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Revision of the Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks

ORANGE FRANCE TELECOM GROUP’S

ANSWER TO THE CONSULTATION

QUESTIONNAIRE for STAKEHOLDERS

Orange France Telecom Group (hereinafter “OFTG”) welcomes the proposition of the Commission and will provide answers for both France (Orange France) and Poland (Telekomunikacja Polska).

Executive summary

Given the stakes raised by NGA deployment, and especially FTTH deployment, in the European Union, OFTG strongly supports the Guidelines for State Aid, and wishes to emphazise that the current revision should bring even more clarity at promoting private initiative and ownership and ensure that public subsidies are effectively used to complement private initiative. The Revised Guidelines should adopt a definition of NGA clearly differentiating between fast broadband (30 Mbs or more) and ultra fast broadband (at least 100 Mbs), in line with the objectives of the Digital Agenda. Public funding should not be granted in areas where private parties have expressed their intention to invest in ultra fast broadband networks in the next 5 years rather than in a 3 year time as stated in the Revised Guidelines. (1. and 3.3.) This extended time period is critical for ultra fast broadband projects which take more time and are particularly complex. As a general principle, public policy objectives and the means to reach them should be carefully articulated so that in particular, public resources are not spoiled by parallel networks roll-out, inconsistent allocation, do not crowd out private initiative and are allocated after robust cost benefit analysis. (1.2. and 2.1.). In particular, public investment in grey areas, in competition with private operators, should be avoided since it discourages private investment. (1.1. and 1.2.) In this regard, a proportionate level of public subsidies is of utmost importance. Wholesale access prices to subsidized infrastructure should not be lower than wholesale prices proposed by private operators in profitable areas. Public subsidies should only compensate for net overcosts of unprofitable areas. (4.1.)

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State aid should not be granted to a competitor in order to compensate for a possible lack of regulation of an SMP operator which must be addressed as such. Indeed, access obligations imposed to an SMP’s operator infrastructure must be designed in a way that allows fair competition between undertakings. (4.2.) As a general rule, there must be consistency between access conditions imposed by the NRAs and access obligations arising from State aid rules. The jurisdiction of NRA to solve conflicts relating to access conditions should be independent from whether there has been a subsidy. (6.1. and 6.2.) Also, in case the allocation of funds runs contrary to the EC Guidelines, there should be a fast track process to cure this instead of the lengthy formal procedure for non compliance. (1.3) Public subsidies should only compensate for net overcosts in non profitable areas in order to avoid distorting competition. Consultation of the NRAs on remedies would only be needed if the public funding has negative effects on competition. This may be the case if the subsidy is obtained by market players which are not considered as having SMP through a national market analysis and therefore escape common access obligation but which are however locally dominant, thanks to the subsidy. In such a case, the NRA should be consulted so that access obligations of the subsidised network are at least equivalent to those imposed to the SMP operator. (5.6.) In case of deployment of subsidized networks, a clear accounting separation shall be made mandatory in order to control the appropriate use of subsidies. However, the subsidized network operator should be able to provide both wholesale and retail services. (8.1.) Generally, governments should support private initiative to build innovative broadband infrastructure whereas private operators should be the recipient of subsidies since they are best placed to manage infrastructure to the best needs of customers. (8.2.)

1. GENERAL QUESTIONS

As a general introductory statement, OFTG would like to underline the importance of the Revised Guidelines on the conditions under which public funding can be used for new broadband infrastructure. In France, several ultrafast broadband infrastructure deployment projects (generally FTTH projects) have been launched or announced by local authorities involving public subsidies. French regions and departments have the legal obligation to define a digital plan (“schéma directeur territorial d’aménagement numérique”) with the aim to improve broadband and ultrafast broadband services for their territory in the next coming years. This plan has to assure consistency of public initiatives with private investment. The French Government has also launched a “programme national très haut débit”, which includes 900 Millions euros of subsidies to complement local subsidies for very high broadband infrastructure

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projects sponsored by local authorities. At the same time, private operators such as OFTG, but also alternative operators like Iliad, SFR or Bouygues have engaged and announced their own investments projects in new FTTH infrastructure, whereas Numericable is upgrading its cable network, deploying a FTTLA (“fiber to the last amplifier”, which is faster to deploy than FTTH but does not enable symmetrical 100Mbs services as stated in the digital agenda for the 50% coverage objective by 2020) and has engaged an aggressive commercial move on the retail broadband market. In this context, it is critical to ensure that public funding is used only for areas that really require it, ie areas that would not be covered otherwise by infrastructure deployed by private operators in the foreseeable future. In this respect, the Revised Guidelines will be a very precious reference document, which reminds the clear principles under which public funding can be used for broadband and FTTH infrastructure. It is important for these Guidelines to be unambiguous and easily enforceable. For FTTH specifically, which concerns the telecommunications infrastructure of the next 30 or 40 years, these Guidelines should take into account the fact that deployment projects covering large countries like France cannot be engaged in all parts of the country within the next coming three years due to operational constraints. Consequently, it would be advisable to take into account this situation to exclude the use of public funding for areas where private projects have been announced within at least 5 years, at least for FTTH projects.

It seems also that a fast track process easy to activate should be put in place, in order to treat within a short delay specific cases of alleged non application of the Guidelines. Indeed, launching a formal procedure for non compliance with these Guidelines is a lengthy process that does not prevent the deployment of subsidized infrastructure in areas which should be covered by private projects only. Moreover, public intervention should not discourage investment and in this regard, it is important to assess the appropriate level of public subsidies for any given project. At the very least, wholesale access prices to the subsidized infrastructure should not be, because of the level of subsidies, lower than wholesale prices proposed by private operators in profitable areas. More generally, public subsidies should only compensate for net overcosts of unprofitable areas.

