Regulating duct access for NGA in Europe: lessons from the U.S. regulatory framework

Communications & Strategies, Oct, 2007 by Winston Maxwell, David Sieradzki, Matthew Wood

Aside from Portugal, which has regulated access to the incumbent's ducts since 2004, most European countries are only now examining duct access as a potential new SMP remedy to help regulate next generation access (NGA) networks (1). Is duct access a "silver bullet" in terms of regulating NGA? Certainly not. Duct access represents the next-to-highest (2) step on the NGA ladder of investment (ERG, 2007, p. 50), and will be not be an economically viable entry strategy for competitors in most situations. The remedy will prove useful in new residential FTTH roll-outs in urban areas, as shown by an ARCEP-commissioned simulation covering the city of Clermont Ferrand. ARCEP's data show that regulated duct access would permit a new entrant to deploy FTTH covering 79% of households versus 13% of households in a situation without regulated duct access (ARCEP, 2007, p. 21). The French competitive operator Free is currently seeking duct access as a part of its FTTH roll-out strategy (SCHAEFFER, 2007) suggesting that there is a need for this remedy at least in some Member States. Business-focused operators will continue to rely on regulated wholesale capacity services (bitstream or wholesale leased lines) to connect most customer sites to their networks, duct access being necessary to connect "on-net" customer sites. Residential-focused operators will also continue to rely on bitstream access to compete with the incumbent and build a customer base before moving up the ladder of investment toward fiber infrastructure build-out. While not a silver bullet, duct access helps solve a problem in an NGA environment, which is the difficulty of "unbundling" a fiber access line. Unbundling fiber is challenging from both an operational standpoint (how to unbundle PON?) and an economic standpoint (how to price fiber unbundling so as to encourage investment?). Duct access is less controversial. The remedy is feasible operationally: no one doubts that third party access to ducts is possible, the operational difficulties are linked to knowing where ducts are located and which ones (if any) are available for third party use. The remedy is straightforward economically: as a legacy infrastructure built during the monopoly era, ducts--like the copper local loop--justify cost-based access prices. (The pricing for new ducts is more complicated as we will see below.)

In the United States, competitive telecom operators have had regulated access to ducts since 1996. Cable operators have had access even longer. Importantly, no one today in the U.S. questions the utility of the duct-access rules. This article will describe the U.S. rules on access to ducts, conduits, poles and rights of way, putting those regulations in context with other regulatory measures in the U.S., particularly with regard to fiber. Europeans often cite the U.S. as an example of a regulatory framework with no mandated access for fiber. This is over-simplified. While it is true that the FCC has eliminated most unbundling rules in connection with FTTx networks, the U.S. framework is more complex than what Europeans may read in the headlines. Importantly, access to ducts in the U.S. at cost-oriented tariffs represents the underlying assumption upon which much of the FCC's pro-investment and facilities-based competition policy is based. After reviewing the U.S. framework, we will examine key issues that European regulators will face when introducing duct access.

Summary of U.S. regulations

In the U.S., different regulatory frameworks apply to (i) access to poles, ducts, conduits and rights of way, and (ii) access to network transmission and switching facilities and services on a wholesale basis. We discuss each of these frameworks in turn.

Access to poles, ducts, conduits and rights of way: Incumbent local exchange carriers (ILECs) and privately-owned electric utilities are required to make nondiscriminatory access to poles, ducts, conduits, and rights of way available to competitive telecommunications carriers, including fiber overbuilders, cable operators, wireless carriers and others (collectively referred to as CLECs). The rates for such access are tightly regulated under cost-based formulae administered by the FCC and individual state public utility commissions. This right of access removes a potential barrier to entry for CLECs that seek to construct their own facilities. ILECs' and electric companies' poles, ducts, and conduits are subject to unique pricing formulae that assign to CLECs specified, limited percentages of the net book costs of the asset, based on presumptions regarding the number of entities that could share the use of the poles and conduits/ducts, and the number and size of poles and conduits that incumbents own.

Rates vary significantly from place to place within the U.S. These formulae generally yield annual rental rates that are well below the Total Element Long Run Incremental Cost (TELRIC) based prices that apply to unbundled network elements: broadly speaking, somewhere in the range of 7.00 [euro] to 15.00 [euro] per year per pole and 0.70 [euro] to 2.30 [euro] per year per meter of ducts in underground conduits. There are no geographic limitations on the availability of such facilities at regulated rates. ILECs and electric utilities must provide information regarding their poles and ducts, and must grant access to requesting CLECs within 45 days of receiving a request, unless they can show that access is inappropriate due to lack of capacity, safety concerns, or other generally applicable engineering standards. ILECs and electric utilities are subject to strict nondiscrimination requirements: while they may reserve duct or pole space for their own future needs, they may do so only for their core utility services and not for their future provision of competitive telecommunications or video service. CLECs have recourse to enforcement procedures before the FCC and state public utility commissions in disputes over denials of access, the rates that duct or pole owners may charge, and the reasonableness of other terms and conditions. In the case of the FCC these proceedings often take 12 to 18 months to resolve.