www.bundesnetzagentur.de

Strategies to achieve for Broadband for all: Is there an alternative to US?

Dr. Annegret Groebel, BNetzA Head of Department International Relations / Postal Regulation

APRITEL Conference – Lisbon, 17 June 2010

Clear answer to the question: yes, there is an alternative:

A market-based approach with a predictable regulation promoting competition and thereby fostering investment!

Broadband (market) development in Germany

Number of BB access lines increases continuously: 25mio (end 2009)

Meanwhile ar. 2.6 mio lines are provided by alternative technologies, mainly cable connections that bring an additional element of competition

Market share of competitors in the BB market more than 50%

With 30.4% penetration, Germany has gained a good position in the international and EU comparison

Nearly 25% of all users have a bandwidth of more than 10 Mbit/s.

With ar. 63% of households having broadband access, for the majority of users broadband is available

Broadband Availability in Germany

Total number of broadband connections 2001-2009

Broadband wireless access, fixed connections, FTTx, cable modem, powerline, satellite

In total around 25 million broadband connections are in operation. Almost 90% of all broadband connections are based on DSL.

Federal Government‘s Broadband Strategy (February 2009):

Goals:

Nationwide capable broadband access with a minimum of 1 MBit/s by no later than the end of 2010.

A total of 75 % of households should have high speed broadband access with transmission rates of at least 50 MB/sec by 2014; nationwide access with this high-speed broadband as soon as possible.

By means of: (as far as the competences of the Federal Network Agency are concerned)

Regulation geared to growth and innovation Infrastructure mapping Supportive spectrum regulation

National Broadband Plan

Broadband Availability in Germany

• Broadband internet „1MBit/s“ available for 96.5% of households (as at end of 2009).

• For 1.35 million German households capable internet access is not available.

< 2%2-25%25-50%50-75%75-95%> 95%

Broadband availability01.07.2009

Broadband map

BB availability without US

BB is available to the majority of households and 1 MBit/s is available to 96.5% of German households at the end of 2009 (becoming ubiquitious)

At the end of 2009 BNetzA analysed whether it would therefore be necessary to include broadband in the US, but came to the conclusion that this is not needed as it cannot be said definitely that the unavailability of broadband to a minority leads to social exclusion as the overall availability provides a general net benefit to all endusers

The most important argument was that with a predictable regulatory framework fostering competition and thereby investment taking up the technological and market dynamic shall not be distorted by changing the general conditions as operators that are now investing out of commercial interest may stop and wait for public funding or US financing.

Thus there is a risk to reduce the incentives for private investment making use of the synergies of joint roll-out and using jointly existing passive infrastructure thus counteracting the Broadband Strategy‘s initiatives and jeopardizing its goals

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Umsetzung der Breitbandstrategie der Bundesregierung

BNetzA‘s tasks of the National Broadband Strategy of the Government (1)

growth and innovation oriented regulation

Supporting spectrum policy/regulation (auctioning of the digital dividend)

Setting up of an (passive) infrastructure mapping (data base)

Close cooperation with the Cartell Office on co-operation agreements(The German Federal Cartel Office has published its own assessment of co-operations for fibre roll-out on the grounds of general competition law.)

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BNetzA‘s tasks of the National Broadband Strategy of the Government (2)

(1) Key elements on the regulatory framework conditions for the development of modern telecommunications networks and the creation of high speed broadband infrastructures (NGA Key elements)

(2) Clarification of regulatory and competition law questions related to cooperation projects (together with the Cartell Office)

(3) Developing principles of a consistent rates regulation with a view to promote efficient infrastructure investment (published in November 2009)

Draft NGA Key elements published for consultation on 13th May 09, consultation period ended on 1 July, comments were evaluated

Final version published on 17th March 2010 Principles for a growth and innovation oriented regulation 14 key elements outlining the fundamental principles of NGA regulation

confirming applicability of regulatory framework and underlining the importance of pursuing both objectives: promoting sustainable competition fostering at the same time efficient investment in highspeed broadband network infrastructure

Fit in regulation in existing framework providing consistency, and make a considered choice of ex-ante/ex-post regulation to achieve these objectives

NGA Key elements (1)

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NGA Key elements for the the development of modern telecommunications networks and the creation of high speed broadband infrastructures

