Integral tariff regulation for end-userand interconnection services

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Memorandum of findings

Integral tariff regulation for end-user

and interconnection services

OPTA, 26 April 2002

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Chapter 1. Introduction

1.1 Objective

1. The commission of the Independent Post and Telecommunication Authority (hereinafter: the Commission) herewith publishes its memorandum of findings with reference to the market consultation it organised regarding the topic of integral tariff regulation for end-user and interconnection services. This market consultation was based on the consultation document titled “Integral tariff regulation for end-user and interconnection services” of 26 November 2001 (OPTA/EGM-IBT/2001/203548) (hereinafter: the consultation document), which can be found along with this document on the OPTA website (www.opta.nl).

2. In the consultation document, the Commission addressed four topics. These were: regulation of the tariffs applied by KPN for interconnection and special access, the content and structure of the financial reports to be submitted each year by KPN, the issue of allocation of wholesale specific costs, and the Biba issue. With reference to these topics, the consultation document describes the Commission’s consideration of a number of measures that represent more far-reaching integration of the systems currently applied for tariff regulation of KPN’s end-user and interconnection services and/or that intend to avoid the squeeze and ‘biba’ issue.

3. This memorandum of findings is firstly intended to indicate what the Commission’s final viewpoint is regarding the manner in which the future tariff regulation for the end-user and interconnection services that are offered by KPN should be integrated, as well as regarding solutions to the squeeze and biba issues. This final viewpoint was determined in part based on the viewpoints and insights submitted to the Commission by interested parties during the market consultation.

4. Secondly, in this memorandum of findings the Commission will discuss the new ONP framework determined and published on the European level, which must, in principle, be implemented in the national legislation no later than 24 July 2003. The future integral tariff regulation cannot, in the Commission’s opinion, be considered separately from this new ONP framework, which has specific consequences on future retail tariff regulation. Because the future tariff regulation of the fixed public telephone service supplied by KPN was not addressed as a separate issue in the consultation, in this memorandum of findings the Commission will indicate the conditions under which it intends to effectuate the applicable retail tariff regulation in the coming period in keeping with the new ONP framework.

5. Thirdly, this document explains the concrete details and process to be applied in effectuating the draft nature of the final viewpoint determination. This will clarify how the various elements included in the viewpoint determination will relate to one another in time and the measures the Commission intends to take in order to operationalise these elements.

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applied for tariff regulation. The operational details of this regulation model must then be determined.

1.2 Contents

7. The memorandum of findings consists of three parts, compiled as follows. Part I discusses the new ONP framework, also indicating the extent to which the system of the new ONP framework can already be applied in tariff regulation for the fixed public telephone service supplied by KPN. 8. Part II discusses the Commission’s final viewpoint regarding the topics presented to the market

parties for consultation. With reference to these topics, the memorandum of findings follows the same structure as the consultation document in so far as possible. The questions as presented in the consultation document are repeated, followed by a concise summary of the reactions received from the market regarding the various questions posed in the consultation document. The reactions to each question are followed by the Commission's final viewpoint1_.

9. Part III discusses the interrelationships between the topics presented in Part II, what their interrelationships will be in time, and the measures that are intended in order to operationalise these elements.

10. The public versions of the written reactions to the consultation document as received from the interested parties can be viewed on the OPTA website.

1_{With reference to the summaries of the responses from interested parties, it must be emphasised that the}

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Part I

Tariff regulation within the framework of the new ONP

11.

This section discusses the new ONP framework and indicates the consequences the Commission believes this framework will have on the regulation of tariffs for the fixed public telephone service. Chapter 2 briefly explains the existing statutory framework. Chapter 3 discusses the future statutory framework, after which the market analysis is explained in more detail in Chapter 4. The Commission presents its views on the manner in which retail tariffs will be regulated in the future in Chapter 5.

Chapter 2. Existing statutory framework

12. If a provider is identified in the existing statutory framework as a provider with significant market power (hereinafter also: SMP) on the market for fixed public telephony, the obligation of cost orientation formulated within the current ONP framework automatically applies. Based on this obligation, the Commission assesses both the upper limit and the lower limit of the tariffs for the end-user services supplied by KPN based on cost orientation. The maximum level of the end-user tariffs is assessed on cost orientation using the system of price caps as effectuated on 1 July 1999 (hereinafter: price cap)2_.

13. Based on this system, the tariffs for a number of services supplied by KPN, including the connection, the traffic inside (biba) and outside (buba) of the local region, as well as from a fixed to a mobile connection, should decrease by a certain average annual percentage. The duration of the price cap system is three years and ends on 1 July 2002. The assessment of the lower limit of the tariffs based on cost orientation is performed by means of the price squeeze tests3_{. A price squeeze exists if the end-user tariff as proposed by KPN for a service, including}

any discounts, is lower than the service's underlying interconnection tariffs, increased by a reasonable margin to cover retail-specific costs.

14. A complete review of the ONP framework and accompanying ONP guidelines has been performed on the European level. Section 27 of the new Framework guideline4_{provides a transition}

framework. This section of the directive states that all existing specific obligations with reference to access to and use of the public telephone service, carrier selection (hereinafter: CS), carrier pre-selection (hereinafter: CPS) and leased lines will remain applicable until the National Regulating Authority (hereinafter: NRA) – i.e.: the OPTA Commission – has determined whether effective competition exists on the relevant markets in accordance with the new framework based on market analysis, as well as whether the existing obligations will be continued, modified or withdrawn. Moreover, based on Section 27 of the Framework guideline, existing SMP

designations will remain applicable until the NRA has determined whether the relevant company (companies) should be designated as provider(s) with significant market power based on the market analysis.

2_{Decision by the Commission of 27 September 1999 regarding price caps for KPN telephone tariffs 1999 – 2002,}

OPTA/EGM/99/7526.

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Chapter 3. Future statutory framework

3.1 Future ONP framework

15. The new ONP framework must be implemented in the national legislation. An implementation period of 15 months is provided; the final implementation date may not be later than 24 July 2003. This ONP framework strives to provide a harmonised framework for electronic

communication networks and services in the European Union. The framework addresses the tendency towards convergence because it has been specified as applicable to all electronic communication networks and services. An objective of the framework is to reduce ex ante sector-specific regulation as competition on the market increases.

