Regulation

Regulation

Overview

The summary of the regulatory framework below describes the telecommunications industry in the EU, and Denmark in particular. It is intended to provide a general outline of the most relevant telecom regulations applicable to TDC's operations in Denmark and is not intended to be a comprehensive description of such regulations.

The regulatory framework

European Union

Regulatory framework

The revised European regulatory framework (the '2003 Framework') requires EU Member States to impose certain obligations on providers designated as having Significant Market Power. These obligations are intended to be proportionate to the market failure found in a market where one participant (or more) has Significant Market Power. The legislative instruments constituting the 2003 Framework were supplemented by the European Commission (the 'EU Commission') Recommendation (C(2003)497) of 11 February 2003 on relevant product and service markets within the electronic communications sector (the '2003 Significant Market Power Recommendation'). The 2003 Significant Market Power Recommendation defines eighteen specific markets and concerns the identification of product and service markets in which regulatory obligations can be imposed on providers designated as having Significant Market Power. The 2003 Significant Market Power Recommendation was amended and replaced by a new Commission Recommendation (C(2007)5406) of 17 December 2007 (the '2007 Significant Market Power Recommendation'). The 2007 Significant Market Power Recommendation reduces the number of markets from the eighteen original markets to seven new markets. Currently, NITA (the National IT and Telecom Agency) is in the process of assessing the new markets and reassessing its previous decisions regarding the original eighteen markets where operators with Significant Market Power are under Significant Market Power obligations. Until decisions have been made in relation to the relevant new markets and original markets, the decisions regarding the relevant original markets continue to apply.

On 4 November 2009 the European Parliament and Council of Ministers entered into an agreement regarding a revised regulatory framework (the 'EU Telecoms Reform'). The EU Telecoms Reform is to be implemented in national legislation in the EU Member States by 25 May 2011. Some of the most prominent elements in the EU Telecoms Reform are (i) the right of European consumers who have concluded an agreement to port a number to a new operator, to have that number activated within one working day (number portability), (ii) the goal of an open and more "neutral" internet, and (iii) functional separation as a way to overcome imperfect competition. Functional separation entails an obligation imposed on a provider with Significant Market Power to establish operationally separate business units for the wholesale and retail business segments of the provider in order to secure a provision of fully equivalent net access products to all retail providers, including the provider's own vertically integrated retail business.

International roaming

International roaming is regulated by the EU Roaming Regulation. The EU Roaming Regulation imposes a number of obligations on EU mobile providers, such as maximum charges relating to wholesale and retail prices for voice, SMS and data. The EU Roaming Regulation has reduced the level of the roaming charges, which in some areas, has had a negative impact on TDC's revenue and earnings.

Denmark

Denmark has fully implemented the 2003 Framework. The EU Telecoms Reform is expected to be implemented by 25 May 2011. On 17 November 2010, a bill for an amended act on electronic communication network and services (the 'Tele Act Bill') was introduced by the Minister of Science, Technology and Innovation. One purpose of this act is to implement the EU Telecoms Reform. The Tele Act Bill also proposes several other changes to the Danish Tele Act. For example, a proposal has been made to grant NITA more scope for discretion in its decisions regarding Significant Market Power obligations. From TDC's perspective, the changes regarding price control, stand-still periods and number portability are the most important.

Regulatory framework

The Danish regulation regarding operation of electronic communications networks and provision of electronic communications services is extensive. The Danish Tele Act is the main legal act in the Danish regulatory framework and contains the overall regulation regarding end-user aspects, universal services obligations, numbering aspects and interconnection.

Regulation of providers with Significant Market Power

Danish Tele Act regulation

The Danish Tele Act contains several provisions placing obligations on providers designated as having Significant Market Power in an identified market. The designation of Significant Market Power in a particular market segment is based on a market decision by NITA (see ' Market Analysis' below).

NITA is required to impose on providers with Significant Market Power one or more of the following obligations with regard to interconnection:

  • meeting all reasonable requests for access to interconnection
  • non-discrimination
  • transparency in connection with interconnection and new interconnection products
  • accounting separation
  • price control and cost accounting systems

In certain events and subject to prior consultation with the EU Commission and with the EU Commission's consent, NITA may impose other obligations than the above-mentioned on providers with Significant Market Power.

