• Friday, March 01, 2024
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Vertical integration, non-price discrimination and NCC proposed broadband open access model

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In 2013, the Nigerian Communications Commission (NCC) proposed the open access model for next generation optic fibre broadband network (open access model) in order to fast track the nationwide deployment of broadband infrastructure in Nigeria. Further to this, the NCC has auctioned spectrum for the delivery of broadband wireless access on a wholesale basis. At the moment, NCC has commenced the process for selecting infrastructure companies (InfraCos) who will be licensed on a geographical basis and play a key role in the open access model. The industry structure arising from the open access model will comprise of 3 main layers; Passive Infrastructure (Layer 1); Wholesale Layer (Layer 2); and Retail Service Providers (RSPs-Layer 3). Some of the players in this industry such as the Wholesale Wireless Last Mile Provider (WWLMP) may be vertically integrated and compete in the same retail market with access seeking RSPs.

In this article, I make regulatory recommendation that is expected to guide NCC in dealing with the issue of non-price discriminatory access under the open access model.

Industry Structure of the Open Access Model

The industry structure in the open access is comprised of 3 layers that are; Passive Infrastructure layer (Layer 1) responsible for the design, building and operation of the passive next generation broadband network (NBN) infrastructure such as rollout of fibre, maintenance of ducts, handholes and manholes; Wholesale layer (Layer

2) responsible for the design, building and operation of active NBN infrastructure (e.g. terminal equipment, optic fibre electronics, routers, switches, data centers); and  RSPs who purchase bandwidth connectivity from wholesale operator (s) and provide broadband services to retail end-users.

The players operating in this industry are; InfraCos who shall deploy metropolitan and regional fibre and provide end-to-end transmission services available at points of access (PoAs) to access seekers on a non discriminatory, open access and price regulated basis; WWLMP who shall construct, maintain, operate on a nationwide basis, for the purpose of providing point to point or switched/unswitched point to multipoint communications for the conveyance of voice, data, video or any kind of message. The WWLMP shall be required to interconnect with the InfraCos at their PoAs; Vertically Integrated Telco Companies consisting of mainly existing private telcos that have presence across the 3 layers; National Long Distance Operators (NLDOs) consisting of private companies that construct, own and operate transmission networks for carrying long distance telecommunications services within Nigeria; and RSPs who are expected to ride on the WWLMP to provide retail services.

Vertical Integration in the Open Access Model

The open access model imposes some form of control and ownership restrictions on only InfraCos. In this regards, an InfraCo shall; not have “effective control” over another access provider such as an ISP; not be under the “effective control” of an access provider; and not be under the “effective control” of a controlling entity as an access provider. However, it is unclear whether an access provider as used in this context means both a wholesale and retail access provider or any of them. The open access model defines “effective control” to mean the ability of a controlling entity to cause the controlled entity to take, or prevent the controlled entity from taking, a decision regarding the management and major operating decisions of the controlled entity.

Except for the above example of control restriction imposed by the open access model, nothing prevents other players in the industry such as the WWLMP from owning a RSP or vice versa. It is instructive to note that condition 12 of the wireless access service license (WWASL) applicable to the WWLMP, only relates to joint venture agreements that may lead to vertical integration once the WWASL has been issued to the WWLMP, and not prior to the issuance of the WWASL, for example where the WWLMP’s ownership of a RSP (or ISP) predates the issuance of the WWASL. The vertical integration as illustrated by this hypothetical scenario gives the WWLMP both the commercial incentive and the ability to discriminate in provisioning network access to access seeking RSPs who compete in the same retail market with the WWLMP, thus denying such RSPs a meaningful opportunity to compete.

Regulatory Treatment of Non-Price Discrimination

The phrase “non-price discrimination” in this article relates to non-price parameters of broadband network access such quality of service, access to information, strategic design of essential product characteristics and the technical configuration.

Section 97 Nigerian Communications Act 2003 (the Act) requires that all interconnection and/or access agreement between Communications licensees (including players in the open access model) must comply with the principle of non-discrimination. Also, section 101 (2) of the

Act enacts the general obligation of licensees not to discriminate against an access seeker in these clear terms: The access provided by one provider (“the first provider”) to another provider under subsection (1) of this section shall be of at least the same or more favourable technical standard and quality as the technical standard and quality provided on the first provider’s network facilities or network services, thus the Act expressly forbids non-price discriminatory access by both vertically integrated and non-vertically integrated licensees.