3.2 Main principles

16. In a Recommendation to be announced by the European Commission, the product and service markets will be identified that the European Commission has found to have market structure characteristics that justify ex ante application of specific obligations. According to Section 15 of the Framework guideline, relevant markets are defined on the basis of the principles of general competition law. In so far as we know, the Recommendation for fixed public telephony will distinguish between two retail product markets: access to the public telephone network via a fixed connection (“at a fixed location”) and use of the public telephone services via a fixed connection5_{. In order to deviate from the markets identified by the European Commission,}

permission is required from the European Commission in accordance with the procedures described in Section 7 of the Framework guideline.

17. The NRAs perform an analysis of the relevant markets identified in the Recommendation or those defined by the NRAs - with permission from the European Commission - in order to determine whether effective competition exists on those markets. Section 16.1 of the Framework guideline determines that in this market analysis the NRA must follow the European Commission’s draft guidelines regarding the definition of relevant markets and assessment of significant market power6_.

18. Section 16.3 of the Framework guideline determines that the NRA will not apply specific obligations if and when it concludes, on the basis of the market analysis, that there is effective competition on a certain relevant market. In that event, the NRA will withdraw any existing specific obligations.

19. If the NRA concludes, on the basis of its market analysis, that there is no effective competition on a certain relevant market, it designates one or more companies based on 16.4 of the Framework guideline as having significant market power on that market and applies fitting specific obligations to these companies.

5_{The relevant retail markets as identified by the European Commission are broader than the markets currently}

identified by this Commission. In actual practice at this time, this Commission has identified markets including those for local traffic, national traffic, fixed-mobile traffic, international traffic, and 0800/090x traffic.

6_{Commission services working document, draft guidelines on market analysis and the assessment of significant}

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3.3 Obligations on retail markets

20. Based on Section 17.1 Universal Services guideline7_jo_{Section 16.2 of the Framework guideline,}

the NRA can apply specific obligations with reference to the regulation of retail tariffs if:

a) the NRA concludes, on the basis of its market analysis, that competition is not effective on the relevant retail market, and

b) the NRA determines that measures in the area of wholesale and the introduction of C(P)S would not result in achieving the objectives of the new framework (stimulating competition and protecting end-users)8_.

21. If both of these conditions are satisfied, the NRA designates the party with significant market power and subjects it, in so far as fitting, to specific obligations to compensate for the lack of actual competition. These obligations may mean that the SMP may not apply excessively high prices nor excessively low prices, may not subsidise certain user groups, and may not bundle services in an unreasonable manner (Section 17.2 Universal Services guideline). In assessing whether it is fitting to apply obligations ex ante, the NRA must strive to promote an open and competitive market for electronic communication networks and services and the relevant facilities, to develop an internal market, and to promote the interests of the citizens of Europe. Based on Section 17.2 Universal Services guidelines, NRAs may apply specific measures, e.g. retail price caps, measures to regulate individual tariffs, or measures to base tariffs on costs or prices in comparable markets, in order to protect end-users and stimulate competition. 3.4 Tentative conclusions

22. Based on Section 16 of the Framework guideline, the NRA must perform a market analysis of the retail markets as identified by the European Commission. If the NRA determines, on the basis of the market analysis, that there is effective competition on the relevant retail markets (i.e., there is no party on the relevant market with significant market power), the European guidelines prohibit ex ante regulation on retail markets.

23. A situation that is similar to a certain extent occurs if it must be concluded, on the basis of the market analysis, that there is no effective competition on the relevant retail markets, yet the NRA determines that the obligations ensuing from the Access guideline9_{or that are related to}

carrier (pre-) selection will result in the foreseeable future to achieving the ONP objectives of stimulating competition and protecting the end-users on that retail market.

24. However, if the NRA determines, on the basis of the market analysis, that there is no effective competition on the relevant retail markets (i.e., there is a party on the relevant market with significant market power) and the NRA concludes that the obligations ensuing from the Access guidelines or related to carrier (pre-) selection will not result in the foreseeable future in

7_{European Parliament and Council Directive no. 2002/22/EEC dated 7 March 2002 (L108/51).}

8_{A ‘double condition’ of this type does not apply on the wholesale level; in principle, only Section 16 of the}

Framework guideline applies there.

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achieving the objectives of the ONP framework, the NRA may apply fitting ex ante retail regulation.

Chapter 4. The market analysis explained

4.1 Market definition

25. For regulating KPN’s end-user tariffs for fixed public telephony, the Commission currently distinguishes between more retail markets than the European Commission does in its Recommendation, which is yet to be announced in its finalised form. The Commission has identified (sub-) markets including those for fixed connections, local traffic, national traffic, fixed-mobile traffic, international traffic, and 0800/090x traffic. Although no definite comments are being made at this time as to which markets will ultimately be determined as relevant, the Commission does not exclude the possibility that a similar distinction in sub-markets will also be made in the future.

26. The Commission will urge the European Commission during the consultation with reference to the Recommendation, which is expected to start in April 2002, to allow for a more segmented subdivision in relevant markets. If this request is not honoured, the Commission will consider requesting permission, on the basis of the market analysis, for a possible subdivision of the retail markets. This would be done based on the Section 7 procedure of the Framework guideline. 4.2 Measuring effective competition

27. In paragraph 19 of the draft guidelines10_{, the presence of effective competition on a certain}

relevant market is understood to be the same as no presence of parties with significant market power on that market. Holding a position of significant market power is defined in Section 14.2 of the Framework guideline as holding a position of economic power in accordance with the principles of general competition law. According to Section 14.2 of the Framework guideline, this means that one or more companies hold a position of economic power that enables them to behave, to an important extent, independent of their competitors, buyers and ultimate end-users.

4.2.1 Determining significant market power

28. The following text provides a non-restrictive indication of the factors that, in accordance with the principles of general competition law, are relevant in assessing whether a position of significant market power exists. These factors pertain to determining a single SMP position. The text does not discuss the issue of determination of collective SMP positions. The factors listed below are assessed in relation to one another.

Market share

29. The market share is the first indication of whether or not significant market power exists. A single SMP position is not assumed to exist with market shares of less than 25%. Normally

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speaking, a single SMP position only exists when market shares amount to more than 40%. Extremely large market shares (more than 50%) in themselves, except under exceptional circumstances, strongly indicate the existence of a single SMP position.