The Tele Act Bill will grant NITA increased flexibility regarding obligations to be imposed on providers with Significant Market Power. The content and scope of such obligations will no longer be stated directly in the legislation but will be decided by NITA in the market decisions. This will allow NITA to tailor the design of the Significant Market Power obligations, including the content and scope, with the aim of solving any competition problems it may identify. Further, as part of the implementation of the EU Telecoms Reform, the Tele Act Bill will - under particular exceptional circumstances - allow NITA to impose a functional separation obligation on providers with Significant Market Power. TDC does not expect to be subject to obligations of functional separation. In addition, as part of the non-discrimination obligation, the Tele Act Bill will introduce an obligation of stand-still periods, where in a market decision and subject to a transparency obligation, NITA can require Significant Market Power providers to apply a stand-still period when the provider is introducing new or amended wholesale products.

Market analyses

According to the Danish Tele Act, NITA is required to conduct market analyses on a regular basis for the purpose of assessing whether individual markets are sufficiently competitive. In markets where NITA has identified a lack of sufficient competition, it designates one or more providers as having Significant Market Power.

NITA has performed market analyses and made market decisions on the eighteen markets defined in the 2003 Significant Market Power Recommendation. Following the 2007 Significant Market Power Recommendation, the eighteen original markets have been reduced to seven new markets, and NITA is currently in the process of reassessing its previously made decisions regarding those of the eighteen original markets that are comprised by the seven new markets in the 2007 Significant Market Power Recommendation. In addition, NITA is currently in the process of assessing the wholesale market for SMS termination.

Markets where TDC has Significant Market Power and is subject to Significant Market Power obligations

NITA has designated TDC as Significant Market Power provider in a number of the original markets and has designated TDC as Significant Market Power provider in the seven new markets. In addition, the draft for the market decision regarding the wholesale market for SMS termination published by NITA on 1 July 2010 suggests designating TDC as Significant Market Power provider in the market and imposing a number of Significant Market Power obligations on TDC, including regulating the prices using a long-run average incremental cost (LRAIC) model. The price regulation is expected to reduce TDC's prices for SMS termination. The draft also suggests designating Telia, Telenor and Hi3G as Significant Market Power providers with Significant Market Power obligations in the market.

In the majority of the markets where TDC is designated as Significant Market Power provider, including the seven new markets, TDC is subject to the Significant Market Power obligations listed above. Where TDC is subject to the Significant Market Power obligation of price control, the pricing method generally used is the LRAIC method. The Tele Act Bill proposes a change of the current price control regulation. The current Danish Tele Act includes exhaustive lists of possible price control methods, whereas the Tele Act Bill does not include such lists but provides a definition of the considerations to be regarded and the legal framework applicable to NITA when exercising price control. As a result, the LRAIC method may not be the preferred price regulation method in the future. On 7 May 2009, the Commission recommended changing the long-run incremental cost method for wholesale termination rates in both landline and mobile networks. According to this recommendation, incremental costs should be defined as avoidable costs. The application of such an avoidable cost method will lead to a significant reduction in the wholesale prices that TDC will be able to charge. This recommendation was implemented in Denmark through a revised Executive Order on the LRAIC model, but the principles have not yet been implemented in the applied LRAIC models.

NITA's market decision at 22 December 2010, regarding the new market 1 - the market for access to the public telephone network at a fixed location for residential and non-residential customers - imposes a number of Significant Market Power obligations on TDC in respect of wholesale purchase of PSTN and ISDN subscriptions, including the use of a historical-cost pricing method and not the LRAIC method. Wholesale purchase of PSTN and ISDN subscriptions was regulated in the original market 8, where TDC was subject to the pricing method 'end-user price adjusted for saved costs'.

The most important market decisions for TDC's business are the new wholesale markets 4, 5 and 7, where TDC is subject to Significant Market Power obligations. Each of these markets is described below.

Market 4 - the market for wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location

NITA's market decision at 1 May 2009 regulates access to the local loop in Denmark. This market includes only copper and not fibre or other access infrastructures. TDC is designated as Significant Market Power provider in this market and is under Significant Market Power obligations such as price control. As a general rule, the prices for access are set using an LRAIC model.