1.1. Have you been involved in projects of public funding for broadband deployment (for

example, as aid recipient, access seeker, customer of the subsidised network, etc.)? If yes, please highlight what you consider to be the main achievements, challenges and issues which would be relevant in relation to the revision of the Guidelines. If you are familiar with more State aid broadband projects, please highlight what you consider the main strengths and weaknesses of the different projects.

1.1.1. In France, projects with public funding for broadband deployment can be divided in three major categories:

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• Projects based on the deployment of a regional optical backbone network (“réseaux de collecte”) Around 1,5 billion euros of public subsidies was spent on these projects in the last five years. OFTG was rarely involved in those types of projects, because in most cases, the deployed infrastructure just duplicated OFTG networks. In some cases, these projects included the provision of services similar to regulated services provided by OFTG (eg bitstream) at lower prices, thanks to the subsidies. In some others, alternative operators avoided to extend their own backbone or to lease fibre capacity to OFTG by renting fibre on subsidized networks at artificially low prices. As a result, this massive amount of money has hardly resulted in any improvement of broadband coverage, or any long run improvement of service quality1. The Revised Guidelines should on the contrary ensure that public subsidies should not be used to duplicate existing or planned infrastructure or offer artificially low access wholesale prices.

• Projects launched to cover white areas for broadband services

Numerous projects have been launched by local authorities with this purpose in the last three years. OFTG has been very active in those projects, offering the possibility to local operators to upgrade its local loop in order to upgrade the broadband capacity in those areas. This solution proposed by OFTG was an alternative to the use of a Wimax2 or Wifi based solution for the coverage of white areas.3

• NGA projects

In France, local authorities are legally obliged to define a digital plan for the equipment of their territory in NGA and broadband infrastructure (“Schéma directeur territorial d’aménagement numérique”). Numerous NGA projects are under preparation, some of them have already been launched4 and a few are already operational5. At this point in time, OFTG does not use any of these subsidized networks mostly because they do not comply with the national regulatory framework : these networks were deployed without a consultation of operators, in some cases there is no passive access offer or the technical architecture is not compliant with the regulatory frame (insufficient size of the mutualization area) etc… However, OFTG is actively supporting local authorities, which are willing to launch FTTH projects in areas where no projects have been announced by private

1 See “Social efficiency of the investments of local authorities in access and backhaul networks.” François

Jeanjean, for more in depth analysis. http://ieeexplore.ieee.org/xpls/abs_all.jsp?arnumber=5557692 2 OFTG does not use Wimax based subsidized networks, which were deployed in more than a dozen French

departments. 3 It has been used in several cases : in Gironde, Languedoc-Roussillon, Auvergne and Morbihan projects, where

OFTG was selected by the local authority to deploy this solution or in Hautes Pyrénees, Moselle or Oise where an alternative operator was selected.

4 OFTG was selected for one of them in the Laval area to be operational in 2012. 5 Ain and Manche departments, Pau and Bitche cities.

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operators. This is for example the case for the Laval project, which covers only suburban and rural areas where no private operators have announced their intention to deploy infrastructure.

Under French Law, a local authority can act as a telecom operator on its territory directly or indirectly through a private partner. All public subsidies for telecom infrastructure in France have been given to such projects defined by local authorities, to fund infrastructure that remains eventually the property of the local authority. This can be useful when these projects and infrastructure are really complementary to the networks owned and operated by private operators, for example for the coverage of white areas. However, this can create a strong disruption of the market when this is not the case. Access prices may be artificially low because of the subsidies, or private investments may lose their value in those areas where subsidized networks are deployed. As previously stated, public intervention should not create such distortions of competition and in this regard, the level of public subsidies granted to a given project is an important factor. It should lead public local authorities to determine wholesale prices at a level consistent with wholesale prices proposed by private operators in profitable areas as public subsidies should only compensate for net overcosts of unprofitable areas. In the specific case of FTTH, the subsidized infrastructures deployed so far are hardly usable by national operators such as OFTG or Iliad because they are operated by local operators without any suitable operational interfaces with the national operators and in breach of rules imposed by the national regulator. Given the fact that FTTH private investments cannot be engaged in all parts of the country within the next three years, it is of the utmost importance to ensure that subsidized projects are not launched prematurely, by restricting them to areas with no private FTTH projects in the next 5 years. 1.1.2. In Poland, subsidized networks are mostly deployed by local authorities and public administration who are competitors to private operators providing commercial broadband and voice services to business customers. On the other hand, Polish local authorities launch free of charge subsidized hotspots in cities, which may adversely affect the commercial offers targeted at individual customers. Current guidelines of the Polish regulator UKE allow local authorities to run free hotspots, where customers can connect to the Internet in repetitive sessions of 60 minutes around the clock. Despite the limitations of the speed to 256Mb/s and 750MB data limit per month, it competes effectively with commercial offers, particularly with mobile access. Free Wi-Fi network financed by public funds should not negatively affect the competitive conditions on the telecom market. Free hotspots should be available with a very limited functionality and quality, so as to provide basic access to the Internet (and not a functional substitute for commercial offers). Free services based on a subsidized network would, otherwise, distort competition.

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1.2. What is your assessment of the Commission's policy in the field of State aid to broadband in general? In your view, were the Guidelines able to achieve the Commission's policy objectives as detailed in section 0 above? In your view, did the Guidelines strike the right balance between promoting investment in basic broadband and NGA networks and limiting the distortion of competition arising from public intervention?