Dynamics of market shares

30. A stable and large market share indicates that SMP may be present. Fluctuating market shares, by contrast, indicate that no SMP is present. A decreasing market share indicates that

competition is increasing but does not exclude the existence of SMP. Other qualitative and quantitative criteria

31. In analysing SMP, a large number of qualitative and quantitative criteria are involved with which the position held by a company is measured relative to its competitors. These criteria include: scope, financial strength, extent of vertical integration, technological superiority, extent of diversification, extent to which advantages of scale and scope are achieved, and access to end-users. A combination of these factors may indicate the existence of SMP.

The scope and importance of the network

32. The scope and importance of a company’s network may also indicate SMP if they enable the company to behave independently of other network providers.

Obstacles for new market parties

33. Obstacles for new market parties are an important factor in determining SMP. A lack of obstacles for new market parties can discipline the market behaviour of the parties. In assessing SMP, the extent to which obstacles for new market parties are structural is also important. A large market share combined with high, structural obstacles for new market parties strongly indicates that SMP exists.

Potential competition

34. The presence of potential competition can mitigate significant market power, albeit that there must then be sufficient indication that new competitors will actually be able to enter the market in the foreseeable future and that they will in fact bring competitive pressure.

4.2.2 Using ex ante regulating instruments

35. Once SMP has been identified on a retail market, the Commission can place obligations on the relevant SMP’s provision of retail services11_{. These obligations are described in more detail in}

Sections 17 through 19 of the Universal Services guideline. The obligations applied must be proportionate on the basis of Section 8 of the Framework guideline. This means that the obligations must be proportionate to the shortcomings identified on the market.

36. The following text provides an indication of possible market situations in which these obligations could be applied.

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Exceptionally high prices

37. It will be possible to regulate the upper limit of the end-user tariffs applied by the SMP party if the deficiencies for effective competition identified on the relevant market are of such a nature that the market situation gives insufficient stimuli to offer consumers a choice at a good price. Price caps should then imitate a situation in which competition actually exists.

38. Relevant indicators for identifying the deficiencies referred to above include for example market share, profit margins achieved (yield), price development, the presence of alternatives, the existence of thresholds for consumers wishing to change providers, and obstacles for new parties entering the market. For the record, it must be noted that removing obstacles for new parties and switching thresholds is an essential but insufficient condition for providing end-users sufficient choice at a good price.

39. An example of a situation in which price cap regulation could still be desired is when other providers follow suit with any price increases implemented by the SMP party12_{, as a result of}

which users are not sufficiently protected. Price developments in which other market parties follow suit with price increases implemented by an SMP party must then be of such a nature that implementing price caps is justified. For example: when the SMP party holds such a large market share that competitors expect to suffer if they start a price war. Another example of a situation in which regulation of the upper limit is desired is a situation in which new providers do not succeed in conquering market share or even lose market share. Then the Commission must once again study why competition fails to develop and to what extent the economic power of the SMP party enables it to behave to an important extent independent of its competitors, buyers and ultimately, its end-users. If it is concluded that, despite good opportunities for new parties entering the market, there is a situation in which it is not probable that there is sufficient price pressure on the market to keep prices low, this may be reason for implementing upper limit regulation. If margins are increasing and they are not being affected by new parties entering the market, apparently there are obstacles preventing the relevant market from migrating to a situation with effective competition.

40. If the SMP party holds an extremely large market share, this give cause for worry, but is not by definition a reason for price cap regulation. If price increases by the SMP party would result in a rapidly-decreasing market share because there is sufficient choice, then the interests of

consumers appear to be sufficiently safeguarded. However, if tariffs lack dynamics and the profit margins of the providers increase, this could be reason to implement price cap regulation. However, before this is done, it is important to determine why other parties are not entering the market (obstacles for new parties). The same applies in the event that the market share of the SMP party remains the same or increases because parties are withdrawing from the relevant market; in a situation of this type, before upper limit regulation is implemented, it is important to determine the developments in price and profit margin.

41. If the relevant indicators all point in the same direction, the picture of how competition develops is clear. However, if the indicators paint a mixed picture – e.g. market shares held by providers

12_{‘Following suit’ does not necessarily mean the same price level. If the prices differ by 20%, for example, then the}

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remain relatively constant but prices are decreasing – for each situation it must be determined which criteria should carry more or less weight. The guiding factor is the principle that if it is reasonable to expect that the relevant market will shift towards effective competition in the foreseeable future, there is no need for stringent retail tariff regulation. In that case, it is wise to leave the evolution of more choice and ultimately low prices to the market forces rather than intervene in the price developments on that market.

42. In situations such as those described above, the Commission considers a special type of price cap called the ‘safety cap’. These are non-stringent price caps below which the actual price

development is expected to remain because of competitive pressure on the market. A safety cap of this type can prevent excessive price developments. If the competition present is in principle sufficient to provide price pressure, but there remains a risk that this price pressure will not materialise sufficiently for the time being, the Commission believes that a cap of this type could be implemented. Using this instrument is done with the objective of supporting the market mechanisms by not intervening in the price developments themselves. However, there is much space in which to work in order to sustainably safeguard the interests of the end-user.

43. In situations in which extensive retail tariff regulation proves to be necessary for the time being, the Commission foresees in principle effectuation of a regulation model in which the regulated party is stimulated by the manner in which the model works to implement efficiency

improvements. This actually means that a price cap model will be the preferred model in these instances.

Excessively low prices

44. While the effectuation of upper limit regulation is only applied in a situation in which there is insufficient competition to sustainably safeguard the interests of end-users, the Commission expects that lower limit regulation will be applied more often. In a developing market, defining a lower tariff limit is an instrument that can prevent competition from being smothered before it can develop. Preventing the SMP party from applying excessively low tariffs is crucial in guaranteeing sustainable competition. As soon as a market is considered to lack effective competition, the Commission foresees subjecting the SMP party to lower limit regulation. The Commission’s current policy regarding lower limit regulation (the price squeeze tests) will be assessed in the coming year.

Subsidising certain user groups

45. Premise is that as competition on the market increases, the regulation of discounts can be made more flexible. More freedom for the SMP party in determining the discounts it provides also means, however, that it could apply a selective discount policy in order to retain or attract customers on markets in which competition is the strongest. In the judgement of the

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Unreasonable bundling of services

46. Like with discounts, as competition on the various markets continues to develop, the SMP party’s freedom to bundle services may increase. If access to these services is guaranteed on the

wholesale market, other providers are capable of matching this retail supply. However, this freedom also means that the SMP party can frustrate competition. The sustainability of the competition must therefore be safeguarded with lower limit regulation. As soon as a market is considered to lack effective competition, the Commission foresees subjecting the SMP party to obligations or restrictions regarding bundling services on the market with services on markets with more competition. The Commission will develop policy regarding tariff packages in the coming year.