Market 5 - the market for wholesale broadband access

Pursuant to NITA's market decision regarding this market, at 22 December 2009, the market definition includes access to broadband via copper, coax and fibre. According to the market decision, TDC has Significant Market Power in this market and is under Significant Market Power obligations regarding access to BSA via copper and coax but not via fibre. The pricing is set using an LRAIC model. The requirement regarding offering wholesale BSA to broadband via coax will come into effect when the following two conditions are fulfilled: (i) an LRAIC model for wholesale BSA via coax has been developed and comes into effect, and (ii) a competitor has formally requested BSA to broadband via coax. After the two conditions have been met, TDC has six months to implement and start offering BSA via coax at prices set according to the LRAIC model.

TDC has appealed the 22 December 2009 decision made by NITA to the ordinary courts with respect to the obligation to offer wholesale BSA to broadband via coax not owned by TDC but where TDC supplies broadband services to the households connected to the network and controls the frequencies necessary for broadband distribution. In TDC's opinion, TDC is not required to offer wholesale BSA to broadband via coax not owned by TDC unless this is explicitly provided for in an agreement between the owner of the network and TDC, but the decision is unclear in relation to these obligations.

On 3 November 2010, NITA issued a supplementary decision requiring TDC to offer wholesale BSA to broadband via its fibre network. The decision imposes a number of obligations on TDC including establishment of fibre access to households. The prices will be determined based on an LRAIC model. However, until the LRAIC model has been developed and implemented, the pricing will be based on the historical cost method. The decision came into effect on 3 December 2010. TDC has appealed part of the decision to the Telecommunications Complaints Board.

Market 7 - the market for voice call termination on individual mobile networks

NITA's market decision at 8 March 2010 designated TDC as Significant Market Power provider in this market and imposes a number of obligations on TDC, including price control. Telia, Telenor and Hi3G have also been designated as Significant Market Power providers in this market and are under Significant Market Power obligations. The mobile termination prices of TDC, Telia, Telenor, and Hi3G are set using an LRAIC mobile model.

Number portability

Pursuant to the Danish Tele Act, a provider of electronic communications networks or services shall ensure that its end-users are able to retain their subscriber numbers when changing from one provider to another provider (number portability). Accordingly, end-users shall be able to retain their subscriber numbers when changing between providers. Service providers are not required to provide 'cross-number portability', for example, from a landline number to a mobile phone number, but only mobile to mobile or landline to landline. As part of the implementation of the EU Telecoms Reform in Denmark, the Tele Act Bill requires providers to ensure that end-users may have their numbers ported within one day in contrast to the EU Telecoms Reform which only requires activation of the number within one day.

Universal service obligations

At 1 January 2009, TDC was designated as the universal service provider in Denmark, in line with the Universal Service Directive and Danish Executive Order regarding Universal Service Obligations. This regulation implies that regardless of their geographical location, all customers have a right to be offered a number of basic telecommunications services such as landline telephony, ISDN networks and services, a certain minimum set of leased lines, special universal services for disabled persons, directory enquiry services, an electronic directory, and certain radio-based maritime distress and safety services. TDC must deliver the services covered by the universal service obligation on reasonable terms to anyone requesting such services. The universal service provider appointment expires in 31 December 2014 with an option for NITA to extend the period by up to two years.

Anti-terror measures

As part of the anti-terrorism action plan issued in 2005, the Danish parliament has passed an act requiring telecommunications providers to provide communications interception services without compensation of costs for associated investments. In addition, an executive order regarding registration and retention of information on telecommunications traffic (the 'Danish Retention Order') was issued. The Danish Tele Act contains regulations regarding how providers must assist the police with intervention in the secrecy of communications in the form of, e.g., interception, and how providers shall set up and arrange their technical equipment and their technical systems such that the police may have access to intervene in the secrecy of communications. The Danish Tele Act is supplemented by the Danish Administration of Justice Act, which also contains regulations regarding how providers shall assist the police with intervention and access to data, including data contained under the Danish Retention Order. Under the Danish Retention Order, a provider of an electronic communications network and services to end-users must retain telecommunications traffic generated and processed in the provider's network for such data to be used in criminal proceedings. The retained data must be stored by the provider for one year. The obligation of retention of telecommunications traffic does not apply to the content of such traffic.

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