Published 17 Mach 2010 Main topics

Open Access Co-operations and Co-investment Planning certainty Access products for NGA-networks Migration New pricing structures for wholesale products Risk adequate equity rate of return (study) Setting up of a NGA-Forum Importance of the infrastructure mapping

NGA Key elements (2)

BNetzA is aware of the importance of modern high speed broadband infrastructure for the country‘s competitiveness Economic and legal predictability to take account of long term planning for

NGA investments, i.e. have longer market review periods – change of the law from 2 to 3 years (envisaged)

Necessary transparency on NGA roll-out to have an overview of the changes of the network architecture

Continue with a technological neutral regulation

Creating a NGA Forum for a constructive dialogue

NGA Key elements (3)

NGA Key elements (4)

BNetzA welcomes the roll-out of highspeed broadband infrastructure, e.g. by regional companies

Non-SMP operators should offer voluntary (network-) access products on a non-discriminatory, transparent and open basis (Open Access). They are not regulated

A scenario where DT AG offers voluntarily access products satisfying the access seekers‘ demand on a non-discriminatory basis at reasonable prices, is preferable to a regulatory intervention.

BNetzA supports appropriate models of infrastructure-sharing that are in conformity with competition law rules and welcomes in principle a non-discriminatory implementation of co-operation projects

New pricing models (e.g. upfront payments) are in principle compatible with the cost standard of the cost of efficient service provision, but shall not create a margin squeeze

In general, transparency shall be increased (e.g. NGA-Forum, infrastructure map.)

Important Regulatory Activities

Setup of a NGA forum:

Proposed by the Federal Network Agency in its key elements on NGA general regulatory conditions.

Consists of high-ranking representatives of undertakings, associations, cartel office and ministry.

Its objective is to discuss practical problems arising from the broadband roll out and find sustainable solutions on a consensual basis.

First meeting was held at the beginning of May. Focus on:

• Open Access• Interoperability• Infrastructure sharing• Co-investment

© Bundesnetzagentur

NGA-Forum I

- The NGA-Forum is moderated and chaired by BNetzA. Several high-level experts that represent the market and have considerable experience, were invited

- The NGA-Forum shall discuss concrete topics that play a role for the deployment of NGA networks. In particular it shall be discussed which possible solutions can be considered for the improvement of the broadband availability.

- The NGA-Forum shall work transparently and will publish results – whenever possible – on the BNetzA website.

- Publication of the mandate, mission, members and topics to be addressed on 17 April: http://www.bundesnetzagentur.de/cln_1911/DE/Sachgebiete/Telekommunikation/RegulierungTelekommunikation/NGAForum/NGAForum_node.html

© Bundesnetzagentur

NGA-Forum II

First informal meeting took place on 16 March 2010.

First regular meeting took place on 5 May 2010.

Second regular meeting took place on 14 June 2010

Issues relevant in the short term shall be clarified until fall 2010 and an interim report published

Final report envisaged for spring 2011.

Mandate: Incentives for efficient investment Ensuring sustainable competition Incentives for an efficient usage/operation of networks

© Bundesnetzagentur

NGA-Forum III

Main topics:

Open Access

Cooperation and co-investment

Technical and operational aspects of access to fibre networks and other NGA networks (in particular questions of interoperability)

Shared infrastructure (e.g. inhouse-cabling)

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What is the infrastructure mapping? A database of BNetzA that contains the existing infrastructure and (planned) roll-out

projects together in order to exploit synergies in the roll-out by optimizing the joint use of existing passive infrastructure (cost reduction)

BNetzA collects the data, feeds it into the format and compiles it in the data base

Which data is contained in it? fibre, ducts, masts etc.

Where is the data from? More than 120 companies and institutions provided the data voluntarily So far information regarding the infrastructure in more than 2,200 cities, municipalities or

parts thereof have been provided. This covers 6.8 million inhabitants and 3.2 million households.

Does the mapping provide a complete overview? No, as there is no obligation to participate

Infrastructure mapping (1)

Compilation of an infrastructure map:

Task arising from the Broadband Strategy in order to unleash possible synergies in the construction of NGA infrastructure.

Infrastructure atlas officially started on 8th December 2009.

Not only telecommunications infrastructures are included in the map, but also infrastructures of other industries, such as energy.

120 undertakings have so far provided their data on a voluntary basis.

In the initial phase the Federal Network Agency only provides information on application about the identity of an undertaking having infrastructure in a certain area and the competent person to contact.

183 applications have already been made.