Chapter 5. Retail tariff regulation in perspective

47. In this chapter, the Commission discusses the extent to which the system of the new ONP framework can already be made visible in future regulation of KPN’s end-user tariffs for the fixed telephone service. In doing so, the Commission subscribes to the responses received from a number of market parties during the consultation, in which it was pointed out that the current phase of the liberalisation of the telecommunications market in the Netherlands offers room for upper limit regulation of the retail services provided by KPN that is somewhat less stringent. However, these parties emphasised the importance of adequate lower limit regulation to prevent KPN from abusing its position of power.

5.1 ONP system as it relates to retail tariff regulation

48. As is evident from the previous chapters, based on the new ONP framework, in the future ex ante retail obligations may only be applied if there is no effective competition on the relevant market and the obligations with reference to wholesale regulation that are also related to C(P)S have not or will not result in achieving the objectives of the new ONP framework.

49. In analysing effective competition, it must be determined whether the market will be effectively competitive in the future, meaning whether any lack of effective competition is permanent. In keeping with the European Commission’s approach, this Commission expects that with the implementation of the new ONP framework, emphasis will switch to assuring access, making it less necessary to apply stringent ex ante obligations on the relevant retail markets. The line of thinking, after all, is that if access is assured, in principle competition on retail markets is also assured, so that in principle retail regulation is no longer necessary.

50. If there is nevertheless reason to apply price caps, these are expected to be primarily safety caps to prevent excessive price increases. The Commission does note that on those retail markets in which KPN has been identified as party with SMP, the sustainability of the competition should be safeguarded by means of lower limit regulation13_{. In addition to lower limit regulation, in such}

markets regulation regarding discounts and regarding bundling of certain services into packages is important in ensuring that a position of power is not abused in such a way that further

13_{For the record, milder application of the obligation of cost orientation (such as a price squeeze test) can only}

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development of the competition is obstructed. The Commission intends to review its policy regarding lower limit regulation, discounts and tariff packages in the coming year.

5.2 Market situation and developments

51. The following text discusses the current situation and the expectations regarding competition on connections and a number of fixed public telephony traffic services. The Commission notes that the analysis given below is based on current insights regarding the definition of markets. It is not impossible that, based on the final Recommendation from the European Commission regarding the markets to be defined, and based on the market definition that OPTA will have to perform on the basis of the new ONP framework, markets will be defined in a different manner. In that event, the analysis will also have to be performed in a different context, i.e., in the market(s) as defined at that time.

5.2.1 Connections

52. OPTA’s market monitor indicates that at this time, competition is extremely limited with

reference to access to the public telephone network via a fixed connection. The situation on the market for connections is not expected to make a significant move towards effective competition within the foreseeable future. In that case, when considering the interests of alternative

providers, who benefit from milder tariff regulation, as well as the interests of the end-users, who benefit from more stringent regulation, the Commission believes that the interests of the latter must weigh more. After all, if there is insufficient choice for the users, they must be protected against excessively high pricing by the party with a position of power. This means that tariff regulation will be applied in such a way that KPN can achieve a reasonable yield from the connection, but profit is prevented from becoming excessive.

53. The Commission believes that more freedom in retail tariffs for connections, and also more freedom to offer tariff packages or discounts (by which the subscription is bundled with traffic) will only be possible in the future if KPN – in keeping with the system of the new ONP framework – removes thresholds obstructing parties from entering the market in such a way that effective competition can be achieved on the local loop. A possible future measure for achieving this on the wholesale level could be obligating a provider with SMP to resale of the local loop based on Section 12.1 of the Access guideline. However, this option cannot be applied until after the new ONP framework has been effectuated14_{, unless KPN volunteers to accept the commitment earlier.}

If a market analysis to be performed under the new ONP framework indicates that, in part due to resale, there is effective competition on the local loop, in principle stringent ex ante retail upper limit regulation will no longer be opportune.

5.2.2 International traffic

54. At this time, the upper limit of international tariffs is not regulated by the Commission. After all, the tariffs for international traffic have decreased dramatically in recent years, as is also evident from the market monitor, and sufficient price pressure appears to be exerted by the competition at this time to give users sufficient choice at low prices. The Commission also expects that competition on international traffic will continue to increase in the coming years. The

14_{In time, OPTA will study the desirability and necessity of an obligation of this type in more detail, in part with}

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Commission therefore does not foresee upper limit regulation. In order to allow the competition to do its work, it is, however, important that it is ensured that KPN does not pre-emptively interrupt the competition by employing excessively low prices or selective discounts. Lower limit regulation will therefore be required, for example by means of the discount policy and

application of lower limit prices.

5.2.3 National, fixed-mobile and local traffic

55. The Commission has concluded that competition has increased for certain traffic services and for certain user groups, and that it is expected to continue to increase in the future, but that this is not the case for certain other traffic services and user groups. There is no effective competition on these markets at this time. This is reflected in matters including KPN’s high market shares, which would justify stringent retail upper limit regulation of certain services, therewith preventing KPN from achieving excessive profits.

56. However, there are developments that could improve the competition situation on the various markets in which these services are provided. The implementation of CPS on local traffic (i.c. the biba traffic without area code) could stimulate this type of competitive supply. Because users will be able to turn to one alternative provider for virtually all of their traffic, it will be even more inviting for users to utilise CPS services. If switching to a different provider is also made easier than it is at this time, the Commission expects that the increased competition will have a decreasing effect on prices. In that event, it can be assumed that in the future a safety cap per service will suffice until it has been ensured that sustainable competition will materialise. 5.3 Wholesale restrictions

57. As is evident from the previous chapters and as once again noted in paragraph 5.1, based on the new ONP framework, in the future ex ante retail obligations may only be applied if there is no effective competition on the relevant market and the obligations with reference to wholesale regulation that are also related to C(P)S have not or will not result in achieving the objectives of the new ONP framework.

