided that further use of such systems will continue to be necessary in the future. The incumbent operator is moreover not under an obligation to roll out new subscriber lines in case infrastructure shortage is the result of demand for access by alternative network operators. Rather, in case of a shortage of resources, access to the local loop has to be granted on a "first come, first served"-basis.
If access to the undivided subscriber line is not materially justified or if the alternative network operator so requests, Telekom Austria has to grant access via interposed systems for multiple use of subscriber lines (pair gain systems). The reason for the subsidiary nature of access based on pair gain systems - as opposed to access to the undivided subscriber line - is that pair gain systems reduce the possibilities of use of the subscriber line, in particular, with respect to the application of high bit rate systems.
Here again, the incumbent operator may deny access for lack of material justification if there are no free cable resources (except for an operating reserve of 5-10 %) or if essential requirements according to sec 39 TKG are jeopardized.24
The burden of proof that unbundled access (either via an undivided subscriber line or via pair gain systems) is not materially justified is on the incumbent operator; the denial of access for such reason is subject to review by the regulatory authority (sec 37 1 41 TKG in conjunction with sec 2 para 4 Interconnection Order).
b) High bit Rate Use of Subscriber Lines
One of the main issues under dispute was the question to which extent the subscriber line may be used by the alternative operator for the deployment of high bit rate transmission systems.
According to Telekom Austria, the maximum use of subscriber lines should be restricted to 144 kbit/second. Any other use of the subscriber line would have to be subject to the consent of Telekom Austria based on detailed technical specifications of the equipment and transmission method used by the alternative operator. In general, Telekom Austria reasoned that as yet no conditions of use had been elaborated so that deployment of high bit rate systems in the absence of such conditions would be likely to cause technical problems (interference with other subscriber lines in the same cable bundle).
Telekom Austria´s competitors, in turn, argued that restrictions on use of high bit rate transmission systems would cause a significant competitive disadvantage to alternative network operators, who would be prevented from offering products and services on the market distinguishing them from the ones offered by Telekom Austria. Consequently, the alternative operators argued that high bit rate transmission systems should be generally admissible to the extent they are generally accepted to be network compatible. In addition, the deployment of new transmission systems should be admissible subject to prior mutual examination by Telekom Austria and the alternative network operator. Finally, since Telekom Austria already used high bit rate transmission systems for its own purposes, a denial of respective use by its competitors would be tantamount to a discrimination.
The basic problem of deploying high bit rate transmission systems (for HDSL- or ADSL-applications) is that such systems produce electromagnetic fields which may interfere with other transmission systems used in the same bundle of cables.
According to the regulatory authority, for reasons of non-discrimination, the use of unbundled subscriber lines for high bit rate transmission systems may only be limited by reason of essential requirements in terms of sec 39 TKG. The development of "bit stream access" systems (i.e., the operation of high bit rate systems by the incumbent operator which would then provide respective high bit transmission services to alternative operators) was considered as an insufficient alternative and, moreover, as contrary to the basic requirement whereby unbundled access entitles the alternative operator to use the subscriber line without additional services provided by Telekom Austria.
While the regulatory authority acknowledged that the deployment of high bit rate transmission systems might disrupt network integrity, it reasoned that the application of transmission technologies by alternative operators corresponding to the ones currently deployed by Telekom Austria (HDSL-systems for the purpose of data service and ISDN-PRA; ADSL-systems currently in a test phase) would not add to the danger that network integrity could be affected.
