EUROPEAN COMMISSION

Brussels, 26.11.2012 C(2012) 8835 Post och Telestyrelsen (PTS) Box 5398-Valhallavgen 117 SE-102 49 Stockholm For the attention of: Mr. Gran Marby Director-General Fax: + 46 8 678 55 09 Dear Mr. Marby, Subject: Commission Decision concerning Case SE/2012/1379: Price related remedies in Sweden Comments pursuant to Article 7(3) of Directive 2002/21/EC I. PROCEDURE

On 25 October 2012, the Commission registered a short form notification from the Swedish national regulatory authority Post och Telestyrelsen (PTS),1 concerning changes to technical details of the long run incremental cost (LRIC) model previously notified2 for access to and services based on the fixed network for fixed called origination, fixed call termination, fixed network infrastructure access and wholesale broadband access3 in Sweden. The national consultation4 ran from 20 June to 27 August 2012.
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Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), OJ L 108, 24.4.2002, p. 33, as amended by Directive 2009/140/EC, OJ L 337, 18.12.2009, p. 37, and Regulation (EC) No 544/2009, OJ L 167, 29.6.2009, p. 12. See Case SE 2011/1205. Corresponding to markets 2, 3, 4 and 5 in Commission Recommendation 2007/879/EC of 17 December 2007 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (Recommendation on Relevant Markets), OJ L 344, 28.12.2007, p. 65. In accordance with Article 6 of the Framework Directive.

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Commission europenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGI - Tel. +32 22991111

On 7 November 2012, a request for information5 (RFI) was sent to PTS and a response was received on 13 November 2012. Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities (NRAs), the Body of European Regulators for Electronic Communications (BEREC) and the Commission may make comments on notified draft measures to the NRA concerned. II. II.1. DESCRIPTION OF THE DRAFT MEASURES Background

PTS notified the last review of the hybrid LRIC model applied for cost orientated prices in the wholesale markets for (i) fixed call origination, (ii) fixed call termination, (iii) (physical) network infrastructure access (including shared or fully unbundled access) and (iv) wholesale broadband access under case number SE/2011/12056. PTS' last reviews of the abovementioned markets were respectively notified to and assessed by the Commission under case numbers SE/2009/09667, SE/2009/09678, SE/2010/10619 and SE/2010/106210. The hybrid LRIC model11 adopted by PTS calculates fibre and copper based prices choosing fibre and, in certain areas, wireless technology as the Modern Equivalent Asset (MEA) for the copper access technology. The model determines the relevant costs for the regulated services and products, not the access prices. The presence of cost-oriented prices is ensured through the price regulation obligation determined in the SMP decisions. The SMP operator must use the cost results established by the model when setting the charges for the different regulated products and services, and if necessary PTS must order the SMP operator to adjust them in order to ensure that they are cost oriented. The Commission issued comments on the hybrid LRIC model notified in 201112 and invited PTS at that time (i) to further substantiate the adequacy of choosing a forward looking cost model based on fibre as the MEA for the calculation of the local loop access charges, (ii) to further justify, in the final measure, the adequacy of the risk-rewarding methodology chosen for new fibre roll-out to detached houses, and (iii) to comply with the Termination Rates Recommendation already by 1 January 2013. II.2. The draft measure notified by way of a short form