First of all, the Commission’s policy in the field of State aids to broadband gives a very valuable framework that relies on sound principles. However, a major improvement would be to strictly limit subsidized projects to NGA infrastructure in areas where no private project is planned in the foreseeable future. The three year period suggested by the Revised Guidelines should be extended to five years, given the early stage of development of NGA projects. This extended time period is of utmost importance in the case of NGA based on FTTH. Unfortunately, it seems that some national/local authorities do not sufficiently take into consideration the Guidelines. For example in France, certain local authorities are willing to deploy new telecommunications infrastructure with local subsidies in both profitable and non profitable areas of their territory in order to reduce subsidies by the profit generated by the use of this infrastructure in profitable areas. This scheme is clearly crowding out commercial initiatives and altering private incentives to invest in those areas. The right scheme for local authorities should be to facilitate private investment in the widest part of their territory and to complement it in the residual areas not covered by granting subsidies covering the difference between the deployment cost in the first ones and the costs in the latter ones. The Revised Guidelines should clearly remind this to the local authorities. In Poland, construction of the backbone and distribution networks funded by the EU will undoubtedly improve the availability and performance of the Internet. However, to make the Internet really available, it is necessary to build the most expensive part - the last mile, for which Poland, for example, received only EUR 200 million under the “Innovative Economy Operational Program” - Measure 8.4. However, these funds are intended exclusively for small and medium-sized companies which is, in our opinion, a very inefficient (and also an abusively discriminatory) limitation. To meet the requirements of the European Commission to increase the availability of the Internet, we propose to allow all interested operators to apply for funding construction of the last mile. Limitation of beneficiaries only to small and medium businesses will cause low efficiency in spending public funds. Large operators which could invest massively in the “last mile” will be able to generate significant economies of scale, which are impossible to achieve by small/medium companies. On the other hand, concerns about favoring historical operators are unfounded

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as the operator whose infrastructure is partially funded by the EU has to grant access to other operators according to the EC Guidelines. Moreover, there is no doubt that the European Commission's policy deserves a positive assessment in terms of allocation of about EUR 1.5 billion to build a broadband network in Poland, and reduce the phenomenon of the digital divide among citizens but problems have arisen during application procedure for EU funds as entrepreneurs had to undergo lengthy procedures to obtain permits and to prove financial credibility. The identification of white and grey zones is also problematic because available information on networks is often outdated or inaccurate (e.g. large investment companies block competition by declaring plans to build a few lines in a municipality). Entities interested in funding face also problems with the fulfillment of all formal requirements and completing the applications. Finally, there is also no coordination between the units involved in the allocation of UE funds. In our view, the Revised Guidelines should encourage the establishment of a national coordinator responsible for the entire comprehensive program to build broadband network in Member States in particular when there is participation of EU funds.

1.3. In your view, what are the main technological, market and regulatory developments in this

field since 2009 that should be considered and should have an impact on the content of the revised Broadband Guidelines?

Since 2009, numerous national plans were launched in Europe and should be taken into account by the Revised Guidelines. For example, in France, the following points should be considered and should have an impact on the Revised Guidelines: 1. The “loi Pintat” voted in December 2009, 17th by the French parliament establishes a public fund dedicated for ultrafast broadband infrastructure and makes it mandatory for each region and department to develop its digital plan with the aim to avoid any digital divide caused by the deployment of NGA (which means that solutions shall be defined for the coverage of unprofitable areas).

2. The “programme national très haut debit” defined by the government already identifies 900 M€� of governmental public subsidies to complement local subsidies used for ultrafast broadband infrastructure.

3. Numericable (the French cable TV operator) launched an extensive upgrade program of its cable networks (which cover around one third of the French households) and several aggressive commercial offers of broadband services, bundled with its TV offers. Several private operators including OFTG initiated FTTH deployment programs, launched their

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commercial offers in the major French cities and announced their plans for the next coming years.

4. The French regulator completed the regulatory framework for FTTH deployments, that distinguishes very dense areas (20 most important French cities and a part of their suburbs) and the rest of France. In very dense areas where deployments are already significant, wholesale access offers are commercialized by OFTG, SFR and Iliad. For the rest of France, OFTG has published its wholesale access offer and Iliad has publicly announced its intention to use it.

This demonstrates that France has truly entered into a period of ultra fast broadband deployments with two different approaches running in parallel: private investments and subsidized projects. Therefore, the risk of confusion and market disruption is very high. In this context, the Revised Guidelines should clearly describe in which situations subsidized projects can be launched and fast track procedures should be made available to solve any cases of potential breach of these Guidelines (see paragraph below). In certain countries, joint investments in fibre-based networks (consortia of private operators) may be considered as an appropriate solution with regard to cost and organization, and could lead eventually to a broader NGA coverage. This might be the case for countries like Poland. This types of projects, which could require time to initiate, should not be disrupted by subsidized projects in the same areas. Conversely, those consortia of private operators created to deploy NGA architecture, should be eligible for public subsidies for covering areas where no other NGA projects are planned by other private investors.

2. SUBJECT OF THE AID

The current version of the Broadband Guidelines distinguishes between basic broadband and NGA networks as subjects of State aid measures.

2.1. Do you consider that distinction is justified in light of current economic, technological and regulatory developments in this field?

Yes, in terms of policy objectives, distinction between basic broadband and NGA is still relevant. Nevertheless, taking into consideration recent development in the field of NGA, and particularly the DAE policy objectives, it appears also necessary to distinguish fast broadband from ultra fast broadband. However, those policy objectives and the means to reach them should be carefully articulated so that in particular, public resources are not spoiled by parallel networks roll-out, inconsistent allocation, do not crowd out private initiative and are allocated after robust cost benefit analysis.

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2.2. Would you consider it useful to devote specific sections of the Guidelines to the rules and conditions applying to the use of public funding to subsidize specific infrastructure elements (for instance, ducts, dark fibre, backhaul networks, etc.) or to other activities related to broadband network roll-out (such as civil engineering costs, upgrade of in-house cabling, etc.)?

