Finding an appropriate regulatory framework for next generation access (NGA) networks has for long been a widely debated question for regulators across Europe. These networks are seen as a key driver of wider economic growth—given the increasing speeds and new services provided over them—but there is a trade-off between promoting competition while at the same time providing sufficient incentives to actually invest in new fibre-based networks.
eircom, the incumbent fixed line operator in Ireland, is rolling out a fibre-to-the-cabinet (FTTC) network to cover around one million Irish premises by the end of 2014. Against the backdrop of eircom’s investments on the one hand, and the increasing infrastructure based competition emerging in Ireland on the other, Oxera designed pricing principles and methodologies to regulate eircom’s prices for its new next generation wholesale products.
Oxera first assessed whether price regulation is required at all, and, if required, what type of price regulation would be proportionate in Irish circumstances. Critically, Oxera concluded that a conventional ‘cost-based’ price regulation may not make economic sense in Ireland where UPC, the cable operator, has been gaining market shares at an increasing pace. To maintain and promote further competition, ComReg followed Oxera’s recommendation and introduced a ‘margin squeeze test’. The remedy is designed to preserve market entry whilst not putting disproportionate restraints on eircom’s retail or wholesale pricing. The regulation also ensures consistency in the pricing of current and next generation wholesale products. ComReg’s approach was also welcomed by eircom, as the incumbent praised ‘the regulatory certainty’ achieved through ComReg’s new approach.
ComReg’s decision is timely also from a European perspective, as the European Commission has recently issued draft recommendations endorsing similar pricing framework for NGAs as introduced by ComReg.
Felipe Florez Duncan, Head of Oxera’s Communications Team, commented “The coherent framework designed by Oxera and applied by ComReg can set the pace for national regulatory authorities in other Member States as they grapple with the complex issue of how to regulate the industry in the transition from copper to fibre networks. Oxera’s report sets out appropriate pricing methodologies that can be adjusted to meet particular market conditions in different Member States.”