PTS states that the model notified in 2011 remains valid and that this notification only contains changes of technical details and is therefore made available to the Commission
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In accordance with Article 5(2) of the Framework Directive. C(2011)3431 C(2009)7612, for market 2 of the Recommendation on Relevant Markets. C(2009)7619, for market 3 of the Recommendation on Relevant Markets. C(2010)2584, for market 4 of the Recommendation on Relevant Markets. C(2010)2584, for market 5 of the Recommendation on Relevant Markets. The hybrid LRIC model is based on a reconciliation of the bottom-up model, developed by PTS, and the top-down model, based on data provided by TeliaSonera. In principle, the model is reviewed every three years and is updated each year with new market data. The prices of the services are, in principle, set annually. By Decision of 12 May 2011 concerning case SE/2011/1205.
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by means of a short notification form13. The market demand and cost data in the model notified in 2011 were based on data from 2010. PTS explains that in compliance with the current regulations for the LRIC model in Sweden, they must update the cost data of the model for the fixed network every year. The current notification concerns the update of market demand and cost data as well as forecasts for volumes (traffic and access) for the year 2012 for setting the fixed interconnection charges and the unbundling and shared access prices for local and subloops in the wholesale markets for fixed call origination (market 2), fixed call termination (market 3), physical network infrastructure access (market 4) and wholesale broadband access (market 5) previously notified. The main changes reflect 2012 data for, inter alia, the number of lines, voice traffic, data consumption (Gbyte/s) and number of broadband subscribers. The model has also been updated to include Teliasonera's updated reference offer for bitstream so that data are given for new services such as bistream VDSL 30 and 60 Mbit, DSL VoIP access and FTTX VoIP. In the reply to the RFI, PTS explains that the changes also reflect the network change caused by the transition of the SMP operator (Teliasonera) to Next Generation Networks (NGN). PTS explains that as a result of this transition the traffic is moved to regional interconnection points, which means that local interconnection services become obsolete, resulting in a reduction of the modelled costs. In the reply to the RFI, PTS explains that the changes result both in increases and decreases of costs. The increase, for instance, in quarterly rental for a full LLU connection and for dark fibre14 can be explained by the reduction in the number of lines. PTS explains that this is not counteracted by cost savings because the costs of the network infrastructure are driven to a large extent by the coverage of the access area and are relatively fixed. In some other cases, like for instance bitstream services, there is a cost decrease in delivery fees due to the overall increase of traffic volumes in the core network. Other changes such as the declining traffic volumes for voice, which increases the unit cost of interconnection, is partially counteracted by cost savings due to the removal of local interconnection points. PTS confirms in the reply to the RFI that in order to maintain regulatory predictability the updated cost model reflects the glide path for fixed termination rates that was established on 24 April 2008 and included in the notification of the cost model in 201115. According to this glide path, from 1 January 2013 until January 2014, 6/7 of the cost of termination rates will be determined pursuant to a BULRIC model, and 1/7 will be determined according to a BULRIC+ model that includes a mark-up for common costs16, whereas after 1 January 2014 only a BULRIC model will apply. However, PTS also announces that new costs results will be notified to the Commission in a separate
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See point 6 of Commission Recommendation of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, paragraph 6. OJ L301/23. The copper unbundling charge in market 4 increases from 265 SEK/quarter to 291 SEK/quarter, which amounts to 9.8%. Regarding the wholesale charge for the unbundled fibre local loop PTS proposes an increase from 384 SEK/quarter to 417 SEK/quarter which corresponds to a percentage increase of 8.6%. See Case SE/2011/1205 PTS confirmed that as of 1 January 2013 fixed termination costs for double segment termination will be SEK 0.0273 per minute for double segment termination and SEK 0.0215 per minute for single segment termination.
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notification in the spring of 2013 because new decisions for voice call origination and voice call termination at a fixed location should be approved by 1 July 2013. III. COMMENTS

The Commission has examined the notification and the additional information provided by the PTS and has the following comments:17 Forthcoming guidance on costing methodologies Given the importance of ensuring regulatory stability and an effective and consistent regulation of key wholesale access products the Commission is currently working on a recommendation, which will provide guidance on costing methodologies for key access prices. In the light of this, the Commission invites PTS to review its analysis upon publication of the relevant recommendation. Implementation of the Termination Rates recommendation The Commission takes note that PTS wants to ensure regulatory predictability and thus confirms its May 201118 decision to apply a stepped transition scheme for fixed termination rates at least until 1 July 2013. PTS therefore postpones full compliance with the Termination Rates Recommendation by at least half a year after the deadline date of 1 January 2013 as foreseen in the Termination Rates Recommendation. The Commission notes that such postponement will only have a marginal impact on the regulatory outcome because the delay only concerns 1/7 of the cost oriented termination rate. The Commission also recognizes that PTS intends to notify to the Commission a new market review and cost results in spring 2013, with a view to adopt a final decision by 1 July 2013. The Commission would still like to reiterate the importance of ensuring full compliance with the Termination Rates Recommendation by 1 January 2013. For this reason, the Commission invites PTS to review the stepped transition scheme currently applied at the latest in the context of the upcoming review in 2013 so as to bring it in line with the Termination Rates Recommendation. The Commission reminds PTS that if it were to propose a price remedy for the period following 1 July 2013, which would deviate from EU law and the principles of the Termination Rates Recommendation, the Commission could proceed to opening a phase II investigation pursuant to Article 7a of the Framework Directive. Pursuant to Article 7(7) of the Framework Directive, PTS shall take the utmost account of the comments of other NRAs, BEREC and the Commission and may adopt the resulting draft measure; where it does so, shall communicate it to the Commission.

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In accordance with Article 7(3) of the Framework Directive. See Case SE/2011/1205
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The Commissions position on this particular notification is without prejudice to any position it may take vis--vis other notified draft measures. Pursuant to Point 15 of Recommendation 2008/850/EC19 the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission20 within three working days following receipt whether you consider that, in accordance with EU and national rules on business confidentiality, this document contains confidential information which you wish to have deleted prior to such publication.21 You should give reasons for any such request.

Yours sincerely, For the Commission, Robert Madelin Director-General

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Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 301, 12.11.2008, p. 23. Your request should be sent either by email: CNECT-ARTICLE7@ec.europa.eu or by fax: +32 2 298 87 82. The Commission may inform the public of the result of its assessment before the end of this three-day period.
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