It would be useful to describe in which case a particular infrastructure element is eligible to receive public funding. In our view, public funding should be used only for networks elements that would not exist without subsidies for economical reasons, and subsidies shall never be used to fund the duplication of existing or projected infrastructure. For example, in dense areas where it is economical to deploy several fibre networks in parallel wherever ducts are available, it might be appropriate to subsidize the construction of ducts where existing ducts are saturated and fibre deployments only when it is economically justified. In rural areas with low density, where fibre deployments reaching each household is very costly, even where ducts capacity is available, it can be appropriate to subsidize fibre deployments. As done in certain countries like Belgium, subsidies could support the demand side (studies show the efficiency of such a policy, compared to the network financing). A particular network element deserves attention because it can be a real obstacle to the deployment of FTTH networks : the in-house wiring and the connection to the network of individual houses, which can represent a very significant part of the cost per household of a fibre local loop. Without subsidies, a large part of the population might not enjoy the benefits of NGA networks only because of the high cost of connecting their individual house to the network.

In line with the NGA Recommendation6, the Broadband Guidelines define very high speed, Next Generation Access ("NGA") networks in paragraph 53 as follows: "NGA networks are wired access networks which consist wholly or in part of optical elements and which are capable of delivering broadband access services with enhanced characteristics (such as higher throughput) as compared to those provided over existing copper networks."

2.3. Do you think that this definition is still adequate? In other words, at this stage of technological and market development, besides fixed, mainly fibre based networks, would you consider any other broadband technologies as falling into the definition of NGA

6 2010/572/EU: Commission Recommendation of 20 September 2010 on regulated access to Next Generation

Access Networks (NGA) - C(2010) 6223.

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networks? Please provide detailed justification and examples of commercial utilization to motivate your answer.

Broadband Guidelines should now be redefined consistently with the objectives of the Digital Agenda (adopted by the European Union in 2010) which makes a clear distinction between NGA delivering 30 Mbs or more (fast broadband) from those able to deliver at least 100 Mbs (ultra fast broadband). In this context, it should be noted that based on current technological trends, fast broadband may notably be delivered on upgraded existing wired access networks, while ultra fast broadband can currently only be delivered via FTTH networks. It should be noted that the Guidelines as well as regulation should be technology neutral.

As stated in OFTG answer to the NGA Recommendation consultation, NGA should also cover satellite and wireless network to the extent that they may locally and under certain circumstances contribute to achieve the Digital Agenda objective more efficiently.

2.4. In your opinion, shall the Commission change the current qualitative definition of NGA (i.e. mainly fibre based solutions) to a more quantitative one (for instance by setting explicit thresholds for download/upload speeds or defining any other technology criteria)? Please motivate your answer.

See the preceding answer to question 2.3. Consistently with the objectives of the Digital Agenda, definitions should be technically neutral while based on targets in terms of performance. At this point in time, it seems reasonable to stick to the performance targets defined by the Digital Agenda. The performance targets of the DAE may be refined in the future and then the Guidelines will have to be updated accordingly.

3. AREAS OF PUBLIC INTERVENTION

The Broadband Guidelines identify so-called "white", "grey" and "black" areas depending on whether there are already adequate private infrastructures in place.

3.1. According to your experience with State aid broadband schemes, would you consider other criteria (for instance download/upload speeds or other technology, regulatory or market criteria) as relevant to identify areas with non-adequate broadband coverage? Do you consider an adequate criterion that if a minimum (download) speed of 2 Mbps is not available at affordable prices, the area shall be considered as "white area"?

The question may be reformulated as whether the word “adequate” in “adequate private infrastructure” should be more precisely defined. Existing references on this subject are:

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- the revised Universal Service Directive which states that the speed allowing “functional Internet” could be defined by Member States,

- the Digital Agenda adopted by the EU which has fixed a target of 2 Mbps for all European citizens in 2013,

- practical experience, where in some countries the priority of local authorities is to help low density areas wait for ultra fast broadband with some form of fast broadband, whereas in other countries, the priority is to guarantee the availability of access which, even through level lower than 2 Mbps, may be considered reasonable, provided that other quality parameters such as stability of the connection are satisfied in order to enable the use of real time services such as VOIP.

The conclusion from these references is that even though 2 Mbps appears as reference from the DAE, the Guidelines should stay sufficiently flexible to cater for the local diversity of situations and of priorities.

The Guidelines distinguish between different types of "white NGA areas" - depending on the existing basic broadband infrastructures in place (white NGA/basic white in paragraph 79, white NGA/basic grey in paragraph 73 and white NGA/basic black in section 3.4.4. of the Guidelines) to ensure that distortions of competition are limited.

3.2. In your experience, has this distinction – and the ensuing differences in the applicable compatibility conditions – helped preserving competition and private incentives to invest?

As a general statement, OFTG considers that the Guidelines have been a very useful document to limit inefficient or distortive public subsidies. The categories used in the Guidelines are a very welcome incentive for public authorities to make detailed local assessments of the actual needs for possible public intervention, based on a precise analysis of broadband and NGA market outcome that should necessarily use the distinction and the definition of areas mentioned in the Guidelines. More in detail, OFTG would suggest that concerning “white NGA areas”, better protection against premature qualification in particular when they concern areas which are grey for basic broadband, or considered as potentially competitive by sector specific regulation.

The Guidelines request that the investment plans of private operators in the next 3 years shall be taken into account when defining the target areas for public intervention (see footnote 31).

3.3. Do you consider that the defined 3 years period is still an adequate time horizon? In your view, what proofs private operators can put forward to demonstrate their investment plans in a certain area?

The answer to this question is not the same for basic broadband and for NGA.