58. In this respect, we must ponder the question of the restrictions on the wholesale level that can be identified at this time that obstruct further competitive pressure on prices in the various retail markets. Only if these wholesale restrictions are removed and thus sufficient possibilities for efficiently entering the market and for competition have been created will competition be ensured on retail markets, therewith making stringent retail regulation no longer necessary. 59. The Commission has taken inventory of the wholesale restrictions that it believes are so great

that they result in a situation in which it cannot be assumed that sufficient competitive price pressure will materialise on the market within the foreseeable future. In particular, the following were identified:

(i) restrictions in the area of the service Carrier Pre-selection;

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(iv) restrictions relating to the lack of sufficient financial reporting;

(v) restrictions relating to the lack of a multiple-year system for tariff regulation of the services provided by KPN for retail, interconnection and special access;

(vi) restrictions relating to the existence of pressure on margins as it relates to the existing biba issue;

(vii) restrictions caused by the asymmetrical allocation of what are known as 'wholesale-specific costs' by KPN.

60. The Commission believes that in principle, removing these restrictions would have to result in a situation in which the market conditions are such that with reference to tariff regulation of the retail services provided by KPN, a safety cap would suffice (e.g. an annual increase of the retail tariffs applied by KPN of no more than the rate of inflation). Market conditions of this type would sufficiently enable KPN’s competitors to restrict KPN in determining its tariffs based on their supply of retail services. In principle, this would have to result in a tariff development in the market that remains under the regulating safety cap. In the unexpected event that a situation of this type does not materialise, the safety cap determines that the tariffs applied by KPN may not increase more than the rate of inflation.

61. The Commission wishes to emphasise that the restrictions referred to above certainly do not comprise all of the wholesale restrictions that can be identified on the market. Nevertheless, the Commission assumes that for the time being, removing these restrictions – related to fixed public telephony – will sufficiently increase the power of KPN’s competitors to ensure that the liberty allowed KPN in determining the tariffs for its retail service is restricted; in short: to exert price pressure.

62. The Commission assumes that the relationship between removing the wholesale restrictions listed above and making the retail regiment for telephony more flexible is self-evident. Nevertheless, the Commission believes it is important to look at the relationship between removing wholesale restrictions in the area of the service interconnecting leased lines on the one hand and on the other, making tariff regulation in the area of the fixed public telephone service more flexible. Interconnecting leased lines are an important building block in a competitive supply of fixed public telephony. Interconnecting leased lines are an up-stream service in being able to provide fixed public telephony. KPN’s competitors, for example, can use interconnecting leased lines to connect their business clients to their own telephone networks. 63. In addition to the relationship between interconnecting leased lines and the fixed public

telephone service, the ILL supply also has consequences on the retail leased line market. It would go too far to analyse these consequences here within the framework of discussing retail tariff regulation for fixed public telephony. Nevertheless, it is clear that the ONP principles as discussed in the previous chapters are also applicable to the retail leased line market. Removing wholesale restrictions, e.g. by means of a sufficient and cost-oriented ILL supply, will also reduce the necessity of stringent retail regulation of leased lines in the future. Moreover, lower limit regulation will also play an important part on the leased line market. The basis for this lower limit regulation is a squeeze test as defined by the Commission in its ILL assessment15_{. The}

Commission assumes that within the framework of future integral tariff regulation, where

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migration will take place towards a purchasing model based on modified separate financial reporting, a price squeeze will be impossible. It must be noted that the Commission will assume that retail tariff regulation of leased lines to be applied by it will not result in a price squeeze. 64. Removing the restrictions as referred to is the particular responsibility of KPN. With reference to

the restrictions related to CPS, interconnecting leased lines and local interconnection, KPN must provide a supply to its competitors on the basis of which these competitors can define and establish their retail supply. With reference to the other restrictions, KPN must take an approach that is such that these restrictions can be removed by developing a more effective regulatory framework16_.

5.3.1 Commitment KPN

65. On 25 April 2002, KPN agreed to the wholesale measures formulated in order to remedy the wholesale restrictions as listed above. A detailed list of these wholesale measures will be submitted to the market parties soon.

5.4 Retail tariff regulation for the period from 1 July 2002 to 1 July 2006

66. The Commission believes that removing the wholesale restrictions as identified in this context by KPN justifies making the retail tariff regulation more flexible17_{. Under these circumstances, the}

Commission believes that stringent upper limit regulation for traffic services is no longer opportune and that a safety cap will suffice. More specifically this means that the safety cap comprises a price cap of CPI – 0% for the retail services biba, buba and fixed-mobile traffic that are currently included in the price cap18_{. In other words: the prices for these services may}

increase at the same level as the rate of inflation. In order to provide the market parties and consumers with as much certainty as possible, the Commission has decided to apply this safety cap for the period from 1 July 2002 to 1 July 2006.

67. Because wholesale restrictions will continue to exist for the time being with reference to establishing an alternative supply for connections19_{, the market conditions required for less}

stringent retail regulation cannot occur in the foreseeable future. Easing upper limit regulation in this respect will therefore not be considered for the time being. This means that from 1 July 2002, the Commission will prevent excessive profits for KPN by applying a price cap of CPI - X20_.

If the ONP reports over 2001 indicate that the yield achieved is reasonable, the Commission believes that here, too, an X equal to 0 will suffice. If the yield proves not to be reasonable, the Commission intends to implement a more stringent price cap.

16_{For example: The existing asymmetrical allocation of wholesale specific costs directly causes a price squeeze.}

Proportional allocation of these costs within the framework of the regulation framework created on the basis of integral tariff regulation will alleviate this cause of price squeeze. KPN’s acceptance of asymmetrical allocation contributes to the effectiveness of this measure.

17_{Naturally, this does not mean that KPN will not be obligated to alleviate other wholesale restrictions in}

accordance with the applicable regulations.

18_{In other words: X = 0. CPI stands for ‘Consumer Price Index’.}

19_{Subscription single PSTN and ISDN2 and the relevant one-time fees (contract transfer, relocation, and new}

installation).

20_{At this time, the tariffs for connections, which are an integral part of the price cap basket of retail services, may}

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5.4.1 ONP evaluation

68. At the time that the new ONP framework is implemented in the Telecommunications Act – which is expected before 1 July 200421_{, the Commission must evaluate the details of the retail tariff}

regulation in accordance with the new ONP system. Thorough market analysis will provide insight into the competitive pressure present on the various retail markets, considering the possible presence of wholesale restrictions, on the basis of which the extent to which the system should be modified will become evident. Based on this market analysis, the Commission will also indicate the conditions under which retail tariff regulation can be phased out (known as sunset clauses). This does not change the fact that on those retail markets in which KPN has been identified as party with SMP, the sustainability of the competition must be safeguarded by means of lower limit regulation.