In addition, discriminating in providing access to competing operators in certain circumstance can be a conduct deemed capable of a substantial lessening of competition under section 8 (b) of the

Competition Practice Regulations applicable in the Communications sector. In the Australian case of Stirling Harbour Services Pty Ltd v Bunbury Port Authority [2000] FCA 38; (2000) ATPR 41-752, the Court said that to work out whether competition is being substantially lessened… “there [must] be a purpose, effect or likely effect of the impugned conduct on competition which is substantial in the sense of meaningful or relevant to the competitive process”. Obviously, in the context of the open access model, a non-discriminatory access is critical to broadband competition, as such discrimination will restrain competition on the downstream market on which the access seeker is operating or planning to operate.

In a situation where the WWLMP is vertically integrated with a RSP, condition 4.1 of the WWASL requires the WWLMP not to show undue preference to or exercise undue discrimination (whether in respect of charges, application of discount schemes, or other terms or conditions applied or otherwise) against any particular person or persons of any class or description in respect of the provision of a service under the licence; or the connection of any equipment approved by NCC. Condition 4.2 of the WWASL further provides that the WWLMP will be deemed to have shown such undue preference or to have exercised such discrimination if among other things, it unfairly favours to a material extent a business carried on by it or by its lawful telecommunications associates so as to place at a significant competitive disadvantage persons competing with that business.

Recommendation and Conclusion

The question of non-discrimination in granting network access is a key broadband policy issue today and a very important regulatory tool to ensure a level playing field in the market for broadband services.

Non-discrimination is a key element of the open access model.

According to NCC, the open access model will ensure that all operators, whether large or small, have equal (and non-discriminatory) access to broadband infrastructure.

To provide clarity in the regulatory obligation not to discriminate under the open access model, the NCC should as a matter of urgency define what constitutes “discrimination” or “discrimination between\ access seekers”, and clarify how this non-discrimination obligation is to be interpreted on a case-by-case basis. The European Commission (EC) stated in its Recommendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment (2013) that it is particularly difficult to detect and address non-price discriminatory behaviour through the mere application of a general non-discrimination obligation. According to the European Commission in its consultation on the application of the non-discrimination obligation under Article 10 of the Access Directive, a lack of clarity surrounding the scope of non-discrimination obligation can result in ineffective regulation.

In defining what constitutes “discrimination”, NCC may want to note the definitions adopted by regulatory authorities in other jurisdictions. For instance,  the Australian Competition and Consumer Commission (ACCC) has adopted a two part test in its definition to wit; (i) whether access seekers belonging to the same class have been given an equal opportunity to obtain the same term or condition, or receive the same treatment; and (ii) whether any differences inN opportunity between access seekers belonging to the same class are consistent with statutory objectives, thus the ACCC will deem a difference in the terms, conditions or manner of treatment between access seekers as discriminatory unless it passes this test. Also, the United States Federal Communications Commission has defined Nnon-discriminatory access to unbundled network elements to mean “first, the quality of an unbundled network element that an incumbent LEC provides, as well as the access provided to that element, must be equal between all carriers requesting access to that element; second, where technically feasible, the access and unbundled network element provided by an incumbent LEC must be at least equal-in-quality to that which the incumbent LEC provides to itself”

The obligation not to discriminate in providing access to network infrastructure seeks to ensure that service providers, in particular where they are vertically integrated, do not discriminate against their competitors in favour of their own downstream operations, thus preventing, restricting or distorting competition. In the broadband ecosystem, the access-granting network controls the most important “essential facility” necessary for downstream retail operations, and enjoys a position of dominance in the upstream access market. In this regard, the primary consideration for NCC should be to take proactive steps in dealing with discriminatory access in such a way as to counterbalance market power wherever it may occur along the broadband value chain.

Chukwuyere ([email protected]) is a Solicitor at Streamsowers & Köhn.