JUEZ SEGUNDO DE PRIMERA INSTANCIA DE LO FAMILIAR

When an assessment is sought of the geographic scope of markets for electronic communications, the application of substitutability tests can ultimately lead to the definition of very small geographic markets due to limited capacity for substitution. This is because it is unlikely an end user would move house to benefit from lower broadband prices and because supply-side substitution implies significant sunk costs.

71 _{See Article 3 of the Decree-Law no 458/99 of 5 November.}

Therefore, instead of analyses of substitutability, it may be more useful to consider the existence of common price restrictions, in order to identify what might constitute the geographical limit of the market.

Historically, the providers of the broadband access service offer prices and services which do not vary according to geographical location, suggesting that there is a single geographic market. However, with the development of the OLL and the expansion of the area covered by the cable distribution networks, the respective retail products have been offered at prices which are significantly below the other broadband access offers, including those based on the “Rede ADSL PT” offer. Accordingly, with evidence of geographical variation in terms of offer availability, as previously described, these differences have also given rise to geographical pricing variations.

Figure 2 – Location of exchanges where the OSPs make use of the OLL in Mainland Portugal and municipalities with cabled households

Concelhos cablados Centrais OLL Concelhos cablados Centrais OLL Concelhos cablados Centrais OLL

Assuming that the potential coverage of broadband offers based on the “Rede ADSL PT” wholesale offer extends over the entirety of the national territory73, and noting the location of the exchanges where the OSPs make use of the OLL in Mainland Portugal and the municipalities - the smallest unit for which statistical information concerning the distribution of cable networks is compiled - with cabled households (as shown in Figure 2), it can be seen that there are four types of geographical area:

73 _{There are exceptional cases where it may not be possible to provide ADSL services over a determined loop due to its} physical characteristics (including its length, section and state of repair).

– Areas where there are only broadband access retail offers based on the “Rede ADSL PT” wholesale offer;

– Areas where, in addition to broadband access retail offers based on the “Rede ADSL PT” wholesale offer, broadband access retail offers based on the OLL are also sold; and – Areas where, in addition to broadband access retail offers based on the “Rede ADSL

PT” wholesale offer, broadband access retail offers through cable modem are sold; and

– Areas where broadband access is provided based on the “Rede ADSL PT” wholesale

offer, on the OLL and on the cable distribution network.

Table 7 – Number of municipalities covered by different OLL coverages, the “Rede ADSL PT” wholesale offer and the cable distribution networks

Areas _{municipalities}No of _populationResident Classic family _households

“Rede ADSL PT” 308 10,599,095 5,519,654

“Rede ADSL PT” and OLL 103 8,018,831 3,993,710

“Rede ADSL PT” and cable distribution networks 157 9,105,371 4,566,690 “Rede ADSL PT”, OLL and cable distribution networks 94 7,798,178 3,877,679

According to the table, it is concluded that:

- There are 94 municipalities where there are operators of cable distribution networks and

operators co-installed under the OLL;

- There are 63 municipalities where there are operators of cable distribution networks and

there are no operators co-installed under the OLL;

- Of said 63 municipalities, 29 are municipalities in the Autonomous Regions of the

Azores and Madeira;

- There are more cabled municipalities (157) than municipalities with co-installed

operators (103).

However, from the analysis made, it is concluded that:

- The municipalities with operators of cable distribution networks but no co-installed operators under the OLL represent only 12% of traditional family dwellings and 12% of the national population, although accounting for just 7% of cabled households;

- In municipalities where there are operators of cable distribution networks and operators co-installed for the purpose of OLL, the percentage of cabled households compared to the total number of dwellings is significantly higher than that found in municipalities

where there are operators of cable distribution networks and no co-installed operators (96% and 44% respectively);

- Figures for the largest cable distribution network operator show that just 1 percent of its cable distribution service customers are located in municipalities where it is present and where there are no co-installed operators,

Thus, in terms of homogeneity of competitive conditions, in the first analysis, the four areas previously defined may be concentrated into two broad areas:

- Areas where there are only broadband access retail offers based on the "Rede ADSL

PT" wholesale offer; and

- Areas where there are both broadband access retail offers based on the “Rede ADSL

PT” wholesale offer and alternative retail offers.

That is, in most areas (municipalities) where there are retail broadband offers based on the OLL, there are also retail broadband offers supported on cable distribution networks, in addition to the retail broadband offers of Grupo PT, which cover the entire national territory; in fact of the 103 municipalities without OLL, only 9 (still) lack cable distribution network coverage. In other areas, there are nearly always only retail broadband access offers based on the “Rede ADSL PT”.

But even in municipalities where there are operators of cable distribution networks and operators co-installed for the purpose of OLL, different situations may exist in terms of coverage, some examples of which are given in Figure 3.

Figure 3 – Diagram demonstrating an example of the coverage of the municipalities by cable distribution networks and operators co-installed for OLL purposes

This finding could justify, in a first analysis, the definition of the municipality as the geographical unit to be used for the purposes of geographical markets, and with this assumption, defining the two areas identified above.

However, in choosing the appropriate geographical unit, it is expected that a compromise will emerge between the granularity and the feasibility of a market analysis and the subsequent implementation, where necessary, of relevant obligations.

Thus, consideration must be made of the following:

- on the one hand, whether geographical demarcation should be based on administrative boundaries (e.g. municipalities) or whether it should be based on limits associated with the components of the network;

- secondly, what level of aggregation, with respect to the different geographical units,

should be used in order to reflect the different levels of competition observed.

This could make it advisable, as an alternative, to consider the (aggregation of) coverage area of the attendance points of the PTC network with co-installed operators and the (aggregation

of) the coverage area of the attendance points of the PTC network without co-installed operators as being the relevant geographical unit74.