5.5 Further procedure

69. This is the policy intention announced by the Commission with reference to retail tariff

regulation for the period 1 July 2002 until 1 July 2006. With this announcement, the Commission is anticipating implementation of the new ONP framework. In keeping with the new ONP

framework, the Commission has weighed the wholesale restrictions to be removed on the one hand and on the other, making the retail regulation more flexible.

70. In order to involve all of the interested parties in its considerations, the Commission intends to explain its policy intentions to the market on 16 May 2002 during a round-table discussion. Prior to this meeting, as already indicated, a detailed list of the wholesale measures formulated in order to remedy the wholesale restrictions as listed above will soon be submitted to the interested parties.

71. The Commission notes that KPN must act in keeping with its commitment regarding alleviating the wholesale restrictions. This should manifest itself in actual execution in the period to come. The Commission will make a decision before 1 July 2002 defining the further details of the retail tariff regulation of KPN’s biba, buba, and fixed-mobile traffic services with a safety cap and the retail tariff regulation of connections with a price cap.

72. If KPN fails to remove the wholesale restrictions as referred to in accordance with its

commitment, the Commission believes that the safeguards for the development of competition as referred to above will not materialise in the foreseeable future22_{. In a situation of this type, the}

Commission believes it is impossible that a safety cap will suffice for tariff regulation of the retail traffic services supplied by KPN, and will apply tariff regulation in order to simulate the intended

21_{As indicated in paragraph 3.1, the intended date of implementation of the new ONP framework in the national}

regulations is no later than July 2003. The Commission, however, is taking into account the fact that

implementation of the new ONP framework in the Telecommunications Act is expected to require more time. The Commission also considers that it may be necessary to follow the procedure described in Section 7 of the Framework guideline for approval of the product and service markets more clearly defined on the national level. Thus the fact must be taken into consideration that the Commission will not be able to actually effectuate the new legal instruments until early 2004 or perhaps even mid-2004.

22_{It must be emphatically noted that in all cases, thus also in the situation in which KPN fails to commit to}

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competitive price pressure. In that event, the Commission will have no choice but to make the applicable retail price cap system more stringent, where – considering matters including the yields KPN currently achieves – it will be necessary to define a –X for a number of retail services. The real tariff decreases related to a -X of this type would then replace the competitive pressure on end-user tariffs that would be created if the wholesale restrictions as identified were

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Part II

Integral tariff regulation

73. In the consultation document ‘Integral tariff regulation for end-user and interconnection services', the Commission described a number of proposed measures that it believes would ensure that regulation of KPN's end-user tariffs and KPN's interconnection tariffs are better attuned, therewith alleviating the biba issue. Considering the activities involved in a number of the measures – in particular the measure necessary in order to achieve integrated multiple-year regulation – the Commission has decided to implement the integral tariff policy as of 1 July 2003. Specifically the measures intended to remedy the squeeze and biba issues must, due to their importance, be effectuated as of 1 July 2002.

74. The measures that the Commission has decided upon within the framework of integral tariff regulation are as follows:

- modification of the structure and content of the financial reports to be submitted for approval each year by KPN no later than the first of May, regarding the areas of interconnection and special access, leased lines, telephone, and other. The first time that KPN is to submit the modified reports is no later than 1 May 2003;

- the migration per 1 July 2003 to a multiple-year system for tariff regulation of the interconnection and special access services supplied by KPN;

- as a solution to the biba issue for the period from 1 July 2002 until 1 July 2003, modified application of the price squeeze test for KPN’s biba tariff proposals. In these tariff proposals, the local network utilisation is allocated to the regional network utilisation. For the longer term, with reference to local roll-out, the details of a cost-efficient ‘make or buy decision’ are being studied. Based on this study, the Commission will develop relevant policy, which will be implemented as of 1 July 2003;

- allocation of the wholesale-specific costs as of 1 July 2002 to all of the traffic that utilises KPN's network.

75. As indicated in paragraph 5.3 of Part I, the Commission is taking into account the fact that it may not be possible to implement the new ONP framework in the national legislation by 1 July 2003. The Commission believes that an effectuation date of the new ONP framework later than 1 July 2003 does not prevent implementation of measures that are related to the introduction of integral tariff regulation per 1 July 2003. After all, application of the new ONP framework on relevant wholesale markets will probably not differ significantly from the existing framework. The new ONP framework – in which markets are definitively defined and the SMP positions are definitively assessed – will at most result in a situation in which certain KPN services will still or will no longer need to be regulated on the basis of the integral tariff regulation ex ante

applicable at that time.

Tariff regulation interconnection tariffs from 1 July 2002 until 1 July 2003

76. As a result, in the period from 1 July 2002 until 1 July 2003, a year will occur in which the intended integrated tariff regulation has not yet been effectuated, which means that the existing regulation framework will be maintained for the time being for tariff regulation of the

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April 2001 (reference: OPTA/IBT/2001/200850).

77. With reference to the originating access services to be supplied by KPN, this means that the cost-oriented tariffs for the coming regulation period will be determined on the basis of the EDC-V report (“EDC-V”) to be submitted to the Commission by KPN no later than next May first. With reference to the terminating services supplied by KPN, once again the premise of the bottom-up LRIC system will be applied on the basis of the cost allocation model (“BULRIC-II”) developed and to be updated by OPTA in consultation with KPN and other market parties.

78. In the following sections, the Commission will repeat the questions posed in the consultation document per proposed measure, after which a concise summary of the responses received from the market will be given. Each section will be concluded with the final viewpoint as formulated by the Commission.

Chapter 6. Modification financial reports

6.1 Background

79. In the consultation document, the Commission considered modifying the structure and content of the financial reports to be submitted by KPN to the Commission each year for approval. The current details of the financial reports are, in the Commission's opinion, insufficiently

transparent and are a source of problems in comparing the underlying costs of KPN's retail company with those applicable to the parties that interconnect with KPN.

80. The Commission's objective in modifying the separation in the financial accounts is to guarantee transparency, non-discrimination, cost orientation and openness of information better than can be done on the basis of the existing structure. The question posed in the consultation document regarding this topic is as follows23_:

III. Interested parties are requested to respond to the Commission’s intention to obligate KPN to apply the separation of financial accounting as prescribed by the European Commission, where KPN’s retail company purchases from KPN’s network company against the same conditions and based on the same cost basis as the parties interconnecting with KPN.