The regulatory Decision concluded with a pragmatic approach for the deployment of high bit rate transmission systems: In a first step, HDSL and ADSL-systems may be used by alternative operators on unbundled subscriber lines subject to the same conditions as applied by Telekom Austria for its subscriber lines. For this purpose, Telekom Austria shall make available to the alternative network operators its internal rules and guidelines for the deployment of such systems as currently used (with the exception of business secrets). In a second phase, high bit rate transmission systems may be deployed in accordance with terms and conditions of installation and use to be developed by Telekom Austria by approximately end of September 1999, provided that mutual consent can be achieved between the parties with respect to such terms and conditions.25
The ("MDF"), which is located at a (local) switching centre, is the part of the network infrastructure (of the incumbent operator) which concentrates all subscriber lines within the customer area of the respective switching centre. If individual subscriber lines are unbundled, they must be physically directed from the MDF to a distribution frame and to further transmission equipment of the alternative network operator in order to physically "hand over" the subscriber line. In this context, an issue of substantial dispute was where and in which form the relevant transmission equipment of the alternative operator should be physically erected (collocation).
Alternative network operators argued that physical collocation should primarily be "open" or "cageless" (i.e., a passive form of transfer of the subscriber line which could be described as an extension of the subscriber line at a cable joint). In this form of collocation, the transmission equipment of the alternative network operator would be located in rooms where the incumbent operator maintains its own transmission and switching equipment. Thus, this form of collocation would be closest to the MDF. Only to the extent that such cageless collocation would not be available, alternative network operators requested "closed" collocation, primarily in separate collocation rooms or (as a secondary measure if no rooms are available ad the MDF) by means of street cabinets or containers located outside of the incumbent operator´s switching centre (collocation surrogate).
For its part, Telekom Austria was only prepared to offer collocation surrogates. Other forms of collocation were only available under certain restrictive circumstances.
The principle of closed collocation with an integrated collocation room is explained in the following graph:
MDF = Main Distributing Frame
CC = Cable connector
M = Multiplexer
DF = Distributing Frame for Transfer
PoP = Point of Presence of the alternative operator
CR = Collocation Room
The regulator ruled that physical access to the subscriber lines at the local exchange primarily be effected by means of closed collocation in rooms at the local exchange of the incumbent operator upon respective request of the alternative operator. In case closed collocation turns out to be unavailable26 or unjustified in the individual case, or if the alternative operator so requests, then the incumbent operator is obligated to offer a collocation surrogate (street cabinet or container). The Decision contains detailed provisions on size and quality of a standard-collocation room, network connection specifics, rules of access to collocation facilities, use of collocation facilities as well as the ordering and implementation procedure connected with achieving physical connection to the subscriber lines.27
The incumbent operator may refuse closed collocation for the following reasons:
In case of shortage of space and resources, physical collocation is again to be granted on the basis of "first come, first served".
The legal basis of the incumbent´s obligation to offer collocation may be derived from section 5 of the Interconnection Ordinance. According to section 5 paragraph 1 of the Interconnection Ordinance, a dominant operator of a public telecommunication network has to allow the use of its network and parts thereof at the technically relevant interface. Such use must be made possible on a non-discriminatory basis and subject to conditions which the dominant operator applies to its own services based on the use of such facilities. Sec 5 para 2 Interconnection Ordinance further provides that the installation of facilities of an alternative operator on the premises of a dominant operator are subject to commercial and technical agreements (the same principle is reflected in Art 11 of Commission Directive 97/33/EEC). Again, if no such agreement can be reached, either party may approach the regulatory authority whose decision (to be passed in a proceeding based on the analogous application of sec 41 para 3 TKG) will substitute such agreement. In addition, the general aims of the Act - creation and enhancement of competition - require that collocation be made possible except if there is no material justification.
Collocation may be terminated by either party upon four months´ notice by the end of each calendar month, provided there are specific reasons (such as a removal of the MDF or where Telekom Austria urgently needs the rooms). Immediate termination for cause is possible.
It should be noted that it is equally possible to terminate individual subscriber lines (by the end of each business day upon five business days´ notice), provided the incumbent operator has specific reasons for doing so.28
d) Fees for Unbundled Access
For all services to be rendered by either party in the context of unbundled access to the local loop, the respective party may charge a reasonable consideration (in particular, for the transfer of the subscriber line, for granting a right to use collocation rooms, and the rendering of additional services). The consideration to be paid by the other party may be a monthly usage fee, a one time flat fee or a specific charge corresponding to quantifiable costs incurred by the other party (reimbursement of costs).
