New step in telecoms unbundling finds tough hurdles

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An attempt by the Italian Parliament to further liberalise telecom services has spurred an unprecedentedly tough reaction from top European operators and regulators that say the changes could protect vested interests.

With an amendment added last minute to a draft law meant to reduce red tape, the lower chamber of Parliament introduced a new liberalisation measure in Italy’s telecoms market.

MPs decided to allow so-called last-mile operators to choose their own repair and maintenance providers for telephone exchanges, which link the infrastructure between telecom networks to a customer's home (see background).

Currently Telecom Italia selects the providers of these services and negotiates prices on behalf of third-party operators.

“These services produce an annual turnover of around €400 million in Italy, of which €100 million are paid by third operators,” said Innocenzo Genna, a senior European telecoms consultant.

Genna estimates that maintenance and repair services constitute one-fifth of total costs paid by alternative operators to rent infrastructure from Italy's main fixed-line service provider.

If alternative operators were able to select these service providers on their own, they could reduce costs and make offers to consumers more competitive, the consultant said.

This liberalisation has been already introduced in other European countries.

An unprecedented European backlash

The Italian debate has spurred a wave of reactions in Brussels, triggering tones which are unusual for highly technical telecom disputes.

First came a letter of the industry association ETNO addressed to the EU commissioner in charge of telecoms, Neelie Kroes, warning her of the dangers posed by the Italian draft law and calling on her “to take urgent action”.

ETNO’s move was mirrored by the body that represents EU telecoms regulators, BEREC. In a press release, the usually discreet group voiced its “deep concern over Italian legislative moves to undermine regulator’s independence.”

Italy’s telecoms regulator, AGCOM, should be in charge of defining rules on access to telecom networks and services related to unbundling.

But is AGCOM’s independence really in danger? Observers of the Italian telecom sector claim that maintenance of telephone exchanges does not constitute a core telecom service.

What’s more, many argue that AGCOM is often seen as being too close to the core provider, Telecom Italia. There had been many calls to liberalise access to service providers, but AGCOM has regularly delayed decisions.

Positions

The group of national telecoms regulators, BEREC, said in a press release: “It is with great concern that we learned of the recent passage by the lower house of the Italian Parliament of a government decree purporting to regulate the terms of access to Telecom Italia’s network.”

“Under European law, the imposition of economic regulation, including access obligations, on Italian operators is the exclusive province of the national regulator, AGCOM. This has been clear since the adoption of the revised European Framework in November 2009, pursuant to which national regulators must operate independently from any other body in relation to the performance of their regulatory tasks. This means that regulators’ powers and discretion to design appropriate economic regulation for their markets must not be fettered by national legislation,” the note adds.

Ryan Heath, spokesperson of the commissioner in charge of telecoms, Neelie Kroes, maintained a neutral position. “The Commission is aware of the amendment. We are examining it and are in contact with the Italian authorities. If we find concerns with the amendment the first step will be to write to the Italian authorities to outline those concerns. We fully respect the role of the Italian Parliament, but likewise our job is to ensure that national law fully complies with the EU telecoms rules.”

The association of telecoms top operators ETNO, in a letter to Kroes, said “the new Italian rule is introducing the possibility for competing operators to have access to the copper pair, without paying maintenance and repair costs.”

ETNO argues that “repair and maintenance are elements fully embedded in the definition of a well functioning copper pair to be rented for unbundling purposes to access seekers and part of the relevant costs for local loop unbundling.”

“The new article is seriously affecting the legal implementation of the EU Framework for our sector, because it modifies the definition of copper unbundling as provided for by the Access Directive. The new rule is also unduly limiting the competences and independence of the Italian national regulator, because it introduces new regulation by-passing the role of the national regulatory authority to define access obligation”.

The association of telecoms alternative operators ECTA said in a statement: “The Italian law requires the liberalisation of wholesale activation, maintenance and fault repair services, opening up these services to competition. This measure should bring lower prices and a better quality of services to consumers as a result of increased competition.

“These services in Italy are already outsourced to external contractors, but the dominant operator has currently a monopoly in negotiating such deals. It would now be required to allow alternative operators to negotiate directly with the same external contractors, likely resulting in lower prices and more efficient performances.”

Background

The telecommunications sector consists of two distinct parts: the infrastructure network and the services carried over the network.

The so-called ‘last mile’ or ‘local loop’ is the link between the subscriber’s home and the exchange to which it is connected.

Thanks to regulation over the unbundling on the local loop, alternative telecoms operators can provide services to customers in the last-mile using the network which former public operators inherited after the waves of privatisations in the 1990s.

Some services remain in the hands of historic operators even though they are used by competitors. One of these services concerns maintenance of telephone exchanges.

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