The geographical units must still meet the following criteria:

- They should be mutually exclusive and smaller than the national territory;

- The network structure of all relevant operators and services sold in the market must be

mapped in the geographical units;

- They should have well defined and stable boundaries;

- They must be sufficiently small so that the conditions of competition do not vary

significantly within that unit, while being large enough so that the burden of operators and the NRA with respect to the compilation and analysis of information is reasonable. In Error! Not a valid bookmark self-reference. a comparative analysis can be seen of the two options identified for the definition of the geographical unit.

Table 8 – Analysis of the options for defining the geographical unit

Municipality Attendance Point

Mutually exclusive + +

Mapping of information +/–(a) _–(a)

Boundary stability + +

Uniformity of competitive conditions –(b) ₊

Operationalisation of obligations –(c) ₊

(a) As noted above, information relating to cable distribution operators is available by municipality (with respect to cabled households or to customers of the cable television service). The information on ADSL accesses is broken down by attendance point. The mapping error results from (i) imputing the ADSL accesses of a given attendance point in the municipality to which it belongs (where there may be an error with respect to the attendance points that are located in municipalities adjacent to the municipality in question) or (ii) imputing the cable modem accesses of a given municipality in the attendance points belonging to that municipality; Since, in general, the coverage area of attendance points is less than the area of the municipality, the error associated with mapping data in respect of OLL-based accesses in the municipality where the attendance point is located, will, from the outset, be less than the error associated with the mapping of data in respect of the cable distribution networks - at a municipality level - at the attendance points;

(b) Since, in general, the area of the municipalities is larger than the coverage area of the attendance points, the municipalities have competition levels that are less homogeneous than that of the attendance points;

(c) The operationalisation of the obligations at the attendance point (network component) level is immediate and simpler than operationalisation at the municipality level (e.g. there may be two accesses belonging to the same attendance point and different municipalities, whereby it would be operationally complex and commercially unsuitable, for example, to differentiate the obligations at the same attendance point).

74[_{Using the areas associated with each individual attendance point may allow, on the one hand, a very intricate analysis but on} the other hand, seems to be impractical with respect to obtaining reliable data and conducting an analysis at that level. Moreover, the geographical unit selected must be one that can reflect the competitive constraints that exist in the local market which means that the unit must not be too broad, encompassing, in an arbitrary way, areas with heterogeneous competitive conditions.

While the above analysis points to the adoption of the attendance point as the geographical unit for the demarcation of the market, another fact that gives weight to this option is the fact that the pricing level of OLL-based retail broadband access offers is, as a rule, less than that of offers supported by cable distribution networks. In other words, the principal driver of competition in this product market was, as at the end of 2007, the OLL - evident, for example, in the marginal market shares in areas with OLL, where the OSPs with OLL-based retail offers accounted for more than 50% of new broadband access registered between the end of 2006 and the end of 2007. However, more recent data has shown a reversal in this situation, given the competition that has been exerted by ZON Multimédia, after the completion of its spin-off from Grupo PT.

While the above analysis point to the adoption of the attendance point as the geographical unit for the demarcation of the market, another fact that gives weight to this option is the fact that the pricing level of OLL-based retail broadband access offers is, as a rule, less than that of offer supported by cable distribution networks. In other words, the principal driver of competition in this product market was, as at the end of 2007, the OLL - evident, for example, in the marginal market shares in areas with OLL, where the OSPs with OLL-based retail offers accounted for more than 50% of new broadband access registered between the end of 2006 and the end of 2007. This increased competitive pressure is mainly explained by the joint provision of various services (broadband internet, television) - which is what is at stake, especially in the case of the offers of the cable distribution networks and offers based on the local loop (of Clix) - (see Error! Not a valid bookmark self-reference.), since when analysis is made of the price of isolated broadband access service, it is not very different in offers based on the local loop and in the cable distribution networks (see

Graph 6).

Table 9 – Example of broadband offers based on the local loop and the cable distribution network75

Services Clix ZON Multimédia

Broadband 12 Mbps downstream speed Unlimited traffic

4 Mbps downstream speed Unlimited Traffic

Television 25 channels 16 channels

FTS Unlimited calls at night to the fixed network in Portugal Calls to fixed network at €0.05 / min. and to the mobile network at €0.3 / min.

Price of all services € 24.71 € 33.02

Source: Websites of the Internet operators in June 2008. Prices excluding VAT. The figures given do not include the value of the equipment rental or the coast of activation / installation. Promotional values that are limited to a certain period are also not considered.

75 _{Information compiled from the Web sites of operators in June 2008 (these prices do not include VAT). The figures do not} include the value of equipment rental or the value of activation / installation. Promotional values that are limited to a certain period are also not considered.

In Error! Not a valid bookmark self-reference. examples of the evolution of broadband offers are shown between 2004 and 2008. While it is noted that the prices of the offers have seen significant reductions and that the base offers in areas of OLL or cable distribution network coverage have higher speeds, it also appears that in non-OLL areas the price of Sonaecom’s offer is higher than the price of the PTC offer.

Table 10 – Examples of the evolution broadband offers between 2004 and 200876[19] Operator Year Price Speed Offer name

2004 € 29.40 512 kbps Sapo ADSL.PT Standard PTC

2008 € 16.52 2 Mbps Sapo ADSL 2004 € 32.69 1 Mbps Clix 1 Mb Sonaecom (OLL areas)

2008 € 16.45 4 Mbps Clix 4 Mb 2004 € 32.00 512 kbps Net ADSL Light Sonaecom (non-OLL areas)

2008 € 20.65 1 Mbps Clix ADSL 1 Mb 2004 € 29.41 512 kbps Netcabo 512 ZON Multimédia

2008 € 16.52 4 Mbps Netcabo 4 Mb