The first criterion involves an assessment of whether there are high and non-transitory entry barriers in the market in question. Within the electronic communications sector, these barriers can be of a structural, legal or regulatory nature.
Structural barriers to entry are described in the preamble (item 9) to the Commission's Recommendation on relevant markets as barriers resulting from original cost or demand conditions that create asymmetric conditions between incumbents and new entrants impeding or preventing market entry of the latter. For instance, high structural barriers may be found to exist when the market is characterised by absolute cost advantages, substantial economies of scale and/or economies of scope, capacity constraints and high sunk costs.
The same preamble (item 10) states that legal and regulatory barriers are not based on economic conditions, but result from legislative, administrative or other state measures that have a direct impact on the conditions of entry and/or the positioning of operators on the relevant market. For example, utility easements are mentioned in the explanatory document to the Recommendation.
Access to physical infrastructure in the form of ducting and fibre cables on the relevant link is required in order to be able to offer dark fibre. Consequently, entering the market for dark fibre requires access to optical fibre. To the extent that a stakeholder does not already have such access, this presupposes that the stakeholder rolls out optical fibre cables. There is no need for the rollout of optical fibre to be excessively expensive if there is sufficient ducting. The fibre itself can actually be rolled out at a reasonable cost, and rolling out more fibre in existing ducting is not particularly complicated or expensive. However, besides the existing network owners, such ducting is mainly owned by
stakeholders that have access to ducting for purposes other than electronic
use their resources to lay down fibre cables, which involves investment in both physical equipment and additional expertise as well as organisational changes. This involves considerable adaptation of the activities of an operator that had not previously set up the infrastructure itself. There is also the high commercial risk of entering a new market. Taken overall, considerable financial and organisational adaptations are needed for, for example, a power company to start to provide optical fibre. It has also been claimed that there are problems associated with rolling out different types of infrastructure in the same ducting, which may limit the benefits of ducting for these stakeholders. This also means that there is a limited propensity for these companies to want to lease ducting to another party. Likewise, the location of the ducting is controlled by the purpose for which it was rolled out. This means that it may be difficult to use ducting (which is expanded for a purpose other than to set up electronic communication networks) for rolling out optical fibre because, for example, it is located far from exchange points and network nodes in electronic communication networks. It should be noted that both land use agreements and utility easement orders often restrict the potential to lease ducting to other parties. As described previously, considerable rollout work is involved if a stakeholder does not have any ducting, which is the case for nearly all of the operators currently offering electronic communication services. Rolling out one's own physical infrastructure is a large-scale operation, which largely has no direct link to the activities of other operators. This type of operation requires access to an organisation with competent staff,
machinery, local operation and service personnel, licences, permits and changing over to a business concept as wholesalers. In its turn, enormous investment is required, as the cost of this type of operation is considerable. The depreciation period for infrastructure investments in dark fibre and ducting is approximately 20 years.
If the wholesale dark fibre service is to be of interest to an operator, it should also be possible to connect it to the operator's other networks. Besides local access to dark fibre, some form of connection to the operator's other networks is thus needed, which may require the large-scale rollout of fibre for a new operator that does not have any previous widespread infrastructure. A large customer base would be needed to recover these costs, particularly since a new stakeholder lacks the economies of scale enjoyed by an existing infrastructure owner.
Consequently, the financial barriers to entry are significant and the financial difficulties involved when rolling out parallel infrastructure comprise one of the more significant factors behind the regulatory framework for electronic communications to promote competition. The financial prerequisites also vary considerably from place to place and there are probably many areas in Sweden where the establishment of additional parallel fibre infrastructure must take place with the financial support of government.
However, as previously stated, there are stakeholders whose business concept is to roll out their own physical infrastructure with the aim of supplying dark fibre on a wholesale basis themselves. They also admit that this is not possible throughout Sweden considering the financial prerequisites, since the cost of rollout is too high in relation to the customer base in some parts of the country. In certain areas it is assessed that fibre may be
nevertheless rolled out and sold on at a profit. However, in these cases, there are additional legal and regulatory barriers.
One such barrier is obtaining the licences, permits and agreements that rollout requires. Rolling out one's own infrastructure requires the stakeholder to have reached an
agreement with the landowner or to have been granted utility easements which are regulated by the Utility Easements Act. Utility easements are decided by the National Land Survey of Sweden and are time-consuming to realise. This takes an overly long period of time for a small, new operator which, due to the economic risk, is usually not capable of operating on the basis on speculation, but must be convinced of having demand. A potential customer will not wait for months, or perhaps even years, for rollout to begin, but is instead expected to turn to an operator that already has fibre, ducting or the necessary utility easements. An alternative to utility easements is to enter into
property use agreements with landowners, which are often municipal authorities. In these cases, the applicant is nevertheless entirely dependent on the willingness of the
landowners to conclude such agreements. It appears that most municipal authorities are often unwilling to conclude such agreements with new operators. In many cases, requirements for high compensation for land are also imposed, which can render the transaction unprofitable. In cases where the parties cannot reach an agreement, there is no other option but to attempt to compel access through the utility easement rights procedure. In cases where an undertaking perceives that it is not being treated as well as another operator in this context, which does happen, there is no opportunity to have the case examined.26 This even applies if the other party is a public body such as a municipal
authority.
On the whole, there are currently decisively economic and regulatory barriers that impede or make entry to the wholesale dark fibre market considerably more difficult. It is of particular concern to competition that these barriers are partly asymmetric, as
TeliaSonera's economic barriers are lower on account of the advantages enjoyed by the company owing to its extensive network and existing ducting. There are also indications that the regulatory barriers are asymmetric as well and thus a disadvantage to new stakeholders.