6.2 Reactions from interested parties

81. The ACT24_{voices a strong preference for the separation in financial accounting between KPN’s}

retail and wholesale operations as proposed by the Commission. The ACT views the intended modification as a prerequisite for fair competition and indicates that the modified reports will supply useful information with reference to the price squeeze tests. The ACT strongly advises that a further sub-division be applied for the various services. The ACT refers to the various viewpoints of the European Commission in this area, and urges that consultation be organised in order to work out further details. The ACT also stresses the importance of openness of information. To

23_{See also paragraphs 27 through 36 of the consultation document.}

24_{The response from ACT reflects the viewpoints of the following ACT members: BT Ignite, Colt Telecom, Energis,}

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promote efficient and correct allocation of the wholesale specific costs in this new model, the ACT advocates further study.

82. Atlantic Telecom fully supports the Commission’s proposal.

83. BT Ignite voices a strong preference for the separation in financial accounting between KPN’s retail and wholesale operations as proposed by the Commission, and supports the viewpoint as formulated by the ACT.

84. Ebone warmly supports the Commission’s proposals, regardless of whether a multiple-year integrated tariff system is implemented. Ebone requests that the Commission devote attention not only to voice telephony but also to leased lines.

85. EuroNet Internet is in favour of the Commission’s proposal to obligate KPN to separate the financial reporting in such a way that KPN’s retail company purchases from KPN’s network company against the same conditions and the same cost basis as the other parties. EuroNet strongly advises a closely-defined approach to cost orientation and transparency.

86. KPN indicates that the modified financial reporting proposed by the Commission gives insufficient added value because KPN's retail tariffs are de facto subjected to a system of this type by the price squeeze test. If reporting of this type is nevertheless deemed necessary, according to KPN it would be better to base it on historical costs, so that it is in keeping with the annual report and the existing ONP reports. KPN indicates that modification of the reporting will require time, as will continued consultation.

87. The NLIP is in favour of improved transparency in the financial recordkeeping of the SMP party. The NLIP emphasises the importance of uniform financial premises and reports to enable ISPs to make business considerations. The difference between the terminating and originating models is extremely important to ISPs in this respect. NLIP requests that, in determining the details of the structure of the purchasing model, attention be devoted to the internet-related (connection) services supplied by KPN’s own operating units.

88. One.Tel/Scarlet supports the measure proposed by the Commission. In particular, One.Tel/Scarlet emphasises the importance of transparency and predictability. 89. Tele 2 fully supports the Commission’s proposal. Tele2 emphasises the importance of

transparency and the independence of the various KPN operating units. Tele2 also supports the importance of attuning with the annual accounts.

90. Ventelo supports the approach proposed by the Commission, regardless of whether a multiple-year tariff system is implemented.

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6.3 Determination of the Commission’s viewpoint

92. Considering the responses from the interested parties, the picture is clear in the Commission's judgement. With the exception of KPN, all parties (strongly) support the proposal as formulated by the Commission. KPN does not really see the need, but also voiced no objection to modifying the financial reporting.

93. As already concluded by the Commission in the consultation document, a modification of this type is no simple task. Various parties agree with this and request being involved in the operationalisation process by means of market consultation. In a consultation of this type, the parties hope to discuss matters including the premises upon which the details of a system of this type must be defined, the sub-division into services, and the openness of the reporting.

6.3.1 Assessment

94. Based on the responses to the consultation document as summarised above, the Commission is supported in its plan to oblige KPN to keep separate sets of accounts, a measure advocated by the European Commission, whereby KPN’s retail business would purchase from KPN’s network business under the same conditions and cost basis as the parties interconnecting with KPN. The Commission will therefore implement this proposed measure, where in any event the market parties will be involved by means of market consultation.

95. In developing the modified financial reporting, attention will be devoted to aspects including the relevant valuation premises and allocation principles, the sub-division on the service level and the allocation of costs to the various KPN services, and the openness of the resulting reporting.

Chapter 7. Multiple-year system for interconnection

7.1 Background

96. In the consultation document, the Commission formulated its intention to introduce a multiple-year system for tariff regulation of the services supplied by KPN in the area of interconnection and special access.

97. In this, the Commission identified the risk that possible migration to a multiple-year system could involve detrimental effects at this time that might not outweigh the advantages of transparency for a number of years and that could negate the positive effect of this migration in preventing a future price squeeze. The questions posed in the consultation document regarding this topic were as follows25_:

II.a. Interested parties are requested to submit to the Commission their viewpoints and insights regarding the desirability of possible migration to a multiple-year system for tariff regulation of KPN’s interconnection and special access services, and, in this respect, the conditions to be applied to a system of this type.

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II.b. When replying, interested parties are also asked to comment in detail on that which was put forward by the Commission in the considerations in paragraph 3.2.4, in particular regarding the question of whether the current situation in the market is suitable for a sufficiently correct predictability of cost and volume developments.

7.2 Reactions from interested parties

98. The ACT would welcome migration from an annual determination of the rates for KPN’s

interconnection and special access services to a multiple-year tariff system. The ACT urges that a price cap system be introduced. A multiple-year system of this type enhances the predictability, as well as the ability of the entire telecom industry to plan in advance with more confidence.

99.

The ACT indicates that determining a price cap system is no simple task. To this end, robust models should be developed with assistance from the entire market. Main tasks in this respect are determining reasonable starting prices and calculating the correct 'X'. Within this system, it must be ensured that the regulator can intervene in a fitting manner if unexpected problems occur anytime in the duration of the system.

100. ACT believes that the existing interconnection tariffs cannot serve as the starting point. The starting point of the multiple-year system should be both terminating and originating tariffs to be determined on the basis of LRIC. The ACT believes that the market parties should be involved in determining the starting tariffs as well as in the development of models for determining the correct ‘X’.

101. Atlantic Telecom states that it agrees with the advantages and disadvantages as listed by the Commission in the consultation document, where the multiple-year certainty regarding tariff developments is considered to be of crucial importance. Atlantic Telecom believes that the existing situation in the market is no longer suitable for making reliable predictions regarding the correct cost and volume developments. Considering this, Atlantic Telecom believes it is crucially important that any tariff system has the flexibility to respond on a short term to market developments.

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103. In its response, Ebone places specific focus on the regulation of leased lines. Ebone believes that the transition to a multiple-year system is premature, in particular considering the situation regarding retail and wholesale leased lines (including the lack of a wholesale supply of leased lines). Ebone also believes that maximum predictability regarding future tariff developments is desirable. However, because KPN’s supply of interconnecting leased lines will not be assessed on the basis of cost orientation for the time being, Ebone suggests it would be better to start with an annual assessment of these tariffs.