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Regarding NGA, it should first be noted that the corresponding technologies have not yet reached a mature and stable situation. It is thus anticipated that deployment costs will be subject to significant reduction in the future. Furthermore, putting aside any financial constraints deployments, projects cannot be launched everywhere within such a short period of time (3 years) for obvious operational reasons, particularly for FTTH projects that require the deployment of a new local loop for each individual household. Taking France as an exemple where the government has indicated that 70% of the population should be covered by 2020 and 100% of the population by 2025, it is reasonable to anticipate a 15 years time period in order for the country to be fully covered with ultra fast broadband. Therefore it would be counterproductive to try to excessively speed up the roll-out of such ultra fast NGA networks using public money: overall costs would be increased and the strain placed on public funding excessive. In such a context, the Guidelines should prevent any public intervention when a private initiative will start its roll-out within 5 years. This time frame is of utmost importance when dealing with ultrafast broadband networks. In France, the French government launched a “programme national très haut débit”, which includes 900 Millions euros of subsidies to complement local subsidies for ultra fast broadband infrastructure project sponsored and subsidized by local authorities. To identify areas where private investment will not be sufficient, the government invited private operators to declare their projects of investment in FTTH networks starting in the coming five years. Through their answers, private operators commit themselves to deploy ultra fast NGA network without public subsidies in areas that cover around 60% of the population. A detailed map with the areas where such commitment are made is published on the Internet by the French government. This information will be regularly updated as private operators have to declare their projects every two years. This information on private projects is then used by French local authorities in order to establish their digital plan (“schémas directeurs territoriaux d’aménagement numérique”). This shows that at least one Member State considers that a five-year-period is reasonable enough to identify private investment projects in NGA access network. Moreover, all deployments cannot be launched at the same time as these projects take time and are complex. There are different steps in the deployment of an FTTH network. As a first step, operators need to gather enough investment means. Secondly, an agreement must be found with building owners to deploy FTTH network inside buildings. For the most common situation of buildings with several co-owners, these decisions are usually made once a year during a formal meeting of a co-owners. Financial and technical conditions of access must also be discussed with other operators and civil engineering infrastructures must be available. All these elements which have to be successively undertaken justify why a period of five years without any private initiative is necessary.

Private operators do not need to put forward proofs. It is sufficient to regularly communicate 5 year plans (eg at the city level) to a dedicated public entity, that will set up

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the list of areas where subsidized projects can be launched. This can easily be done through the publication of a map on a public web site. If private projects suffer delays without a legitimate justification, the concerned areas might be added to the list of areas where subsidized projects may be launched. Concerning basic broadband and not NGA, as it is already a critical need for the population, a shorter timespan of 3 years may be justified.

4. GENERAL COMPATIBILITY CRITERIA

The Guidelines list the general compatibility criteria in paragraph 51 that all State aid broadband measures have to comply with.

4.1. In your experience, have these conditions reached their objective to foster investments, preserve private incentives to invest and to support effective competition on the subsidized networks?

Criteria in paragraph 51 are important to ensure that State aids are only granted to the necessary extent. Unfortunately, our experience shows that numerous subsidized broadband projects do not meet those criteria and that there is no practical process to ensure that they are met. For example, numerous subsidized regional optical backbones were deployed in areas where OFTG had already deployed its own backbone. These regional backbones are sometimes underused because alternative operators have the possibility to use OFTG dark fiber offer for their backhaul. A fast track process easy to activate should be put in place, in order to treat specific cases of alleged non application of the Guidelines. Launching a formal procedure for non compliance with these Guidelines is a lengthy process that does not prevent the deployment of subsidized infrastructure in areas which should be covered by private projects only. In other cases, subsidized infrastructure are used to offer services similar to regulated bitstream offers provided by OFTG, at prices lower than the regulated prices. However, wholesale access prices to subsidized infrastructure should not be lower than the level of wholesale prices offered by private operators in profitable areas. Otherwise, public subsidies would not only compensate for overcosts and would distort competition. If wholesale prices become inferior in less profitable areas than in profitable areas, il will become more profitable to provide retail services in less profitable areas. As a consequence, operators’ investments in more profitable areas will be depreciated. Furthermore there is always a risk that a regional operator that would have been initially selected to deploy a traditional broadband network with local subsidies extends its field of

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activity towards NGA without any specific open tender process. Thus, §51 should be complemented to ensure such situations are taken care of.

In paragraph 51(e), the Guidelines encourage Member States to use existing infrastructure to avoid duplication of resources and to reduce the aid amount but without giving an undue advantage to the existing incumbents (who typically have significant existing infrastructure in place).

4.2. Do you have experience or examples on the implementation of such condition? In your opinion, how should such condition be implemented in practice to be effective in achieving its objective? Under what circumstances do you consider that access to the incumbent's infrastructure in line with the applicable regulatory framework is a sufficient safeguard?

Whenever the incumbent operator is subject to access obligations defined by the national regulator, this should be considered sufficient to prevent any deployment of subsidized infrastructure that would duplicate the incumbent’s one. State aid should not be granted to a competitor in order to compensate for a possible lack of regulation of an SMP operator which must be addressed as such. Indeed, access obligations imposed to an SMP’s operator infrastructure must be designed in a way that allows fair competition between undertakings. When a State aid is granted to an SMP operator, and if need be, these obligations could be modified or re-enforced by the NRA in conformity with the European framework. The regulation by Arcep of “Montée en Débit” (decision n°11-0668 and two recommandations of January and June 2011) is a typical example of such access obligations. Moreover, this particular rule regarding the incumbent’s infrastructure is no longer justified for infrastructure recently deployed and even less for new deployments. Operators’ investments in infrastructure should be supported by restricting regulatory obligations and only applying to passive infrastructure. The obligations should be symmetrical and non-discriminatory.

5. AID TO NEXT GENERATION ACCESS NETWORKS

The Guidelines require that the subsidized NGA networks shall support effective and full unbundling and satisfy all different types of network access that operators may seek (see paragraph 79).

5.1. Do you have experience with the implementation of the "open access" (i.e. full and effective access) requirement of the Guidelines in case of subsidized NGA networks? Do you have examples for difficulties or disputes and for good practices?

