Norway: LLU and Wholesale Broadband Access Obligations Announced

The Electronic Communications Act came into force on July 25 2003. Under the act, the Post and Telecommunications Authority is required to analyze 18 product markets in order to identify any providers with significant market power and determine which obligations to impose on them.

The authority's determinations are subject to the requirement that a national hearing take place. During this hearing, all interested parties are given the opportunity to comment.

On July 1 2005 the authority notified decisions on the use of regulatory measures in (i) market 11, the market for wholesale unbundled access (including shared access) to metallic loops and sub-loops for the purpose of providing broadband and voice services (local loop unbundling (LLU)), and (ii) market 12, the market for wholesale broadband access.

Telenor ASA was identified as an operator with significant market power in both markets. In its decisions, the authority notified the obligations that it intends to impose on Telenor in each market.

As a background to its decision on market 11, the authority stated that it is highly unlikely that any of Telenor's competitors will establish an alternative copper network. The limited possibilities for duplicating the existing infrastructure make the barriers to entry in the market very high. This represents the heart of the competition problems in the LLU market. Furthermore, the authority found that there is no sign of competition in the market, but that alternative access technologies (eg, fibre optics) could contribute in the long term to potential competition at the infrastructure level of the market.

However, alternative access technologies will not become widespread for many years. Consequently, the authority indicated that its two main objectives in regulating market 11 are to: (i) promote the most efficient use of the existing infrastructure; and (ii) allow for sufficient profit from the existing infrastructure to create an incentive to conduct the necessary maintenance, upgrading and new investment in the network.

In order to achieve these objectives, access to the existing infrastructure at a reasonable price must be adequate. Telenor must also be given the opportunity to cover its costs and earn a reasonable profit.

In its analysis of market 11, the authority identified two potential competition problems: vertical transfer of market power and single market dominance. With regards to vertical transfer of market power, the authority highlighted that Telenor might transfer market power between the LLU, broadband access and end-user markets through refusal to supply and discriminatory behaviour. With regards to single market dominance, the most serious competition problems may be caused by Telenor's exploitation of customers through overpricing or price discrimination.

As a background to its decision on market 12, the authority stated that it is possible to establish a competitive infrastructure in market 12. Consequently, the authority indicated that its two main objectives in regulating market 12 are to: (i) lay the groundwork for and encourage long-term infrastructure-based competition; and (ii) stimulate competition in the short term so that end users in Norway will have access to good quality, reasonably priced and innovative broadband services. In order to achieve these objectives, the authority considers that sufficient access to the factor inputs is necessary at wholesale level.

In its analysis of market 12, the authority identified the same potential competition problems as for market 11. With regards to vertical transfer of market power, discriminatory behaviour poses the greatest threat. Potential discriminatory behaviour includes the following:

• discrimination on matters other than price (eg, contract provisions and supply precision);

• price discrimination; and

• cross-subsidizing.

With regards to single market dominance, the authority highlighted the problems associated with Telenor's exploitation of customers through overpricing, although potential competition reduces the danger of overpricing in market 12.

After reviewing the suitability and proportional use of the available regulatory tools, the authority imposed various specific obligations on Telenor in markets 11 and 12.

The authority considered that, in light of the high barriers to entry in the market, access obligations are decisive. Therefore, the authority proposed to keep the existing access obligations to LLU under the previous regulatory regime, as well as expand these obligations to include giving access to colocation and necessary support systems and information. Should Telenor refuse access, it would be obliged to give the requestor a documented and substantiated reason for the refusal.

In addition, LLU pricing will be regulated on the basis of Telenor's historical costs. Telenor will also be required to determine its LLU subscription price in accordance with a price ceiling arrangement applying until December 31 2007. This arrangement requires a minimum price reduction of 22% on January 1 2006 and January 1 2007.

The authority will also impose obligations of non-discrimination and transparency on Telenor. Telenor will be required to publish standard agreements and pricing information on its website. Moreover, Telenor will be obliged to conduct cost accounting for LLU.

The authority considered that a general duty of access should be placed on Telenor (ie, Telenor must meet every reasonable request for access in the market for wholesale bundled access). Requests for bitstream access to Telenor's copper access network at level 2¹ will be regarded as reasonable. In addition, Telenor will have the following obligations:

• non-discrimination;

• standard offering; and

• public disclosure.

Telenor will also be obliged to conduct separate accounting of its network operations and its internal service provider operations within wholesale bundled access.

The authority contemplated regulating Telenor's prices in market 12 but concluded that such regulation would not be proportional.

The combined regulation of markets 11 and 12 implies a stricter regulation of the copper network as a fundamental input and a more lenient regulation of access levels where the copper network is one of several inputs. The regulation of these two markets aims to make it easier for new entrants to establish themselves in the Norwegian broadband market.

The authority requested that interested parties present their comments on the proposed decisions on markets 11 and 12 by August 22 2005.

1. See the European Regulators Group's Common Position on Bitstream Access.

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