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The ACM proposed regulation of wholesale access provided by KPN in March 2015. Following the expression of serious doubts by the European Commission in a letter of 30 April 2015, the ACM revised its draft decision in July 2015, but nevertheless concluded that KPN has SMP and proposes price controls on copper loops, fibre to the cabinet (VDSL) and fibre to home (FttH).
In this paper we consider the appropriate form of market governance given national competition from cable, a rapid transition from copper loops VDSL and FttH and the development of voluntary access terms including long-term (seven year) agreements with key access seekers.
The ACM have concluded that no player has single dominance and that there is no joint dominance. We agree with this conclusion. The relevant question is then is whether the market would remain effectively competitive absent regulation.
Absent regulation we conclude that the market would remain competitive, that joint dominance would not arise and that KPN would provide open access. Our reasons for this conclusion are as follows:
● The access market is competitive and dynamic with KPN deploying new technologies including VDSL and FttH, the cable networks expected to deploy DOCSIS 3.1 in 2016, and over-the-top providing an additional source of competition in relation to applications including voice and content.
● The market for voice communication would be competitive absent regulation and the business and residential and business access markets can be considered separately.
● It is in KPNs interests to provide open access on commercial terms in order to compete effectively with cable. In July 2015 KPN announced long-term agreements regarding VULA access for VDSL with Online, Tele2 and Vodafone. KPN also offer active access to FttH on voluntary terms. These products are used by many WBA customers and there are long-term agreements in place in some cases.
● A rapid transition from copper loops to VDSL and fibre is planned (and facilitated by the agreements). Copper loop prices will therefore have limited relevance for a short transitional period. If concern remained regarding copper loop prices they could be subject to a safeguard cap.
● The ACM would, absent ex ante regulation, continue to monitor market developments and, as required, conduct market reviews. The market will be subject active to ex post supervision.
We therefore conclude that joint dominance, and harm arising from joint dominance, is unlikely to arise. Coupled with this conclusion we consider that voluntary agreements are likely to be superior to ex ante price controls as a form of market governance on investment and competition grounds.
In relation to investment long term voluntary agreements provide greater predictability and commitment whilst also allowing greater scope for efficient pricing. In relation to competition, improved prospects for investment will act as a competitive spur whilst flexibility to adapt allows KPN and downstream retailers to compete more effectively with cable. If anything, competition would in our view be more vigorous absent ex ante regulation.
We therefore propose that access regulation be lifted and that the ACM focus on ex post supervision. This transition may be facilitated by a strategic review of the functions and organisation of the ACM given the required change in role from price setter to market supervisor.
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