Equivalence of output in Italy Brussels 29 April 2014

1. Equivalence of output in ItalyBrussels29 April 2014 • Davide Gallino • Head of Unit, Equivalence of access • Electronic communicationsNetworks and Services Directorate - AGCOM • d.gallino@agcom.it • Disclaimer: Any views or opinions presented hereby are solely those of the author and do • not necessarily represent those of the institution

2. EOI and EOO • In the European regulatory framework, there are two recognizable types of equivalence: • Equivalence of Inputs (EoI): the downstream access product retailed by the incumbent uses exactly the same physical upstream inputs as the downstream product supplied to its competitors, e.g. same tie-cables, same electronic equipment, same exchange space, etc. The (wholesale) product development process is therefore exactly equivalent in its provision in terms of functionality and price. • Equivalence of Outputs (EoO): the access products offered by the incumbent operator to alternative operators are comparable to the products it provides to its retail division in terms of functionality and price, but they may be provided by different systems and processes. • (BEREC guidance on functional separation - BoR (10) 44, pg. 7-8.)

3. Recent Non discriminationmilestones • In 2011, EC promoted a consultation on: • Non Discrimination Obligation Under Article 10 Of The Access Directive, including Functional Separation Under Article 13a); • In 2013, non discrimination was “encoded” in a Recommendation which also cover cost accounting obligations (C(2013) 5761 final ) • The two (ND and Equivalence) go together since non-discrimination can be economic, technical, or both. But it is helpful to have ND provisions and more specific rules for EOI/EOO.

4. Equivalence of access and non discrimination in Italy. The path to EOO • 2000 • In July 2000, 26 alternative network operators wrote a joint letter to AGCOM to protest against the discriminatory practices, which, according to them, were used by TI, the incumbent operator. TI was accused of delaying (business/technical) operations, squeezing the margins of alternative operators, discriminating these operators to the advantage of the downstream divisions of TI operating in the same markets, using technical and economical discrimination as an anti-competitive weapon. • May 2002 • Following a year-long investigation, including a detailed procedure and the opinion of the national Competition Authority, a landmark decision (152/02/Cons) was adopted by AGCOM in May 2002. That decision focused on ensuring equivalence of access and non-discrimination (“parità di trattamentointerna-esterna”). The decision imposed on TI (as SMP operator) included the adoption of margin squeeze tests, accounting separation and a cost accounting methodology. Functional separation between the IT-systems of the wholesale and retail divisions of TI was also imposed, together with publishing service level agreements (SLAs) to ensure technical non-discrimination. In pursuing non-discrimination, • 2008 • In addition, starting from 2008, as a result of accepting TI’s Undertakings (effective from 1 January 2009), monitoring and implementing Equivalence of Output (EoO) became an iterative process. Such processes imply close monitoring, facilitating technical solutions and implementation of detailed business support and operational support systems. The current model has thus a relatively long history. • 2014 Non discrimination rules, including margin squeeze tests, are updated periodically

5. Equivalence of outputs (EOO) • Whereby wholesale products offered by TI to altnetswould be comparable to those offered to its retail • activities, but the underlying processes did not have to be exactly the same. • Also, the business/operations support systems may differ.

6. EOO in Italy - Situation in 2011

7. Ordering/TT (provisioning and assurance) Ordering/TT (provisioning and assurance) Open Access: Production of SMP Access services Current Equivalence of Output model according to TI’s (2014) Technical Equivalence KPITI RETAIL TI Retail TI Retail Production of TI’s retail access services End User End User Altnet Retail Altnet Retail Production of Altnet’s retail access services End User End User KPIAltnet • The EoO model adopted by TI ensures a complete process symmetry between TI Retail and Altnets. In fact, TI’s Retail and Altnets have an equivalent interface with OA • All employees in charge of the provisioning and TT assurance, for both TI and Altnets, are in OA • National Wholesale Services is only in charge of the commercial and administrative/contractual relationships between TI and Altnets

8. Compliance regime design • AGCOM • Delibera n. 718/08/CONS dell’11 dicembre 2008, acceptedUndertakings. Thisdecisioncalled for • a) Establishing a monitoringgroup (GMI, chaired by an AGCOM officer – Head of Unit) with regulatory/compliance/sanctionsfunctions; • b) Setting up OTA –Italy to addresstechnical and new emergingissues in accessprovisions; • c) Setting up an NGN Committee (Next Generation Network) Italia, to discusstechnicaleconomical and organizationalissues in the transitiontowards NGA • OdV§ 7 of the Undertakingscalled for the establishment of a Complianceverification body (Organismo di Vigilanza or OdV), financed by Telecom Italia, with a Presidentappointed by

9. Compliance regime 2014 • AGCOM • Delibera n. 718/08/CONS dell’11 dicembre 2008, acceptedUndertakings. Thisdecisioncalled for • a) Establishing a monitoringgroup (GMI, chaired by an AGCOM officer – Head of Unit) with regulatory/compliance/sanctionsfunctions; • b) Setting up OTA –Italy to addresstechnical and new emergingissues in accessprovisions; • c) Setting up an NGN Committee (Next Generation Network) Italia, to discusstechnicaleconomical and organizationalissues in the transitiontowards NGA • OdV§ 7 of the Undertakingscalled for the establishment of a Complianceverification body (Organismo di Vigilanza or OdV), financed by Telecom Italia

10. Equivalence of output according to AGCOM = high resolution regulation • Crisis management and prevention • Exactrules + Moral suasion supported by threat of sanctions • Some (voluntary) Undertakingsturnedinto (mandatory) Remedies (already in 2009) • SLA and penalties (service levelguarantees) regularlyenforced (fine shouldnot be a price) • KPI lessrelevantuntil the systemisreally fine-tuned

11. Prevention #1 – «Line overhaul» and «Cabinet upgrade» planned/executed, 2013

12. Prevention #2 «Yellow lights» • In the transition from bitstream ATM to Ethernet, manycentralofficesbecomesaturated or nearly so. An earlywarningsystem («yellow light») wasdevised in order to reduce sales rejections; the systemalsopointed out areas for prioritization of investments. 2013, DSLAM ATM 7 mbit/s

13. EOO also a moving target • Levels of performance need to evolve over time • New wholesaleproductsmightrequireadjustments to establishedprocesses or outrightinnovation(es. «dumb» cabinet becomessmart) • Delivery, provisioning time and fault management mightbecomean important part of altnet’s commercial strategy: these are assetsthatneed to be protected by NRAs, especiallywhen the incumbent’s network is an essentialfacility

14. Current performance of EOO / 2014 Unsatisfactory performance in terms of provisioning and delivery (migration over activelines, numberportability,missing or wrong entries in recordsthat cause unjustifiedorderrejections), and assurance (fault management, includingrecurringfaults) Complexsystemgeneratescomplexinteractions and new problems Some processesneed to be designed from scratch (i.e. access to cabinets in co-operative Fttcabdeployments); others evolve over time (transition to ethernet from ATM)