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5.2. Do you consider it adequate that all technologically possible access products are requested from the aid beneficiary to compensate for the advantage obtained by the public funds? Would you consider that certain access remedies could under certain circumstances be deemed to be redundant (e.g. duct access and dark fibre access) and therefore there is no need to request them in all circumstances to ensure a sufficient level of competition? Do you consider that a proportionality analysis shall also be carried out in analogy with the existing Telecoms Regulatory Framework7 and that only a minimum set of access remedies should be imposed to meet the objective of increasing competition and reducing distortion of competition arising from public intervention? If yes, please explain in detail.

An analysis of proportionality seems to be appropriate. It would allow to define what would be an optimal set of remedies balancing the access needs of the competitors and the deployment and maintenance costs. The analysis should be done by the national regulator and the remedies, if any as per the market analysis, should be proportional. But adding rules or remedies under the guise of the principle of proportionality must be avoided.

In France, after three years of work, studies, public consultations, the national regulator defined a set of access obligations to be imposed on any FTTH infrastructure operator. These obligations include various types of passive wholesale offers (line rental, long term rights of use (IRU) with volume discounts etc …) and were considered sufficient to ensure the development of a competitive market. All access seekers will make sure that they may use one of these offers for their own needs to build their retail services. Therefore, there is no reason to impose additional access obligations such as bitstream access to a subsidized FTTH infrastructure or to conduct a specific proportionality analysis since this was already done by the French regulator on a general basis for any type of FTTH deployment. As soon as a State aid is granted, access obligations imposed should be consistent with those imposed by the regulatory framework but should not go beyond. Conversely, regarding infrastructures that are not subject to regulatory access obligations (for example for FTTLA, fiber loops terminated by coax in-house cabling), open access should be made mandatory for each projects benefiting from subsidies.

Pursuant to paragraph 79, the wholesale access obligations on the aid beneficiary should last for at least seven years - without prejudice to any other regulatory obligations.

5.3. Do you consider this 7 year period adequate to ensure competition in the areas concerned without discouraging private investments? Would it be justified to require a longer period, for instance in case of passive access products (e.g. ducts)? If yes, please explain in detail.

7 See: http://europa.eu/legislation_summaries/internal_market/single_market_services/l24216a_en.htm.

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Wholesale access obligations, on a non discriminatory basis and under reasonable conditions, should be mandatory for a sufficient period of time, as long as a similar obligations are not already in place under existing regulation. A longer period seems unjustified. This issue should be reassessed after the completion of first projects adopted in line with the rules set out in the Revised Guidelines. It would then be possible to rely on actual elements. Ducts access is a particular issue since ducts remain over a long period of time an essential facility that cannot be easily duplicated over time. A 7 year period access could be insufficient.

The Guidelines expresses its preference for multiple fibre networks: "In this respect it should be noted that "multiple fibre" architecture allows full independence between access seekers to provide high-speed broadband offers and is therefore conducive to long-term sustainable competition. In addition, the deployment of NGA networks based on multiple fibre lines supports both "point-to-point" and "point-to-multipoint" topologies and is therefore technology neutral."

5.4. What is your experience with multiple fibre infrastructures? Do you share the view that it may not be economically justifiable to deploy multiple fibre networks in rural areas? Or would you see multiple fibre infrastructures as an essential investment to achieve competition in the concerned area in the long run?

OFTG gained experience in FTTH deployment during the last three years. In very dense areas, the French regulator imposes multi-fibre deployment for in-building wiring whenever an operator requests its own fiber per household. At this point in time, only one operator has made such a request; all others share OFTG’s view that a mutualised mono-fibre architecture is sufficient and more economical. As a matter of fact, the vast majority of currently mutualised in-building wiring is based on mutualised mono-fibre. For less dense areas, multi-fibre has not been deemed appropriate by the French regulator. It is quite justified, as mutualisation of terminating segments of FTTH networks is mandatory at a reasonably located mutualisation point, from which a point to point network is deployed to each individual household. This obligation is also technologically neutral.

Certain types of network architectures (e.g. FTTH/P2P networks) are argued to be better in promoting competition as they allow full and effective unbundling (as compared for instance to FTTH/GPON infrastructure), albeit being generally regarded as more costly technological choices.

5.5. Have you been involved in NGA projects? Do you have experience with requesting effective unbundling, perhaps on different technology architectures? Do you have examples of good practices using one or the other technology?

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OFTG is currently deploying FTTH networks in the 20 most important cities of France and more than 500 000 households are eligible to FTTH services using OFTG infrastructure (through OFTG or any alternative operator mutualising OFTG infrastructure). From a technical and operational standpoint, French regulation in less dense areas seems to be a good compromise between accessibility, technological neutrality and efficiency and may therefore be seen as an example of good practice. Under this regulation, terminating segments of FTTH networks have to be available to access seekers through a reasonably located mutualisation point. From the mutualisation point down to the optical plug located within the end customer’s house, the network is actually point to point and consequently each line can be effectively unbundled. Before the mutualisation point, each operator deploys its preferred technology (GPON or point to point). Outside very dense areas, mutualisation points should cover an area of at least 1000 households, which we consider to be the maximum size enabling GPON networks to be reasonably deployed.

5.6. Besides the conditions specified in paragraphs 75 and 79, do you consider any other

conditions that beneficiary companies constructing subsidized NGA networks shall comply with in order to increase competition and reduce the distortion to competition arising from the public intervention?