104. EuroNet Internet explicitly supports migration to a multiple-year tariff system for KPN’s

interconnection and special access services. In particular, this is because a transition of this type would bring an increase in the predictability of the tariffs. EuroNet adds a comment regarding the de facto reciprocity in terminating tariffs in relation to the still dominant geographical model for internet connecting traffic. Within that framework, EuroNet believes that it must be

prevented that internet service providers (ISPs) and parties competing with KPN are forced to offer their terminating service at a price that is lower than their cost price.

105. KPN asserts that a disadvantage of migration to a multiple-year system is the uncertainty inherent in migrating to a different system. KPN believes that a multiple-year system would bring the advantage that both KPN and other market parties will have clarity for a number of

subsequent years, as well as a decrease in the quantity of regulation-related work and lower administrative expenses. KPN also expects more certainty regarding preventing price squeezes, providing the system is set up identically for both retail and wholesale (e.g. the commencement date and the duration of the two systems). KPN comments that the transition to a multiple-year system must bring a continuation of the existing policy-related choices, e.g. differentiation in the modelling of the originating access and the terminating access services, respectively. Under these conditions, KPN states a (slight) preference for migrating to a multiple-year price cap system for its interconnection and special access services.

106. With regard to the predictability of the cost and volume developments, KPN asserts that the relevant uncertainty is structural. According to KPN, this therefore may not serve as an argument in support of opting to continue the existing system; inherent to the existing annual system is the risk of sudden developments and annual interventions. KPN emphasises the primary part played by pure market mechanisms as guidance for the development of the sector; according to KPN the questions posed reflect an overestimation of the part played by tariff regulation. 107. The NLIP states that a system in which the tariffs are determined for a longer period is a

desirable solution to the margin pressure and the existing uncertainty regarding the level of margins that can be achieved. Increasing ex ante transparency of the tariffs together with a multiple-year system will therefore be supported and welcomed by the NLIP. The NLIP

understands the issues regarding the degree of predictability of cost and volume developments, but also sees possibilities for diminishing the detrimental effects this could have. The NLIP comments that, due to the annual determination of tariffs, the current system involves a greater level of uncertainty.

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of continuity in the underlying principles of a multiple-year system of this type, and of the effect this continuity has on the predictability of the market. Regarding the possible disadvantage referred to by the Commission as windfall gains, One.Tel/Scarlet asserts that competition is the only ‘real’ stimulus that could move KPN to pass efficiency profits on to the buyers of its services. In order to make this competition possible, competitors must have the ability to make profits in the areas where competition already exists, which, in One.Tel/Scarlet's view, argues in support of implementing a multiple-year system.

109. Tele2 supports the Commission’s proposal to introduce a multiple-year system for tariff regulation of both wholesale and retail tariffs. In particular, this is because in this manner, insight could be gained into cost developments over a period of multiple years, making it possible to apply a longer planning horizon and enhancing chances on the capital market. At the same time, Tele2 understands the disadvantage that a price cap system can only be applied to wholesale services if the environment is relatively stable to a sufficient extent. Tele2 believes that this is not the case in the existing market. In order to alleviate possible disadvantages, perhaps OPTA could introduce an assessment and adjustment mechanism that could remove any possible excesses.

110. Ventelo indicates that it is in favour of improved insight into future tariff developments, with reference to both interconnection and special access as well as the end-user services supplied by KPN. Ventelo states that it can accept a longer regulation period for the interconnection tariff regulation and that it is in favour of evening out the regulation periods for interconnection and end-user services. However, migrating to a price cap logic for wholesale is an entirely different matter, Ventelo believes; the distinction between a longer regulation period and price cap regulation has been insufficiently demonstrated. This may result in a situation in which the market parties voice preference for a regulation period of three years, but in which OPTA's options for intervening where and when necessary are diminished. OPTA, in Ventelo’s view, must be able to ‘quickly jump on the ball’, and a price cap system limits the options for doing so. 111. The BTG states that it doubts whether integral tariff regulation will satisfy expectations. BTG

therefore proposes that this system should not be applied for a period of multiple years, but that a trial period be applied followed by an evaluation.

7.3 Determination of the Commission’s viewpoint

112. Considering the responses from the interested parties, the picture regarding this measure is also clear in the Commission's judgement. BT Ignite, EuroNet Internet, KPN, the NLIP,

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113. The supporters of migration to a multiple year system nearly all agree that the predictability of future cost and volume developments is an issue. Nevertheless, they believe that this aspect may not obstruct the introduction of a multiple-year system; they believe that the advantages of a longer regulation period are more important. A number of parties also indicated that the risk related to the predictability of future cost and volume developments can be sufficiently covered; in this respect, for example, BT Ignite suggests developing robust models in cooperation with the market, and both BT Ignite and Tele2 suggest an assessment and adjustment mechanism that would provide the possibility of intervening should unexpected and undesirable situations occur while the system is in effect.

114. One aspect explicitly mentioned by Ventelo pertains to the distinction between a multiple-year system in which insight is given into tariff developments for a period of multiple years and a multiple year system that gives KPN the freedom to determine its own details of the tariff developments enforced within the system, within packages of services. This aspect is also discussed by other parties, albeit within the framework of the continued need in the near future to ensure that KPN's competitors also have sufficient margin and/or that no price squeeze exists. 115. Another aspect discussed in particular by BT Ignite, and that is related in particular to the point

in time at which a multiple-year system can be implemented, is the scope and complexity of the exercise in which a multiple-year system is implemented. For example, BT Ignite points out the need to develop robust models, which should be done in cooperation with the interested parties. 7.3.1 Assessment

116. Based on the summary of the responses to the consultation document as given here, the

Commission is strengthened in its intention to introduce a multiple-year system for regulation of the interconnection and special access services provided by KPN. The Commission will therefore implement this proposed measure, where in any event the market parties will be involved by means of market consultation, and probably also by means of a sounding board group.

117. In part based on the responses, the Commission believes that at least the following aspects are important in migrating to a multiple-year tariff system. These aspects pertain to issues that should be discussed within the framework of the process in which the details of the multiple-year system are determined (see also Part III):

118. The extent to which KPN can be given the freedom within the multiple-year system to actually determine the tariffs for the relevant interconnection and special access services.

119. The extent to which the system provides possibilities for correction and adjustment in the event that the market shows unexpected and undesirable developments during the regulation period. 120. Also considering the complexity of migration to a multiple-year system as recognised by the