Infrastructure mapping (2)

Regarding the allocation of the digital dividend:Ensure that digital dividend spectrum is made available timely

BNetzA has published on 16 March 2009 a consultation document regarding the UHF spectrum (790 – 862 MHz)

On June 12th the German Parliament adopted an amended version of the Frequency Allocation Ordinance allowing the quick allocation of the digital dividend spectrum

On Oct. 12th the Advisory Council of BNetzA has given its consent to the Decision on the conditions and procedure of the auction of a total of 360 MHz in the first half of 2010

In order to use the digital dividend to cover the „white spots“ first, roll-out obligations on a subnational level will be attached to the spectrum, so operators have to start in rural areas as well

The tasks of the BB Strategy confirm BNetzA‘s regulation promoting effective competition and efficient investment setting incentives for innovation for the benefit of the consumer

BNetzA‘s tasks of the National Broadband Strategy of the Government (3)

Spectrum Auction 2010

Spectrum Auction - Coverage obligations

Each Federal State compiled its own list of all areas needing coverage Degree of coverage: 90% of the population by 2016 General requirement for each assignee to meet this obligation with 800 MHz

spectrum but it has to be fulfilled only once Obligation to start roll-out and fulfil the coverage obligations in the less densely

populated areas before being allowed to roll-out in cities etc.

According to the agreement with the European Commission of Dec. 2009 the Federal Network Agency will scrutinize the level of competition in the mobile market three months after the auction and take corrective action if competition issues need to be addressed.

Spectrum auction – Rules

Auction follows the same rules as previous spectrum auctions (UMTS, BWA) Entrants bid for desired frequency blocks each bidding round (simultaneous and

independent) Bidders submit their bids confidentially in separate rooms that are sectioned off

from the publicly accessible parts of the building The auction ends, when no valid bid for any frequency block is brought forward Bidding commences 12th April, 13:00 Bidding rounds last 90 minutes, an auction day last from 8:00 a.m. to 6:00 p.m.

Spectrum Auction – Results (1)

First in Europe to auction digital dividend spectrum. A total of almost 360 MHz of the 0.8 GHz (“digital dividend“), 1.8 GHz, 2.0 GHz und

2.6 GHz frequency band were auctioned. Auction started on April 12th and ended on May 20th after 224 rounds of bidding. Participants in the auction were the 4 German mobile network operators:

Deutsche Telekom, Vodafone, Telefónica o2 and E-Plus. Altogether the frequencies were auctioned for 4.4 bn €, including more than 3.5 bn €

(appr. 80%) for the digital dividend spectrum.

Successful bidders of digital dividend spectrum need to fulfil a special coverage obligation to provide services in “white spots” and rural areas which are currently lacking broadband:• Licensees will have to cover at least 90% of the population in the cities, which the

federal states identified as being “white spots”, by January 1, 2016.• Small cities and communities must be covered first.

Spectrum Auction – Results (2)

Outcome of the auction

20 19,8 20

10

20

9,9

19,2

40

10

20

30

40

5

20

9,9

40

25

0

5

10

15

20

25

30

35

40

45

800 MHz (paired) 1,8 GHz (paired) 2,0 GHz (paired) 2,0 GHz (unpaired) 2,6 GHz (paired) 2,6 GHz (unpaired)

Frequency band

Sp

ectr

um

in M

Hz

E-Plus

Telefonica O2

Telekom

Vodafone

Regulatory framework and decisions - Investment incentives

Bundesnetzagentur … … has created a stable, transparent and predictable regulatory framework

which is key for investment decisions ... especially focuses on setting the right incentives for efficient investments

and promoting innovation. … entered early on in a constructive dialogue with all market parties in order

to manage a smooth transition to NGN/NGA promoting both investment and maintaining the level of competition reached with regulation, namely ULL

The regulatory decisions have … … ensured an approriate balance between service-based and infrastructure

based competition (following the model of the ladder of investment) … has set the right incentives for roll-out of fibre infrastructure and innovation

(e.g. by imposing an obligation of access to street cabinets and ducts, combined with a bitstream product regulation adjusting to the development of modern broadband networks

Important Regulatory Activities

Imposition of obligations concerning the market of unbundled local loop:

• In June 2007: fundamental decision on remedies for the unbundled local loop market:- Collocation in street cabinets- Access to ducts- Access to dark fibre (annulled by the Federal Administrative Court)

• In December 2009: Decision specifying the technical modalities of collocation in street cabinets and access to ducts.