These conditions seem to be sufficient. The remaining issue would be whether an efficient mechanism is put in place to ensure that these conditions are met prior deployment of any subsidized infrastructure. Such a mechanism should be defined by each Member State before granting any subsidies for NGA networks. Paragraph 79 provides that Member States should consult the relevant NRA to determine wholesale access conditions. But public subsidies should only compensate for costs in non profitable areas in order to avoid distorting competition. Consequently, there is no need to impose specific obligations and to consult NRAs, provided the regulatory framework applies. Consultation of the NRAs would only be needed if the public funding has negative effects on competition. This may be the case if the subsidy is obtained by market players which are not considered as having SMP through a national market analysis and therefore escape common access obligation but which are however locally dominant, thanks to the subsidy. In such a case, the NRA should be consulted in order that access obligations of the subsidised network are at least equivalent to those imposed to the SMP operator. Moreover, paragraph 75 regarding grey NGA areas and paragraph 73 regarding white NGA areas provide that before granting an aid to a NGA network, Member States must demonstrate that there are no less distortive means (including ex ante regulation) to reach the stated objectives. These “less distortive means” are not defined in the Guidelines but OFTG considers that they should include any measure aiming to upgrade the available

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bandwidth on existing networks, as long as regulatory access obligations guarantee a non discriminatory access to the enhanced network. Indeed, as fibre networks and copper networks offer similar services (according to the French Competition authority (avis n°11-1-05, 8 March 2011), wholesale access to copper network and wholesale access to optical fibre are part of the same relevant market), any measure upgrading the available bandwidth on existing network providing wholesale open access should be considered less distortive than State aid to NGA networks. When such a measure is planned, there should not be any public intervention concerning NGA in this area, even if there is no project to invest in NGA networks within the next five years.

6. THE ROLE OF THE NATIONAL REGULATORY AUTHORITIES ("NRAS")

The Guidelines foresee an important role of the NRAs in helping granting authorities to set the wholesale access conditions. According to paragraph 79, "in setting the conditions for wholesale network access, Member States should consult the relevant NRA. NRAs are expected in the future to continue either to regulate ex ante or to monitor very closely the competitive conditions of the overall broadband market and impose where appropriate the necessary remedies provided by the applicable regulatory framework. Thus, by requiring that access conditions should be approved or set by the NRA under the applicable Community rules, Member States will ensure that, if not uniform, at least very similar access conditions will apply throughout all broadband markets identified by the NRA concerned."

6.1. In your opinion, how could NRAs help (national or local) authorities with their State aid broadband measures? Do you consider appropriate that access conditions should always be approved by the NRAs? Do you consider any limitations for the involvement of the NRAs in State aid broadband measures? If you have been directly involved in aid projects, did you experience any difference when the access conditions were imposed as a regulatory measure as opposed to an access obligation deriving from the State aid rules?

There must be consistency between access conditions imposed by the NRAs and access obligations deriving from the State aid rules. The latter ones have to be the same as the obligations imposed by the NRAs to NGA operators. This is necessary to ensure that subsidized infrastructures are truly available for access seekers.

The regulatory framework should not discriminate against selected operators and should support prompt launching of investments. One solution, already adopted by some European regulators, would be not to impose bitstream obligation, at least during an initial stage of the development as it is the case in France, Portugal, Spain, Denmark, Greece and Italy. The European Union also pays more and more attention to symmetrical obligations for all operators with telecom ducts, whose cost represents the majority of costs incurred while deploying fibre-based infrastructure. Operators should be mandated to offer access to their duct infrastructures to other market players. In Poland, this mainly concerns CATV

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operators in the broadband market in large cities where their market share considerably exceeds that of Telekomunikacja Polska. Relying on the experiences of other countries, it would be worthwhile to support joint investments made by operators in NGA.

In several State aid cases, the NRAs undertook to solve disputes between the operator of the subsidized network and the access seekers, should any such dispute emerge.

6.2. Do you have experience with such procedure? How do you see the role of NRAs to solve disputes between the access seekers and the operator of the subsidized network?

NRAs have jurisdiction to solve certain disputes between operators. This should be independent from whether the concerned network has been subsidized or not. At this point, we have no direct experience of such dispute resolution between an operator of a subsidized network and an access seeker.

7. TRANSPARENCY OF STATE AID MEASURES

According to the Commission's case practice in this field, granting authorities shall share all the important information of the schemes with stakeholders. Inter alia, they have to publish on a central webpage the mapping information on the target areas, the planned State aid measure, and all information shall remain public for minimum 1 month to allow all third parties to comment. The tender procedures for granting aid have to be conducted in line with the principles of EU Public Procurement Directives8, respecting all conditions for transparency and non-discrimination.

7.1. Do you consider that the information made available in the described ways is adequate to ensure transparency? Do you have suggestions on how the transparency of State aid broadband schemes could be further improved? Can you provide examples of good practice when it comes to information provided on the State aid broadband measures in different stages of the procedure?

Transparency is critical to ensure that procedures involving granting of public subsidies are fairly conducted. All information on a subsidized project should be published for a sufficient period of time to give all stakeholders the opportunity to oppose the project, if a breach of the Revised Guidelines is identified. Hence, the precise area covered by a subsidized project should be published sufficiently in advance for private investors to react if infrastructures

8 Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the

coordination of procedures for the award of public works contracts, public supply contracts and public service contracts.

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already exist or if they plan to deploy infrastructures in those areas. Moreover public funded networks should not be authorized in areas were private roll-out is planned to start within 5 years. Therefore, before they launch a project, public authorities should be required to check the absence of any private plan in the next five years.

8. OTHER POINTS

Several Member States requested vertical separation on the subsidised networks (the wholesale operator of the network shall not engage in retail service provision) to avoid risk of discrimination, support competition and push take-up rates as a result of public intervention9.

8.1. In your view, what would be the costs and the benefits of requesting this condition? In what circumstances would you consider vertical separation to be an effective remedy?

According to article 13a of the access directive, vertical separation shall be an exceptional measure, when other appropriate obligations imposed failed to achieve effective competition and when important and lasting competition issues and/or market failures are identified. In case of deployment of subsidized networks, a clear accounting separation should be mandatory in order to control that subsidies are appropriately used and that there is no discrimination in the use of the subsidized networks. This accounting separation should be regularly audited by the relevant entity. More radical separation might lead to unnecessary costs through the duplication of expertise within the concerned operator, without any tangible benefits for access seekers. The division of subsidized network into wholesale and retail parts is not the only remedy to avoid the risk of discrimination, support of competition and increased penetration of networks funded by public money. Such a strict division into two separate entities generates higher operational costs (e.g. higher headcount, duplication of IT infrastructure). In our view, the subsidized operator should be able to provide both wholesale and retail services. In order to ensure non-discrimination, suitable mechanisms and procedures should be introduced to ensure equal treatment of all entities applying for access to subsidized networks.