Evidently, the monthly usage fee for subscriber lines was not only the main type of consideration but also one of the most significant issues to be resolved.29 The authority´s task to fix a reasonable fee amounted to a delicate balancing act: Too high a fee would encourage a (macro-economically undesired) duplication of network infrastructure, whereas too low a fee would lead to the market entry of inefficient operators to the detriment of the incumbent operator. Telekom Austria had sought a usage fee of approx ATS 300/month for the individual subscriber line pursuant to a top-down calculation model based on historic costs. In turn, its competitors had calculated a consideration of approx ATS 80 to ATS 117 based on an analytical bottom-up-model (FL-LRAIC). The fact that the usage fee would have to be cost-orientated was not disputed (sec 41 para 3 TKG in accordance with sec 2 para 4 Interconnection Ordinance; sec 37 para 3 in conjunction with sec 34 TKG).
The regulatory authority determined that the costs of the subscriber line to be transferred would have to be established on the basis of FL-LRAIC and acknowledged that both the top-down and the bottom-up model are subject to uncertainties. Consequently, the regulatory authority proceeded from the top-down figures calculated by Telekom Austria (as verified by an expert) and subsequently made a downward adjustment in order to compensate defects in the cost basis. As a result, the costs were determined to be ATS 170 per month and subscriber line, regardless of whether the subscribe line is a copper wire pair of 144 kbit/second or for high bit rate use or is coupled with analogue or digital pair gain systems.30 In the absence of distinguishable local competition, the rate was determined homogeneously for the entire territory of Austria.
The regulatory authority set a time limit of September 30, 2000 on the effectiveness of its decision. It felt that an unlimited period of time not to be reasonable in the light of the fact that technical and economic developments in the area of unbundled access to the local loop cannot be assessed beyond a longer period of time.
As a result, either party will be free to terminate the contractual relationship resulting from the authority´s decision on September 30, 2000 at the earliest.31 By June 30, 2000, the parties will communicate to each other any request for amendments to the contractual relationship for the period of time after 1 October 2000. In case negotiations fail, either party may approach the regulatory authority for respective settlement.32
During the term of the Decision, the contractual relationship between the parties resulting therefrom may, however, be adapted to future regulatory decisions in the context of unbundled access to the local loop or, even due to a clause of "most favoured treatment"33 if and to the extent Telekom Austria concludes agreements on unbundled access with other network operators subject to more favourable terms.34 Finally, as of January 1, 2000 at the earliest, each party may demand a modification of the contractual arrangement in case of substantial problems of implementation or for the purpose of adaptation to future technical, commercial and regulatory developments.
In the light of the above-indicated "opening" provisions and the fact that legal problems of detail are likely to arise when unbundled access is actually sought in the individual case, one might expect discussions - if not disputes - to continue. Anticipating this, the regulatory authority explains how further disputes will have to be dealt with. Although the (contractual) relationship between the parties of the present proceeding was constituted by an authoritative act in the form of a decree subject to public law, the contents of the relationship are of a civil law nature. Consequently, rights and obligations under such a relationship will, in case of dispute, have to be assessed and adjudicated by a (civil) court of law. Only where unbundled access is denied will Telekom-Control Kommission continue to be competent to decide on the material justification of the denial.
From a practical point of view, it will probably take some time for effects of the decision to be felt in the marketplace. Given the rather high usage fee for the individual subscriber line, unbundled access will likely be referred to by alternative operators as the first step towards offering more attractive solutions to corporate customers. While the end-customer will therefore likely have to wait for some more time for the benefits of unbundled access to materialise, the Decision, taken as a whole, is certainly a major contribution to a further enhancement of competition on the Austrian telecommunications market.
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