• In March 2010: Decision concerning the rates for collocation in street cabinets and access to ducts.

Draft definition and analysis of bitstream and local loop markets• Inclusion of FTTH infrastructure due to Deutsche Telekom’s announcement of

FTTH roll-out• Denial to define subnational markets after thorough examination.

Access to cross connects and service area interfaces

DTAG is obliged to offer access to service area interface empty conduits between main distribution frame (MDF) service are interface

(SAI) Further obligation to offer access to dark fibre when there is no room left in the

conduits has been overturned by Federal Administrative Court DTAG has been further obligated to offer access to cross connect, allowing

competitors to bring high speed networks to the customers where the incumbent is unwilling to invest

Conclusion (1)

A complete broadband coverage requires the efforts of all market players and the competition of ideas, technologies and business models. A competitive environment is the best way to foster investment in NGA-networks to make broadband available to all.

Flexibility in the application of regulatory instruments allows for timely reactions to technological changes

The Federal Network Agency welcomes co-operation and open access models which are non-discriminatory and in line with the applicable rules. Voluntary agreements are preferable to the imposition of obligations by the regulator.

The mobile network operators are called on to promptly make use of the acquired digital dividend spectrum and start the LTE roll-out.

Key questions still need to be solved. The opportunities offered by the Federal Network Agency to find consensual solutions, such as the setup of a NGA-forum, should be actively used and supported by the market players.

Range of regulatory and other instruments must be used consistently to push roll-out of modern high speed networks to ensure broadband availability for all users

The tasks of the BB Strategy confirm BNetzA‘s regulation promoting effective competition and efficient investment setting incentives for innovation for the benefit of all consumers

Regulation must be consistent and adjusted to NGA economics Ensure migration from copper to fibre networks and possible convergence with mobile

broadband There is no contradiction between infrastructure and service competition, but balance has

to be reviewed in an NGA environment as economics of scale change, adjustment of existing wholesale access products where necessary

Ensure current state of competition is maintained in an NGA environment by adapting the regulation to deal with technological change while incentivising efficient investment in new high speed infrastructure and avoid leveraging of SMP: Telecom Infrastructure will remain an attractive investment for investors

BNetzA’s market-oriented approach is highly successful in promoting competition and encouraging efficient investment

Conclusions (2)

The ladder of investment concept remains valid in an NGA environment as pro-competitive regulation encourages efficient investment

NRAs need flexibility to adjust regulation appropriately as there is not a one-size-fits-all approach for NGA with national circumstances varying largely

NRAs need to ensure transparency by announcing early on the regulatory strategy as predictability is key to give investors the necessary confidence, but investment decisions should be left to operators rewarding the investment with a risk-adequate rate of return

Above all the competitive gains and perspectives should not get out of sight and NRAs should continue to ensure non-discrimination and prevent margin squeeze to enable a competitive NGA roll-out with joint projects where appropriate.

Conclusions (3)

Annex

© Bundesnetzagentur 2010 33Jahresbericht 2009

Investments

Investments in network infrastructure 1998–2008

Investment in fixed assets for mobile a. fixed networks

Broadband lines - total

1,9 3,2 4,4 10,5 14,4 18,5 20,9 22,46,8

2,6

1,7

0,2

0,10,08

0,03

0,3

0,6

1,1

1,9

4,5

10,8

15,0

22,6

25,0

19,6

3,3

7,0

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007 2008 2009

Mio

.

DSL BWA, Festverbindungen, FTTx, Kabelmodem, Powerline, Satellit

© Bundesnetzagentur 2010 36Jahresbericht 2009

Broadband market shares

Retail market share of broadband access lines 2001–2009

Broadband penetration worldwide

Broadband penetration in Europa (EU 27)

Deutschland

© Bundesnetzagentur 2010 39Jahresbericht 2009

DSL lines – ladder of investment

DSL lines and wholesale access products 2001–2009

© Bundesnetzagentur 2010 40Jahresbericht 2009

LLU lines

LLU lines 1998–2009

Download rates

Basis: 25 Mio. BB lines (end of 2009)

≥ 10 Mbit/s24,8%

> 144 kbit/s < 2 Mbit/s14,6%

2 Mbit/s < 10 Mbit/s60,6%

Data volume in mobile broadband traffic

0,841

3,542

11,471

0,215

33,500

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009

Mio. GB