8.2. In what circumstances would you consider that public ownership is justified? What are in your view the advantages/disadvantages of public ownership of the infrastructure?

In our view, there is no reason for telecommunications infrastructures to be owned by public authorities. Private companies have demonstrated their ability to efficiently manage

9 See examples of Commission decisions in cases of N407/2009 Optical fibre Catalonia (Xarxa Oberta), Spain;

N183/2009 RAIN project, Lithuania or N196/2010 EstWin project, Estonia.

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telecommunications infrastructure, and the regulatory obligations arising from the European regulatory framework proved that this private ownership is consistent with the development of truly competitive retail markets. An open European telecommunications market would not be consistent with nationalized or regionalized infrastructure. Therefore, the Revised Guidelines should clearly provide that State aids might benefit to private companies, where conditions for granting them are met. The telecommunications infrastructure in the vast majority should be owned by private companies. In our experience, only commercial companies are able to effectively manage the assets owned by ensuring adequate rates of return and end-customer satisfaction. The role of public authorities should be to create the appropriate regulatory and legal framework to allow private operators to compete effectively and develop their networks and offers. National authorities should secure law enforcement, monitor broadband market and stimulate its growth through appropriate regulatory policy. To ensure a dynamic network development, private companies should have an incentive to bear the investment risk. Governments should support private initiative to build innovative broadband infrastructure, eg, by deferring the regulation of operators, granting financial aid or allowing tax relief.

9. NON-AID MEASURES: MEIP AND SGEI

The Guidelines provide clarifications on broadband measures falling outside the scope of State aid rules, in particular when public funding for the roll-out of broadband is carried out at market terms ("MEIP" Section 2.2.1. of the Guidelines) and when Member States consider that the provision of a broadband network should be regarded as a service of a general economic interest ("SGEI" Section 2.2.2. of the Guidelines).

9.1. Do you have any experience with "MEIP" or SGEI" instruments used in European countries?

There is a Commission decision declaring a project as SGEI whereas we consider that actually the relevant criteria are not met. Indeed, the case at hand is DSP 92, an area which should be considered a black zone under the EC Guidelines criteria. The objective of the subsidy is to enhance the economic development of the region. This should in effect not be considered as falling into SGEI. That is why decisions taken in application of the Altmark criteria should usually concern rural sectors or less developped regions. In the Guidelines, it is also provided for that subsidies have the objective of mitigating a failure of the market. Regarding DSP 92, the subsidy was not only granted in a black zone, it was also granted in a disproportionate manner and on the basis of selection criteria not known in advance. The project in effect aims at lowering costs of NGA services but has no social aspects. There is no guarantee of universality as the project has been split in two phases and the first phase concerns the most profitable areas. In addition, the company selected to build the new network is duplicating an existing one.

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This project is all the more surprising as the local authorities had the information beforehand that other operators such as OFTG, for instance, had the project to invest in that same area. There, the subvention has merely the effect of creating a third actor on the market.

9.2.Do you consider that the current level of detail provided in the Guidelines on MEIP and SGEI is sufficient? Do you have any comment on the applicability of these provisions?

In our view, should the broadband network be treated as a SGEI, the operator providing this service to business and private customers should have guaranteed return of all incurred costs.

9.3. The Guidelines insist on a strict definition of what constitutes an SGEI in the liberalised

telecom sector (universal and compulsory nature, open and neutral network, separation of wholesale and retail operations etc.). Have you experienced special difficulties with the implementation of this type of measures?

See answer to question 2.1. 9.4. Do you consider it adequate that for SGEIs all technologically possible access products are

requested or would you consider that certain access remedies could under certain circumstances be deemed to be redundant (e.g. duct access and dark fibre access) and therefore there is no need to request them to ensure a sufficient level of competition? If yes, please explain in detail.

Generally speaking, the mandatory provision of all technologically possible access products is not cost effective and can lead to inefficiencies if access products that do not correspond to the needs of any access seekers have to be developped. The SGEI should at least be subject to the same obligations imposed by an existing regulation to other operators (in particular obligations imposed on a significant market player or any symmetrical obligation imposed to all operators). If the regulation is mature enough, this should be sufficient.

A reciprocal wholesale access to broadband infrastructure is needed to avoid duplication of infrastructure or the emergence of monopolies in local telecommunications markets. Regulatory policies regarding access, however, should encourage all stakeholders to invest in infrastructure. Current regulation often discourages small operators to invest. Instead of investing they prefer waiting until the SMP bears the cost of investment and is forced to resell at regulated rates. Thus, we support the provision of feasible and reasonable access products. The access policies should be symmetrical for all players (in particular access to ducts owned by CATV) and motivating to invest. It could be advisable to distinguish between “access

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obligation”, which should be proportionate and limited to a minimum set of offers, and “access commercial offers”, which could be wider.

10 FINAL REMARKS

10.1. You are invited to highlight and explain any other relevant points related to the Broadband Guidelines.

Very fast broadband networks evolution will foster economic development of the EU, raising competitiveness and innovation. In this regard, Europe should take inspiration from Asian countries (e.g. Korea, Japan), where many more FTTH networks have been built thanks to governmental programs and light regulations. We believe that private companies should build and provide broadband networks. The Revised Guidelines should be aimed at promoting private initiative and ownership. Market must not be overregulated to avoid an inefficient use of public resources such as network building in advance of any actual demand for service or without robust cost-benefit analysis. The Revised Guidelines should clearly provide that State aid should be granted to private operators in unprofitable areas.